The Foreclosure Story: What does the Process Look Like?
Joe and Mary
Ages: 29 and 28
Professions: Joe – Senior Account Executive (lender), Mary – Real Estate Agent
Location:
Yearly Income Combined: $130,000 Gross
Net Monthly Income (After Taxes): $8,200
Automobiles: Mercedes E350 Sedan ($599/33 month Lease), GL 450 Suv Purchase ($56,000)
Monthly Auto Fuel Cost (Filling up Once Per Week): $350
Home Purchase:
Credit Card Debt: $25,000
Monthly Food Budget (Including Dining Out): $700
So this should give you a nice snapshot of the couple. Since they were sophisticated investors in the know, they decided to jump into the home with a 2/28 loan, interest only with no money down. After all, someone making $130,000 a year can clearly sustain pretty much anything right? And as we all know, no money down was no longer simply a thing of late night infomercials but a mainstream way of buying a home. Here is the monthly budget below with the teaser rate loan (they had it for 2.75%):
2004 Budget
House Payment (PITI – at 2.75% interest only/2 years): $2,249
Auto Cost (monthly payment/lease/loan/fuel): $1,749
Dining: $700
Credit Card Payment: $500
Total: $5,198
Monthly Net: $8,200
Disposable income: $3,002
Keep in mind we are not factoring in medical insurance, cell phone cost, utility bills, retirement accounts, and many other items. These are things that I am aware regarding their budget since I was privy to the information. Well, more like them showing off to me, but I made mental notes on these items as I would with a past client showing me their monthly budget. So even with that said, $3,002 a month in disposable income is a pretty nice chunk of change to pay the remaining monthly items. But again, this was a teaser 2/28 loan. Unfortunately, they didn’t factor in one of them losing their job, a rate reset, and a slumping housing market. Let us take a look at the late 2006 monthly budget:
2006 Budget
House Payment (PITI – amortized fully over 28 years/full rate of 6.25%): $4,962
Auto Cost (monthly payment/lease/loan/fuel): $1,749
Dining: $700
Credit Card Payment: $500
Total: $7,911
Monthly Net: $8,200
Disposable income: $289
Suddenly the jump in the rate creates a crunch on the household income. Keep in mind the above still doesn’t factor in other monthly cost. In addition, this was in late 2006 before, Joe lost his Senior Account job because the company went under. They were already feeling the pinch since the housing industry was already showing signs of weakness and their income being variable with commissions, was also taking a hit. Joe jumped to another mortgage outfit but they were only able to give him $30,000 a year base plus any commissions. Of course with the tightening of the housing market business is not going so well since both of their careers are tied directly to the housing industry. Their combined income is no longer $130,000 a year but approximately $80,000 a year. So let us run the numbers again with the new household income:
2007 Budget
House Payment (PITI – amortized fully over 28 years/full rate of 6.25%): $4,962
Auto Cost (monthly payment/lease/loan/fuel): $1,749
Dining: $700
Credit Card Payment: $500
Total: $7,911
Monthly Net: $5,804
Disposable income: $-2,107
Now we are running massive monthly budget deficits. It may come to a shock to many people that a household earning $130,000 a year actually may have financial difficulties. But looking above, you can see how easy and quickly someone can go into financial ruin. Statistically, this couple was in the top 10 percent of household incomes in the country. Yet they spent way beyond their means.
What Does Foreclosure Really Look Like?
Foreclosure has been a somewhat unheard of novel thing in
The psychology of running massive monthly deficits is a hard one. For one, you are probably wondering about the incredibly high car cost. This is
Month 1-6 – (Pre-Foreclosure)
Joe and Mary miss one payment. They have their home listed at $790,000 on the MLS. No bites. The bank sends a late notice to their home. Since they’ve been in the industry, they have seen homes sell even before landing on the MLS. They are certain that they will sell the home.
