The mortgage
 

Mom (Katkeeper): They said on the news that they are helping out homeowners who have a job and are behind on their mortgage.

Me: That's just great. I don't have a job, but I've paid the mortgage. Well, this can be addressed. I'll not pay the mortgage this month.

Yeah, I was wondering how this would help us if my hubby loses his job in the near future. Will we be eligible or are we gonna have to walk away from the house.

What was your plan before the news that help might be available, Pico? Was "walking away from the house" always your default option?

Clob...we are not in trouble with the mortgage right now, nor have we been. That will not be the case if GM buys Chrysler and the plants in this town are shut down. My hubby will lose his job. We can float for a while, but there will not be any jobs to get around here, so we will have to move. We wont be able to sell the house (my area is already swamped with homes that have been vacant for a least a year - two are right next to us). So, in terms of survival, yes, walking away would be our default option.

what will you do with all your stuff?

whacha mean?

i'm just imagining you 'walking' away from the house. seems like there would be lots of stuff left behind

ha

Ah, so your problem is compounded by the possibility that the whole town will lose their jobs, not just individual hardship. That makes sense.

It is becoming the default move for most people. One guy we know who bought in the bubble stopped paying his mortgage 3 months ago. He bought a $550k home in a neighborhood way above his pay grade, thinking he was going to flip it in a few years. Idiot. Now he just takes all his pay and puts it in the bank and saves it up until they come and tell him to leave. So he is basically living there scott free saving up for a new place, to rent. His credit is already screwed so he doesn't care. There are plenty of places on the market to rent because people can't sell.

And to think, we are bailing out a lot of these people with our money, the people who did it right and played by the rules are being punished for others bad moves and failures.

I don't have any sympathy for those people either Merc. And I didn't two years ago when I first started to hear about them. I don't think they deserve a bail-out either. But there are innocent victims in all of this. My next door neighbor refinanced her house so that she could get it re-sided. She got an ARM with the understanding that she would be able to re-finance again when her payments went up. Well her payments went up and she couldn't get financing because the value of her house went down. She's retired and living on a fixed income. She couldn't afford her house anymore.

I put much of the blame on the predatory lending practices by mortgage brokers and banks who bought and sold their paper for mortgages. These practices were set up by the Congress and allowed the middle man to prosper at the expense of the transaction, a lot of people got rich off of these practices and they are gone in thin air. The rest of us are paying for the mistakes. More often I think, unlike your neighbor, many buyers have a huge responsibility for the blame for this as well. They were like deer in the head lights. Staring at something they could never afford, guided by greed, or the attempt to leap ahead, and aided by lack of government regulation and greedy lenders. It's a mess that we still may not recover from. (IMHO)

She took a risk. . . and lost. I can see where she was trying to do the right thing. Maybe she really NEEDED the new siding, I dunno. But she knowingly took a risk while on a strictly fixed income"hoping" to refinance at some point in the future. That didn't happen...what was her plan B?

Classic...everybody was doing the re-financing thing. We did it to get some debts at a lower interest rate, but not everybody knew that ARM's were risky or a bad choice. I knew and I didn't get one...I did a 30yr at 5.75%. I dont think she was savy enough to know what was risky for her.

Someone gave her some very bad advice. One part of the equation that got us into this mess, predators.

It's the actually salespeople that were so aggressively marketing home equity loans during those years of bliss lending. they got paid on the margin, and by the contracts they closed.

likewise, the salespeople that sell cars are responsible for the devaluation of american cars. i mean, they sold so many, that there are more cars than demand requires, hence the falling value.

it's all the fault of the evil salespeople, really. I mean....aren't we all guaranteed protection from 'bad luck' in America? I mean...she was a nice lady, and she needed the loan, and then something went wrong with the market. Clearly not solely her fault.

But, it's an imperfect world. screws fall out all the time.

Do we blame the mortgage broker or the mortgage applicant? Neither. Such questions are how the guilty get off.

Did predatory mortgage brokers create problems by intentionally lying to applicants? Yes. Either they are innocent or guilty. Answer: guilty.

Did many applicant who signed up for ARMs create their own problem? Answer: guilty.

It is not one or the other. Each party is either innocent or guilty regardless of what the other party did.

if i sell you 10 feet of rope, and you are unable to hang yourself with it, but the next rope vendor sells you 20ft... and you succeed, is it the second rope vendor's fault that you hung yourself?

no. the chair manufacturer is liable for making a product that falls over too easily.

