michigan crises

[The Magnificent Goldberg]

Yes, and automatic payments don't cost anything, but they will pull the money out of our account on the 1st of the month and sometimes we really really need that 15 day grace period.

We asked if we could do internet payments on our own, but there's a $20 fee for that, too. Which makes no sense. This is the only bill we have that we cannot pay online without a fee. It's ridiculous.

i went through similar about 20 years ago and things settled down, after i switched to a local mortgage company. i am confident they will for you, too.

Well, but looking at what Jim said a few posts back, local might only mean local for a short period of time; then it's back to the same routine.

My heart bleeds for you, Jim.

MG

[Dan Gould]

I had to take a little extra time to make this month's payment and mailed the check on March 7th (its never occured to me to go the registered mail route) so just as the March 15 deadline is passing I get the next statement and it shows that no payment has been received and a late payment is now due and I am PISSED. I knew I was cutting it close because I'd been the ATM on March 13th and could see that the money was still in the account but how could it take that long to get there?

So I am about to call Aurora Loan Services but end up putting it off a couple of days and that's when my bank statement arrives - and it shows that an electronic check was processed to Aurora Loan Services on March FOURTEEN! So now I am really pissed, because it looks like they are trying to pull a fast one. I get out the Aurora statement and this time I happen to note when the statement was processed: March 12. It actually said, "if payment is received after March 15" so I relaxed and didn't even bother to call because obviously they didn't actually charge the late payment.

As for mortgages, Jim, would you prefer living in an apartment for the rest of your life, or owning something that in all likelihood will appreciate substantially and either provide a valuable nest egg in the future or a nice bequest to your daughter? Its fair to hate the way a thirty year fixed mortgage is amortized, but mortgages allow people who would never ever save $100,000 or $200,000 or $400,000 own a home.

Fortunately there are options to the 30 year fixed mortgage (and I'm not talking about ARMs or Interest only mortgages) that allow people to own their homes much faster, and without making extra payments every year.

Home Ownership Accelerator:

This is a home loan, available in about half the country, in which the entire loan amount is in the form of a HELOC (Home Equity Line of Credit). LTV must be at most 80%, and there are fairly strict credit score requirements. Basically the way it works is this: All income is put into the HELOC account (through Direct Deposit). You pay your regular bills through the account as well. Everytime a paycheck hits the account, it acts to reduce the principal balance, which is how interest is calculated. The cumulative effect of these "payments" can be very substantial. But the way to pay off even faster is if you have a substantial difference between your income and your expenses, and you are disciplined and leave that money in the account. Another way is to substantially reduce the time it takes to own your home outright is if you have investment income, like rental properties. The rent checks you receive are all run through your HELOC, and then you really see a huge impact on your account.

Here's the great advantage to this system: What is the way most people try to reduce the thirty year mortgage? Pay one extra payment every year, or make bi-weekly payments which will total to one extra payment per year. Applying that payment to principal reduces your mortgage by about 7 years. What is the problem with that? Number one, it takes great discipline. The effects of the HELOC loan don't require any discipline and they don't require that you change your spending habits. Number two, even when people have extra income and want to put it toward the mortgage, many people hesitate. What if the car craps out next week, what will I do then? They are worried about paying the mortgage company when they may need that money in the future. But with a HELOC, you can make a big payment because its still a Line of Credit. Should you need that money in the future, you can take it out. It will knock back your position on the mortgage a bit, but you haven't lost control by making that payment.

Using a smaller HELOC to pay down the mortgage

This is the same concept as the home ownership accelerator, except that the HELOC is smaller, and its not set up to cover the entire loan. Say you've got a HELOC of $10,000. Take $5,000 and put it to the mortgage. Boom, you've reduced your principal and reduced your monthly payment. Keep paying the original amortized payment, because now more of it will go to principal. Slowly pay back the HELOC back to the $10000 limit, and take another $5000 out and put it to the mortgage. Lather, rinse, repeat. You are using the equity in the home to reduce your mortgage and save a huge amount of interest over time.

My wife's mortgage company is the only one licensed in Florida to do the Home ownership accelerator loan, and it is a big part of her business. She's got a radio show on an AM station and every time they run the HOA show "Mortgage Freedom" the phones ring off the hook.

