Wyoming — The Barfeeders
This financial crisis is stressful. It makes me long for a quiet home on the plains of Wyoming. Of course, I would have to finance that house so the financial crisis I am seeking to leave behind would follow me wherever I go. There really is no escaping this problem. My industry has already been decimated by the fallout of the Great Housing Bubble, and now the seizure of the credit markets brought about by the excesses of the bubble is causing problems in every industry.
When lenders lose faith in the ability of borrowers to repay them, they stop loaning money. Right now, lenders are not sure if anybody can pay them back because nobody knows where all the toxic waste is hidden. Until these valueless securities are brought into the light out of the darkness of off-balance sheet special investment vehicles, lenders will not know who is solvent, and who is not. Under those circumstances, it is prudent not to lend. As long as that situation exists, the credit markets will remain seized up, and our entire economy will spiral into the abyss.
I have believed we were in for a very severe recession caused by a
credit crunch for some time. There have been several others who foresaw
the chronic problems caused by widespread borrower insolvency, but few
foresaw how acute the problems became recently. For the last few years, I have felt a bit like the character Sarah Connor from the Terminator series. She knew the Armageddon of the future and had to live with that knowledge for years while everyone else got to exist in blissful ignorance. The blissful ignorance of our nation’s insolvency problem is gone. We have eaten the Forbidden Fruit of the knowledge of evil in our financial system. Our national stress level will rise noticeably as a result.
Americans are resilient. The prognostications of our status as a third-world country are greatly exaggerated. We will get through this financial winter, and when we do what will emerge in the spring will be a stronger America. (Anyone else remember the recession of the early 80s?) This is not a trite recitation of bullish nonsense, but an observation of past history and a belief in the collective intention of all Americans to excel and be our best. We will never become a third-world country unless we give up and allow it to happen. That isn’t the behavior of Americans I know.
There has been much discussion on what it will take to get us out of this mess. Some point to stabilization of house prices, some point to purging the system of toxic loans, and some point to restoring confidence in our financial markets. It will require all three. Realistically, the first will not happen until prices drop to where people can afford a home and be financially solvent, the second is going to require the passage of time and/or a massive government intervention like the one being proposed, and the third will be the passive result of the first two. None of this will happen quickly.
House prices simply cannot be supported at current levels. The only way they got here was through the use of unstable exotic loan programs. The amount of debt supportable by people’s real incomes on a sustainable, solvent basis is too small to support today’s prices. Prices will fall to supportable income levels because they must. People will not be given the ability to bid prices any higher by lenders and investors. Without the big loans, we can’t have big prices. If anyone is bullish on house prices in these circumstances, please let me have some of what you are smokin’.
Today’s featured property was owned by an insolvent borrower. There was no way he could afford the debt he had accumulated on the house, and the market has purged itself of this problem with another foreclosure. Absent a massive government intervention (and perhaps even with one,) this is how the market will deal with the problem.
Asking Price: $674,900
Income Requirement: $168,725
Downpayment Needed: $134,980
Monthly Equity Burn: $5,624
Purchase Price: $402,000
Purchase Date: 3/21/2000
Address: 30 Wyoming, Irvine, CA 92606
| Beds: | 4 |
| Baths: | 3 |
| Sq. Ft.: | 2,200 |
| $/Sq. Ft.: | $307 |
| Lot Size: | 3,447
Sq. Ft. |
| Property Type: | Single Family Residence |
| Style: | Spanish |
| Year Built: | 1999 |
| Stories: | 2 Levels |
| Area: | Walnut |
| County: | Orange |
| MLS#: | S548333 |
| Source: | SoCalMLS |
| Status: | Active |
| On Redfin: | 1 day |
 New Listing (24 hours)
|
|
Harvard Square bargain. Beautiful gated community with top notch school
district and many ammenities. Excellent floorplan within a popular
neighborhood perfect for you and your family. Hurry because this home
has been priced to sell and will not last.