Total Monthly Payment Behind: $4,962
Late Payment: $40
Total to Cure Account: $5,002
Another month goes by and no offers. They lower the price to $775,000 to generate some interest. Nothing. They start getting a bit anxious. They get another payment from the bank but this time, they will need to make two payments. At this point, they make a conscious decision not to pay the mortgage and put in a clause for a future buyer to cure the account when they buy:
Total Monthly Payment behind: $9924
Late Payment: $40 x 2
Total to Cure Account: $10,004
At this point the bank tries to make contact with Joe and Mary. If they couldn’t pay $5,002 how are they going to pay double that? A third month comes along and they lower the home price to $750,000. Still the market is dry and silent. At this point the couple receives letters from the bank and attorney. They now start receiving formal letters:
Total Monthly Payment behind: $14,886
Late Payment: $40 x 3
Legal Fees: $75
Total to Cure Account: $15,081
Forth month comes along:
Total Monthly Payment behind: $19,848
Late Payment: $40 x 4
Legal Fees: $75 x 2
Total to Cure Account: $20,158
Fifth Month:
Total Monthly Payment behind: $24,810
Late Payment: $40 x 5
Legal Fees: $75 x 3
Total to Cure Account: $25,160
The bank issues a demand for full payment including full balance, back interest, plus late charges, and legal fees all at once. The legal notices start. Joe and Mary now have their home listed at $715,000. Still no bites. They did have some people come by but the deals didn’t materialize. Now they need $25,160 to cure the account but the bank has legally informed them that they will accept no payments except a full balance payment on their original $675,000 note. Keep in mind the bank is no place for negotiations. Can you imagine calling up your local Mercedes dealer and saying, “Hello Mercedes? Yeah, I’m not going to be able to afford the $600 this month but would you be willing to take $300 plus a free Dodger ticket?†The bank now sends a certified letter of notice of intent to foreclose. Joe and Mary realize they will not sell their home. The notice and waiting period begins. They stay in the place two more months. Now it will cost $35,000+ to bring the account current plus a full payment on the balance. Of course this will never happen given the circumstances of their finances. No payments are arranged and the house is sold at auction and of course, the bank reclaims the home as REO since they are on the sheets for $675,000.
The home is now officially REO and get this, they have it listed for $750,000! The bank is delusional. Joe and Mary now have a foreclosure on their credit record and rent a much smaller home. They managed to break the lease on the Mercedes but are on the hook for the purchased SUV. You’ll notice how things spiral out of control when you spend more than you earn. I can only imagine households with $60,000 getting into this mess. If anything, it will accelerate ten times faster. They are considering bankruptcy but the new laws are now more stringent in terms of letting people completely off the hook, especially a couple that makes nearly twice the median US income.
Hopefully this article gives you an inside look at the story of foreclosure and how it can happen to anyone. I’ve seen many blogs talk about foreclosures and the numbers but haven’t seen a post detailing the entire process and how it impacts a home owner’s bottom line. Not only that, but you should get an understanding that we are in a bubble so large, that missing one payment puts you in arrears for $10,000, or the down payment of a modest home in many states of the US. If this is what happening at stage one of the bubble, what do you see happening in the latter stages?
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73 Responses to “The Foreclosure Story: What does the Process Look Like?”
I’m curious about the lingering effects of foreclosure. I think a lot of folks think they can just drop the keys off at the bank on the way out of town…
Gotta be hard to get a high paying job with a foreclosure and there must be tax implications…
I’m guessing that 30 somethings with a 600-700K foreclosure just added 10-15 years to their working lives.
Dr HB,
Sad story. And it’s easy for so many of us to point fingers at their mistakes, but this just reinforces how easy it is for unanticipated financial hits to turn lives upside down. Recently we had some medical expenses which used to be covered but our coverage had changed and I failed to read the fine print. Relatively minor and savings bailed us out, but several aquaintances were highly critical saying how they would have not been caught unaware like I was. Hindsight is 20-20. BTW, posting as Oso since there is another joe posting here. Now if there’s another Oso I guess we’ll both just have to live with it.
Take care
@steve,
What we are seeing is the growth in short sales. Meaning the bank is willing to allow the owner to sell the home for less than is owed. For example, you owe $400,000 on the mortgage and the home is sold for $350,000. A 1099 would show this difference, including cost incurred by selling, as income generated. Since we in the early stages of this mess, I expect to see banks issue deficiency judgments going after homeowners. But good luck trying to squeeze blood out of a turnip.
Sometimes banks will waive the deficiency judgment because they know full well they will be unable to collect the funds. They are trying to get out with as little damage as possible.
@oso,
The only sad thing is we will see more of this. What will be even more depressing, is if these same folks return to their same behavior of conspicuous consumption. I’m not sure I have sympathy for this couple. I told them to save during the good times and they had amble opportunity to do so. Now, they are left with massive debt and the only way out may be to file bankruptcy.
We are in the early stages of this bubble bursting and it will go on for a few years. Summer is supposedly the hottest selling season. Doesn’t seem that way in 2007.
In addition, we have so many people in the housing industry complex that will face a double whammy. Before, down markets in real estate were headed by job losses normally in other industries. This time, we are seeing job losses in real estate because of real estate. Try following that circular argument.
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.
Living on the West Coast (not SoCal), we have watched our neighbors and friends consume mass quantities on an epic scale.
Frequently my spouse would ask me how our neighbors could afford brand new BMWs, full furniture setups from Ethan Allen ( and the like), gee whiz landscaping and so on (I could go on for a long while about the positively crazy consumption I see…). I always remind her, they own very little. Its all a credit facade. Goods on credit, leased autos, HELOCs.
While researching a possible move to SoCal, I found this site. Your insight I find profound, though in the end its so much common sense (which seems in short supply these days financially).
People have been feasting at the credit trough and justifying things with the old bubble adages like, “This time its different” or “Everyone wants to live in XXX”, or “They aren’t making any more land”.