[JSngry]

All I know is that we sent our last payment in via certified mail (like we always do) on the 2nd. By the 13th, it still hadn't been cashed, although we got a note from the post office saying it had been delivered. The mortgage is due on the 1st of the month, but you have until the 15th before it is actually considered late.

So on the 14th my wife calls to figure out what is going on. "We never got the check," they say. Yes you did, we have delivery confirmation from the post office that you did. "Well, the minute we get it, it is processed, so if it hasn't been processed, we didn't get it." Yes you did, because we have delivery confirmation.

Round and round we go. Okay, so they won't budge... they claim we didn't get it. What now? Well, you can pay over the phone but there is a $20 fee. What about the check? Well, if it ever pops up they'll just cash it. Can't they put a note on the account that says DO NOT CASH CHECK # ----? Nope. The service center and the processing center are on opposite ends of the country. So we have to pay $20 to make the payment over the phone, plus $20 to stop the check at our bank because the mortgage company lost the check. Keep in mind that $40 to us right now is a LOT of money because I am simply not working. $40 means no gas for my van this week. That's just where we are right now.

Sure enough, just this week, they tried to cash the check. Imagine that. So now we're trying to get them to pay for the cost of doing the transaction over the phone, since obviously THEY HAD THE CHECK, which is what we were telling them all along.

The whole idea of a mortgage pisses me off... whoever came up with the idea of compound interest is a rich, rich man.

Somewhere in the chain of command will be a person with the power (and sympathy) to make all this right. There will be, trust me.

Finding them, though, might be difficult. I strongly urge both phone & written communications, taking names (and relaying them) every step of the way. And do not be afraid to go up the ladder. It may well be a huge pain in the ass, but...

At my job, I get correspondences w/stories similar to yours all the time. I do a little research to determine their legitmacy (not every tale of woe is legit, alas), and pass those that are along to the right people. It feels good for everybody involved to make a wrong right.

But you gotta hook up with people who feel that way, and like I said, that may take some doing. But it can be done, so if you got the time & energy, go for it. Good luck.

[The Magnificent Goldberg]

Fortunately there are options to the 30 year fixed mortgage (and I'm not talking about ARMs or Interest only mortgages) that allow people to own their homes much faster, and without making extra payments every year.

Home Ownership Accelerator:

This is a home loan, available in about half the country, in which the entire loan amount is in the form of a HELOC (Home Equity Line of Credit). LTV must be at most 80%, and there are fairly strict credit score requirements. Basically the way it works is this: All income is put into the HELOC account (through Direct Deposit). You pay your regular bills through the account as well. Everytime a paycheck hits the account, it acts to reduce the principal balance, which is how interest is calculated. The cumulative effect of these "payments" can be very substantial. But the way to pay off even faster is if you have a substantial difference between your income and your expenses, and you are disciplined and leave that money in the account. Another way is to substantially reduce the time it takes to own your home outright is if you have investment income, like rental properties. The rent checks you receive are all run through your HELOC, and then you really see a huge impact on your account.

Here's the great advantage to this system: What is the way most people try to reduce the thirty year mortgage? Pay one extra payment every year, or make bi-weekly payments which will total to one extra payment per year. Applying that payment to principal reduces your mortgage by about 7 years. What is the problem with that? Number one, it takes great discipline. The effects of the HELOC loan don't require any discipline and they don't require that you change your spending habits. Number two, even when people have extra income and want to put it toward the mortgage, many people hesitate. What if the car craps out next week, what will I do then? They are worried about paying the mortgage company when they may need that money in the future. But with a HELOC, you can make a big payment because its still a Line of Credit. Should you need that money in the future, you can take it out. It will knock back your position on the mortgage a bit, but you haven't lost control by making that payment.

Using a smaller HELOC to pay down the mortgage

This is the same concept as the home ownership accelerator, except that the HELOC is smaller, and its not set up to cover the entire loan. Say you've got a HELOC of $10,000. Take $5,000 and put it to the mortgage. Boom, you've reduced your principal and reduced your monthly payment. Keep paying the original amortized payment, because now more of it will go to principal. Slowly pay back the HELOC back to the $10000 limit, and take another $5000 out and put it to the mortgage. Lather, rinse, repeat. You are using the equity in the home to reduce your mortgage and save a huge amount of interest over time.

