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11 November 2008

Holy S**t. The Mortgage Crisis Is Worse Than I Had Imagined [More:]Because of plunging home values, almost 90 percent of homeowners here owe more on their mortgages than their houses are worth, according to figures released Monday. That is the highest percentage in the country. The average homeowner in Mountain House is underwater, as it is known, by $122,000. Where Homes Are Worth Less Than The Mortgage (Interactive Graphic)
He has cut his DVD buying from 50 a month to perhaps one, and is waiting until the Christmas sales to buy a high-definition television.

FUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUUCK
YOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOOU
posted by eamondaly 11 November | 01:42
"No more dinners at Chili’s or Applebee’s"
So it's a GOOD THING!
posted by arse_hat 11 November | 01:58
These are the dipshits that are a big part of this entire mess. I'm feeling something towards them but it ain't sympathy.
posted by puke & cry 11 November | 02:18
Underwater

We like to call it negative equity here. I've now one friend and a brother who are now unable to move house because of it. Both of them bought the properties they did because they needed somewhere to live. My brother bought his because he foolishly thought that he'd not lose money on it, and the friend bought hers because it was all she could afford at the size she needed.

The quotes you hit on are bad, but the housing crisis affects good folk who made the best decisions they could.
posted by seanyboy 11 November | 03:56
Whatever happened to plain old "upside-down?" You're upside-down on the loan. But hey, if you want to be upside-down and underwater, it's your funeral.
posted by Eideteker 11 November | 07:46
I'm with seanyboy. The quotes are horrible, but you probably know someone in this situation. They may not exactly care to share. I know of three single women who are upside down. One is in Las Vegas - hard hit location, and no, she shouldn't have taken the mortgage offered to her. Two are here and in quite modest homes - one a condo - with fixed rate mortgages. There was a bit of a panic to get in a home when it seemed values would continue to rise, sure. But these are good people taking second jobs and doing what they can to ride it out - not greedy people. They thought they were doing the best thing for their futures at the time: own instead of rent.
posted by rainbaby 11 November | 08:46
A different view of the mortgage crisis: Foreclosures, by photographer Bruce Gilden. It's a really well-done photo/audio essay, about 8 minutes long, about the town of Fort Myers, Florida. (I was just coming here to post this when I saw jason's post!)
posted by BoringPostcards 11 November | 08:51
I have a son who is upside down. He is hoping that California home values will revive someday. He and his wife just wanted a home, they weren't trying to get rich.
posted by RussHy 11 November | 09:05
for the love of god... I know people in the variable rate mortgage negative equity boat, and it's not "ohh, we won't go all out on christmas this year," it's "we're LUCKY TO EAT TODAY since the mortgage alone is $30 more a month than our combined post-tax income, before groceries and utilities."

Screw these people. If cutting down on chain resturants and entertainment spending is suffering from them than they're everything wrong with american consumerism today, and the reason we're in this financial mess to begin with.
posted by kellydamnit 11 November | 10:50
Of the various people back in Arizona I know who are in trouble, there are quite a few who work (or worked) in the real estate industry in some capacity. The self-reinforcing boom I saw there frightened me.
posted by mullacc 11 November | 11:03
I deal with this every day at work and see both sides of it - the people like Seanyboy's friend who bought a house in which to live and the people who completely over-extend themselves because they're given low-interest payments for a year or so as a concession, without giving a thought as to how they'll make the payments at the end of that.

Today I dealt with a case where a young couple, green as grass, were steered towards an utterly unsuitable mortgage with a sub-prime lender by a mortgage adviser who broke every rule in the book. They'll be getting a big award of compensation.

But I also see the people who deliberately overstate their earnings on 'self-certified' mortgages (where you don't need to provide proof of earnings) so they can buy that big house. Then they furnish it on credit cards, and take out a loan to buy a car, and another loan to go to Barbados for Christmas. And another credit card to buy shoes and handbags and eat out in smart restaurants (I know how they spend their money because I get to see their statements.) Then when they get to the end of the concessionary 2-year discount on their mortgage and their payments double, they're unwilling to accept any responsibility for the position they're in.

posted by essexjan 11 November | 12:27
@kellydamnit: Word. For me, eating out at McDonald's or getting White Castle is a luxury.

