Mortgage & Credit meltdown

[Pat Garaffa]

Take a look at this humorous video.  It's a bit "tongue in cheek" but it  also paints a pretty accurate picture of our nation's attitude towards wealth, debt, financing, etc.  I think we actually NEED another great depression just to get people to start thinking normal once again.  

I read about mind boggling statistics everyday and they are getting more and more scary. I'm sure Joe Parente can add even more.  How much can we absorb?  How much debt can we handle?  Why is the savings rate of America in the minus column and we are spending more than we earn and floating the difference?  Where is your retirement savings or plan?   It's a ticking time bomb.  A house of cards and it's getting windier everyday.  

When or how does it end?    

It's an important topic.  And if not for you, then do it for your kids because I'm confident that they are all clueless.  My son tells me that the credit card companies come to his college campus and give away free T-shirts, coffee mugs, etc in exchange for a credit card application.  They stand in front of the pizza parlor or the liquor stores and tell the kids how to get pizza today and pay tomorrow.  They actually have printing machines in their vans and can press out a credit card on the spot.  A very small limit (100 bucks) is automatically approved along with the application.  Nice huh!  Not all that different than when they approach you in Kohls or JC Penny and sign you up on the spot.    

I think that's problem.  Not all that different than peddling drugs to little children.  "Here's your heroin, er, huh.... I mean credit card. "

If anyone wants to keep this alive - we can swap stories / posts / articles.  I have lots of links and articles.    

www.dailymotion.com/video/xt0c6_snldontbuystuff

[Pat Garaffa]

From drhousingbubble.com

Real Buyers of Genius: Another $20,000 a year person takes on a $600,000 mortgage.

The mainstream media is now catching on to the unbelievable fraud that has occurred with this housing orgy. As I highlighted in a previous post about a strawberry picker who was able to purchase a $720,000 home on a $14,000 income

We now have another real estate mogul who purchased a $600,000 home with an income of $20,000. What graduate school is she going to so I can assure my children avoid going there? Not only that, take a look at a paragraph from the article:

Her 29-year-old daughter, a graduate student with an annual income of less than $20,000, qualified for a mortgage of $600,000 with no money down, split into two different loans at 8.75 percent and 12.5 percent interest rates.

With income from tenants, which didn't come right away, Beatty's daughter thought she could afford monthly payments of nearly $5,000.

But she hasn't made a mortgage payment in more than three months, and she's receiving letters threatening foreclosure.

Did you notice the interest rates on both loans? Too bad investors aren’t going to get a cent of this because she is already three months behind and will be foreclosed upon. This is another example, of many to come, of the mortgage industry pimping ridiculous loans to the financially retarded wannabe real estate moguls. Now the mainstream media is painting this as a sob story of poor little graduate student who got conned by big bad lender wolf into signing not one, but two loans to get into this mess. Are you kidding me? They both need to get a financial beat down; the buyer should have ruined credit for a long time and the lender should come up with the short fall and be prosecuted for fraud. No underwriting system would approve a $600,000 mortgage with an income of $20,000. Look at the interest rate on both loans and you know this crap has stated income written all over it with a tinge of fraud.

Now that we are entering the crisis stage, and this has been argued ad nauseam in many economic books regarding bubbles we start seeing an outing of the shysters and snake oil salesmen. Like shining a flash light on roaches these people are scurrying trying to find cover from their financial sins of yesteryear. It is despicable and they should run. All of a sudden they realize that lending out $500,000 to someone making $40,000 a year wasn’t so smart. Yet seeing the cracks in the system, someone making $40,000 a year is probably able to get a million in loans ala Casey Serin. How deep this crap permeates in the system is probably larger than your local county sewage plant. The stench is starting to overflow as the blistering hot summer sun starts to rise in the east and exposes the frauds across our nation. This financial violation of our nation is going to damage the economy for years to come.

