Credit Crisis, Housing Bubble (and bust), Economic downturn, potential “mild” depression. All terms floated around during this very certain recession. Unfortunately, it’s harder to understand the financial storm that brought us here, than the “ideas” spouting from the talking heads of how the economy will dig itself out of this hole.
Graphic Artist Jonathan Jarvis has created this animation explaining the run up to our current disaster, and it’s definitely worth a few minutes of viewing as the turn-by-turn animation is somehow easier to grasp than plain diagrams (shown previously here) or article snippets from the news outlets.
(Not pictured: animation of how we get out of this mess)
also, see more about this project here at it’s website, Crisisofcredit.com
This quaint little Detroilet area home (below), last sold in 2006 for 65K, the home foreclosed last summer, and the home was re-listed for $1,100. No takers… In the meantime, the house was stripped down by looters and squatters. So the home was listed for $1. No one’s seen a deal like that since you last cheaply bought out Baltic Ave. from your dim-witted friends at Monopoly.
Talk about a motivated seller. Obviously not motivated by greed. Apparently it’s already cost the bank that owned the home 10K, and constant looters and squatters weren’t helping the situation.
The siding was the first to go. Then they took the fence. Then they broke in and took everything else.”
The company hired to manage the home and sell it, the Bearing Group, boarded up the home only to find the boards stolen and used to board up another abandoned home nearby.
Scrappers tore out the copper plumbing, the furnace and the light fixtures, taking everything of value, including the kitchen sink.
The kitchen sink thing sounds like a bad pun, but the fence?!? Is there a big market for used fencing? I know there is for copper as I’ve heard many a story about copper wiring and piping being ripped off from abandoned homes, job sites, and even more brazenly, freeway medians. And stealing the plywood that had been boarding up the home to board up yet another home…. really? I mean, what does plywood cost anyhow, a couple of bucks a sheet? Well of course that’s too much because you could buy a few houses for that kind of green.
But most disconcerting of all, is stripping the siding of the side of an abandoned house. Really though, what could that be good for? ….
Oh, of course…. to line your shower, now who’s laughing? Only shower on the block with a 30 year weatherbeater warrantee, ….bitch to clean soap scum off though.
Bobo and Joy Dickson bought a house had been headed for foreclosure, but JP Morgan Chase apparently didn’t get the message that the former owners had moved out and the new owners were in residence. So, naturally, they hired a firm to drill the Dickson’s locks and take everything they owned
Wow, that’s terrible. I mean.. these people have heard of memos right? Maybe an email or two? I get that it’s probably in the best interest of asset companies to sneak in while you’re out to avoid confrontation, but ouch! Lawyers are involved, so I imagine they’ll go from foreclosing on a home to virtually giving it away to a family whose possessions and photo albums they’ve just trashed.
How could you go wrong after that? Why ,they’ll call him Bobo the Triumphant, or Bobo the Great! It’s a cheap shot I know, but I’ve spent the last 3 days moving HQ from sunny Orange County to sunny San Diego and my compassion is still packed away in the garage somewhere.
Ideal Investment Corner points us towards a recent article by the Wall Street Journal about the “Buy and Bail” phenomenon. In short, it’s a process of homeowners who are upside down on their mortgages who are facing a potential foreclosure, buying a second home to be their primary residence by showing their lender that they intend to rent out their current home. However, after the loan on their new home is secured with their good credit, they allow the old home to go into foreclosure, take the hit on their credit but yet are able to remain in a home.
The Upside: – The opportunity to be one step ahead of your impending credit ruin, and avoid years of apartment dwelling by getting into a home you’re actually able to afford.
The Downside: – Your credit gets hammered for the foreseeable future, you could get sued for mortgage fraud, and you could also have a lien placed against your new property for stiffing your lender with the bill.
From the Wall Street Journal,
The mortgage industry is starting to wise up to the practice and is scrambling to fight back. Buy-and-bail is “certainly fraudulent and unfortunately on an uptick,” says Gwen Muse-Evans, vice president for credit policy and controls at Fannie Mae. Although she doesn’t have data to quantify the size and scope of the trend, Ms. Muse-Evans says overwhelming anecdotal reports have prompted the agency to draft tougher regulations aimed at closing one big loophole that allows underwater homeowners to qualify for new home loans.
But don’t expect this to become a commonplace option to foreclosure. Lenders are busy closing loopholes and Fannie Mae is working on changing regulations to require users with the intent of renting a second property to prove that they could afford both mortgage payments regardless of actual or eventual renters.
An online petition is web-circulating from angryrenter.com, adding “signatures” of those who oppose the federal housing bailout. Their issue, of course, is having to foot the bill via taxes to bail out reckless lenders and homebuyers.