I'll temper this with saying that I spend about $200 a month on my therapy bill (post-insurance), but the fact that I'm even tempering my statement of economic woe instead of being able to indulge myself in my honest derision of the head of family quoted in the article is just another sign that I need therapy, as I discovered in today's session.
posted by TrishaLynn 11 November | 12:44
Then when they get to the end of the concessionary 2-year discount on their mortgage and their payments double, they're unwilling to accept any responsibility for the position they're in

That's the part that I think a lot of people are having a hard time dealing with when looking at this whole thing, I know I am. I'm supposed to feel sorry for people who took out mortgages that are far, far too large for them, and not only that, but my tax dollars are supposed to go toward keeping them in their homes that they couldn't afford in the first place. I don't want people to be homeless, but I don't know that things should go far. kellydamnit mentioned people whose mortgage payment is bigger than their entire income- I'm supposed to feel sorry for someone who got themselves into that big of a mess? Why?
posted by ThePinkSuperhero 11 November | 12:57
Foreclosures, by photographer Bruce Gilden.

That was a beautiful photo essay, BP.
posted by rhapsodie 11 November | 13:13
Well, a lot of people were flat out lied to. At least one of the people I know in this situiation were told it was a fixed rate mortgage, not that it was fixed for three years before ballooning to 18% interest. And yeah, they should have seen it in the paperwork, but I can kinda understand when you have a broker telling you one thing, and handing you dozens of papers to sign, not reading every word with the assumption that your broker is flat-out lying to you.

Throw in a layoff and new employment at less than you once made and it's fun time.

But everyone I know who is over their head now are people who made the mistake of believing the people they got their mortgages from. A lot of the "yeah, this will go variable on x date, but don't worry, we'll lock you into a fixed rate before that," shit like that. And yeah, it is their responsibility, but jesus, I can understand if people don't think they're going to be flat out lied to.
posted by kellydamnit 11 November | 13:26
Yeah, there's also this whole atmosphere in the US (or at least there was) - you're nothing if you don't own a home. You're throwing your money away on rent. The only safe investment is real estate. It's better to buy now, any way you can, and worry about making the payments later. Don't save up for a down payment, just get a loan to cover it. You can trust me, I'm on TV.
posted by muddgirl 11 November | 13:43
There's also the reality that payments you might have been able to make easily three years ago are much harder to pay now - especially if you haven't received cost of living adjustments. I'm noticing that with my rent. No problem three years ago; now I'm playing tight to the vest because everything else has gone up - groceries, gas, oil, my health care premium and copays, utilities, phone ... all of these have increased during the last few years, at the exact same level of consumption. My salary hasn't been keeping pace.

Fortunately, I'm not locked into a house. However, since I was on the receiving end of a lot of push promotion for mortgages, I know how alluring they are. Owning a home has always been touted as the best possible way to save for middle-class people, a secure investment bound to appreciate. Using new programs to buy homes is something Americans are familiar with - I probably owe my whole family's middle-class status to GI Bill programs. When you come from this sort of background, before this crisis was known, it just seemed like a smart idea to find a program that worked for your income to get you into a home. There was a lot of selling involved in this, and now we see that these loan programs were never designed to be on the side of a healthy middle class. I'm glad I never fell for one - there was a time when my mother was pushing me hard to buy and sending me links to all sorts of sites with balloon programs and so on - but I can fully understand how people do.

The Times loves to write stories that invite you to have contempt for people, and this is one. Though I also think people who are eating at Chili's and Applebee's and buying 50 DVDs a month (that's at least $500!) are using their money in asinine ways. But there are a lot of good people in trouble too. I heard on NPR last week that in at least half of foreclosures, medical bills were a factor in a family's inability to keep up a mortgage. So the lack of health care and/or high deductibles and rising premiums and prescription costs play into this too. People don't go looking for those kinds of problems.