But don’t worry! The DOW keeps going up on par with the dollar getting kicked in the nuts. Is this a coincidence? I think not. Yes, you just made 1% on your investments while the price of gas just went up 20%. Great job America in understanding that inflation is another tax. Yet we have a core of people out there that god forbid, they hear the word tax in their vernacular and start screaming communism as if Hugo Chavez was marching on Washington. Yet they are okay to allow massive deficit spending ala the war in Iraq and tax breaks and they smile while they can’t comprehend why their dollar doesn’t buy as much Wal-Mart crap as it did a year ago. It is inflation and the decimation of the dollar Einstein! These policies do intertwine because the amount we are spending is so spectacular that someone has to pay for it and it sure as hell isn’t going to come from higher taxes. So we get taxed via inflation, the stupid tax, and people go on with their merry lives.

I hope that we start seeing perp walks in the short-term of these real estate syndicate peddlers and their Gordon Gekko greed. And not only that, but a cultural shift from praying to the Visa and Mastercard god and move toward financial prudence but I doubt that. No excitement in maxing out your 401k when Paris Hilton is getting ready to hit the slammer. What the hell am I thinking trying to worry about global inflation when a Baywatch former star is eating a Wendy's hamburger hammered. This culture is addicted to debt and to drama. Sometimes the drama is caused by the debt. Saving is a thing only a few in America do and getting rich quick is the way to prosperity. You either make it big fast or say screw it, and spend as if you were rich. The housing bubble is an extension of this pervasive credit liquidity but the good news is the party has ended. And now we are going to hang around this stage of the bubble for a good six months while the media pumps out cry me a river stories from multiple cities and violins are sent to each homeowner.

[Pat Garaffa]

From drhousingbubble...
 
The Housing Tipping Point. 3 Factors That Will Burst the Bubble: The Negative Wealth Effect, Negative Press, and Suffocating Debt Payments.

As the Fed does an ostrich impression by sticking its head in the ground and pretending everything is okay, we are facing an economic tipping point ushered in via housing. The Fed has left the key interest rate steady once again. At this point, they are backed to a wall because lowering rates will signal that the economy is weak and needs additional help thus stunting consumer confidence. If they raise rates, they accelerate the bursting bubble because debt service on millions of American’s mortgages will go higher thus taking money away from the national past time of mall shopping. We are quickly approaching a global tipping point. Tipping points are interesting phenomenon because they occur rather instantly even though the build up may take numerous years. There is a certain point where multiple intersecting fields connect to push an idea, product, or opinion into another dimension. 3 of the many factors that will tip the housing market over the edge are the negative wealth effect, negative press, and suffocating debt payments.

Negative Wealth Effect

For the last seven years it is no shocker that all things real estate out performed nearly every investment vehicle. Home is where your heart and wallet is as the old adage goes. The wallet portion was an added amendment that the realtor groups added a few years ago. When people feel wealthy they spend and the economy spins on a kaleidoscope of happiness showing colors that only Teletubbies are familiar with. You beam with joy. Your credit card blisters with ecstasy. This is the American consumerist dream. We spend with no regard for the future. We’ve reached milestones in negative savings only rivaled to those during the Great Depression. The last 17 years have been great for this economy; we jumped from one bubble to another without missing a beat.

Yet the tide has turned. There is a moment in any bubble where people stop, think, and listen and hear their gut (yes your gut is fluent in English) and you realize that maybe you aren’t as wealthy as you once thought you were. See, we’ve been indoctrinated to believe that everyone of us is worthy of being a millionaire. From the office assistant to the CEO, we all deserve to be unbelievably rich. Work? Investing? Those things are for losers who have patience and who can afford patience when my Blackberry is vibrating in my Diesel jeans.

The wealth effect works in two ways. It amplifies a good economic environment because people feel and are wealthier. No one spends exactly as much as their wealth is worth. If you feel rich, you won’t fee so guilty taking that trip down to Cabo especially when you know your job is secure. However when the market reverses and heads south, you begin to tighten your belt and batten down the hatches. It is exponential on both sides. As housing is going down the economy will be vastly affected because this is the number one store of American’s wealth. If they feel the number one investment they hold is losing money each year, they will restrain their spending. And this will happen by force because of the next topic, the suffocation of debt.