All those exclamation points did get my attention; of course, it doesn’t make me think anything positive when I see it.
ammenities?
I think this realtor needs some help with Photoshop. The color balance seems just a bit off, wouldn’t you say?
The property records on this house are a bit hard to follow. It appears as if it was purchased on 3/21/2000 for $402,000, but in 2003, the name changed on the title without a sale being recorded: very strange. By 6/17/2003, there was a $500,000 first mortgage on the property. On 4/27/2004, a HELOC was opened for $94,000, but it looks as if this money was not immediately spent because on 6/30/2004, the first mortgage was refinanced again for $500,000. On 12/8/2004, the owner opened another HELOC for $200,000, but he only took out part of the money.
The big cash-out came on 2/8/2006 when he refinanced with a $637,500 first mortgage and a $130,000 stand-alone second. The second was refinanced on 5/16/2006 for $175,000. The total debt on the property was $812,500. Total mortgage equity withdrawal was over $400,000.
If this property sells for its asking price, the lender stands to lose $178,094 after a 6% commission.
So what do you think is better for the economy, 4 or 5 years of foreclosures to purge the system, or massive government intervention to purge the system of toxic loans sooner? BTW, neither will have much impact on the bottom of house prices. Affordability is what it is, and prices will fall until houses are affordable either way.
And what do you think of bailing out a family of fraudulent flippers? Or more accurately, bailing out the bank who enabled them?
.
We were drunk and insane standing out in the rain
Telling stories from yesterday’s gig
Drew a face on my shoe and I knew it was you
Memories are my most messed up things
We were covered in water backfire and mud
Where the blood and coffee were smeared
As the rivers were rising I stood by your house
Soon discharging a gutful of beer
Wyoming’s got a ghost but it doesn’t have a coast
So the property’s next to nothing
It would blow me away to carouse there with you
And to feel the northern lights sing
So I get on the phone with the irresistible
But I find myself kissing the pig
So antie up your bladder and pile up the boones
I’ve got miles of living to do
Well I’ve been to the womb and I’ve been to the tomb
Been all over the north county fair
Quaffing popcorn in heaven; tequila in hell
Well I know I’ll see all of you there
WYOMING WYOMING but I’ve never been to WYOMING
WYOMING WYOMING And I’ve never felt the sun
Creep down the back of my neck
Pulling into medicine bow
Well I’ve been to the womb and I’ve been to the tomb
Been all over the north county fair
Quaffing popcorn in heaven tequila in hell
Well I know I’ll see all of you there
WYOMING WYOMING but I’ve never been to WYOMING
WYOMING WYOMING but I’ve never been to WYOMING
Wyoming — The Barfeeder
Regardless of what anyone thinks of the basic idea of the bailout, I think we can all agree that it should not be without any accountability under one person’s discretion. I don’t care who that one person is, the notion is just ridiculous.
I am still not sure what big mess the banks got “us” into. I think it is just the banks that are in the big mess. The market will find its way to move forward, and although it would not be pretty, it would be more equitable.
If you watch the bulls carefully, you see how they have adapted to the times and changed their tune.
While they once proudly pontificated the craziness of any such notion that the values of the houses would fall by any significant amount, they have managed to circle the wagons and come up with some new lines.
The new mantra is “Houses are still selling!”. We have gone from “Prices will never fall! Ho Ho Ho Hah hah hah” to “Houses are still selling! I have proof! Look at my website!” This is a great line because it is “safe”. Of course some houses are going to sell in the down market. Any time a house sells, they can rise up and claim “SEE I WAS RIGHT” while failing to acknowledge that the real argument has (and always has been) that house prices were unsustainable and will eventually fall back to levels supported by incomes. Nobody has ever said that houses will stop selling completely. Nevertheless, it is a good move on their part to change the subject and re-engineer the argument.
Of course they are trying to indirectly make the argument that houses must be affordable if a bunch of knife catching morons manage to secure a jumbo loan from an even dumber lender in a down market. Despite being completely wrong about “high prices here to stay forever and only going up from here better by now fool”.