My wife's mortgage company is the only one licensed in Florida to do the Home ownership accelerator loan, and it is a big part of her business. She's got a radio show on an AM station and every time they run the HOA show "Mortgage Freedom" the phones ring off the hook.

That looks very interesting, Dan. If we'd had such a thing over here, I could have paid my mortgage off in about 5 years instead of 15.

But you still need great discipline over your spending. That kind of loan can kill you if you habitually spend more than you earn and hit the credit card. That goes right back to what Porcy was saying about people's propensity to borrow nowadays. There is REALLY no way out if you do that because no one really has the equity they think they have.

MG

[The Magnificent Goldberg]

Somewhere in the chain of command will be a person with the power (and sympathy) to make all this right. There will be, trust me.

Finding them, though, might be difficult. I strongly urge both phone & written communications, taking names (and relaying them) every step of the way. And do not be afraid to go up the ladder. It may well be a huge pain in the ass, but...

At my job, I get correspondences w/stories similar to yours all the time. I do a little research to determine their legitmacy (not every tale of woe is legit, alas), and pass those that are along to the right people. It feels good for everybody involved to make a wrong right.

But you gotta hook up with people who feel that way, and like I said, that may take some doing. But it can be done, so if you got the time & energy, go for it. Good luck.

I guess over there you don't have anything like a financial services ombudsman.

MG

[Jim Alfredson]

I think my wife got it taken care of last night. I think they will credit our account.

Dan, I realize the importance of a mortgage in order to be able to afford a home (the current cost of a house in relation to wages is a whole 'nuther topic and one I've touched on before), but I still think it is insane to pay $800+ per month and only $115 of that actually goes towards the principal whereas $400+ goes to the interest. That's a fool's game setup by The Man (I'm only half-joking here)... but what alternative is there?

Yes, my house will appreciate in value (hopefully) but will it be worth four times what I paid for it? I highly doubt it.

One thing I've read that you can do is pay an extra month's worth each year, which will cut your mortgage in half (in other words, it will take only 15 years to pay off a 30 year mortgage). We try to pay a bit more each month to knock down that principal.

[alocispepraluger102]

I think my wife got it taken care of last night. I think they will credit our account.

Dan, I realize the importance of a mortgage in order to be able to afford a home (the current cost of a house in relation to wages is a whole 'nuther topic and one I've touched on before), but I still think it is insane to pay $800+ per month and only $115 of that actually goes towards the principal whereas $400+ goes to the interest. That's a fool's game setup by The Man (I'm only half-joking here)... but what alternative is there?

Yes, my house will appreciate in value (hopefully) but will it be worth four times what I paid for it? I highly doubt it.

One thing I've read that you can do is pay an extra month's worth each year, which will cut your mortgage in half (in other words, it will take only 15 years to pay off a 30 year mortgage). We try to pay a bit more each month to knock down that principal.

just pay another 115 next month. that way you will save a month's interest, just double the principal payment every month. save a bunch. should be easy the first few years

Edited March 30, 2007 by alocispepraluger102

[Dan Gould]

I think my wife got it taken care of last night. I think they will credit our account.

Dan, I realize the importance of a mortgage in order to be able to afford a home (the current cost of a house in relation to wages is a whole 'nuther topic and one I've touched on before), but I still think it is insane to pay $800+ per month and only $115 of that actually goes towards the principal whereas $400+ goes to the interest. That's a fool's game setup by The Man (I'm only half-joking here)... but what alternative is there?

Yes, my house will appreciate in value (hopefully) but will it be worth four times what I paid for it? I highly doubt it.

One thing I've read that you can do is pay an extra month's worth each year, which will cut your mortgage in half (in other words, it will take only 15 years to pay off a 30 year mortgage). We try to pay a bit more each month to knock down that principal.

just pay another 115 next month. that way you will save a month's interest, just double the principal payment every month. save a bunch. should be easy the first few years

Or better yet, think about the small HELOC loan I mentioned as a method of knocking down the principal in big chunks at one time, without even using your own money.