Suffocating Debt Payments

If your mortgage jumps from $1,500 a month to $2,000 a month that is $500 less you have from spending in the economy. But you argue that the bank now has this money. Well, in theory they do because they are also paying their debts to the government and skimming anything on margin. In addition most CEOs don't shop at Wal-Mart. This works perfectly when everyone is doing what they are suppose to be doing. But what happens if rates reset and people stop paying? Now that the bank attempts to unload a property and has suddenly become a landlord we now have a negative cash flow problem and negative cash flow is a flu in economics. It will spread. It is contagious. And the person that loses their home? Well as this market implodes on the credit orgy we’ve lived through many will have harder times accessing credit and most will not be able to purchase another home for many years. Thus the number of people in the market buying homes is decreased simply by eliminating those that are currently homeowners via ridiculous credit instruments. Plus market psychology will feed to the frenzy. In essence there is a purging of owners who shouldn’t be owners. Yes, this goes against the American dream of everyone owning their own plot of land but face it, debt is not wealth and no amount of posturing can change that economic reality.

There is an interesting stat showing that credit card debt has increased drastically in the last few months. The logic follows that folks facing resetting mortgages are using their credit cards as a “carry over” to finance their current debt. So things look dandy even though they are heading down the merry road of debtors paradise (not to be confused with Coolio’s Gangsta’s Paradise otherwise known as a Real Home of Genius). So we are running out of time on this credit time bomb and by the end of 2007 we will reach another tipping point; a point where money is worth a lot less and credit becomes more elusive. The outcome is a market where prices depreciate and folks feel poorer because they are paying for today’s expenses with tomorrow’s income.

Negative Press

I’ve talked about the $14,000 a year strawberry picker who was able to purchase a $720,000 home. Or what about the 102 year old man getting a 25 year mortgage? And we also have the story of a 29 year old graduate student who was able to buy a $600,000 home with a $20,000 a year income. Even the Los Angeles Times had a cover story about a sheriff deputy who is evicting people in the Inland Empire this weekend. The press is now anti housing if you haven’t noticed. Once relegated to the blogsphere world and tin hat wearing neg-heads, being anti-housing is now in vogue. Not that it is in fashion, but being financially irresponsible for so many years has repercussions. The press is now finally understanding that a $500,000 500 square foot box may be a tad bit over priced in a neighborhood where people earn $45,000 a year. This obvious logic is now tipping the mainstream public into accelerating the bursting of the bubble.

Yet we have summer. This is the last time before housing agents and brokers will be turning tricks for cash. Last summer I was receiving wonderful glossy invitations from ReMAX, Century 21, Prudential, and other well known franchise brokers to join their team; I am still a card holding agent although from my rhetoric you can tell that I am no longer in the industry. Fast forward to 2007 and those glossy expensive invitations have turned into Xeroxed copies that mirror frat parties in college. “Make bank with Joe Schmoe Mortgage” as a model points to you eluding that if you switch over, you’ll get chicks and cash. Stellar marketing. Too bad this was done on pink florescent paper otherwise me and Joe would be selling no-doc suicide loans to the public. Brokers and agents that wouldn’t give me the time of day last year suddenly send me hand written letters of appreciation trying to win my business. Hand written means one thing, more time on your hands.

The thing is, many in the California real estate industry have prospered amazingly from this real estate bubble. Many had high incomes but are not wealthy. See, many in the industry are financially naïve and have invested little of what they earned. They are like Mike Tyson squandering $200,000,000 because when times are good why save? It is a matter of personality I suppose but those folks that grew up in the Depression have habits such as making food last, reusing certain household items, and even SAVING. I heard a lightening bolt strike outside my office because it almost seems like blasphemy this concept of spending within your limits. We are at a tipping point and by 2008 we will be fully engaged in a bursting housing bubble and all the consequences associated with it. 30% of all added jobs in the last seven years have some association to real estate. So what do you suppose this means for our economy?

[Pat Garaffa]

I have lots more from a variety of sites.  I'll hold off clogging up the board for now.  I'll add more if there is any interest .

More from the good doctor.....