I also enjoy the argument that “income is irrelevant. Just look at the median income of Beverly Hills versus median house price. As long as we have FHA first time buyers don’t need to be able to afford a down payment”.
The Charlatans are having to work a lot harder these days. It used to be easy during the boom for them to cast derision “Prices will never fall you are just jealous and unsuccessful Ho Ho Ho Hah Hah Hah”.
Now that their ranks have been slaughtered in the collapse, they are on the defensive, they have set up their smoke machine and positioned their mirrors to obscure the meaning of affordability while never having admitted to how foolishly wrong they were to begin with.
I remember reading people make this argument earlier this year when sales volumes were off 80%. Yes, houses were selling, but very, very few of them, and for much lower prices.
I remember the exchange you had last week on the income argument. There is some validity to the idea that the median income might not be reflective of incomes in Irvine because the many college students are counted as households. This lowers the median. However, this argument fails to explain why the price-to-income ratio was so low from 1996-1999. If prices are supportable by incomes now, houses must have been very cheap back then. In fact, all arguments of income fail for this same reason. Prices at the bottom of the down cycle represent the balance of price and income absent the irrational exuberance of kool aid intoxication.
Precisely.
That is exactly why I do not buy that argument about the “renters bringing down the median income while homeowners are really wealthy argument”.
All you have to do is go to Zillow and look at the prices of the houses back in 2000-2003. Were there not just as many renters “bringing down the median income” back then? Did a whole bunch of wealthy people move into to Irvine just in time for the 2006 census? NO.
Giving 700B (at any one time) to one person when that person has no plan on what he will do with it, no restrictions on what he will buy and who will face no legal repurcussions no matter what he does, is pretty much the very definition of a third world country.
It also makes Hank Paulson the most powerful man in the United States. Next is Ben Bernanke. Bush and our two presidential candidates are well down the list.
I kinda feel sorry for Paulson. Clearly, he wants to go home when the next administration comes in … and just as clearly he can’t leave with all that Treasury secretary power and uncertainty in the markets up in the air (ex. like how president Foo has to reconfirm Fed Chairman Bar to keep the markets happy).
He will be like a king, except he cannot abdicate.
All these folks in this administration are communist hitler style rulers. If Bush had his way, we would all be in slavery by now. Nothing against republicans, but I sometimes wonder on what good have they done or what good their policies do anyway. I think its now down to EGO and they cant let it go. Looking at current govt., it is clear that they do not believe in society or democracy. Otherwise Republicans woundn’t be complaining that decocrats are socialists, I say it better to be a socialist, at least its targetted more towards the mainsteet.
you should move to a socialist country. i’m gonna stay here. and if this country turns more socialist than it already is, i’ll move.
$700 billion — you could give everyone in Springfield, Illinois one million dollars, and still have enough left over to turn everyone in Atlanta, Georgia into a millionaire.
I am going to guess that that big money pull out was related to purchasing another property.
No pictures of the actual living spaces such as bedrooms and bathrooms. I guess I am just numb to the crappy pictures taken, lack of professionalism by the seller’s agents etc…. It seems like everyone just has “lost interest” in really selling real estate right now.
If you ran a real-estate business and a customer came to you and said:
“I have a smokin deal for you. Take some pictures of this house, put them on the internet, write up a great description of the property, bring the keys to showings, spin up some lines to manipulate people into buying and I’ll pay you 24,000$ when the sale is completed!”
Wouldn’t you hire a photographer as an independent contractor to take the pictures?
Wouldn’t you hire a “creative writing” specialist as an independent contractor to write the property descriptions?
Wouldn’t you hire a psychology or marketing professional (with an actual education) to come up with the marketing and sales pitches?
Wouldn’t you let the real-estate agents stay focused on studying the levels of pergraniteel in the property and delivering the canned sales pitches to the victims?
