Financial Advice For The Hearing Impaired
Cramer loses his shit...
The sad thing is, it sounds like thousands of people may be losing their shirts...and then some...in the sub-prime crash.
Or...is this the case, as commenter Zentec writes on Consumerist?
There won't be thousands of foreclosures. Either the mortgage holders will rewrite the terms of the existing mortgage or the foreclosure department at the bank will become so overburdened that they can't possibly manage to take on any more foreclosures.The likely scenario is that at some point, the bank will walk up to those about to be foreclosed and say "what will it take for you to keep the house?" "Oh, you need a monthly payment of $600 per month?" "Done."
Troy F. responds:
And *THAT* is what really pisses me off. Once the results of the collective stupidity hits critical mass, the people who did the WRONG thing will be rewarded while those of us who did the right thing will get to absorb the damage. I am tempted to call my lender up and say "HEY! I bought within my means - maybe you should reward me instead of some deadbeat." $20k off my principle might placate me.
Julie Creswell and Michael J. de la Merced write for The New York Times that the fallout from the mortgage loan business is being felt far and wide -- even in the silverware business, where Oneida "was forced to withdraw a planned offering of $120 million in high-yield bonds to investors as the credit markets froze up seemingly overnight":
If the deal had been offered just a month earlier, said Andrew G. Church, Oneida’s chief financial officer, the company would have had no trouble raising the money. “But it happened so quickly,” he said. “We’ve never seen anything as quick as this.”The sudden change in the financial atmosphere is emerging as the toughest test yet for Ben S. Bernanke as chairman of the Federal Reserve. While the Fed is not expected to alter short-term interest rates at its monetary policy meeting today, Mr. Bernanke is being pressed by many on Wall Street to emulate his predecessor Alan Greenspan and quickly open the door to a future rate cut. But others argue that he should resist any easing and let the market sort out the winners and losers rather than help bail out troubled borrowers and lenders.
Ya know I used to work as a loan officer, It got to the point where I couldnt take it. To be completey honest I would tell people what stupid shits they were being with their money and they would take there buisness elswhere when I tried to talk them out of some monumentaly stuipd specialty loan and get them a simple 20 or 30 fixed rate.
To be perfectly honest I didnt pay that much attention to the national and world economy until after I left that job. I saw this comming yrs ago, anyone with half a brain saw this coming yrs ago, That job is the reason I started paying attention.
And Troy F. ire at lender giving people breaks is stupid, they wont be doing it out of the goodness of their hearts, they'll be doing it so they still have some small amount of cash flow that will allow them to stay in business.
There is no piont at getting mad at morons who were suckered, no matter how willingly - and belive me they WERE willing. You want to get mad at someone? Get mad at the lenders and loan investors who thought they could make some quick cash, sell the loans to investment vehicles and spread the risk wide enough so that the completely unaviodable debt wouldnt create to large a strain in any one area.
Get pissed off at the smart people who let their greed override their common sense.
lujlp at August 8, 2007 1:20 AM
Cramer seems more upset that his Wall Street Buddies will be losing their jobs than at any other aspect of this. And yet, who should be held responsible for this?
jerry at August 8, 2007 5:46 AM
Personally, I blame the real estate agents and the zoning boards. Since real estate is a pure commission deal, the realtors have a strong incentive to push up house prices. And status-deprived yuppies will pay whatever they can be conned into believing a house is worth.
Then we get the zoning boards and their minimum size edicts. Since a 3,000 sq. ft. house makes them more money in taxes than a more modest 2,000 sq. ft., they pass regulations that say "ok, nothing smaller than 3,000 square feet".
And the lenders are more than happy to make the quick buck on loans to people who clearly cannot afford them, by playing stupid tricks like the interest only loan.
I bought a house last year. 1,100 sq. ft. on a 30-year fixed. At least I won't be on the receiving end of a foreclosure.
brian at August 8, 2007 5:48 AM
Good for you, Brian! I'm still renting. My parents own the house (just shy of 2,000 sq. ft.), though, so I'm not paying an arm and a leg for rent, but if I were to buy it? Sheesh, my monthly payments would double, and that's not including insurance. I'm just going to keep paying rent, and banking the difference until I have at least 30% to put down before I buy. It'll be that much easier in the long run. But meantime, I'm not accruing any equity.