$5 Trillion in Housing Wealth Gone: The Impact of the Housing Bubble Bursting

A sane person surrounded by insanity will at some point, question his or her own mental health. Examining the past decade of housing especially from Southern California, the epicenter of the housing bubble, you begin to question economic fundamentals and simple rules of finance. At this point, we are reaching the overdue housing correction. Housing has created immense wealth in the economy and has propelled us out of a brief recession earlier in the decade. Yet this wealth was created on an illusion of easy credit. It is estimated that the housing bubble has created 5 trillion additional dollars of wealth as compared to a scenario where housing kept pace with inflation. This is important to note because historically, housing has only kept pace with inflation as an investment. When you have certain areas up 80 percent in real terms as the Center for Economic Policy Research has showed, we have speculation and not normal growth.

We will look at the past decade of housing and address the following issues: income, inflation, rental rates, bubble specific regions, and the public policy issue of bursting the bubble.

Income Has Gone Up

In real terms, per capita income has grown 2 percent annually since 1997. This is something positive for our economy. It does show that as a nation, we are growing and thriving. Yet certain industries are now facing the pull back associated with the housing downturn. Consumption and automobile sales are taking massive hits in the last few months. Construction is falling in large numbers. We have only started to see any of this impact in our economy. The $5 trillion in bubble wealth has created an extra $250 billion in consumption that would not be present if it were not for the housing bubble. This works out to be 2 percent of our GDP; in other words, without that wealth we would already be in a recession.

Even though income is up, it does not justify housing prices being up in real terms of 80+ percent. And with income being up, we also have higher cost associated with health care, energy, and household items so the 2 percent increase is really negligible.

Real Estate Has Normally Treaded with Inflation

Decades of data show that real estate normally grows at the rate of inflation. That said, why do we have real increases of 80 percent in certain areas? You may say, 80 percent is large and I doubt this is true. In California, countless homes that cost $175,000 in 1997 are now on the market for $500,000. Pick any of the 88 cities in Los Angeles County and you’ll see that this 80 percent number actually understates the growth. So is it possible for housing to fall 50 percent in a few years? If housing can go up 200 percent in certain areas over 10 years, then yes, a 50 percent drop is plausible. As a caveat, when you are arguing market fundamentals for a bubble, any number is possible but the eventuality is that the bubble will burst and market fundamentals do rear their head again. For example, the long tested rule of housing keeping pace with inflation.

Rents have not Increased Significantly

During the initial stages of the bubble, rental rates did go up in decent numbers. However, in the past few years, real estate has outpaced rental market rates by an unbelievable number. Most investors and economist associate a rental value on the property in terms of deriving the actual value of the home. For example, many investors will divide annual rents - expenses by the price of the home to arrive at a return on the investment. In most cases, it will always be slightly more expensive to purchase a place than renting even after factoring in tax benefits. The premium will always exist because you are purchasing an appreciating asset that is building up equity (normally at the pace of inflation) and will create a real store of value for you.

After a few years of bubble psychology and straightjacket number crunching, many people modified their equations to factor in 20 to 25 percent annual appreciation rates and thus justified the price of homes even though rental rates were significantly lower and in no way supported the market value of the home. The premium of the home was based on the false assumption of abnormal market returns. In simple terms, pure speculation. Now that more inventory is hitting the market and sales are dropping, we will see certain areas declining in rental rates. In certain prime areas, we will see an inverse reaction with rental rates going up while housing prices go down. It will all be specific to each certain market. In the end real home prices will decline.

Only Certain Areas Have Bubbles

Certain areas such as the South and Midwest actually saw no true real increase in prices over the past decade. Then we have areas such as the Southwest, DC, Northeast, and Florida seeing real price increases of 80 percent in certain regions. The bubble is national in the respect that overall statistics are heavily tilted by regional bubbles. Meaning, the numbers are skewed by certain metro regions being overvalued. Population trends do not justify the upward jump in prices because overall, we are seeing many baby boomers retire. If anything, they are getting ready to downsize their home as opposed to expanding for a growing family.