That would be the greed I brought up and was chastised for. Whatever, I still agree with you ignorance and greed - nothing new there.

An effective solution to the mortgage meltdown is to establish a new mortgage where the homeowner can refinance even though he is technically bankrupt - even though he owes more on the house then it is really worth. This is not easily done without massive fraud. The details and conditions to qualify a homeowner for such a rescue plan requires very careful underwriting.

Maybe a decade or two later, the home might actually be what the homeowner owes. The homeowner would either break even or maybe reap a small profit.

Why is this so necessary? Abandon homes fall to something like 30% of their value. If banks held those mortgages, banks often would forgive late payments. But mortgage held as equities cannot do this. Just another reason by the ARMs are so destructive to homeowners, the community, and the equity markets.

A solution. But can it actually be implemented without massive fraud? Well, to do such rescues requires cooperation from one of the most easily corrupt industry in any economy - the financial industry. I have little faith that proper rules can be created to make this work because so many in the finance industry work only for a profit and believe greed is good. Screw the product and the purpose of their industry. That attitude (so common among salesmen) is too widespread which is why massive regulation in the finance industry is always required.

How much did interest rates actually go up?

My personal opinion is that if you can't wear a rate increase of at least 5%, you shouldn't take out a variable rate loan. D and I discussed this when we took out our mortgage a few years ago.

When interest rates started going up by 1/4 percent increments here, people started carrying on after the first one.

If your budget is that tight, you shouldn't be getting the loan.

I just don't understand why people think things are always going to stay the same. I think it's obvious that they don't and so we have tried to plan for all contingencies. It's possible that we'll still get into trouble, but I feel confident that if that happens, we'll be among the last the fall, not the first.

Ali, did you guys have the same bubble in the housing market over there?

absolutely. We did ok out of it personally though, although not as well as I'd have liked. We purchased a home a bit over 2 years ago and sold it earlier this year and made a profit of just under 100k, but if we'd put it on the market about 2 months sooner (as I wanted to do) our profit would have been twice that.

All in all though, it was good, and allowed us to get a bigger house to accomodate our two growing almost teenage boys and the new one on the way.

We were lucky, and I think reasonably wise. We could have done better, but we didn't do badly, and we learned some valuable lessons. (well, Dazza did. lol Mainly that when I tell him it's time to sell, it really is time to sell.)

I remember when you moved and were house hunting. You need to do a new video tour. I loved the last one.

Yeah I've been thinking about that. I might do one next week. Dazza had the camera in PNG for the last month.

Actually, he's heading over your way soon. Speaking at a conference in Miami.

Wow, I wish I was closer, I would show him around Savannah. Miami is a bit of a reach.

AGI get's another bail out check...

http://dealbook.blogs.nytimes.com/20...fed/index.html

Maybe you should get a job serving latte's or something UT? Would that disqualify you? :)

If it would help I surely would Cic!

Nice to see that someone is paying attention here. The dominoes are falling. Life is going to change here in the US.

What might that new life look like here? We will soon find out.

That's easy...
Inflation, unemployment, food & fuel shortages, riots, a terrorist attack, martial law, outlawing private ownership of Gold & Guns, rearrangement of the government structure, and maybe, just maybe, a nuclear war.

Thanks W.

Did you forget to include pestilence? Maybe you're just trying to be optimistic. :)

I am already there. It's awesome. I get to serve coffee, and it's free for me, so I don't get so hungry.

Why do people keep acting like things are going to change? According to the lack of job ads, the fit has hit the shan. Locally. It sucks. Sucky. All the job ads, outside of medical and labor, are f'ing fake. No jobs here. That means that not only is there no new employment, it probably means, people locally are getting laid off too. Scaling back to skeleton crews. I feel fortunate that I took a coffee job on a whim.

What I mean is that life here is going to change more. Not in a pleasant way.

Less money in the economy, less credit, less options, more work but not necessarily at a job, more of a focus on independence because the machinery will be clogged or completely stalled, much less personal security finanacially and physically.

Big government getting MUCH, MUCH bigger, more nanny state BS, less freedom in issues that really matter and more freedom in trivial issues that really don't matter.

So should we be stocking up on canned food then?

Only in small amounts IMO.

A focus on local types of services and products and living instead of this modern trend of big box types of commerce.

Generally speaking the local types of businesses and banks have not been caught up in this recent "problem".

