Wednesday, July 9, 2008

The Mommy Connection

Several months ago, I received an e-mail from a mom whom I had met at Bunco shortly after I moved here. She asked if I had anything to do with a local RE blog........doh! She obviously has an above average memory.

Well since that time, we have started meeting for play dates regularly. Aside from all the usual kiddy talk, we share a lot of dirt on housing related stories. She has been a great source, especially since she has lived here longer and knows her neighbors much better than we do.

So on to her latest dish......

Apparently someone in her neighborhood, struggling to avoid foreclosure, moved out at 3am.
I have heard reports of this in the news/blogs, but have never quite understood it. Why in the middle of the night? Did they take all the appliances and didn't want anyone to witness? If that is the point, wouldn't they do it in the middle of the work week when everyone is gone? I would think nighttime would be when all the neighbors would wake up and want to know what the heck was going on. Or perhaps, moving vans are in such high demand that 3am is the only time they have available? In any case, the situation strikes me as very odd.

A friend of hers who lives nearby, in the RE industry, had regularly refied their home. She was so underwater, that their monthly payment was almost twice our rent, even though their home was considerably smaller. Their home is now in foreclosure. Too much Kool-Aid. Now I am a big fan of personal responsibility and living within your means, but in some cases, like this one, it doesn't make sense for a person to try and stay. Walking away, renting for seven years, seems like a much better alternative to complete financial suicide.

The bank did not have to give them the money. The bank also set the terms for the contract that they signed, which lays out all remedies if they cannot pay. I don't understand why some feel it is such a bad thing to walk in this situation (I was raked over the coals by another blog for my thoughts on a lawyer of all people....whom you would think would understand the idea of a contract).

Of course if there is any type of fraud or misrepresentation involved, that is another ball of wax entirely.
Six months ago, I heard of these types of stories, but they occurred in places like Elk Grove and Natomas. Now they are in my neighborhood. Unfortunately, no zip code is immune.


Sippn said...

There are several issues with the debt but I'm starting to feel sympathy towards those who relied on lenders and their appraisers telling them that the 2500 sf tract home in Antelope (or whereever) was indeed worth $650K, those who put substantial down payments were further damaged by lending practices that created this blowout.

The real estate industry relied on the image that the finance industry was solid, filling demand that the money created.

Can you say class action?

Paul said...

One explanation for a 3:00 a.m. move is to avoid potential embarrassment of having to explain to neighbors. Move in the day, they'll all come and want to talk to you. At 3:00 a.m., not so likely.

Although 3:00 a.m. moves are more common in my experience, with tenants who owe rent. Maybe this was their first house and they only had prior renting experience?

PeonInChief said...

Dean Baker from CEPR has been screaming for a couple of years now on the responsibility of the lending industry for the foreclosure crisis. It's true that, in many cases, homeowners did things that were dumb. But they did them once or twice. The lending industry passed out option ARMS over and over again, forced appraisers to come in with the right figures, neglected to note that it was unlikely that prices would increase 20% a year indefinitely, and allowed people to claim far more income than was possible in the world we know.

And I'm tired of personal responsibility. Since when has financial competence become a marker of virtue? I'm inclined to draw a parallel with the late Molly Ivin's comment that marital fidelity was not an indicator of political decency or public honesty on the part of politicians. Financial competence tells us nothing one way or the other about the decency, kindness, honesty or general intelligence of our fellows. It's just not an indicator trait. Sorry.

I didn't buy a house with an ARM because I'm lazy and profligate, and I have hobbies that cost money and I wasn't willing to give them up for a mortgage.

And people move in the middle of the night because they believe that they neighbors will just leave them alone at 3:00 AM, while people might come over to find out what was happening midday, causing embarrassment. And that says worse things about us than any personal responsibility.

Paul said...

I actually see the potential for the class-action lawsuit based on bank, title company, real estate agent and seller's failure to warn purchasers that home prices could decline and they could lose money. After all, you already have to warn buyers of pretty much every other "common sense" possibility, or face liability. If you buy a kitchen appliance, 1/2 of the Owner's Manual is warnings about possible personal injury and death. I think the analogy can be carried to real estate, but the biggest problem is finding class-action defendants that are still solvent.

Buying Time said...

"Since when has financial competence become a marker of virtue?"

I tend to agree, although in the case of U.S. Rep. Laura Richardson she seems to have gone above and beyond.

Patient Renter said...

Can you say class action?

It's no so black and white.

I actually see the potential for the class-action lawsuit based on bank, title company, real estate agent and seller's failure to warn purchasers that home prices could decline and they could lose money.

Guys, I don't know...

The potential wrongdoing isn't that Realtors and lenders told buyers that prices would go up and they didn't. The wrongdoing that I see is that lenders put buyers into loans that were all but doomed to fail, given the buyers income, unless they could refinance, and that refinancing was not a guarantee given future market uncertainty. The wrongdoing here would have been if the lender failed to explicitely point out the risk that the market might not appreciate, and that the buyer in that case would be screwed and couldn't refinance.

There's still a lot of personal responsibility that needs to be taken on the part of the buyer though. They knew full well that they were making a bet that the market would continue to go up (forever?) since that's the only way they would be able to refi later on. That gamble was a choice that they made. You can't push that decision off on the Realtor, or the lender, and sure as hell not on innocent taxpayers who had nothing to do with the situation.

Since when has financial competence become a marker of virtue?

I don't think that it should be, but this sure as hell is no excuse for a bailout, as some would have it be.

Why in the middle of the night?

You know how stupidly pretentious this area is. They were ashamed.

Sippn said...

PR - besides personal responsibility, I see the system built all the way back to Wall Street, pushing $$ in a classic pyramid scheme, constantly loosening guidelines, leaving cycles out of the models, disguising crap in CDOs and selling off to the likes of CALPERS, etc. until there was nobody left to fill the bottom of the pyramid.... just like the $25 scheme in college, everybody's guilty, but the system was built on a fraudulent scheme.

Deflationary Jane said...

I have to say I'm with PR on this. I don't see where financial competence equals virtue and I sure don't see where one excuses the other either.

Been Here Before said...

I told my wife back in 2005 that we couldn't afford a house, because all of these crazy loans being offered were only viable if the ponzi scheme that was being run up with home prices continued. We both knew that it would fail, fail soon, and when it did it would destroy all the people at the end of the line.