We also have massive construction that really had no bases in population growth. If anything, as a society families are choosing to have fewer children. The need for larger and bigger homes is spurned on by nothing more than bubble speculation. The demand is simply not there. That is why we are seeing a record number of vacancies hitting the market in many regions of the country. Many people bought homes in other states thinking that they would be able to rent them out as investments but forgot to check local market conditions. The population in many of these areas simply did not meet up with the growth in housing. In fact, some areas didn't even have a population to begin with - these are the future ghost neighborhoods of America.

Public Policy: Bursting the Bubble Now is Good

When you watch shows like American Idol or America’s Got Talent, you can see that some contestants honestly believe they are the greatest thing to walk this Earth when in fact, the sound of mating cats is more enticing. Just like these delusional would be superstars, we have many folks accustomed to the decade long bubble in housing. They feel entitled to this $5 trillion of pseudo-wealth created by a bubble fueled by horrible public policy. Public policy by who? The Federal Reserve and the hunger for mortgage backed securities on Wall Street. The quicker the bubble bursts the better it will be for the overall long-term sustainability of the economy. The bubble has already been left unchecked for too long and the repercussions will be felt to the very core of our nation. You cannot use debt to finance your entire economy. Unfortunately, we have too much credit floating around and we are going to face a radical public policy debacle and potentially a government (read public) bailout.

Many baby boomers are counting on the wealth in their homes. In fact, savings rates and retirement nest eggs for many of these folks are massively under funded. And why should they save? If they have the perception that their home is going up $50,000 per year unabated for the next decade, why fund a 401(K) or IRA when you can make much more simply living in your house. This is reflected in the response many people have regarding their retirement. They assume the money will be there. Like a mirage in the desert, the closer they get to retirement the more they will realize much of what they saw was simply an illusion.

Then we have 8 million people a year buying homes at inflated prices. Like Alan Greenspan has mentioned, bubbles are only identifiable after the fact, it is hard to say the exact start date of the bubble. Was it 1997 or 2000? It also varies on which region. Back to the millions of recent buyers, they are purchasing homes at current bubble market rates. When the market corrects, the negative wealth effect will hit these folks very hard and direct. Even those who bought 10 years ago and never planned to sell, will take a psychological blow because their once valued $500,000 home is now only “worth” $375,000. This will have a major impact in our nation’s consumption.

Even with this tremendous housing wealth, owner’s equity isn’t that high. A startling fact if you think about it. The ability to take money out of your home has been a national phenomenon in the last 10 years. Once thought as an untouchable resource, folks have been more than willingly to extract perceived equity and fuel consumption. This only increased the magnitude of the bubble. For one, the money tapped out of the home creates a 2nd lien on the property that needs to be paid back. It isn’t free money. Yet people treat it as a grant that doesn’t need to be paid back. In many cases, these loans are paid over 10 years. Now what do you think the impact on a person taking out $50,000 in their home only to realize their home was never worth that additional $50,000? My guess is they will feel slighted and think that they got suckered into signing up for $50,000 of relatively cheap debt.

This irresponsible lending has created an environment where the only recourse is a hard and steep correction in the housing market. The Fed, housing industry, buyers, and sellers were only all too happy to be accomplices in this bubble. Yet this doesn’t mean that what has occurred is based in any economic reality aside from the fundamentals of asset bubbles. It was all an illusion. Now that we are seeing subprime lenders imploding and mortgages resetting, the true cost of this economic expansion is coming to fruition. The more and more I look into this issue, the more it seems that we will not see a soft-landing in housing.

[Pat Garaffa]

One more thing to put this in perspective.

Lets say that you are not inside one of these kooky mortgages.  But remember - a rising tide lifts and lowers all boats equally.  That means you enjoy the home appreciation and will suffer through the price drops regardless of your financial status, mortgage, etc.  

Lets also say thet you actually have a little equity, you pay your bills on time and all is hunky dory.  Your home is worth 500K and you owe 400K.  You have 100K in equity and you feel pretty good about that.

Q: Home values went down 10%  How much did you loose?