But did you know that renters are 32 percent of American households? And that homes in foreclosure are less than 2 percent?
So why is Congress rushing to bailout high-flying borrowers and their lenders with our tax dollars?
Unfortunately, renters aren’t as good at politics as the small minority of homeowners (and their bankers) who are in trouble. We don’t have lobbyists in Washington, DC. We don’t get a tax deduction for our rent and we don’t get sweetheart government loans.
First, the lender writes down the principal to 90% of appraised value. That’s the amount the FHA would guarantee – that is, the amount that the government would pay the lender if the borrower defaults on the new loan.
So, in the example above, the new loan would be written down to $180,000.
The remaining $20,000 – 10% of appraised value – would be the borrower’s equity stake.
In addition, the lender must pay the FHA 3% of the loan amount ($5,400) to participate and up to 2% in closing costs ($3,600). So on top of forfeiting $20,000 in equity to the borrower, the lender pays $9,000 to the government up front.
The $29,000 the lender forfeits is 14.5% of the appraised value of the home, which means the lender is accepting in essence payment for no more than 85.5% of the home’s value. In addition the lender has agreed to forgive the $20,000 in additional debt above appraised value from the original $220,000 loan.
For their part, while borrowers will get a 10% equity stake in their homes, they will have to pay for their participation in the program as well.
If the interest rate on a 30-year fixed rate mortgage is 6.50%, the borrower in this example will have a monthly mortgage payment of $1,138.
On top of that he will also have to pay a 1.5% annual premium to the FHA based on the principal balance of the loan, which will decline over time. That computes to $225 a month extra in the first year since his initial loan balance is $180,000.
Add to that property taxes (we assumed $167 per month) and home insurance (we assumed $50 per month), and his total housing payment every month would be $1,580.
The borrower will also be on the hook for an exit fee when he sells his home. The exit fee would be equal to the greater of 3% of the original FHA loan amount or a declining percentage of the net proceeds from the sale of the home. The percentage is 100% in the first year and falls to 50% by the fourth year and beyond.
Let’s assume he sells the house after five years for $200,000. He would have paid down his principal balance to $168,500, leaving $31,500 for disbursement.
But he’s not keeping the whole $31,500. He owes an exit fee to the FHA – in this case 50% of his net proceeds or $10,000. Since the house in this example sold for the same amount as its appraisal value five years earlier, the only net proceed is the borrower’s 10% equity stake, or $20,000. So the borrower would pay half that to the FHA and walk away with as much as $21,500.
If the borrower sells his house below the appraised amount, he would still owe the FHA at least 3% of the original FHA-insured principal, or $5,400.
And this plan, they’re estimating it to only apply to 28% of at-risk homeowners. Everything that’s been hitting the fan, will continue to hit the fan for a lot of people. Doesn’t seem as if there’s a happy medium for homeowners, lenders, renters and the economy.
But it seems as if taxes are raised, many renters who’ve been reluctant to gamble with creative mortgages, and homeowners without mortgages are going to be very upset by having to pay for the bailout.
And not often are we seeing the term “Accountability” thrown around enough.
The homebuyers – You knew what you were getting into with a creative mortgage, if taking a huge hit from the bailout means you get to keep your home and don’t have the stain of foreclosure on your record, consider yourself lucky.
The lenders – They bought the loans, they knew what they were, yet the housing market always goes up right. Well, it stopped. Deal with it. Take the hit. This bailout may take a big chunk of their profits, but backs up the difference. And the lenders, well, the economy needs them to make the whole world go ’round, so expect them to get traditional mortgages back in style pretty soon
The loan writers – For the most part, good hardworking people, same as you and I. But there’s also many who are also good and hardworking, yet wrote bad loans that they either knew or suspected were bad loans. Time to find a new career. Some people were getting home loans that couldn’t even qualify to purchase an automobile. Time to put and end to that and the ‘honor’ system of reported income.
In a great article by Neha Grey at Divine Caroline, Neha compares what your home buck gets you here vs. abroad. Below you have a French Chateau, which $500,000 would get you a quarter ownership or that same 500K would get you a very plain home in L.A. suburb downey.
Hmm, Downey or France? I’m familiar with both. Downey is a decent place, very dull, the people are rude, and the food is terrible. France matches all these qualities plus some.
That first pic reminds me of every Bond villain or any supervillain from the movies though. All had exquisite palatial estates in far off exotic countries. Now that I know what these evil geniuses paid for their homes, I’m less likely to believe that they weren’t so much criminal masterminds as they were disgruntled office workers who cashed out their 401K’s and moved overseas.
The depressing facts (6 more eye opening and hair pulling examples) from Divine Caroline.
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