It never ceases to amaze me how these agencies pull in any Joe Blow off the street and hand them all of these hats to wear (which they are unqualified for) and some lipstick to smear all over their job title in the name of not having to pay for a real professional. Should it be called “down-sourcing”?
“decimate” means to reduce by 1/10th. While in colloquial terms it is often used as devastate, it actually means much less destruction. Normally, I’d comment on your awesome choice of music or reply to the many astute observations, but considering the actual devastation I find it necessary that we use an equally appropriate word.
/endgrammarpolice
Continue on with your great job.
Actually, “decimate” is more frequently used in the sense of widespread destruction without regard to specific proportion. IrvineRenter has used the word correctly. If you look it up in a dictionary, you will almost always find that “widespread destruction” is the first definition, and “killing every 10th in a lot” is much further down the list of definitions. And either way, any one of the definitions is a proper definition of a word. That’s the beauty of the English language . . . just for the record. 😉
American Heritage Dictionary
dec·i·mate (d?s’?-m?t’) Pronunciation Key
tr.v. dec·i·mat·ed, dec·i·mat·ing, dec·i·mates
1. To destroy or kill a large part of (a group.
2. To inflict great destruction or damage on: The fawns decimated my rose bushes.
3. To reduce markedly in amount: a profligate heir who decimated his trust fund.
4. To select by lot and kill one in every ten of.
/endgrammarpolicepolice
it’s a classic case of a definition of a word changing over time as people used it out of context.
Still way too expensive from affordability stand pint. 30% more to go.
I think that clearly this indicates that the entire mess we have now is the fault of the Community Reinvestment Act.
/snark off
But seriously, I bookmarked this story, I am getting really fucking tired of this new right-wing bullshit that is being spread around now.
It’s just not a good week unless you can blame a non-white-skinned person for everything that’s wrong. I suppose the anti-immigrant ranting was getting old so they came up with a new excuse to flaunt their racism.
With that crowd, no time is a bad time for a new excuse for racism. The CRA horseshit making the rounds is REALLY predictable but dismaying nonetheless. It’s not the low end of the market that is the problem.
“It’s not the low end of the market that is the problem.”
This post is a joke, right? You do realize there’s a reason it’s called the subprime housing crisis, right?
It’s not just subprime anymore kid.
Wake up and stay a while.
Nice house, but a little close to the I-5.
Tell me if I’m wrong…
If a bank has a chance to sell your toxic mortgage for full face value to the Fed, they sure as heck won’t forclose. As a matter of fact, Loss Mit may just slip you some money to keep you hanging on till the Fed resells the mortgage for a fraction of today’s current value. Mortgage vulture forecloses and resells for windfall. Big profits to original bank and vulture. Loss to taxpayer and original homebuyer.
Um, sorry, that would be the Treas and not the Fed, right?
I don’t think these will be bought at face value. The government will likely overpay, but they will not be paying full face value.
IR, the classic reference for how you’re feeling might be Cassandra from Greek mythology. (Really, she’s the archetype for Sarah Connor) She refused the advances of Apollo, and was cursed to be both prophetic and NEVER have her prophecies listened to.
It’s not quite perfect, as many people either listened to you (or someone making the same point) or figured prices were too high on their own.
I family friend is trying to buy a house in our neighborhood. Funny thing is the loan broker said he can get them a loan if they claim they make much more then they actually do. The catch, a 30% down payment. They are pulling out all the stops to come up with the money.
I thought these loan programs were a thing of the past? So I guess what 10% more then the normal down payment liar loans are still around?
I tried to warn them about what they are getting into. My advice is not to their fancy.
hard money will always be available.
Unbelieveable! That banks are still doing liar loans and that people aren’t waking-the-f-up.
The fact that your friend is probably not some outlier in all this does not bode well for our country’s future.
Here is what I believe the Government should do………Start a new bank that would be capitalized with 1 trillion dollars. The bank would be government run for 3 years and then be taken public. After going public, it would have no ties to the government.