As for amortization - I think that falls under the Golden Rule - he who has the gold, makes the rules. I'll loan you the money, you pay me back the interest then we'll knock down that principal, OK? Since we'll extend it over thirty years, we'll make it easier for you to handle while we make sure we get the most amount of interest possible. Sound good? Otherwise you can continue to live in that tiny apartment. Your choice!

Seriously, too many people think that you've got to have a thirty year fixed mortgage, which fits right into what the banks want. Either method of reducing the interest and time that I mentioned above is the way people should go. Banks don't you want you to go that route, but there's no reason why you have to go their route either.

[ghost of miles]

Anybody remember when the oh-so-wonderful Alan Greenspan was urging people to take out ARMS? This is from 2003:

Greenspan's Call to ARMs

Alan Greenspan's Call to ARMs Could Put You in Great Financial Danger

By Suze Orman

Greenspan's Gambit: When Federal Reserve Chairman Alan Greenspan speaks, the entire financial world listens. His opinions, policies, and cryptic hints are dissected all over the world, and have an immediate and often dramatic impact on the course of the monetary markets. If Warren Buffett is the Oracle of Omaha, Greenspan is the Wizard of Washington.

That's why I was so shocked a few weeks ago when Chairman Greenspan let loose with a real doozy: he asserted that homeowners could save a ton of money if they took out an adjustable rate mortgage instead of a fixed rate mortgage. For his evidence, he pointed to what would have happened if you had taken out an ARM 10 years ago. Back in 1994, fixed rate mortgages were around 8 percent and adjustables were in the 6 percent range. Since then, rates have been on a strong downward trend: a 30-year fixed rate currently carries a 5.5 interest rate, while an ARM can be 4 percent or lower. So if you took out that adjustable 10 years ago, every time the ARM rate came up for an adjustment - back then you had your ARM rates reset every 12 months based on the then current rate - chances were slim that your payment would increase, since rates were falling, not climbing.

Now I am a big fan of history, but I cannot believe Chairman Greenspan used the past to make his argument. All due respect, Mr. Chairman, but as the investing maxim goes, "Past performance is no indication of future performance." And my friends, when it comes to your mortgage - typically the biggest investment of your life! - it's the future path of interest rates that matters, not the past.

And let's be very clear. Rates right now are at historical lows. There is just one way for rates to move: up. Plain and simple. They could stay where they are for a few months, or even a year or two. But at some point rates will go up. It's just the natural cycle. We are near the end of the downward cycle. It's just a matter of time before the up cycle kicks in. If you are holding an ARM and rates start rising, you are going to see your ARM payments head north, too. And that could make a mess of your financial house.

So before you go off and follow the Wizard's advice, let's make sure you understand the risks of taking out an ARM and how to smartly navigate the world of mortgages.

Here's what we're going to cover:

--------------------------------------------------------------------------------

Risk Management: Fixed Rate v. Adjustable Rate Mortgages

Your home is a place to live in; it should be a place of security, not something that puts you and your family at great risk. When it comes to mortgages, fixed rate loans are low-risk, while adjustables can have as much risk as a tech stock, circa March 2000. more...

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Vested Interests: Why Greenspan and Lenders Like Adjustables

Did you know that about two-thirds of our country's spending - what the wonks call Gross Domestic Product - is courtesy of you and me? Consumer spending is what has kept our economy afloat for the past few years. And a major factor in consumer spending was all the refinancing that went on as rates fell from above 7 percent a few years ago to below 5 percent and lower in 2003. more...

--------------------------------------------------------------------------------

Adjustable Rate Mortgages: A Smart Option if You Plan to Be on the Move

If you plan on moving in a few years - say you're a first-time buyer who hopes to trade up, or a retiree who is looking to downsize - adjustable rate mortgages can be a great deal. more...

--------------------------------------------------------------------------------

Fixed Rate Mortgages: Perfect if You're Staying Put

During his diss of fixed rate mortgages, Chairman Greenspan spoke about how homeowners spend too much on "insurance" by opting for a fixed rate. He's referring to the fact that the interest rate on a fixed mortgage is going to be higher than the rate on an adjustable. more...

Looks like Yahoo! business columnist Suze Orman had a lot more on the ball than "the Wizard."