We drove through Temecula and Murrieta a few months ago. OMFG that place is imploding. For Sale signs EVERYWHERE, it seemed like every 3 houses.
The OC is coming. We have friends there. They are in total denial. They say all the cliches’ too. I tell them to read patrick.net or this site. Spend a little time on redfin.com and enlighten yourself. $200k houses listing for $850k. Its totally insane. These are RSM and MV, not waterfront in Newport or Laguna!
I sleep at night with money in the bank. Trying to live like the morons from People or In Style magazine is insane.
There is a big difference between the asset class and the paycheck class. Unfortunately too many people don’t get it and fall victim to the relentless pressure to consume in this country.
They made more money in three years than I will earn in a lifetime. They deserve worse than they will get. In California being a mortgage deadbeat is considered a good thing. I hope they all rot because they are destroying the entire country and the value of my money with their high living and financial shenanigans. Bring back debtors prisons for these two.
Really? I am sure you are not perfect. You may one day fall short on a financial debted and then you will see that we are all human. How can you judge so harshly? People get into messes and thank God for Amercia where you can wipe your slate and start over. Hey…they didnt kill someone…they just made wronge choices in ther finaances. Be more realalistic and dont judge. Now if they do it again then I would say they are irresponsable. God bless…
oso… how easy it is for unanticipated financial hits to turn lives upside down….
What “unanticipated financial hits”?
They turned their life upside down with the “Southern California disease”, called Moronismn and a case of “wannabe-ism”..
Thank you Dr. HB not showing a lot of sympathy for these people. We have the same story over and over in our circle of acquittance’s and it’s pathetic. People who actually make way above middle class income behaving like complete uneducated, stupid retards.
I tried to mentor these kind of people in the past but I gave up long time ago because I was looked at as “cheap” and below THEIR class because I use coupons and shop at Marshall’s.
Yeah right, let’s see who sleeps better.
Liberal,
I didn’t explain myself well, because I’m in general accord with what you say. In my case health issues were unanticipated financial hits that savings and reasonable payments took care of. In Joe/Mary’s case job loss and “It can’t happen to me-itis” caused their downfall. I agree they aren’t very sympathetic. Probably a better way to sum up what I was trying to say is, How quickly things can turn to sh*t.
later
Dr HB-
You really gave me chills with this post. My wife and I were in a very similar situation back in 2004.
We had the same CC debt, we also had two car notes (although we both drive Honda’s not Mercedes), same fuel cost, current ages of 24/25, but the big difference is that we are both teachers and not tied to RE. Last year we had the same income they had in 2004. We were going to buy a house but we decided to pay off all our debt first and so for the past three years we paid our CC debt and both of our cars (about 50K). Now we are debt free!
Last year we were going to purchase a new KB home out in Corona. I did my HW and tried educating myself a bit. My wife and I were 23/24 so we really didnt know much. We decide on a house and go to contract. We were going with a 30 yr fixed and were looking at a payment of 4000K a month which included payments on a first and second, PMI, tax, and insurance (This was the primary reason we later canceled the contract). I went with my gut feeling and told my wife “if we make a bit over six figures and we can barely afford to buy who else is buying?” Now I know who.
We sat and signed so many damn documents that it took us well over an hour. The very last one we signed was one that said something like this. By signing here you are acknowledging that anything the salesperson said holds no truth/meaning but rather what you signed. So my understanding was that this salesperson could have lied her a$$ off telling me anything to get me to sign and it could potentially be false? Before we sat there I asked for all the documents we were going to sign before hand and actually read them! Get this she was upset telling me “you’re the first person that has actually read them (which brings up a completely new question of who can make sense of those damn contracts? I am fairly well educated and I could barely do it.).” I had a long list of questions for her and apparently since I made her work for her money she was pissed off at me. She really did a good job in making it seem like I was a headache. I guess they love them stupid and hate the ones that make any attempt to question anything. Two days later I canceled and got all my money back.
This was back in Nov 06. Since then I have discovered your site and others. I know 10 times more what I use to and want to sincerely thank you for all the stress you have saved my wife and me.
We have not bought a house yet and we will continue to wait. Our rent right now is $800 for a 1000 sf 2 bd apt. Those 4K we were planning to pay to rent that house we were “buying” we are now saving. This post really put me in a position to see where my wife and I could have been. Although we have more stable jobs it is still scary to know the amount of debt we would have right now and letting go of so much money each month for a depreciating house.
BTW the house I was going to buy is in a zip code that made the list for the top foreclosure in CA.
This is a situation that will occur all too much over the next couple of years.
My father and my father in law always told us that housing costs should never exceed twenty-five per cent of your take home pay.
We tried it both ways. They are right. Everything always seems to fit better when you’re paying no more than twenty-five per cent for housing costs.
Does this mean you should consider downsizing if yours is higher than that?