Flynne at August 8, 2007 6:24 AM
500+ BB in 2/28 resets coming, lots in Cali where no one has any equity room, they are stretched to the limit already. The worst is still a long way off. A year ago Moody's was predicting a bottoming out right now with '08 the recovery year. Now they are saying it won't get better until '10. Everyone is hunkering down for the long haul and anyone left standing will be very strong on the far end. Hang in there!
Rodger at August 8, 2007 6:46 AM
I got a 7-year ARM at 5.375% and it will be four more years before they can raise the rate. Even then they can only do so incrementally. The payment on my little condo is so low, it's not even like it would make much difference.
The market where I live has been sluggish and is definitely a buyer's market. If I sold my place now maybe I would get a little less than I paid for it, but then I didn't pay much to begin with and I don't plan on selling it any time soon. Maybe people should get it figured out that flipping houses simply isn't a good way to make money anymore. Don't buy one unless you can actually afford it and plan to live in it a while.
I realize houses are quite expensive in some areas - if you have to pay half a million for a house you could easily lose $50K-$100K during a market depression. So here's an idea - don't live where it's so frickin' expensive!!! $500K would buy you a mansion where I live, and the jobs only pay slightly less than in the big cities. Living in San Francisco is a luxury, just like owning a Mercedes or a swimming pool. Don't want three-fourths of your income sucked up by your house payment? Well don't live there - think of it as a vacation spot instead.
Pirate Jo at August 8, 2007 7:26 AM
We live in a fairly modest house (1500 sq ft?) in a neighborhood where housing prices have almost tripled in the ten years we've been there (we bought at the bottom of the last real estate price trough). We refinanced four or five years ago, a 20-year fixed at something like 5.75%. We've dipped into our equity line a couple of times to do some remodelling, but have always paid it back off. Back before the "do not call" lists, we would get solicited almost daily for adjustable rate mortgages and equity lines. I can see where people who aren't financially savvy can get sucked in. But I also agree that unscrupulous lenders are part of the problem here. Greed and ignorance are always a bad combination.
deja pseu at August 8, 2007 9:36 AM
Amy - Knowing that you rent, I admire you tremendously for this post.
> Get pissed off at
> the smart people who
> let their greed override
> their common sense.
I've never agreed more with a lujlp comment
Crid at August 8, 2007 9:49 AM
Also, how do you pronounce lujlp?
Crid at August 8, 2007 9:50 AM
I realize houses are quite expensive in some areas - if you have to pay half a million for a house
Hell, if you can get a one-bedroom condo here for 500k you're getting lucky these days!
> Get pissed off at
> the smart people who
> let their greed override
> their common sense.
Yep, yep, yep. All those real estate boom cheerleaders (Hi Mr. Lereah!) talked about real estate maintaining historically unsustainable rates of increase, and people bought it. Many of these people were the same sort who thought the tech boom of the late 90s signaled some sea change in how markets worked. Fools, the lot of them, and they're going to get what's coming to them (I hope). Fortunately for those who are more careful with there money, there will be good buying opportunities in a year or two after the house-flippers and other get-rich-quickers take a bath.
I have no respect for Cramer, though. Did anybody else see the video where he looked like he was coked to the gills while explaining his hedge-fund strategy for illegally gaming markets? (I'd link, but I can't seem to find it).
justin case at August 8, 2007 10:06 AM
aii!!! I'm one of those people! I wrote "there money" when I meant their money. I'll offer a sacrifice to the grammar gods later to appease them.
justin case at August 8, 2007 10:56 AM
lu is a shortening of a nickname I had in high school, and jlp are my initials - personally I hear it in my head as just a string of 5 letters
l-u-j-l-p
lujlp at August 8, 2007 11:42 AM
I hear it like Lu Jay lup
PurplePen at August 8, 2007 11:46 AM
The impact of the sub-prime mortgage loans has been bad enough, especially for those losing homes. It will be when the Alt-A loan fiasco comes to fruition that you’ll want to be standing somewhere other than by the fan.
Roger at August 8, 2007 11:50 AM
Thanks, Crid. I worry that this is just the tip of it, we're seeing, too...the Oneida tale, I suspect, will be one we're hearing again from others, and this could end up, in a sense, being Katrina-esque (but without the flood) for a whole lot regular people without a lot of financial sense.
