Originally Posted By Kar2oonMan >>How can ANYONE be so STUPID?<< Perhaps some people's intent was simply to get low payments and sell eventually. Here in the Bay Area up until recently, it was not uncommon for all kinds of crazy bidding wars over houses that were barely standing. Some people made a nice bundle in short order, then fled for cheaper regions with their winnings. Most didn't, of course. Two years ago, my aunt & uncle bought a new home. The homebuilders in the central valley came up with this neat gimmick of creating a false 'shortage' -- they would only release a handful of homes at a time. My aunt & uncle traveled out there several weekends to hold their position in 'line' for the home they wanted. There was enough craziness to go around in this whole thing. By the way, a non-subprime lender, AHM filed for bankruptcy protection yesterday.
Originally Posted By Kar2oonMan <a href="http://finance.comcast.net/www/news.html?x=http://www.comcast.net/data/news/2007/08/06/732904.xml&cvqh=itn_mortgageco" target="_blank">http://finance.comcast.net/www /news.html?x=http://www.comcast.net/data/news/2007/08/06/732904.xml&cvqh=itn_mortgageco</a>
Originally Posted By fkurucz <<Perhaps some people's intent was simply to get low payments and sell eventually.>> In other words, flippers. Works great while the appreciation party rages on.
Originally Posted By Mr X Oh, how well I know about THAT one K2M... I actually had shorted that company a few months ago at $26 a share...and ended up losing a TON of money when the company came out with a BUNCH of press releases stating "WE ARE FINE! DO NOT WORRY! WE ARE NOT SUB-PRIME! HOLD YOUR SHARES!" (you know, words to that effect. The stock price shot up like a rocket and I had to get out, even though I was right on the call (this is NOT a sub-prime thing, sub-prime was just first in line...now were starting to see the real spread). Anyway, I made up for it because I actually PURCHASED American Home Mortgage on Wednesday for a buck a share (1,000 shares), and sold the next day on a "dead cat bounce" for well over $3.00 a share on average! The next day, they were dead.
Originally Posted By Mr X >>Perhaps some people's intent was simply to get low payments and sell eventually.<< Sure, and that's fine. But noone in THAT case was defrauded...they were speculating. Speculation sometimes blows up in your face. As for the infamous "flippers", I see that the mortgage companies are trying to give them a lot of bad press (it's THEIR fault this is happening! I hear that often)...but I don't buy it. Maybe a few dummies remained, but the majority of people doing that as an investment made a bundle, and then got out when the deals started going sour. Only the last minute idiots got caught holding the bag, which is the way it works...that's why it's called "speculation" instead of "investing".
Originally Posted By fkurucz <<You can buy a house in the US without a deposit????>> Not only that, but in many cases you would get cash back at closing, for that well deserved BMW. What was done was that most people took out 2 loans, one to cover 80% of the purchase price and a second one to cover the other 20% plus some cash back. The second loan would have a higher interest rate. Many of these loans were what are no being called "liar loans" because applicants would lie about their incomes and the lenders simply accepted their "stated income" as a fact. As X mentioned, many of these loans would be negative amortization loans, meaning that the initial monthly payments would not even cover the interest charge incurred, so the loan balance grew. Eventually the loan resets to a real interest rate and unless the house can be either refinanced with another toxic loan or sold, its off to foreclosure. And that my liege, is how a couple who work at Best Buy as a sales clerk and as waitstaff at a TGI Friday's could "afford" to buy a 600K house in California. The system had to be rigged for no money down because there was no way that Jack and Jill could ever save 100K for a down payment.
Originally Posted By fkurucz <<But noone in THAT case was defrauded...they were speculating.>> And the worst thing is that they were 100% leveraged in their speculation. You can't even do that in the stock market, you have to have some skin in the game.
Originally Posted By Mr X >>Eventually the loan resets to a real interest rate and unless the house can be either refinanced with another toxic loan or sold, its off to foreclosure.<< And MANY of these people are in an even WORSE boat now, because their loans grew and grew (that's how negative amortization works), and they kept refinancing and refinancing...in some cases for years now. It works fine when housing is on the rise. Guess what? It's reset time! boom. (or "boom over", if you prefer)
Originally Posted By fkurucz <<As for the infamous "flippers", I see that the mortgage companies are trying to give them a lot of bad press (it's THEIR fault this is happening! I hear that often)...but I don't buy it.>> That's right, it takes two to tango. Had lenders required even just 5% down, verified incomes and not offered teaser rates and neg am, basic houses wouldn't have appreciated to 500K+ in SoCal (and other places) and we wouldn't be in this mess.