Yes.
There were a lot of warnings about this housing bubble in 2004, but people laughed at these “gloom and doom” warnings. So, foresight was 20/20, but people were blinded by
greed. No sympathy here.
Ouch. This is happening in records numbers for people in my age group (I’m 32). I have no idea why my peers need to buy the big house and the fancy cars. Been there, done that and got out before I buried myself.
Just makes me feel better about doing the right stuff.
Elprofe:
I have to disagree with one thing you said: “My wife and I were 23/24 so we really didn’t know much.”
After reading your story, I would say you know more that 90% of the people who bought a house over the past few years. Congrats on following your gut and being smart in your decision making.
Everyone keeps talking about ARM resetting causing a flood of foreclosures. Do you think these will be accompanied by higher interest rates?
Since 2001, I’ve been carrying a mortgage of $150k for my parent’s home which is worth $300k. I’m been thinking about taking out a 2nd mortgage of 150k at 6.5-7% and parking it, in anticipation of higher interest rates. I figured that if rates ever exceeded 6.5 to 7%, I made $$ off the difference. Curious for your thoughts.
And who says there is no justice in this world?
What I would really like to know is how many other people this wanker put into a 2/28 ARM that are now in the same boat as him?
I also think the writer of the article is stretching it a bit by calling these two “sophisticated investors in the know”. I think two unsophisticated investors in the dark would be more appropriate based on the facts presented.
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.
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.
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.
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.
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. “
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.
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.
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
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 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!
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.
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!
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.
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?
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.
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.
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.
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.
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 !
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 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!!
>>>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.
COMMENT TO THE NORTH COAST:
Great comment NorthCoast. I’m with you. I drank the Sales Kool-aid as well. I’m not deferring my responsibility but I did believe, as many do in sales, that my income would always increase. The problem is that my thinking, and others thinking, is flawed because this is our first time around at this game and really first time around in life. So unless you’re a student of the history of markets and economics and maybe a good foundation on Personal Financial Plannning then you believe the hype. You’re basically connected to the own-a-home at whatever price Matrix. I’m in this situation now and really have gone to the point of despair. My income is not the same as it was and everyday I get further behind. So I’m ready to throw in the towel let my property go to foreclosure and live within my means, work hard, save money and live life simply and in cash. My Nordstrom’s CC is maxed out anyway. I just ask myself sometimes, “how did you ever get to this point?” The sad thing is that one arrives at this point slowly without even noticing it. Well I’ve the sleeper has awaken and I will not live my life indendured to debt and the sad materialistic culture of our times.
Take the exact situation in the article, change a few parameters and you have my situation: I have $1000 in car payments and no CC debt. Also my house was $400,000. The market was difficult for buyers in my area in 2005 so I bought (at the time) what was the most reasonable priced home I could find (without bars on the windows). Factor in the skyrocketing property taxes and hurricane insurance as well as my ARM adjusting and BAM! I cannot afford the home now. I know, I know…the ARM. But in ’50 I figured in 2 years I would just refi (not even draw equity). But since ’06, the house has lost $90K in value. Now I cannot sell it, I cannot rent it and I cannot refi it and it will foreclose. The point is each situation is different and you cannot judge everyone the same. My wife and I do not live above our means or attempt to keep up with the Joneses. We just….got stuck.
As I see it, these people did several stupid things:
1. Took a 2/28 ARM when fixed rates were at historic lows.
2. Bought a $56K car. Come on, cars decline in value!
3. Fleeced a Mercedes E350 Sedan.
4. Financed their lifestyle with a 20+% Credit card loan.
“Hopefully this article gives you an inside look at the story of foreclosure and how it can happen to anyone.”
No, it can happen to people who live beyond their means and make stupid mistakes. I have sympathy for them, but they made their bed and now they get to sleep in it. They are still making $80K, which is a lot of money. The solution is to get rid of the SUV albatross around their neck, get rid of the credit card debt, and they will still have a decent life style.
I can’t really say this is a sad story like the rest, these people made some very bad decisions and are paying the price for their lack of planning ahead. We can only Pray it doesn’t rip their marriage apart, let alone their finances.
2-3K a month on cars, and another 25K in CC debt!? (no doubt to furnish their condo/house/lifestyle)
They also failed to mention Student Loans, which at 25K in Credit debt, I’m betting they haven’t paid them off yet!
The sad part of this story is that they thought they could keep this kind of spending up without it effecting them. The sad part about this story is that if they weren’t so vain, they both could have bought or leased BRAND NEW Civics and they wouldn’t be looking at losing their house, all other bad decisions aside.
“how it can happen to anyone”
uh… the story showed how it can happen if people do a lot of really stupid things.
Yeah, I know this is bragging but we paid for the ability to do it.
I was born in 1930—not a very good year if you have a choice. And I taught history for 33 years. I saw bubbles break when I was a kid and I read and taught about the tulip, South seas, marino sheep, 29 stock market, tech bubbles.