Amy Alkon at August 8, 2007 11:58 AM
I live in a small CA city. There are less than 15K residents, and right now there are over 1000 houses on the market here, most of them new or under 3 years old. They're asking 250K - 350K for average-sized 3 bedroom homes. That might sound reasonable for CA, but we're in the middle of nowhere. It's an hour's drive to the nearest, say, Target or TGIFs.
So there are all these houses, bought or built during the boom, sitting on the market. Many have been on the market for over a year, and only recently have asking prices begun to drop a bit. And more are being built left and right (thanks, KB Homes). It's like people have this idea that the market is still what it was, and are blind to the actual housing economy. Or maybe they're not prepared to accept that they made bad investments. They're not even renting the new places out, presumably because people won't want "used" houses.
On the bright side for us, in a couple of years when we've saved up a decent down payment, I'm betting we'll be able to get a good deal.
Kimberly at August 8, 2007 12:50 PM
They're asking 250K - 350K for average-sized 3 bedroom homes. That might sound reasonable for CA, but we're in the middle of nowhere. It's an hour's drive to the nearest, say, Target or TGIFs.
That's the bare minimum they're asking for the same type of house here in New Haven county. Houses in Fairfield county cost even more! And they're still building! My house has 4 bedrooms, it's 3 blocks from Long Island sound; you can walk to the beach, the center of town, the train station, etc. Target is 2 miles away, as is TGIFs, and myriad other restaurants, stores, malls and so on. Right on the I-95 corridor, one of the most dangerous stretches of interstate highway on the East Coast. Overcrowded? Heh, don't get me started. When I worked in Fairfield county, I had to leave my house at 7 a.m. to be at work at 8:30. (Should only be a 20 minute drive.)
Flynne at August 8, 2007 1:09 PM
OK. If we look back to Nixon opening the Gold Window in 1974. We built an economy from the end of WWII on cheap gas, oil, commodities, and govt control. The US treas. said they would redeem one dollar for an ounce of silver. All of a sudden a bunch of dollars began to show up to redeem an ounce of silver for $1:35 an ounce. The treasury said said that if you presented $32 dollars at the treasury window they would give you an ounce of gold. Guess what happened in the next 8 years. Gold ran up to a high of $860 an oz. Almost two orders of magnitude.
Now , The fed can control short rates to a degree but not long rates. Long interest rates are a function of true demand and are a true commodity. No corporate treasurer is going to commit to `15 to 20 year paper carrying a rate of 15 to 18 percent. Much less a government agency. Long rates are the same as any commodity. If Oil runs to $75 a barrel then long rates have to follow.
It's Volker inflation all over again but not the government's fault. We've been living well but borrowing against the "present".
nick at August 8, 2007 9:38 PM
Oil is already $78 a barrel. What happened is big corporations, in cahoots with the government, offered impoverished countries with a commodity that they wanted (oh, let's say oil) millions of dollars in "loans." Of course, when these impoverished countries couldn't pay back the loans, and their leaders/rulers had spent all the money on huge palaces and gold teacups, and neglected their own people, the "corporeaucracy" said, well, gee you have something we'll accept as a return, and set up OPEC, and then proceeded to screw things up in such magnificent proportions, that it's all spiraled out of control! No one claims or will accept any accountability, so there you have it. Hell in a handbasket. Aren't we just so lucky?
Flynne at August 9, 2007 5:35 AM
"it sounds like thousands of people may be losing their shirts...and then some...in the sub-prime crash."
I'm always glad when the big indices take a dip, especially right before the 2 times of the month when I regularly buy shares. I love a sale!
Panic leads to stupid investment decisions. So, don't panic.
Lena at August 9, 2007 2:04 PM
Lena, what do you like to buy this year?
Crid at August 10, 2007 9:10 AM
There's several mutual funds that I buy into regularly. I think the ones that are really doing well are composed of new companies in riskier markets south of the border and east of, um, Western Europe. I'm sorry I can be more specific right now. I'm jetlagged after a really great week in Madrid. (The world is a beautiful place, by the way. Make sure you see it before we've finished destroying it.)
Lenazoid at August 11, 2007 4:51 PM
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