Comments on Doctor Housing Bubble Blog: The Foreclosure Story: What does the Process Look...

Why did they have 25K in cc debt or any car debt t...

2007-09-30T07:22:00.000-07:00

Why did they have 25K in cc debt or any car debt to begin with since their income was so high? I earned 11,000 last year and am a single parent with no relatives close by or support from my former spouse. I have student loans that are deferment but I also have a very small savings account at my credit union and a small amount of cash I keep at home for urgent needs (taxi ride to ER, if a child needs antibioics, etc.) I can't believe someone borrowed hundreds of thousands of dollars when they owed 25K in credit cards. Most food banks will give you food 3x a some churches will give food more frequently than that. All electric companies will put off disconnect a few weeks longer if a customer calls the public utility commision. Unless they needed medicine what could an employed family charge on the cc that made debt a necessity?

$700/month for food for two people in SoCal sounds...

2007-09-10T13:44:00.000-07:00

$700/month for food for two people in SoCal sounds really low to me, actually. I'm not sure where Teresa lives or what her situation is like, but if you have two people that go out to one decent restaurant a week (not a high-end place and no alcohol), that's $50 x 4 = $200, and if they eat three meals a day other than that they're averaging a little under $3 per meal, which means no more restaurants at all and nothing particularly expensive from the supermarket.

It's idiots like these that make me want to bring ...

2007-09-10T09:59:00.000-07:00

It's idiots like these that make me want to bring back debtors prison. A real-estate agent and financial analyst didn't understand their loans? Morons. I own two 2001 model cars that are both paid off, I pay extra on my mortgage, and I don't live above my means. Idiots.

>>>It may come to a shock to many people that a ho...

2007-08-19T06:46:00.000-07:00

>>>It may come to a shock to many people that a household earning $130,000 a year actually may have financial difficulties.<<<<<

Not to me. As you pointed out, these people were living WAY beyond their means, even in SoCal. $700.00/month for food, for TWO people? You have got to be kidding. People who weigh 700 pounds don't spend that much on food. And what would have been wrong with trading in those luxury cars for Hondas?

I don't feel sorry for these losers at all. None of this had to happen. They did it all to themselves.

I am a 41 year old middle to upper manager that wa...

2007-08-11T02:07:00.000-07:00

I am a 41 year old middle to upper manager that was making 150K in 2002. Due to industry reactions related to 9/11, my world was turned upside down. Four years before 9/11, I bought the house I currently live in, the property value was equal to my annual income. I was very financially paranoid. Good thing I was.

I had savings and liquid investments that lasted about a year. Then in early 2006 I was one week away from having my house pre-foreclosed, and was fortunate enough to have some yard sales that covered the payment within a hundred dollars.

We would have been evicted if my wife wasn't in constant contact with our lender. There is nothing more important in a tough financial situation than working with your lender. They don't want the expense of a foreclosure anymore than you want to be in a studio apartment.

I am currently working at what I think is a quasi-stable job (my boss was let go two weeks ago because she wasn't doing the work that 2 to 3 people did ten years ago, which is the new standard). I don't have time to watch TV because I VPN into work after I kiss my 4 kids goodnight, and then work for another 4 hours that day.

I'm not complaining, because between 2002 and 2006 I had to work as a consultant (temp worker) off and on for 3 years with very sporadic income and no health insurance for my family.

I live in Texas where you can be foreclosed on within 60 days of non-payment. Texas has deeds of trust (34 states do as well), which allow for creditors to foreclose more quickly than mortgages.

My profession allowed me to analyze the speculative increases in housing costs on the east and west coasts, which now are now "correcting". The 15 to 30 percent annual housing appreciation was not based on economic reality. I still can't believe lenders thought this trend could continue for any length of time. This goes back to the previously referred to used car lot salesman mentality.

I am now making a little over half of what I did in 2002, but I still have my house. Unlike many in my middle class neighborhood which is littered with foreclosures going to auction because they haven't sold.

When I was making good money my peers were "egging me on" to move into a house five times more expensive than what I have now. Some of them are now living with mom and dad, kids and all, and I'm now thankful that I didn't.

The bigger issues here are the generational expectations, and the global squeeze on income in America. College graduates have unrealistic expectations of their worth in the emerging global economy, and developing countries are producing higher numbers of educated, competent workers for a fraction of the cost.

In America, the past fifty years have generally seen children "doing better" than their parents. This is not a reality for the overwhelming majority and contradicts the history that the new entrants in the workforce have been conditioned to believe. Hence the use of sub-prime, interest only lending and credit card debt.