So the fact that all bubbles break was not news to me. You should have paid attention in your history class.
Sorry.
I’ve lived through recessions. Readers who said that the couple in the story were glorified salespeople simply don’t realize that when a recession hits your industry, how bad a blow it can be. I’ve seen engineers out of work, losing their house, I’ve seen all manner of people who go through a bad patch and losing the lot.
I ‘m not a christian, but there’s much to be said about counting our blessings and to be aware that although we could be careful, we don’t have a lot of control over our lives.
Unfortunately for the couple in the story, Real Estate is a glamour industry, more or less like pop music. Their misfortune mirrors a similar trajectory that you see with pop stars, that they live it up when the money is good but get into terrible difficulties when the money stops.
The problem with Americans is that many think you have to dress like Angelina Jolie, have you hair done like Jennifer Anniston, live in a house like a Tori Spelling’s, get massages every week, eat out at sit down restaurants with waiters 5 days a week, have less than a 2 yr old $35k car and oh, yeah you have to have a major yearly project for your house. Problem is that very few of us make $250k a year to afford all this. I live in a market that has had 4 major RE recessions in the past 24 yrs. I have acquaintances who have lived here longer than me and don’t remember these corrections.
$1749 a month for a vehicle, insurance an fuel? I do not feel sorry for them in the slightest. They failed to cover the downside, bought too much house, and lived extravagantly instead of saving their money, and then it bit them in the butt. I earn half as much (single) and I’m very content with a $350 room, paid off truck, $160 a month in combined insurance, and $100 in bills.
I saw all this coming based on one event from my childhood. In the 70s a neighbor down the street was whispered sadly about by everyone. Tragically, they would say: “Oh, have you heard, the Smith’s took out a second mortgage.” “Oh, what a shame, nice family too.” Gosh, it was like they had the plague or something. My dad patiently explained why this was such a bad thing. That it meant the beginning of the end because it meant they could not keep up their payments, that they would lose the house and have to go bankrupt.
When this whole housing mess started with Greenspan bailing out Bush’s economy with free money and it became standard to take out a second mortgage, I thought to myself… why is this different than when I was a kid? And the answer was, it’s not different. It’s just mass delusion instead of one family going under.
If you have a second mortgage you are sunk. If you don’t have 6 months income saved in liquid form, you are also sunk. In the past, now, and in the future. Suck it up, sacrifice your manic lifestyle, and get your lives in order, people.
While it’s easy to view the homeowners’ culpability in their positions, what about the Fed Reserve? If you throw candy out to kids, is it unreasonable to expect them to come grabbing at them? Who gave the candies out? Throw in a culture of consumerism & debt, you have the perfect storm. The silver lining for the hapless people facing foreclosures – in a matter of time – they can re-enter homeownership- same house, half the mortgage.
My older son sent me a copy of Rich Dad, Poor Dad by Kiyosaki back in 2002. (Probably his covert message was that I belonged to the latter category.) It was a phenominal book to me, an eye opener. I then realized where I had gone wrong, or had not gone right, for that matter. So, belatedly, I decided to go into real estate investment. The most significant message of the author was “the power of leverage.” Now in 2007, as the demise of subprime borrowers and other folks who over-extended themselves in real estate loans beyond their means unfold, I can not help thinking how much of these irresponsible borrower psychologies might have been influenced directly or indirectly by real estate books like this. In my case, since I knew next to nothing about real estate, I decided to learn before jump and bought myself over a dozen of real estate books. Of all of them there was only one book that warned against the risks of over-borrowing beyond one’s means. I’m sure many of those folks read at least one of those books and got excited about their prospect of overnight riches. The gospel was “100% financing; no cash down; easy second mortgage; cash-out on refi; etc. While I firmly believe that those borrowers who have gotton into financial trouble, sub or non-sub, should have only themselves to blame, there is an element of criticism that should be directed toward those get-rich-quick book authors. As I was reading them, I became disgusted about the notion that many of those authors are advancing that taking cash out on refi is so great because it is tax-free cash that investors can use for next property purchase or personal luxuries. My son was seriously asking me how this “tax-free” scheme worked. I told him that it is simply called loan proceeds; income tax has nothing to do with it; you must pay back a larger loan; you are in deeper debt; and that you most likely have maxed out on your equity, if not over it, leaving no further room for future loans. Since I have not seen or heard criticism directed toward those real estate gurus, I thought I would venture one.
My personal goal is to buy a house on 1 income though we are a double-income household. I think it is a good way to go.
I only have the chance to read this article and after months I am still very amazed,in what place does someone can do a business without any capital( no down payment) and expected to make 100k in two years? ( this couple bought at 675k in 2004 and listed in 2006 at 775k) while staying in and enjoyed it
well it must be some places not in this wordly earth,doing nothing,no money and expectinf 100k for that” hard work? many people even in the same places down there in south california work hard for a minimun wage !!!! they do work hard,not enjoying and expect to pocket 100k in 2 years? no wonder the bubble burst !!!!