This new bank would then lend money to companies and individuals with good credit at current market rates. The government would do nothing for the corrupt investment banks that were unable to survive. They would go bankrupt and sell off assets to the highest bidder.
In this plan, the markets are kept alive with new loans, and the investment banks that made bad decisions go away. Also, the Taxpayers would not lose a penny because the bank would be taken public and the proceeds would be returned to the U.S. Government.
Nano, yours is the best plan I’ve heard so far.
In the meantime, does anyone in here see any reason for me to continue to pay my credit card bills? Or for the rest of you to make your car and house and bill payments?
CNN money rated Irvine as the 4th best place to live in the country.
http://money.cnn.com/magazines/moneymag/bplive/2008/snapshots/PL0636770.html
It also says that the median income in Irvine is $108,206. That makes me one of poorer residents of Irvine. And here I always thought that I made decent money. (Gotta take that weekend job)
Median individual income or median household income? Last time I checked the household median was quite a bit higher.
That’s also a massive figure for median income. That puts you in the top 15% of the rest of the country I believe.
2008 Census numbers show median for a household in Irvine is $99k, and the median for a family is $111k.
http://ocbiz.freedomblogging.com/2008/08/26/three-oc-cities-rank-near-top-in-us-income/
Shouldn’t the author of the article be publishing their source?
Look at the comments left by people on the article questioning its authenticity.
They are getting their information from this document:
http://ocbiz.freedomblogging.com/files/2008/08/us-cities-income-2007.pdf
Which says “American Community Survey, 2007”
Too funny. Someone has edited the Wikipedia entry for Irvine, CA and written that “According to 2008 Census Bureau estimates, the median income for a household in the city is $98,923, and the median income for a family is $111,455;”
which actually traces back to this article as the “source”
http://ocbiz.freedomblogging.com/2008/08/26/three-oc-cities-rank-near-top-in-us-income/
Of course if you go to the actual Census Bureau website, there is nothing but 2006 data.
Where is this Census 2008 information coming from if not published by the Census Bureau?
Found the source after a lot of digging. Judge for yourself.
http://www.crackthecode.us/images/MedFamIncomeIrvine.jpg
There is a discussion thread on this topic I started over in the forums. Even gave a shout out to you, AZDave.
It’s bunk, CK.
The data is from 2007 (when the recession was just getting under way) and they are “adjusting” the number for inflation and extrapolating it to today.
What were the actual measured incomes before they were “adjusted to inflation”?
If you factor out the adjustments they are making then you are not very far off from the 2006 figures.
The median household income is the measure used when creating price-to-income ratios not the median family income.
http://www.modbee.com/local/story/408350.html
http://www.crackthecode.us/images/MedianIncomeCompare.jpg
From the law of unintended consequences…
Paulson’s plan depends on selling $1 trillion in bonds to foreign wealth funds. When the foreigner’s balk the dollar crashes.
Crude oil futures just went up $25/barrel to $130 and climbing.
Out of the frying pan and into the fire.
Or the fed can just run the printing presses. What harm can that do?
Those fraudulent flippers are digusting skum bag vermin, as is WAMU and the other co-conspirators that abbeted them.
Nothing is going to work, there are no markets or individuals left to scam, no more play money to print.
People will actually have to “work hard” and “save” to purhcase things.
This is a new concept for an entire generation. I hope they are fast learners with short memories of the “good ole bubble days”.
Grab your Kool-Aid it’s time to buy!!
http://lansner.freedomblogging.com/2008/09/22/demand-for-oc-homes-nears-3-year-high/
Here is what I think the government should do. I think the government should openly embrace communism. It is time for the American Citizenry to admit that the buffoons we have running this country are incapable of executing capitalism as our founding fathers envisioned. Once we come to grips with the fact that we now live in a socialist state, minus all the benefits, we can proceed to a full blown command economy and stop fooling ourselves. This way we all have houses, bread, milk, a job and stay out of the way of the elitists who play us like puppets.