I am a now an official member of the "depression era" mentality. My two vehicles were bought used and paid for before my life as a temp began. We don't "eat out" and I actually mow my own lawn and have my kids wear "hand me downs". Because I was frugal, I'm looking to get a house about a year from now with twice the square footage, and the same mortgage payments I have now.

I wonder how many of us remember the grasshopper and the ants story. We all know the story, but I wonder how many understood the message.

Doctor Housing, I think it would serve all soon to be college graduates (or any others, young or experienced workers), very enlightening to read your eloquent synopsis.

I can only echo what many others have said.

GREAT BLOG!!

I don't even understand how they qualified for the...

2007-08-03T16:01:00.000-07:00

I don't even understand how they qualified for the mortgage, they make too little money, that's right way too little.

Assumming they had a $50,000 down payment, and we increased their income from 130k, to 200k/yr (a 50% increase) they would qualify for a
loan as follows at 6.0% (a very good rate for a JUMBO 30 fixed).

House value: $671,239.53
Loan value: $621,239.53
Monthly Principal+Interest: $3,724.64
Monthly Prop Tax+Insurance: $994.78
Monthly PMI: $403.81
Down Payment: 7.45%

They wouldn't qualify for a loan at that point. They bought way too much house.

2. How is their take home income so high? I really want to know I also live in California, and if I didn't put 900/month in my 401k I would only get 5200/month in take home income on a 90k salary, which is a higher effective tax rate on a smaller income. I would really like to save on my taxes.

I agree with JonMcAmerica is a big used car lot. I...

2007-08-02T11:31:00.000-07:00

I agree with JonMc

America is a big used car lot. It's trying to sucker every consumer in a bad deal. Payday loans, rent a centers, high interest credit cards and now sub prime mortgages

When will it stop, in the 70s it was no such thing as 6 years car notes, 50 year mortages, ARMs, title loans companies. etc.

These days you do not get denied, you simply just pay a high interest rate !

Thanks for relating this. It was the scariest fore...

2007-07-31T15:48:00.000-07:00

Thanks for relating this. It was the scariest foreclosure article I have ever read. It brings things down to a personal level. This couple has now been removed from the housing market for at least seven years, in which time they could have bought and sold several houses. Yikes! I posted you on my blog. Everyone needs to read this.

Lumbergh, are you a poster boy for rich dad poor d...

2007-07-31T13:38:00.000-07:00

Lumbergh, are you a poster boy for rich dad poor dad book "pay ourselves first" or you are just want to show off how financially sound you are? Based on your opinion posted, you must be chinese or indian, because they tend to be more financially sound than most white people. So you guys have a +5% top bracket income, and drive used car and no credit card debt. Very funny.
I wonder what kind of people are you. Why do you live??? You live just to save money? for what?
I am asian, I have very good financials too, but I know how to enjoy life without going over my head.

---
Lumbergh said...
This example is a real shame, but not unexpected given the credit / housing bubble we have been living in.

$1749/m for autos? YGTBSM! $25k in revolving CC debt? Ouch!

My wife and I live below our means, and have a relatively hefty income (in the top 5%+ bracket). We drive used cars and avoid consumption pits like Nordstrom. We pay ourselves first, max out our retirement savings, and are debt free aside from our mortgage.

Hello,first, I'm from Germany and I'm a little bit...

2007-07-30T14:11:00.000-07:00

Hello,

first, I'm from Germany and I'm a little bit confused about the discussion. In Germany most of the credits are fixed for 15 - 30 years. A growing yield is only a problem for new buyers, but not more. I'm wondering also about your creditscoring. I made a test for my wife and me. In Germany the CreditCard is not a Credit. You pay all your bills at the beginnig of the next month. I have no limit at my CreditCards. So I don't get at the "Alt-A Test" a point. My wife never had a credit in her life and she has no CreditCard. So we scored Zero points. But we have saved more than $ 120.000,- and we have no debt. In the last two years our net income growth from about $ 26.000 a year to round about $ 92.000,- (bevor Tax $175.000,-). And we don't get a point at Alt-A? (I've done the test at MSN Money). What is this?
I'm also confused about the circumstances that the bank gives a 100% loan. In Germany normaly you pay 100% and the bank finance 70%. For people with growing income they give a loan from about 80%, but not more. You have to save the rest before you buy a house.

And don't think that homes in Germany are cheap. For a normal house, without luxury) near by (and not in the city) Frankfurt or Munich you pay more than $ 350 for every square feet.

A lot of us saw this coming years ahead of time.I'...

2007-07-25T20:16:00.000-07:00

A lot of us saw this coming years ahead of time.