This is classic. Not only what they did was stupid at so many levels he was a lender. $700 a month for food and dinning out? $56k SUV and the benz lease?
WTF were they thinking? This is madness at their salaries even if they had a 3x income mortgage of $390,000.
Please bail out these poor unfortunate people. Homeownership is a right! Not.
I agree that the couple in question bought too much house and too much car for their income, but I’m a little surprised at people’s reaction to the $700 food figure. There’s 2 of them, so that’s $350 per person each month. Divided by 30 days, that’s $11.67 per day. If they ate 3 meals per day, that comes out to $3.89 per meal. Now, I’m used to eating out all the time because I don’t have time to cook, but $3.89 per meal doesn’t seem very extravagant to me. Let’s say cooking makes the cost per meal $2 (by the way, I’m very curious to know what kind of meals people are able to make on a $2 budget — Cup-o-Noodles?). And let’s say they go out to have a “nice” dinner once a week. So $350 – (86 meals * $2) = $178 left for going out. Divided over 4 dinners throughout the month = $44.50 for each “night out” = $7 appetizer + $15 entree + $5 dessert + $8 wine + $9.50 tax & tip = a meal at the Olive Garden? I’m much more shocked at the $350 fuel cost, that must be some commute.
JimG… I think he was implying “so called” sophisticated investors, etc…
Remember these folks were in the R.E. industry. Which underscores another point… how many R.E. professionals SHOULD have felt the “rumble in the rails” of a train coming, but believed their own party line B.S. (“It’s a GREAT time to buy, etc”!) and went ahead and took the plunge.
I personally know a couple of RE brokers who are in up to their eyeballs, because they thought it was just going to always go up.
Simple math and lifetime low interest rates should have been enough to prove to anyone, that there was a storm brewing.
Musical chairs…. someone is ALWAYS left standing….
What is stunning to me is the fact that these $400,000 homes in California are not that extravagant. I think people justifiably believed that with their income and jobs they ought to be able to own a decent house. Not luxury, just decent. AND I think in California that takes an exorbitant amount to achieve. Are these prices for real? Is anyone aware that many, many parts of the country – with nice people and nice climates – offer 2000 ft. 3BR/2.5BA for $150,000? In good neighborhoods? Please tell me WHAT in California is worth the prices you are paying.
FromTheSouth said, “Please tell me WHAT in California is worth the prices you are paying.”
Two things, weather and job opportunities. I was telling my friends in NJ I am paying $30 each day for the weather here (Low 45 high 75 year round). And they laughed and said come back. It’s also possible for me to find a job that’s paying $15k higher than in most of the other areas in the country to offset this extra $900 per month after tax. I am paying $1400 for a two bedroom 1 bath now and will be moving to a 3 bedroom 2 bath apartment for $1700 next month. I moved here about 3 years ago and never dare to buy a house. I thought the price was twice of the fair price at the peak (around the end of 05 and the beginning of 06). It went down about 20% in the past two years, and I guess it will go down another 30% to meet the rent level. I always thought owning monthly cost needs to be slightly lower than rent. Just like wholesale price needs to be lower than retail, it’s that simple…
Terrible story. Away from extreme examples like this though, it’s getting harder and harder for those on the verge to keep their heads above water. Hopefully the latest wave of intervention should have some positive effect.
I’m a retired banker (credit card industry), and just the description of this couple’s debt told me that this was a train wreck waiting to happen. But that doesn’t help these people, or the millions of others in similar positions. Regardless of how they got there, my heart goes out to all of them.
I don’t know if this couple understood that their introductory mortgage APR would expire and be replaced with a higher rate — or what the effects of that rate increase would be. Maybe they knew that, but they just didn’t think that far into the future.
I do wish people would stop watching so much TV, because I think it really influences this kind of behavior. Television is nothing more than a sophisticated sales platform — it has sold the idea that everyone is entitled to live like the rich and famous, whether or not they can afford it. And this story is just one example of the sad result.
For all of you who have no sympathy, let’s relate another story. I was making $125K/yr. Bought a $300K house in 2005 despite a realtor trying to convince me I could buy a nearby $600K house. Own outright 2 cars. No CC debt. Socking away as much $$ as I could and paying cash. In 2006, got laid off with minimal severance pay. Immediately started looking for a job and have continued, while beginning a consulting business to generate income. Still no job as my career background is with national builders. Consulting business is generating some income but not enough to support my household which is single mom with 2 children and no alimony or child support. I’m current on the mortgage but struggling mightily. All the while continuing my job hunt. Oh, by the way, I now have CC debt. I didn’t string myself out … I got struck by the declining market.