We could be doing a lot more to protect people from these things. Leaving everything up to the consumer is always going to have negative effects for the polity, because if we don't regulate we will pay in some other way, like bailing out banks and homeowners. The most efficient point of prevention is probably not the millions of people who aspire to own a home and aren't that bright about finances (many first-generation homeowners), but the at the source - at the level of banks and agents approved to offer loans that are too risky for their buyers. A lot of people are stupid - that will always be with us - and they do things in their self-interest. Making loans too available to a market desperate for them, and told they were a good thing to pursue, but unable to manage them, was a factor that was not less than 50% responsible for the crisis.
posted by Miko 11 November | 13:51
You can trust me, I'm on TV.

Shit, my uncle said that all the time, and he's not on TV. In fact he owned a real estate insurance company. So, you know. This is what people heard all the time, as good sound financial advice, until recently.
posted by Miko 11 November | 13:53
There's also the reality that payments you might have been able to make easily three years ago are much harder to pay now - especially if you haven't received cost of living adjustments
Ain't that the truth. My gas and electric bills have both gone up by almost 25% in the last year or so. My salary... 3%. Our corporate management is in California, I know a few people who sent them copies of current heat bills and last year's to show how their assurances about keeping up with the cost of living aren't really playing out here.
posted by kellydamnit 11 November | 14:31
if we don't regulate we will pay in some other way, like bailing out banks and homeowners. The most efficient point of prevention is probably not the millions of people who aspire to own a home and aren't that bright about finances (many first-generation homeowners), but the at the source - at the level of banks and agents approved to offer loans that are too risky for their buyers.

Miko, I agree. Mortgage regulation came in here on 30 October 2004, and I spend a lot of my day dealing with brokers who previously were allowed to get away with giving bad advice scot free. I come down on them like a ton of bricks, but at the same time I also see a lot of good brokers too who treat customers fairly and find the best deal possible for them.
posted by essexjan 11 November | 15:17
A different view of the mortgage crisis: Foreclosures, by photographer Bruce Gilden. It's a really well-done photo/audio essay, about 8 minutes long, about the town of Fort Myers, Florida.

That is really nice.

I think it's Blue-worthy, in fact.
posted by jason's_planet 11 November | 15:41
We're not hard hit here in Wisconsin, since we got only a mild bubble by comparison with other parts of the country. My town will be hard hit by a GM closure, though, so home prices will probably dip some more before they're through.

My parents are now struggling with finances, and you could objectively blame this on the real estate investments or credit card bills. But really, my dad managed both of them badly, and we're now struggling to seize control of the finances from him due to increasing dementia. He never was motivated to make the properties make money (no matter how many times I yelled at him about it over the years), and we've only just discovered how badly he let the credit card debt mount. If we can't get the minimum payment budgets under control, they'll have to go through bankruptcy, and that basically means a fire sale of the property. I hate him so much for this. But he isn't even the same person anymore. So my personal view is that this is one of the medically-caused crises and thus I have a lot of sympathy for people's situations right now.

Many of them were given assurances by their bankers that the loan would be affordable and by their real estate agents that their home price would rise enough before any reset that they could refinance. And they may not even have been lying, as that had been happening on a regular basis. Were there greedy and unscrupulous people who knew they couldn't afford this shit? Sure. But I think group psychology explains the majority of it. Get in while you can, reap the benefits of rising home prices before the bubble bursts, and play along in what is basically a massive mind game keeping prices high. Well, as bubbles do, it burst, and the people left holding the bag are NOT the experts who understood the market, but struggling people who make maybe one or two home purchases in their lives, maybe none at all before this one, and really can't be held accountable for not being experts.
posted by stilicho 11 November | 16:04
My parents came from a different world than most people here in the states. They grew up in occupied Holland, and didn't have squat. Surviving was all one would focus on. With that background they instilled some basic common sense ideals in me. They never got in debt for purchases. Cars were never financed, and credit cards were paid of every month. Their only debt was their house, and my father felt he had over-extended on that, but even by conservative standards it was well within his means. Today they are old and retired and live comfortably, and still shy away from spending any money.