[Joe G]

James Kunstler on Greenspan:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:

BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

What kind of a rock does this fucking idiot Alan Greenspan live under?

The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

[alocispepraluger102]

James Kunstler on Greenspan:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:

BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

What kind of a rock does this fucking idiot Alan Greenspan live under?

The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a as a precedent,grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

greenspan should have enough respect for his successor to keep his big trap shut.

his words no longer mean anything, but he craves the limelight and commands huge speaking fees.

his time would be better spent leading a ghost band for henry jerome or tending to his lovely bride andrea mitchell.

paul volcker, greenspan's predecessor, didnt cause greenspan problems when volcker left office.

[The Magnificent Goldberg]

Adjustable rate mortgages are the norm over here. You win when they come down; you lose when they go up. But that's what's SUPPOSED to happen. The point of the Bank of England (or the Fed) controlling interest rates is to put money in or take money out of the economy so as to control inflation. Schemes to get around this make inflation more difficult to control because they don't have the impact on people's spending that they ought to.

Edit: Just to make things clear, I'm saying that Greenspan was right, but he gave the wrong reason. Maybe he knew it was the only reason that could be sold at the time.

MG

Edited March 30, 2007 by The Magnificent Goldberg

[randissimo]

I happily rent a cute little berm house in rural Michigan for $550.00 a month w/ a pole barn and lots of privacy and am glad I don't have to deal with mortgage companies etc..

[alocispepraluger102]

I happily rent a cute little berm house in rural Michigan for $550.00 a month w/ a pole barn and lots of privacy and am glad I don't have to deal with mortgage companies etc..

and no condo neighbors to complain?

Edited March 30, 2007 by alocispepraluger102

[randissimo]

I happily rent a cute little berm house in rural Michigan for $550.00 a month w/ a pole barn and lots of privacy and am glad I don't have to deal with mortgage companies etc..

and no condo neighbors to complain about your practicing?

Believe it or not I can open my windows and bash like Elvin at 4 am with no problems!

[The Magnificent Goldberg]

I happily rent a cute little berm house in rural Michigan for $550.00 a month w/ a pole barn and lots of privacy and am glad I don't have to deal with mortgage companies etc..

and no condo neighbors to complain about your practicing?

Believe it or not I can open my windows and bash like Elvin at 4 am with no problems!

you could have brotzmann, evan parker, and paul flaherty over to jam and no one but the wildlife would complain.

Sounds great!

But what's a berm house? And how many bedrooms is little? A 3 bedroomed house in this area would be about 750 pounds a month to rent - about $1450. That's what my son-in-law is expecting to pay when he and my daughter sell their house and buy one in a beautiful rural area as an investment (!).

MG

[Dan Gould]

James Kunstler on Greenspan:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:

BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

What kind of a rock does this fucking idiot Alan Greenspan live under?

The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

Greenspan's point is that the problem with the subprime market is the decline in housing prices. If people who have ARMs that are about to adjust had more equity in their houses (IE, higher prices), they'd be in a position to refinance into a 30 year fixed at an affordable rate. The problem is people who have gotten themselves into negative amortization situations and are now "upside down" on their house wherein they owe more than the house is worth. No finance company will touch that situation, and those are the people who are going to lose their houses. Those are the people (mostly) who are defaulting and generating the "crisis" in the subprime market.

it doesn't exactly take a brainiac to say that higher home values would solve the problem. Higher home values always solve the problem of bad loans - it allows people to refinance and consolidate their debts and not lose their homes.

[Jazzmoose]

Wow. I'm gonna quit complaining about getting old; at least the house is paid for...

[alocispepraluger102]

James Kunstler on Greenspan:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:

BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

What kind of a rock does this fucking idiot Alan Greenspan live under?

The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

Greenspan's point is that the problem with the subprime market is the decline in housing prices. If people who have ARMs that are about to adjust had more equity in their houses (IE, higher prices), they'd be in a position to refinance into a 30 year fixed at an affordable rate. The problem is people who have gotten themselves into negative amortization situations and are now "upside down" on their house wherein they owe more than the house is worth. No finance company will touch that situation, and those are the people who are going to lose their houses. Those are the people (mostly) who are defaulting and generating the "crisis" in the subprime market.

it doesn't exactly take a brainiac to say that higher home values would solve the problem. Higher home values always solve the problem of bad loans - it allows people to refinance and consolidate their debts and not lose their homes.