A: You lost 50%!  Your home is worth 450K (-10%) and the money that just disappeared was your equity! (-50%)  Let it drop a little more and the balance of your equity just went by by.  And the bank doesn't care if it drops below your mortgage balance as long as you are making your payments.  

An even scarier statistic is the average amount of savings & retirement as compared to home equity.  Up until recently, most people had considerably more in equity than in their retirement accounts.  Their "Wealth Effect" came form the home (although that's a dumb way to calcualte wealth).  Now it's disappearing.  If a guy had 50K in the bank and 100K in his house, he recognized his net worth as 150K.  Now it's a 100K (based on the above example) and he just took a 33%, or 50K haircut.  

Will he continue to spend his money based on this scenario?  Or will he cut back on his consumer spending?   Maybe try and get another year out of the car?  Or skip that vacation?  Maybe fix the washing maching instead of hauling it to the curb?  The net effect of less spending is a contracted economy.  

The double wammy is when this lowered consumer spending begins to impact the stock market.  The parallels that are occuring now, as compared to the summer of 1929, are scary.  Even the Waltons knew to put money away for a rainy day.  No one does that anymore and the minute they save 100 dollars they run out and buy something for 125 and charge the difference.  

Look at your own situation and do your own math.  Everyone is impacted differently so the numbers will vary.  Maybe you have a 100% equity position or maybe you don't have any equity at all and now you are in the negative.  You may be required to bring 50K in cash to the closing just to get your home sold.  Since you bought it with no money down - where is that money coming from?  

[James_Mazetta]

Well done Pat. The truth and nothing but the truth.

[George_Krebs]

Slightly off topic... Pat, I'm sure you are familiar with Zillow.com. How accurate are their estimates?

[Pat Garaffa]

Not off topic at all.  I've only poked around Zillow a little bit.  My concern is their estimates are based upon information in the tax records, previous sales, etc.  No real person is looking at the property and it's all done by averages.  

I looked at my own street and found a few that were right on target and others that were low and very high.  The guy that lives behind me put a big addition on his house and Zillow says it's worth 533.  In his dreams!  It would never happen but that price is based upon the total square footage of his house.  

The reality - someone who wants to spend 533 also wants to have neighbors that spend 533 too.  No one is going to spend 533 for a house in a 350-425 neighborhood.  (Unless it's a 600K plus home and they are discounting it based on location.)  

Instead, the buyer will take a smaller home in a more upscale neighborhood instead and that's what will set the price.  

I would say that based on what I saw, the Zillow estimates are probably within 5-7% of the real market price for most of the homes.  And others are off the charts in either direction.   The most accurate price would be any knowledge of comparable sales in your neighborhood.  If the same house across the street just sold for X, then it stands to reason that your house is also worth X regardless of what Zillow says.  And that's also assuming the same condiition, decor, amenities, etc.  A little give and take here and there and then it's all up to the buyers.  

[Kathy_Baratta]

[size=14]
Pat,

It gets lonely sometimes out here in the Wilderness of Rant - thanks for adding your voice and chosen topic.

As the Red Queen said: "Off With Their Heads!"  [smiley=whip2.gif]

KB[/size]

[Rick_Ryan]

Nice to hear a voice of reason out there every now and again...

Excellent info Pat.  

People need to learn to live within their means and stop this foolishness.  

A bailout can't be far away.  Nice message they'll be sending too:

Screw around and overextend yourself and you won't be held accountable.  Call it, "Predatory Lending", and blame someone else.

 



Peace

[Ed_OConnor]

Another big forclosure issue is the "Flippers" that bought homes thinking paint and grass seed would earn them a quick 100k. Niow they have homes with big mortgage payments that are decreasing in value. They are walkinng away from them.

[Pat Garaffa]

Look at this link.  It's a townhouse in Howell.  It was on the market last summer for 267 and sold for 265 in September, 2006.  The people put 4500 down and mortgaged 261K.  

http://mls.momls.com/MonmouthReports/listings.asp?ID=9419554387

They lived in the home 9 months and put it back on the market in June for 279,900.  Their intention was to price it high and leave a little room for negotiation, pay the realtors and still have enough t pay the mortgage.  Big mistake and they should have priced it at the market price.  