Nowadays we get so inundated with offers of credit, that it becomes hard to refuse. While I agree that there were/are a lot of dishonest folks pushing credit, one has to wonder if people don't look around at everything and wonder how they can afford all this. Credit gets pushed on us because the buying power of the middle class is what drives this economy, and the real income of the middle class has been dropping steadily over the years, so now we have to finance it.

I've always felt that consumerism was a house of cards, and a faulty basis for an economy. Look at all the stories you read, like the ones in the article, and see all the mentions of Christmas. That such a large part of the retail economy is based on Christmas sales is completely absurd to me. An imaginary holiday where we are supposed to give shiny disposable things to other people is a cornerstone of our economy? To me that's completely absurd. Now, with all the job losses, and the credit crisis, that house of cards is falling down.

I don't know where people got lost, but I imagine a lot of it has to do with an emotional attachment to owning things. Partially status too I imagine. I do believe there are a lot of hard-luck stories out there of people trying to do the right thing, but I think there are even more stories of people's own folly and greed. What I think is shameful in this country is that the folks that ran us down this path, and ran their businesses into the ground are going to get paid handsomely with their government bailouts. The folks that are going to get screwed by all this, are just that: screwed, and left out to rot.
posted by eekacat 11 November | 16:34
I was recently at a housing conference, and one of the keynote speakers was from the FHA. He had an interesting slide in his presentation, that showed the market share of FHA loans, sub-prime loans, and traditional loans over the past few years. Traditionally, FHA loans make up about 5% of the market, and sub-prime type products maybe 2%. But when the sub-prime market really got going (fueled by Wall Street's demand for mortgages to create mortgage backed securities and helped along by third-party mortgage brokers that get a commission when a loan is made but suffer no consequences if the loan defaults) those percentages flipped. FHA market share dipped to 2% while sub-prime products became 5%. So, assuming there were no massive changes in the home buyer demographic, the FHA guy was pointing out that very likely, many of those folks that ended up in predatory sub-prime products would have qualified for a more traditional 30-yr fixed FHA loan.

There are reasons they didn't end up in the FHA loans (he asserted that the paperwork requirements and time it takes to get an FHA loan vs. those predatory products was one of them) and it's likely they wouldn't have been able to get such a large loan. But I would wager that many of them were screwed by a combination of predatory mortgage brokers and poor financial insight (and like kellydammit said, not expecting people to straight out lie to them.) It's not that they didn't deserve or couldn't afford a home, it's that they couldn't afford the particular loan they got.

I say that as a renter in an expensive city that sometimes resents the pressure to buy buy buy and wistfully wishes she could afford a home, but can't.
posted by misskaz 11 November | 17:39
I know (of) two couples who've just bought foreclosed homes. I knew it happened, but I thought I knew the sort of progressive, sensitive people who wouldn't do that. It makes me really really sad.
posted by birdie 11 November | 17:53
Um birdie, what do you propose should happen to foreclosed homes? They should only be bought by big fat capitalist meanies to be turned into rental/profit vehicles? Or maybe purchased by progressive sensitive people to be turned into homes? I think if that's your opinion of those people then maybe that's the best possible outcome?
posted by eekacat 11 November | 18:11
And yeah, they should have seen it in the paperwork, but I can kinda understand when you have a broker telling you one thing, and handing you dozens of papers to sign, not reading every word with the assumption that your broker is flat-out lying to you.

I was at the gym tonight trying to cancel, and instead I allowed myself to be talked into "freezing" my membership, and I signed all these crazy papers that said all sorts of crazy stuff, with the guy being like, oh no, see, here's what that really means, and I thought, you know what, he better not be lying, because if he is, I think I'm screwed. So I get it.
posted by ThePinkSuperhero 11 November | 20:46
That such a large part of the retail economy is based on Christmas sales is completely absurd to me.