Guess what buddy? The bailout has the smell of communism: hard workers must pay for lazy risktakers through taxation.
So much for being a capitalist society.
A colleague of mine recently proposed an argument that financial regulation is doomed to failure. He bases this on a few assumptions:
1) The pubically-traded financial industry has strong incentives to be risk-acceptant. If they don’t make the profits that Bank X is making, people won’t invest in their company. Riskier investments yield greater returns, so they develop risk-acceptance.
2) Politicians have no incentive to curb them, because politicians have relatively short timelines. Presidents are only around for 8 years; the average member of Congress for a decade (but with elections every 2 years). During the boom years, politicians don’t want to interfere. During the bust years, they interfere with the market because the sheeple demand it. (You can insert campaign contributions here as a cause, but I don’t think it’s necessary)
3) Regulators DO care about the long-term health of the industry and economy, but are reined in by politicians who follow #2’s precepts. They are only allowed to regulate during down times (when the market is doing plenty of its own “regulating”).
Nice thing about this theory: nobody is necessarily “evil” in this model, just the nature of their incentives structures the choices they end up making. Of course, a central lesson of it that people end up hating is that, in order to work correctly, regulators need LESS oversight by elected officials. A bedrock principle of a republic (if you read the Federalist Papers right), but not one that sells well when people think that “corruption” is the problem and that making all these people “accountable” is the solution.
Or, as I tell my students all the time: democracy just doesn’t work.
“Or, as I tell my students all the time: democracy just doesn’t work.”
I read part of Plato’s Republic recently, and I was astounded by how accurately Plato described the problems of a democracy 2500 years ago. His observations are still true today.
“political leaders, blinded by their own self-interests, neglected the interest of the state as a whole. Political power seemed to attract persons who lacked the prerequisite qualities of leadership: intelligence, integrity and selfless concern for the welfare of the governed.”
The regulatory environment with Sarbanes-Oxley is such that no new IPOs are happening in the country. (Our government basically deputized American business to be the evidence gathering arm of the state.) Add the falling dollar, plus the Bush administration, and you can see why American financial pre-eminence is lost, mainly to Europe. There is no more need in this country for investment banks.
I have been watching the housing market locally, and I am sickened by what I see. Sellers and their realtards are still asking for the moon. I cannot comprehend what is going on in their pea brains. I can only reason that it is greed. Greed got us in this mess and will keep us in this mess. I really don’t understand why the banks just don’t face reality, cut the home prices, try to recoup what they can and get on with life, Do they really have to get every penny they can? I remember my parents had a very dislike for banks and so called bankers. My mothers favorite bank was her purse and under her bed, but you have to know that both my parents had to live thru the Great Depression, my dad would often tell us about how they had to wait in line for milk for their baby sister and how they would wait in line for food. Back then banks were hated and people like Dillinger were revered.
They say history always repeats itself, I really hope that isn’t true in this case. I have heard that people are slowly withdrawing their cash out of retail banks. What we really need to do is “clean house” we need the young people of today to revolt, we need a revolution to end this wanta be imperalisitc regime!
A phrase from Lincoln’s famous speech “that this nation, under God, shall have a new birth of freedom – and that the government of the people, by the people, for the people, shall not perish from the earth.” Sounds great, except that nowadays it feels like “that this nation, under fiat money, shall have a new birth of perpetual debt – and that the government of the lobbyist, by the special interest groups, for the corporations, shall not cease from earth.”
IMO, amount of fiat money printed this year will be felt for generations to come. And we have not even begun to tackle health care & social security issues. All the while with fewer worker to retiree ratios to support all these absurd spending. I am going to buy some euros which is 40% back by gold. Come to think of it, I’ll just buy gold for when I need to be on the run when this country goes into great distress.
There is a witty article by a Times writer that is both funny and sarcastic. Interesting read.
http://www.time.com/time/nation/article/0,8599,1843168,00.html?cnn=yes