I've always said that anyone doesn't pay their CC balance off in full every month is simply stupid, unless exceptional circumstances (medical bills) are in play.

This couple made bad judgments, but it is also true that lenders egg suckers like this on and fool them into thinking that everyone does it.

Those of us who saved may not have the last laugh after all since the value of the dollar is tanking. At least Joe and Mary had a few years with the Mercedes.

I think this blog is great. I show it to my wife,...

2007-07-24T10:54:00.000-07:00

I think this blog is great. I show it to my wife, who is itching to buy a home in Rancho Cucamonga, whenever her emotions are running amok on this issue.

Yes, we could scrape by if we undertook a 700K loan 30 fixed, but it is more than half our net income. I feel it is just too much, and this blog knocks some sense into my lovely wife. She understands that we can't afford what we want right now, but she really wants to decorate, build memories, and enjoy a nice backyard. I want those things too, but at the expense of nice vacations, dining out, gassing up the car, swimming lessons, etc. How much should one "give up" in order to have one's own mailbox?

If people learn something from all of this (the Bu...

2007-07-24T09:31:00.000-07:00

If people learn something from all of this (the Bubble Crash), perhaps it will all be worth it. If people started living within there means, start saving for the future perhaps we can finally turn this country around...

.... But somehow I doubt it.

Has anyone noticed that the United States looks a ...

2007-07-24T08:15:00.000-07:00

Has anyone noticed that the United States looks a lot like a giant used car lot, stretching from the Atlantic to the Pacific? Do whatever it takes to do get as much as you can. Lie, steal, and cheat to make the sale. Manipulate every situation in order to close the deal, give yourself the advantage, and screw whoever you can out of as much as you can. Forget anything other than pumping yourself up in order to close the deal and make lots of money! And don't foget to tie a balloon to every car. And be positive! Just get them in my office. I'll slam that deal closed and we'll be teeing it up tomorrow. Ok, team, let's go get em!

This doesn't just happen to those in the real esta...

2007-07-23T21:14:00.000-07:00

This doesn't just happen to those in the real estate industry. It is happening in some degree to all of those who took the sub prime route. Wether it was the guy who went stated because he couldn't afford a home at his pay. Or the family who chose to go with an interest only so they could afford the payments. It was considered the norm for a while. It is easy for us to say we say it coming but the reality is it is going to affect all of us in some way.
This blog was very informative. Well done.

I am sorry, I Do not feel sorry for the couple. F...

2007-07-23T17:48:00.000-07:00

I am sorry, I Do not feel sorry for the couple. First of all, lets make this very clear to the " lay" people out there. An Account Esecutive, is nothing more or less then a " glorified salesman" his job is to sell his lenders products to Mortgage Brokers. Account Executives usually are paid straight commission, or get some bips or bonus points when a loan closes. If the guy was a seasoned professional and knew the business, he KNEW what he was getting himself into.. An Option Arm with the " pick a payment" minimal, interest only, 15 year fixed or 30 year fixed. So if he and his " successful" Realtor wife had to make the minimal payments, in order to have $1700 car payments, they were a disaster in the making.

They didn't factor in their Arm resetting? My God he is/was an Account Executive!!!!!!! That is some nonsense if you ask me, how can an account executive that is a liason between a mortgage broker and his underwriter not know that his Arm was going to recast?

It appears that his rate recast in 2006, he didn't refinance because? Oh that's right, the " professional Account Executive " paid only minimal payments on a Option Arm and he had no equity, in fact the professional he was, put himself into negative amortization because, you know he had to have that house that he and his Realtor wife just had to have.

I am sorry, I don't feel sorry for this couple. Their car payments speak volumes, especially since they are commissioned sales people. My guess is they " stated" their income to get the loan. much of went on during the refi/purchase boom" another words, they obtained a " liars loan".

It is also a tip off that neither one of them was very successful at their jobs if they had to take out 100% financing... we all knew what that implied, no money saved for a down payment.

And shame on Mr Account Executive, surely he knows a thing or two about forebearance agreements? Why did he avoid his lender? Could he not even make an arrangement? Banks don't like to foreclose. I smell fraud, so I am not sorry for this couple, and I don't think anyone else should either, keep in mind, she is the realtor that convinced purchasers to buy homes that they really never could afford, securing an option arm payment, and he got the approval for the borrowers he knew couldn't repay them. boohoo for them ABSOLUTELY NOT!

matt it is r/e. This is formula for sucess. The re...