..and the people who sold and financed those homes knew that day would come when values would even out, long term averages not withstanding, and didnt give a damn about the poor buyers.

[Dan Gould]

James Kunstler on Greenspan:

March 19, 2007

Amazing Mental Rot

From the Florida Sun-Sentinel:

BOCA RATON – Retired Federal Reserve Chairman Alan Greenspan, speaking at a Futures Industry Association annual conference here on Thursday, said the problems of the subprime mortgage market had more to do with home prices than easy credit.

"If we could wave a wand and housing prices go up 10 percent, the subprime mortgage problem would disappear," he said.

What kind of a rock does this fucking idiot Alan Greenspan live under?

The median price for a house in my region of the US (northeast) was $380,000 in the third quarter of 2006. Median annual income, meanwhile, was about $46,000. If, by some miracle (in a land of negative savings) someone with an income of $46,000 had managed to save enough to make a 20 percent down payment ($76,000) on the aforesaid median-priced house and got a 30-year mortgage for the remainder ($314,000) at 7 percent interest, his monthly payment would be $2089. Add to that $250 a month in local property and school taxes and insurance and that brings it up to $2339. That adds up to $28,068 a year in house payments. Let's say the poor bastard pays $8,000 a year in combined income tax and FICA witholding. That leaves him with a grand total of $9,932 for everything else. Then there's the yearly cost of owning a car, including installment payments, insurance, gasoline, and maintenance: around $6,000 a year. Oh yeah, if he's a prudent fellow, he's got health insurance, let's say a practically useless high-deductible policy costing $3,000 a year. That leaves approximately $57 a week for groceries, laundry, the collection plate at church, and everything else. (Too bad he can't afford cable TV and the Internet.)

So, if housing prices went up 10 percent, how fucked would Mr. Median Income be?

Of course, the scenario above was based on the most conservative type of mortgage. If Mr. Median Income had gotten a creative mortgage, let's say a no money down, interest only, payment option, adjustable rate mortgage, he would have been a little more solvent until the re-set. Then after enjoying the place for a year or so, he'd either have to sell it pronto, or default on his payments. And because all his payment option shortfalls would have been back-loaded onto the principal, the mortgage obligation would be more like $400,000 now. This is a bummer, selling into a down market.

I guess Alan Greenspan is right. If the price of houses only went up 10 percent a year, or every half a year, or maybe every month, guys like Mr. Median Income could stay ahead of the game. Of course, sooner or later under conditions of perpetually rising house prices, houses would have to be priced out of everybody's range except for Donald Trump, Paris Hilton, and a handful of other lucky, beautiful people who dwell in the perfumed ethers above the pathetic lumpenprole median zone. Perhaps by then, Mr. Median Income would have won the grand prize on American Idol -- or better yet, crapped out and won an Oscar for best supporting actor instead -- and then he would be a beautiful, rich-and-famous celebrity with the ability to buy as many houses as he ever wanted.

I wonder if the new Fed Chairman, Mr. Ben Bernanke is as wise as Mr. Greenspan? Let's hope so.

Greenspan's point is that the problem with the subprime market is the decline in housing prices. If people who have ARMs that are about to adjust had more equity in their houses (IE, higher prices), they'd be in a position to refinance into a 30 year fixed at an affordable rate. The problem is people who have gotten themselves into negative amortization situations and are now "upside down" on their house wherein they owe more than the house is worth. No finance company will touch that situation, and those are the people who are going to lose their houses. Those are the people (mostly) who are defaulting and generating the "crisis" in the subprime market.

it doesn't exactly take a brainiac to say that higher home values would solve the problem. Higher home values always solve the problem of bad loans - it allows people to refinance and consolidate their debts and not lose their homes.

..and the people who sold and financed those homes knew that day would come when values would even out, long term averages not withstanding, and didnt give a damn about the poor buyers.