LandingThere, I think you’re the type of person that the government should help. You were living within your means, you just ran into a string of bad luck.
I feel for this couple, but they didn’t change their habits or try to get out of the 2/28 through refinancing. In our case, we made a bad decision to refinance with cash out for home improvements. Our hope was to fix, sell and get something better. Well, that didn’t happen. We fixed as much as we could ran. Ran out of money from the equity because the house needs more then what we got. So, our mortgage went up and on top of that we just got our taxes reassessed…and they doubled. So, because of our taxes increasing, out mortgage payment has increased making it virtually impossible to break even at the end of the month. So we have to either short sell the house in a “tanking” market or let it go. These, unfortunately are our only two options. We make a combined $110K per year. We each have a car payment, as well as insurance, daycare, credit cards and your normal monthly expenses. With a tanking economy, high gas prices and living in a over taxed state (NJ – the highest property taxes on average in the country), going back to renting a house/condo/apt. has never looked better. Yes, we will have a bad credit mark on our report (with either short sale or foreclosure), but we will be able to get this hump off our back. This is looking at the glass half full since these are our only two options.
Simply put..Neither my husband or I care about the Joneses! People need to grow up and stop with the high school mentality of the haves vs the have nots..because chances are the people you are trying to keep up with are living just as fake as you are…My husband and I live in a nice home purchased for $700K..we rolled over our money from our previously sold house during the boom.we put 20% down, bought what we needed in our home for CASH..and have never in the past or present considered an equity line(or as I call it the kiss of death)..we follow what our grandparents did..leave the money in the home and DONT TOUCH IT..what is our cc card debt? ZERO..What are out car payments? ZERO..we have our basic household expenses and that’s its. I CLEAN MY OWN HOUSE, I PLANT MY OWN PLANTS and MY HUSBAND MOWS THE LAWN..Do we eat out? YES..with coupons..(we figure the money we save on having a lawnservice can go to treating our family out for pizza on Friday nights..Before I purchase something..I ask myself a simple question..DO I REALLY NEED IT? That stops me from wasting money on junk 80% of the time..People need to grow up and start taking responsibility for their finances..
I’m very content with a $350 room
wish where i lived rooms cost $350
Looks like I am late to the party but Great article. So few people understand the process of foreclosure and how easy it is to be impacted by a simple rate adjustment.
Falling behind is the easy part, catching up is almost impossible.
Charles, I disagree strongly with your statement. The government is not responsible for “bad luck”.
Besides, LandingThere has been unemployed for 2 years. Why should an unemployed person be allowed to keep a house? That’s a knee jerk reaction based on emotion. You have to make money to own a house. Period. If the government bails out people like this, then they will destroy the incentive structure of our county for the next generation. I’m making 125K, and renting because prices are so inflated. Why should my tax dollars pay to keep people in a home who cannot afford it. Are they entitled to owning a home in any way?
For our country to succeed over the next 100 years, the government has to reinforce the relevance of capitalism in our country, not the relevance of handouts. If we don’t believe in capitalism, then our country will fall into obscurity during the next hundred years. Capitalism says that you work for what you get, and if you can’t afford to keep it, you lose it. That creates incentive for hard work. Incentive structure is what fuels out economy.
I wish the couple coud have been a little more versatile in their career choices. That may have made all the difference. While people are pointing fingers and snickering, no one is safe in this economy. You may think you have the bull by the tail but we are all on catasrophic event or pay check away from being in the same boat. So get of you high horses and look at things for what they really are. I say hats off for trying to live the life they wanted rather California or Maine, that should not matter. Some of your comments sound a little jelous or even envious. The top 1% income wise got there by doing the unconventional. I say ” LIFE COMES AT YOU FAST, LIVE IT WITH NO REGRETS.” :0)
That couple got what they deserve. I am sure that they were loving life when they had money coming in. sipping on $$$ wine and fancy clothes and their fancy cars. Fu@^K them. No sympathy here.
They were living @ 28 years old, the life of 45-55 year life of Doctors. WTF. They probably didn’t even go to college. real estate A$$ clowns with their fancy clothes and fake smiles. Entitlement………..
LandingThere = sorry about your misfortune, but life is tough. You should’ve never bought a house, because you job foundation was not solid. when thing were good you should’ve saved as much as possible to ride out the bad times.
My single mom raised me, with no child support or any kind of help from anybody. living in a 1br app. I had to sleep in a pull out sofa bed in the Living room for many years. I took the bus and rode my bike bicycle for miles to get to places. Our eating out was, Jack in Box or Burritos after church on sundays and occacional pizza ordering.
I went to college and work hard, I’m 27 years old and make 80K/year for the last 4 years and still drive my piss of sh!!t 10 year old car, and the supposed car payment of a new car I instead give to my mother every month. I have 20% downpayment for a house in CA. but Fu2@ck that…
Do you THINK I have sympathy for cry me a river stories of bad luck or whatever?? No, NOPE. I am tired of the sense of Entitlement from people.