I would just suggest that people just think about the possibility of having those modern items and systems fail. That's not to say that they will but that you create a mindset of what to do if they do fail.

You may consider lowering your expectations, something Americans are not fond of doing. That's not to suggest that you give up living in a civilized society but consider the new realities of the times.

Look for new opportunities. The old rules of the game are changing. Buying a house may not have been the best investment that you've ever made. Going into debt for your degree may not turn out to provide the security in your work that it has been in the past.

My view of the entire situation is likely much different than most people. With very few exceptions nowdays every one around me is broke. They either have huge debt for homes or on cars or student loan debt or stupid credit card debt. Or maybe they are just trying to sell their homes that they bought very responsibly and cannot sell those homes for what they were recently worth.

For the first time in a very long time I'm not being hassled about my very old and ugly car, big wads of cash stashed here and there and a growing pile of krugerrands. I've never trusted this house of cards whether a D or an R is in charge here.

Also, nearly all of those people hitting me up for buying this dumb thing or that are the same types of people that have scolded me over the years for not "getting into the game".

I see people that have "done all the right things in life" every day that are going through very rough times. Many people right here in the cellar.

It seems to me that the rules have changed but many people have not accepted that. They have invested their time and money into the old rules of the game. They didn't believe that the rules have changed but they may in the coming months.

Store up some food if you like, that's fine. Adjust your mindset for the new reality, that would be more beneficial to most.

Yea, I think times are about to become quite uncertain for the first time since the 40's.

My Dad says we all should be. He thinks the end of the world is nigh.

I told him when the world ends, we'll come and live in the spare cottage on his farm and become mango pickers.

He thinks that's a good idea.

As long as I get 48 hours notice I won't worry about the end of the world.

I'm going to Ali's Dad's farm to be a mango picker.

LOL...he's got a shotgun and he's prepared to use it when the end of the world comes. Better just give me a shout from the gate when you arrive ok?

Ooooh, very good find.

Does the fact that I keep hitting predictions years in advance (and get mocked for it) tell you something? We are still reliving 1970s deja vue. Have things changed? This is only the beginning - deja vue.

Remember when gasoline rose to $2 per gallon and everyone got upset? We may have only started to pay for $2 per gallon gas. Remember $3 per gallon long ago? You have not yet seen economic impacts from that price. Still pending is economic revenge from $4 per gallon gas. Meanwhile, America has done essentially nothing (yet) to address energy price increases. Nothing. For example, where is the legislation requiring 12” roof insulation in all buildings? New commercial buildings still with near zero inches. That right. Even energy is still too cheap. Don't worry. Government will save us. Rush Limbaugh and Fox News told us so.

In another thread, REIT had not yet seen the inevitable downturn. Of course. The obvious is coming. Linen 'n Things and Circuit City declared bankruptcy - a prophesy. IOW near zero bankruptcy and downsizing has happened yet. Wal-Mart was one of very few to address the obvious. One terminated business. The other uses bankruptcy to save jobs. Just another example of economic revenge created by government stimulus packages even four and more years ago.

Did you learn what saved America in 1979 et al? Deja vue? Today, government announced more protection of problems - such as Rick Wagoner of GM. Did you hear what the problem said? Wagoner says GM has no restructuring plans. Why should they? With government welfare, why should GM fix problems or restructure? Your future will be mortgaged to protect GM top management. (BTW, Ford, that did some innovation and started addressing problems years ago, says they don’t need corporate welfare.) And then massive GM employee job losses will occur maybe 3 years later because we did not fix GM's only problem.

Do you really think things changed for employees? Not yet.

Did you see the new companies lining up for government bailout money? Even credit card companies are now requesting government assistance! Socialism only for the rich remains alive and well as it was seven years ago.

Did we mention another pending $1trillion bill for "Mission Accomplished" – another George Jr gift to all Americans? His father was smarter. The world paid for Desert Storm. Therefore we did not suffer. George Jr, instead, did what God told him to do. So who really worships the devil?

Nixon did the same George Jr lies in 1968 and 1970. Therefore job losses were massive in 1978. Deja vue – when we learn lessons of history.

There are essentially no job losses today. You have not seen inevitable job losses yet. This from the same person who routinely is a lone voice on unpopular reality; who used facts to even see that Saddam did not have WMDs. Using facts and deja vue history, you have not yet seen how bad it can get.