The high price scared off any potential buyers.  Now they are lowering the price to compensate.  Had they priced it around 259 in June, it would have sold.  Now the potential buyers feel like they are catching a falling knife and no one wants to make an offer for fear that the free fall isn't over.  (And they are right - it isn't over by a longshot.)  Their attitude - "why pay 225 when I can get the next one for 209?"

Unfortunetely, the 279 price didn't work for these sellers.  Neither did 269, 259 or 241.  Now it's down to 225.  They'll need to pay the realtors (assuming some buyer will actually strap on a set of brass ones and step up to the plate). Then they have to pay the realty transfer tax.  Also, the property taxes are considerably higher than what is posted in the listing and any potential buyer will be scared off by this.  

When the smoke clears (and assuming it sells for 225) there will be a 48K shortfall to pay off the mortgage.  Where is that money coming from?  

A few months ago, an identical unit in this neighborhood was on the market for 249K.  And that was a good deal at the time becuase the last unit sold for 260.   Now the same house is 25K lower.  How does that 249K look now?

I feel bad for these people and this is happening all over town.  

The reality - the prices are pretty good right now but the media says to wait.  Maybe they are right - who knows any more.  My observation is that the market not as bad as they would have you believe.  Interest rates are low and the economy and unemployment are at great levels.  But the #$@% media has everyone convinced that the world is ending!  Well - it isn't.  Prices go up and prices go down.  Unfortunetely, we cannot continue to grow at 14% a year forever and most buyers (esepecially the first time buyers) thought this was the norm.

Do the math - At 14% a year compounded over 20 years, a double wide, Oak Hill mobile home selling for 125K in 2007 will be just under 2 million in 2027!    The townhouse above will be about 4 million.  

Don't you think we need to pull in the reigns a bit?  When the average salary catches up with the average home, then things will pick up again.  But for now there is a big fat gap that was filled by using exotic mortgages.  Some of those mortgages were actually pretty good and they ammortized the property correctly.  They let the buyer in with little or no down payment and his equity grew over time because the mortgage was paid down.  These were good and gave the new buyers an opportunity to own without putting down a big chunck of money.

Other mortgages were "interest only", ARMS, COFI, 2/28 and these folks will get clobbered down the road.   I never let my clients use one of the mortgages in the latter group so they should be a little happier than the others right now.

More later - the dentist is waiting.

[George_Krebs]

As bad as this is, housing prices have risen inexorably since the cave man. I think the only strategy is to stay put and weather the storm until this cycles out. Do whatever you have to do to meet the mortgage payments. Banks must be sitting on a fortune worth of unproductive real estate and it is increasing everyday. They don't want to foreclose; its a losing proposition for them.

[Jody_Branin]

LOVED the video - that was too funny and sadly,.... very true.

You know... the mortgage system works IF you are HONEST.  It's the dishonesty that is making the system crumble.  

I haven't had chance to read all the articles you posted but regarding the first article:

I have worked in the mortgage business and have NEVER seen someone with a $20,000.00 a year income qualify for a $600,000.00 loan.  Fact of the matter is - the applicant was dishonest - it was HER signing the paperwork stating the information and documentation was true.  I can almost guarantee that false Leases were provided as part of her application.  The higher rates were because it was a non-owner occupied property.

She should go to jail or have her wages garnished to pay for it.  Fact of the matter is - she's a crook!

And the poor honest slobs that are working day and night to pay for their humble abodes are paying for it all.  GRRRRR!

My concern and biggest fear is for those of us that WERE honest, got a good rate on our mortgage and are making our payments.  When the banks go under, will our loans be called and will we be forced to find financing elsewhere at who knows what rate?

I've seen it done with Bank CD's when another bank takes over - you're subject to the current rate and terms.  I can just see this happening with mortgages.  

[Elaine_Kerslake]

All I can say & share is Dave Ramsy. Fight back with pay downing your debt using his snowball effect.

Check out his system at DaveRamsy.com