This is AMERICA. If you work hard and make some sacrifices you’ll do very well for your family. keywords = hard work & sacrifices. forget entitlement and keepin up the Joneses and the facades and charades.
That’s reason we’re in this housing mess. These folks help create the bubble so me and my family are priced out from buying a home.
I too am in a very similar situation to this couple. Except I don’t have an expensive car nor a 6 figure salary. But I was young and uninformed and trusted the professionals I was referred to to assist me with my first home purchase. I was 26, bought a condo in downtown San Diego in 2005 for $389K. At that time, that was the least expensive property in the entire city proper by $20K. I bought from my neighbor, a person who I knew and trusted. He paid all closing costs. I bought with a boyfriend that I thought I was going to marry. (Big mistake, I know, I don’t need anyone telling me what an awful mistake that was. I’m well aware. lesson learned) I calculated and figured that I could afford half or the mortgage + taxes etc. plus all of my other expenses. A little over a year later the relationship ended due to his abuse and now I am left with the payment solo. I moved out because I made more money having it as a rental than living in it myself. I now live in Seattle – moved for a job and I rent the condo.
I can’t rent the condo for the full mortgage amount of $2165, so I have to pay $334 to cover the mortgage, $396 for taxes and $295 for HOA dues. I’m loosing almost $1K per month. I have $20K in CC debt. Now many of you will judge and say that I am a credit junkie so I deserve it – as you have commented about the example couple, but almost all of my debt is due to financial issues relating to the condo, not unnecessary purchases. I’ve had to put 2 years of property taxes ($4K) on my CC because I couldn’t afford it by myself, $8K in loss on a vehicle I had to sell when he moved out so I could pay for his portion. Since I sold after only owning it for 6 months I lost money. I did have roommates furing the time I was living there. But I still had to work 2 jobs to make all my payments.
Now, I can’t sell because the condo has dropped in value over 100K, I can’t refinance because I don’t have any equity and it’s lowered in value. If I continue renting, I continue paying $1K.month to a property that will never make me any money nor will I be able to sell an break even. I’m in a loose/loose situation
So I’m considering walking. Which is an extremely tough decision because it goes against how I was raised. I think I’m a woman of integrity. You give your word. You keep it. I gave my word to pay X amount for X amount of time. But it has become a loosing battle for me. I made a bad purchase. I was given a loan I never should of had. I was only making $50K and my partner was making $60K. How in the hell did we get approved for a loan for $389K?!!! Why did we think we could afford it? Seems silly now and many people reading this would say the same thing. But as many have written, it was common at the time for many people to get loans with 0% down. I had never bought property before, so I looked to professionals to help me with my first home purchase. I trusted these professionals – naive!! But I don’t think that I was alone. But I do feel like a sucker and a fool.
The mortgage and title were put in my name because I had better credit. Up until this point I have had a stellar credit score. It would fluctate between upper 700s and 800s. I still have the same score. Althought if I leave the place now my credit will be ruined. I’m curious what you all think about the FICO score issue. That has not been address by anyone thus far. Would it be worth it to risk your credit score to get out of a bad investment?
I appreciate this posting and everyone’s comments. formul8 your post was extremely interesting. i embarrassingly admit that I was one of those people.
And to all of you who have posted that this couple deserved it, well maybe they did. I made the choice to by too, so I do deserve to be in this horrible situation, no one forced me into it. But let’s not forget that the lenders also have some responsibility. I never should have been approved.
I blame HGTV and all those flipping shows, home improvment.
I do not understand why people pity on them.
They want to enjoy and spend with their money.
Now they want people to pity on them. Give me break
And now that 2010 is upon us, this story has been repeated millions of times.
Most people I know who are going through this are not some kind of consumer monsters to be blamed for all evil. They couples raising famililes who tried to have what their parents (baby boomers) had, a home, health care, cars, applicances, retirement. Quite franlkly nothing is made to last anymore. Our generation has been saddled with a lot of doom and gloom. I’ve been hearing about the end of it all my whole life. Perhaps we were delusional and couldn’t see the larger picture. I’m glad all the ole timers are reminding us with all the “remember the crash of 19**, but I had no idea what a housing bubble was. So many of us are getting a huge education in debt 101. And if there is anything I hear from my community, for CERTAIN, is that we are taking notes, and changing our ways to adapt, by whatever means, and I hear “I will never do this to myself again.” I buy my kids clothes at the thrift store, cut coupons, drive used cars, The good news is those of us who did loose it all in this whole mess will consume less in the future and teach our kids to do the same. I feel sorry that you are so angry at that couple. I have seen whole families torn apart in my community due to job loss, forclosure, and bankcruptcy. Divorce and substance abuse following suit. Losing your job due to an economic downturn is a real thing to go through, wether you are prepared or not.
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