Today the problem became more evident. Paulson has been throwing money at companies without any grasp (it only just became apparent) how to fix the problem. Oh. That $700billion to buy up toxic assets (TARP)? Today, Paulson said he wants to stop toxic asset sales and to enrich sick companies with bad management. It will now be renamed TWERP – The Wall street Employee Retirement Plan.

US Steel did not queue up for government welfare? Of course not. US Steel is part of a long list of companies obviously in trouble (due to no innovation) but not yet on the list of troubled companies. Eventually more companies will also queue up for government rescue. Rather than let basic economic principles eliminate America’s biggest problems, we have a government that loves socialism and stimulus packages. Cheney said deficits don't matter (who besides this author kept warning about that quote?).

Show me where any ‘troubled’ company has a plan to fix itself. The worst have no plans. Wagoner said GM has no plans for restructuring. GM has no plans to eliminate auto divisions and many product lines. Instead, he wanted to enrich GM management by creating a $3billion company from $10billions of free government money. Why so much silence in The Cellar, from politicians, and the press?

GM has no plans to retrain workers to revamp production lines or even retrain employees while they will be on furlough for maybe a year. Toyota does. But then Toyota is an example of a patriotic American company. How much worse the job losses because George Jr (over the past 8 years) has protected MBA management, has channeled welfare (ie tax cuts) only to the rich, and issued miracle solutions such as stimulus (rebate) checks?

What happens in four years when that $700billion corporate welfare did not remove America's biggest problem? More job losses when economics takes revenge for no ROI for that $700 billion.

How long ago did GM declare a $1billion loss? What did GM do? Money games so that they again claimed a profit. That $1billion loss was unheard of anywhere ever. GM did nothing to fix the reasons for that $billion loss. Today, GM is so anti-American as to be losing more than $1billion a month. Who did more to harm America? bin Laden or Rick Wagoner? But then Rick Wagoner is only a symptom of government that 'fixed' the economy.

GM should just be allowed to fail. Let's be done with it. Toyota can be our new car company. But of course that is because I own a Toyota. :D

It is still possible that if GM was allowed to fail, then no employee jobs would be lost. But obvious even in the press are lies about what a bankruptcy threat does. By driving both Chrysler and Ford to near bankruptcy in 1979 and 1981, then both companies were saved without job losses. Because bankruptcy fixed the problems, then both companies were earning record profits four or eight years later.

Unfortunately, socialism is alive and well in America. Ross Perot is from a long list of people who tried to save GM. But too many Americans so wanted to destroy America as to keep buying that GM crap. At least one here even praised his GM product rather than admit some glaring facts.

The products were saying GM needed bankruptcy in 1991. Indeed, GM was only four hours away from bankruptcy when bean counters invented money games to protect their jobs. Among the new money games - short the pension funds.

A game played by many banks. When the homeowner did not make a payment, the finance company simply added that payment to the principal and called the mortgage viable. Therefore massive numbers of mortgages were in default - but not on the spread sheets. More Enron accounting.

Just another technique made all but legal by our illustrious leaders - who talked to god.

Nice to see you're in touch with the bigger picture Merc :P

Let 'em sell off what profitable/popular brands they have, and let the rest fold.

Some can't pay the mortgage.:(

Some are finally asking damning questions of Paulson. The original $700billion intent was to buy toxic assets and to help restructure mortgages. Well a blank check is still not restructuring mortgages. But now it will be used to enrich $1.8 billion GM with how many tens of $billions?

People are suspecting that Paulson has no idea what he is doing - jumping from fire to fire and never putting any out. Major companies are now purchasing finance companies to also qualify for TARP money.

Simply give $1billion to Telsa Motors. Let them buy a major part of GM and make a car that actually might be profitable. (Obviously not a solution, but it makes more sense.)

Meanwhile, TARP may be sucked into AIG. Having been given $85billion, AIG burned through that. Government next bought $billions in preferred stock as if that would justify more money. Well new obligations mysteriously keep arising in AIG along with new credit obligations. The entire net worth of AIG may only be $27billion - not even enough to cover the governments AIG preferred stock.

Worse, there appears to be no end to AIGs need for more money to save their maybe $1trillion of contracts. AIG keeps finding more obligations that were never known previously on the spread sheets. Another black hole that means TARP may have even less money left to help restructure mortgages.

Be scared. Every week, more mysterious debts suddenly materialize. Debts that previously disappeared with Enron accounting standards. Apparently a 40% stock market drop is not the bottom.