2007-07-23T11:47:00.000-07:00

matt it is r/e. This is formula for sucess. The reverse is also true. When young people today think that they have a right to Mcmansion, Mercedes etc that is where the problem comes in. The two were 28/29 anyone over 50 knows that most of us when we were 23 years old were not expecting to live such wealthy lives without having worked long and hard for it. It just does not come that easy.

The social problems will develop when is reaches the critical mass. When that takes place I don't know but it will surely happen as the last 10 years have seen and tremendous increase in expectations that can not be met.

I swiped this from irvinehousingblog.com but the i...

2007-07-23T11:10:00.000-07:00

I swiped this from irvinehousingblog.com but the info was swiped from a book and is completely and painfully correct:

The reason why a bull market is ready to tum into a bear market when the general public gets involved is because the general public has the least tolerance for risk and consequently needs the most reassurance and confirmation that what they are doing is a sure thing. As a result, they will be the last to be convinced that the rising market represents an opportunity. If a bull market has lasted for any length of time, the general public will feel compelled to jump on the bandwagon so to speak, because of their perception that everyone else is doing it and making money. They will pick up on any reason that sounds the most rational to justify their participation, when in reality, they will know very little about what they are doing, but since everyone else is doing it, how can they go wrong.

A continuing bull market requires the continual infusion of new traders who are willing to pay higher and higher prices. The longer a bull market lasts, the greater the number of people who are already participating as buyers, leaving fewer and fewer traders who haven’t already bought and fewer and fewer traders who are willing to bid the price up. These older buyers obviously want to see the market keep on going up, but they also don’t want to get caught holding the bag, if the market stops going up. As their profits accumulate from the higher prices, they start to get nervous about taking their profits.

By the time the general public starts buying en masse, the professional traders knows the end is near. How does the professional know this? Because the professional knows that there is a practical limit to the number of people who will participate to bid the price up. There will come a point where everyone who is likely to be a buyer will have already bought, quite literally leaving no one else to buy. The professional trader would like the market to continue to go up indefinitely just like all the other buyers. However, he also understands the impracticality of that happening, so he starts taking his profits while there are still some buyers available to sell to. When the last buyer has bought, the market has no place to go but down.

The public gets stuck because they weren’t willing to take the risk when there was still potential for the market to move. For the market to sustain itself, it needs to attract more and more people. As big as this country is or the world for that matter, there are only so many people who will buy. Eventually the supply of buyers runs out, and when it does the market falls like a rock.

The professionals have been selling out their positions before this happens, but once the supply of buyers runs out, the professionals start to compete among one another for the available supply of buyers which is dwindling fast, so they offer lower and lower prices to attract someone into the market so they can get out. At some point, instead of the lower prices being attractive to people, it panics them. The public didn’t anticipate losing. Their expectations are very high with very little toleration for disappointment. The only reason they got in was because it was a sure thing. When the public starts to sell, it starts a stampede.

Again, people will ascribe their actions to some rational reason because nobody wants to be thought of as irrational and panic stricken. The real reason why people panicked and the prices fell is simply because prices didn’t keep on going up.

-SoCalWatcher

In the immortal words of Nelson:"HA-HA!!!"I bet yo...

2007-07-23T10:43:00.000-07:00

In the immortal words of Nelson:

"HA-HA!!!"

I bet you these folks were the same ones pointing their fingers at the poor person getting in over their heads and said "they should have known better"

I hope this happens throughout the economy. It's the only way to clear out the bad credit out there.

Could these 2 people not see that $675K for a hous...

2007-07-23T10:38:00.000-07:00

Could these 2 people not see that $675K for a house was way over their heads? $350K would have been more like it, and that's only if there was no significant car or CC debt. That is over 5X their combined incomes! Even if they did not also have a mountain of consumer debt (2 exotic cars + $25K CC debt) this house would be enough to bury them.

In the days of financial sanity, no one was permitted a mortgage more that 2.5X his income. The no-money-down mortgages would be acceptable risks if the size of the mortgage was limited to this multiple AND if the borrower had no significant consumer or auto debt, and the mortgage is a 25 or 30 year fixed. Many people have gone "no money down" on modest homes relative to their means and have succeeded very well with them.

It's when you take on a mortgage that is many times more than you can pay back on current income that you quickly run into trouble. Yet these people seem to think the reset will never happen.

I guess they figured their incomes would always increase by huge increments and that they would have no trouble meeting the mortgage payments upon reset. Having been in sales before (which financially destroyed me) I know the sales mentality: spend over your head and buy the lifestyle that is your goal, your manager will tell you. That way, you will HAVE to make the money to support it.

They drank the sales koolaid, I guess. Did they ever think to ask their bosses: if I live over my head to spur myself to sales success, will you pay my bills if I don't meet my goals?