Um, actually the people who financed those homes certainly do give a damn - not about the poor buyers but about financing a home at the top of the market when the appraised value was $250,000 and loaning $225,000 of that amount for a house which currently appraises at $185,000. Their $225000 loan was secured by a note backed by a real property that is worth significantly less. The financing company doesn't exactly come out on top under these circumstances, even factoring in the interest they may have earned over a few year's time.

[The Magnificent Goldberg]

Mm, Dan's post reminds me that I forgot to mention earlier that I understand that, in recent months, the Bank of England asked British financial institutions to report to it on the probable state of their finances if a 30% reduction in house values were to occur.

I don't know what they said.

MG

[Rooster_Ties]

Thank god home prices (or at least some of them) are a little more decent here in Kansas City.

A little less than 4 years ago my wife and I paid about $145K for our 3 bedroom, 1½ bath house (a wonderful old church parsonage built in 1922) -- in a great neighborhood (but in "not-such-a-great" school district). And fortunately we were able to put down 20%, so our mortgage was a pretty reasonable $115K (and our 30-year mortgage rate is close to 5%, fixed).

But I really feel for people with kids. A similarly sized house in a similarly good neighborhood on the Kansas side of the state line (less than 10 blocks away), will run a good $75K more(!) -- for the very same house!! We don't have kids (and plan NOT to ever have kids), so we definitely had more options.

The cost of living is really out of control in bigger cities and on the coasts especially, and the quality of school districts is a BIG factor.

A friend of mine recently had to buy a 4-bedroom house a couple years ago (he has three kids), and despite his cheapskate tendencies (he's an even bigger spendthrift than I am!) -- he had to pay close to $240K for a house that really isn't any bigger than mine -- just to get into an at least half-way decent school district.

That's almost $100K more than we spent -- for a house hardly any better than ours.

Edited March 30, 2007 by Rooster_Ties

[The Magnificent Goldberg]

Thank god home prices (or at least some of them) are a little more decent here in Kansas City.

A little less than 4 years ago my wife and I paid about $145K for our 3 bedroom, 1½ bath house

A friend of mine recently had to buy a 4-bedroom house a couple years ago (he has three kids), and despite his cheapskate tendencies (he's an even bigger spendthrift than I am!) -- he had to pay close to $240K for a house that really isn't any bigger than mine -- just to get into an at least half-way decent school district.

That's almost $100K more than we spent -- for a house hardly any better than ours.

My goodness that's cheap! We bought our (new) 4 bedroom house almost 2 years ago for 194K pounds ($372K); and we're out of Cardiff into an old mining village, now becoming a bit of a commuter town for Cardiff. In Cardiff, the same house (if you could get a comparable one) would cost at least 50% more; but when we were looking around in Cardiff, the houses all had much smaller rooms than this.

And Cardiff, of course, is a lot cheaper than most other comparable British cities.

MG

[ejp626]

My goodness that's cheap! We bought our (new) 4 bedroom house almost 2 years ago for 194K pounds ($372K); and we're out of Cardiff into an old mining village, now becoming a bit of a commuter town for Cardiff. In Cardiff, the same house (if you could get a comparable one) would cost at least 50% more; but when we were looking around in Cardiff, the houses all had much smaller rooms than this.

And Cardiff, of course, is a lot cheaper than most other comparable British cities.

MG

My impression from some comparison shopping, is that housing prices are at least 50% less than comparable costs in the UK and sometimes much less than that if you aren't in a hot property market. On the whole, I feel my costs of living got cut in half by moving back to the US (even in Chicago) and my salary went up by 25%. Go figure!

[The Magnificent Goldberg]

My goodness that's cheap! We bought our (new) 4 bedroom house almost 2 years ago for 194K pounds ($372K); and we're out of Cardiff into an old mining village, now becoming a bit of a commuter town for Cardiff. In Cardiff, the same house (if you could get a comparable one) would cost at least 50% more; but when we were looking around in Cardiff, the houses all had much smaller rooms than this.

And Cardiff, of course, is a lot cheaper than most other comparable British cities.

MG

My impression from some comparison shopping, is that housing prices are at least 50% less than comparable costs in the UK and sometimes much less than that if you aren't in a hot property market. On the whole, I feel my costs of living got cut in half by moving back to the US (even in Chicago) and my salary went up by 25%. Go figure!

Do they let anarchists live in the US? And where is the weather best?

MG