Originally Posted By Mr X **And the worst thing is that they were 100% leveraged in their speculation. You can't even do that in the stock market, you have to have some skin in the game.** Which makes it all the more easy to walk away when things turn bad. All in all, a very dangerous, stupid game to play (for all concerned). And now that it's all crashing down, people are crying "why? why?" "where is the FED to bail us out??" "this is so UNFAIR!". That's why I have no sympathy for any interested parties (outright fraud notwithstanding). They deserve what they're getting.
Originally Posted By davewasbaloo WOW!!!! Thanks for the explanation. Now I can understand why things are so messed up. Here in the UK they get verification of earnings from employers, ask for three months of bank statements, and most will only lend 3.5 to 4 times basic salary pre tax. I used to think this was a real pain, but when I see the alternative, holly molly.
Originally Posted By fkurucz <<Sadly that is global. Here in the UK the average salary is about $44,000, but the average home is $340,000.>> I think that the UK is overdue! for a price adjustment as well. <<We had to save for 8 years to get our deposit together. It's crazy!>> Save?!? Nobody "saves"! Why, its unAmerican to save. We all know that its our partiotic duty to go on recurring spending sprees, financed with endless credit cards.
Originally Posted By fkurucz <<WOW!!!! Thanks for the explanation. Now I can understand why things are so messed up. Here in the UK they get verification of earnings from employers, ask for three months of bank statements, and most will only lend 3.5 to 4 times basic salary pre tax.>> This is still true for "prime" borrowers, who of course get low and fixed rate loans. But the lions share of loans have been sub-prime or "Alt-A", which are usually adjustable and have mucher higher interest rates.
Originally Posted By davewasbaloo >>>I think that the UK is overdue! for a price adjustment as well.<<< Indeed, we bought our house in a cheap area 3 years ago. It is 950 sq feet three bed, 2.5 bath end of terrace (e.g. adjoining wall with our neighbour in a row of 8 houses) with a 100 sq foot garden. We paid $310,000 for it. Now, they estimate it is worth $380,000!!!! Madness, especially as we want to go up to a 4 bed detatched home, and they start at about $500,000. Not good at all, we are stuck a bit. I really feel for those in those average earning brackets. At least I am a snr manager in a multinational. My BIL is a forklift driver for building companies on about $40,000, his fiance is a child carer on about $20,000. They just about pay their rent, and on their current savings plan, he hopes to buy his 1st house when he turns 40 (in 13 years time). Very sad situation. I have often wondered about returning to America thinking we would be better off, but it doesn't sound like it.
Originally Posted By Mrs ElderP On the topic of flipping I would like to say that my grandfather made an absolute bundle on the real estate market in the bay area from the late 60s to the late 90s. (His new wife, whom I adore, has him traveling the world now, ejoying his wealth.) He was a lincenced realtor, who had always worked like a fiend, and saved like a miser. When a "good deal" came on the market he was in a position to spot it. He would buy, fix, repair, update, and then RENT it out. I know he eventually accumulated enough capital to invest in several shopping centers: the stip mall kind. No one talks about how much Grandpa is worth exactly, but I do know that he has 15 Grandchildren and that for each of us every month he deposits $50 in a life insurance/annuity thingy. If we choose to deposit our own money he'll match it at 2:1 up to $50. So, for us it's $200 a month, $50 of it mine. (The only stipulation is that parents can't deposit on the behalf of children, it HAS to be the grandchild's money.)
Originally Posted By Mrs ElderP Oh, and I have often heard the saying, "poor people, poor ways" and I totally believe it. That is not to say that all people with little money are "poor", but many families get trapped in a cycle of poverty and just don't learn the skills they need in order to get out!
Originally Posted By davewasbaloo >>>>On the topic of flipping I would like to say that my grandfather made an absolute bundle on the real estate market in the bay area from the late 60s to the late 90s. (His new wife, whom I adore, has him traveling the world now, ejoying his wealth.)<<< Ditto, my great aunt and my grandmother both did this and did very well out of it. My great aunt simply moved further and further out of the city into bigger houses, my grnadmother, owned 5 (and spent the profits in Vegas, and cruises and other such things). Worked out very well. But both saved and it was honest earning.
Originally Posted By Mrs ElderP Yes, Grandpa worked very hard. If you are going to make money as a landlord you really need to be doing lots the repairs and maintence work yourself.
Originally Posted By Sport Goofy So many people in America view real estate as a lottery ticket or get rich quick scheme, and it really accelerated in recent year. Fact is, real estate is generally not a high return investment, even for the professionals. How many people on the Forbes list of the world's richest people made their fortune flipping condos?