That does not absolve them of their culpability for their own ruin, of course. They were the architects of their disaster and cannot blame their bosses.But their mentality is the one sales managers try their best to imprint on salespeople. Fake it till you make it. Savings is for losers who lack confidence in their abilities. Only mopes worry about living within their means. No guts no glory.

Trouble is, this mentality has taken over our entire culture.

Wouldn't S=R/E make more sense? If I have high re...

2007-07-23T10:31:00.000-07:00

Wouldn't S=R/E make more sense? If I have high results and low expectations, wouldn't I be much more satisfied as opposed to having high expectations and low results.

slim said...
"The real issue going forward will not be what happens to these two. It is that so many people are basically living way above their means and expect they have the right to. S=E/R which means satisfaction is expectations divided by results. Expectations are so out of whack is it unbelievable. "

The real issue going forward will not be what happ...

2007-07-23T09:44:00.000-07:00

The real issue going forward will not be what happens to these two. It is that so many people are basically living way above their means and expect they have the right to. S=E/R which means satisfaction is expectations divided by results. Expectations are so out of whack is it unbelievable. The credit bubble is a social disaster that is going to unfold when not millions but tens of millions of people are going to find their lives are not living up to their expectations and the will be very tense/stressed and will react very differently than you can imagine.

The character building strengths of saving verses getting it all now is very well documented. The get rich mentality is fraught with character flaws.

The reality of what So Cal will look like will drive many away to the less stressed areas. This is already happening and will become a panic. Just because you are smart and read these blogs and forsee the future and can profit from think that you won't be villified by politicians and media as the undeserving. You will be. The social ramifications of this credit bubble will far outweigh the economic.

No love for this couple making $80,000 a year? I ...

2007-07-23T09:35:00.000-07:00

No love for this couple making $80,000 a year? I mean I didn’t feel sorry when they had two new Mercedes but when they lost one, well that’s where I pour my heart and soul out to them. After all, every family is entitled to two exotic foreign automobiles. I get the impression that the majority of people that peruse housing blogs are either interested in prudently managing their finances or trying to get a pulse on the general market. My sense is most are frugal at heart even though they make well over the median national income. I can assure you this couple did none of the research or contingency plans for a declining market. According to them, it wasn't in the stars; it was a decade long boom (read credit bubble) that was going to last until 2020. In fact, when times were good, they laughed at how dumb it was for people to be renting or socking money away for retirement. For a few years they were right.

The point of this article is to show the balance sheet of how quickly someone can fall over the edge into foreclosure. I’m certain we all know families like this one. This isn’t rare or unique. On the contrary, this is the mainstay in Southern California. In order for a first time buyer to jump into a home in the current market, the buyer needs to commit a high amount of net income to a depreciating asset. In essence, they take on the role of market speculator. The market will go down. We are going to be in adjustment mode for 3 to 5 years. The amount of inventory and stringent financing are shrinking the buyer pool and creating a recipe for a declining market. And what about those rate resets? All that jawboning about it having no impact is being proven absolutely wrong. Foreclosures are climbing sky high and prices are coming down.

I’ve noticed that ardent housing bulls are even softening their “real estate goes up for life” tune. Remember all those 10%+ appreciation predictions for 2007? What about the summer boom? Real estate cycles follow generic patterns. The only difference in this real estate boom is that we have gone so out of reach of anything in history. We can only compare it to other previous bubbles in other domains such as technology stocks or tulips. Most people will say the comparison is absurd. Even though the underlying asset is very different, the psychology behind this bubble and the current bursting has played out on the yellow sheets of historical records.

Anyone foolish enough to ignore the warning signs is facing the dire consequences.

I have no sympathy for the people in the article. ...

2007-07-23T08:37:00.000-07:00

I have no sympathy for the people in the article. If they couldn't see that coming then they got what they deserved. I could have stretched myself to get all the things I wanted also but instead just used common sense and hopefully some day I can have that stuff and sleep at night as well.

I just hope we don't get a ton of government programs to help bail people out who needed everything now or took a chance to get rich quick.

Under the surface, how many people are suffering b...

2007-07-23T07:53:00.000-07:00

Under the surface, how many people are suffering behind their closed doors, as their real estate dependent income is shrinking?

Think of anyone in real estate, lending, title and escrow, home inspectors, appraisers (I know one going to dental hygienist school), retail, construction, materials suppliers, architects, drivers, nurseries and landscapers, pool people, and on and on.

Eventually, these job losses will ripple up to engineers, lawyers, medical personnel, government, teaching losing jobs too.