Me, too. In high school I worked in retail, and we'd typically get "daily goals" for how much business the store was expected to do during every day of the year - but they were really intense in December, unrealistically high. It seems as though every year we hear some report about "retailers disappointed in fourth-quarter earnings." Well, I think they may be promising too much to the shareholders, because from my point of view, they seem to be selling more and making more cash every year.

Christmas has gotten out of hand for many people. The Black Friday promotions, the lines outside stores? People replacing perfectly good home electronics with a little bit bigger and newer home electronics? The drive to constantly consume and purchase is odd. For many years, my family and I have been setting a low, low limit on Christmas gifts for each other. The holiday is no less fun and, if anything, we all appreciate the extra time we get in that we don't have long lists to shop for. When you are spending a small amount on someone, you think really carefully about what you'd like to give as a gift. When it comes down to it, what I love about Christmas has very little to do with STUFF...it's the time with people I really love and enjoy, the specialness of the season, all that stuff, as cheesy as it sounds. I couldn't tell you what the heck I got for Christmas three years ago, but I can tell you I remember volunteering with my Mom, playing some tunes Christmas day with our family friends, laughing ourselves silly over some family joke or other, and taking our young cousins to NY for the day to walk around. It's other people, and experiences, that mean the most in life. Not stuff.

although we haven't totally given up gift giving because everyone loves to get creative with giving their gifts, and we like fun surprises
posted by Miko 11 November | 20:52
Yes. Except for the very difficult for me squeeze due to raises not keeping pace with increasing prices, I'm sort of glad for the downturn. I'll be in the 401 and the ilk long enough to more than recoup. Gas is lower and the dig darn SUVs are not as prevalent. And yes, please, let's all scale the heck back on the Holiday Pressure and the Consume Pressure and everything else.

I'll add that for those of us fortunate (through no insight of our own) to have bought a house before the bubble, we were under intense pressure to refinance for a higher ammount, or take out equity one way or another. I'm so very thankful I resisted (my MIL is a mortgage broker). That's for emergencies if you are unlucky, and retirement if you are lucky. Take out cash on your home to pay down debt? Sounded sensible, rates would be lower, but come on, we would have just ran up some more debt, and ended up close to even instead of ahead on our small home.

It is confusing, but I do still have misgivings - my friends mentioned earlier - while upside down, are not behind on their payments. This new Govt. Plan says something about you have to be three months behind. Hu? One of these women is considering walking away from her home (the Las Vegas one) if the bank won't work with her. She's gotta bust her credit rating to get help? I don't know. I'm no expert.
posted by rainbaby 11 November | 21:03
When I started working in mortgage loans (1984) the minimum down payment was 20% and none of it could be a loan; you either had to save it yourself or get it as a gift. Your income to debt ratios were 26/33 (which means that your misc. debt such as credit cards, auto loans, etc. was limited to 26% of your gross income and after adding housing costs it was limited to 33%). By the time I quit 15 years later you could have as little as 3% for a down payment and it could be a loan and ratios were crazy high - bottom end 50% and higher.

And, as stilicho mentioned, borrowers trust a lender to not lend them any more than they can afford. What a joke.

Oh, almost forgot - they were called upside-down as of 10 years ago.
posted by deborah 11 November | 23:11
The sad thing is that there's pretty much no legal penalty for a broker intentionally misleading someone. My friends looked into it, since they were told it was a fixed rate and it turned out to be fixed for some years only, and the lawyer they consulted pretty much said "it sucks, but there's nothing you can do."
It's insane... they can legally lie to you, hand you papers in technical real estate law jargon most average people can't understand anyways, and you end up fucked since the answer is "you should have read it in the paperwork."
posted by kellydamnit 11 November | 23:40
deborah - your 1984 sounds like our 2006. Here you have to have, I think it's ten percent now, in savings before you can buy.
posted by dabitch 12 November | 09:04
Deborah, that's interestingly specific. Thanks for illustrating this point.
posted by Miko 12 November | 10:09
You would think... || Am I the only one

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