Tuesday, January 5, 2010

Only a Sucker will Sacrifice

There are plenty of stories swirling about the blogs that make me feel like a sucker for having played by the traditional rules. The worst is the story that goes something like this.....a couple buys a home with no money down, extracts thousands of dollars in equity, which is then used to purchase exotic vacations and cars, then they stop paying their mortgage and bank the savings for a year while the bank slowly processes the foreclosure, or better yet get a permanent mod with a principle reduction.

The one I have actually experienced first hand, more than once, is related to short sales. The story goes like this, we walk into a nice home, with furnishing worth 8 to 10 times ours, the house is adorned out with all the latest electronics (massive flat screen TV, home theater stereo), toys galore (often high end car or boat in the garage), and of course the built in BBQ in the backyard, only to find out the house is a short sale. If they sold off even 1/5th of their possessions, they would have enough money to make the mortgage for the next year or so. Then Mr. BT and I leave feeling like we played the game all wrong.

So yes, I am bitter and venting a little, please bear with me (I just spoke with another friend who is now planning a short sale/walk).

I realize there are plenty of people who played this game and lost everything......but at the same time there are way too many who played it and hit the jackpot (heads I win, tails you lose). The way I see it, without skin in the game, it will be played over and over with the same result (the 3.5% FHA down payment loans are perpetuating this game).

21 comments:

Max said...

This game will have to end sometime. I wonder what will take its place?

patient renter said...

A boat sounds like fun (if it's not your money), but I've never understood those backyard kitchens.

Buying Time said...

According to my father -

B -Bring
O - Out
A - Another
T - Thousand

To be honest, not sure we would even be into all that stuff if we did have the $$ (although I know Mr. BT would love a Bass Boat).

Max, if you can figure out what game comes next, you should be able to make enough to quit your day job. Like the guy who knew housing was going to bust, so he bought all kinds of mortgage insurance options super cheap. Loans went bad, insurance costs went through the roof...he walked away with billions.

RV6Flyer said...

Amen! Honest, hard working people always seem to get the short end of the stick.

PR - I love my outdoor kitchen and bar. Becomes huge gathering spot during the warmer months; just like people gather around indoor kitchens. Large grill plumbed into nat gas, double sinks, instant hot water, ice machine, refrigerator, kegerator, and lots of bar seating. I have no idea what previous owner spent putting it in. His loss, my gain ;)

husmanen said...

Glad to see you back in the blogosphere.

I agree the new FHA 3.5% will lead to another situation of walk aways.

Spoke with a BoA loan rep that said his is doing 90% FHAs. I cautiously replied, doesn't that mean they are automatically underwater, no skin in the game, takes 6% to sell, and you might be getting that house back in a year or so again?

He looked at me in dismay and said, well I hope not.

HOPE, that is all they had? Dang, more decisions without data.

This path will be long and tiresome.

Also, many I know that pulled money out didn't foresee any downturn, nor made any preparations for it. More hope I guess. They just thought it would go on forever, risk without consequences can make you a winner!

radiophilejapan said...

BT,
Glad to see you back, I hope you enjoyed your well deserved break with your family.
This post really resonates strong and loud in my heart - I went to a "lender's approved" short sale home in Rocklin yesterday. The owner showed us the house loaded with amenities, electronic and otherwise, plus a huge and shiny off road truck in the garage. I asked him if there was only one lender, and not surprisingly he said that there was another one but they were both in agreement. It immediately hit me that he was going to get away with not paying off the second loan on the house very likely used to fund the amenities I saw.
It did stir mixed feelings in my mind. And I read today this reader's post in Diana Olick's blog : "Remember that most of the people who are underwater on their mortgage are not there because they bought at the top of the market. Most people who are underwater are people who bought long before the top and used their house as an ATM, doing cash out refi after cash out refi. The people who acted responsibly should not have to subsidize the people who acted greedily to buy SUVs, Plasma TVs, etc. It is unfair and unamerican."
Something is rotten in this kingdom. I hope the market stabilizes soon but naturally, following the course of the free market.

Paul said...

Obviously, you haven't read the Constitution where it says that everyone is entitled to have everything they could possibly want, and those with personal responsibility have agreed to pay for it (or be taxed into poverty so that the government can give it to them in exchange for votes).

Boat: Hole in the water that you throw money into.

3.5% down FHA loans: Subprime, redux, just maybe a little farther down the road, with 100% falling on taxpayers.

Welcome back!

sacramentia said...

I love boating. It is a totally unjustifiable way to spend money from an investment standpoint, but it is the only payment that makes me smile when I write the check. Many of my best memories are on the water.

Bryan said...

Refraining from dishonesty and theft does not a sucker make. Neither the institutionalizing of the process nor the jading our public consciousness about it changes the essential character of the actions of many who take inappropriate advantage of the system. Perfidious, vapid, entitled.

I was tempted to add the word Serrano, but that's my Folsomite envy talking.

On that note, purely as an aside, what do you call a person from Folsom? A Folsomite? A Folsomer? A Folsomian? A Folsch? I like Folsch. I suppose I can stick with the trusty "a person from Folsom" for now.

Buying Time said...

Glad to see everyone is still around! Sorry to be so grumpy on my first post of the new year...but I desperately needed to vent.

Speaking of venting....I can't believe Arnie is proposing a revivial/expansion to the 10k credit. Isn't our state more than broke? Giving away money we don't have, to get people to do something they were planning to do anyways, seems pretty stupid. For those it really influences, if the 10K is that critical to the purchase, perhaps they shouldn't be buying in the first place.

Sacramentia - We have an old (and I mean old) boat. We love being on the water as well. Folsom lake was a huge draw for us.

Bryan - Sorry I can't help you on that one. They are all difficult to pronounce.

HisBirdie (Ali) said...

AMEN! and don't get me started! It's called living within your means ppl!
I have 2 friends that got approved for a mortgage way over what they should be buying. They're all excited b/c they can get something bigger... but don't seem to realize that means their monthly payment will be HUGE.
Personally I would like to live somewhere that is just the right size and spent as little money per month on my mortgage, but I guess that is just me.

sunshine said...

Last year I posted about a neighbor who I saw listed as filing BK Chp. 7. I didn't quite understand how it would all pan out.

Well, I saw a couple of weeks ago that his file is now closed AND they are still in their house and STILL have their 2 new cars (Range Rover and mini-SUV). So my guess is that he probably got all of his unsecured debt (aka CCards) discharged; probably his 2nd (which 4 years ago he boasted he took $100K to install pool, backyard landscaping, etc) so that now he can "afford" his house and car payments via affirmation (and probably under more "reasonable" terms). The kicker is a week after I saw that his BK file was inactive, his dog walker's car was parked in front of his house!!

I empathize with people who truly have to file BK for hardship but if you can still afford a dog-walker in your budget, then come on. PS: Now I understand why the number of Chp. 7 BKs have skyrocketed in EDH. They are all probably going down the same path as this neighbor.

patient renter said...

I can't believe Arnie is proposing a revivial/expansion to the 10k credit. Isn't our state more than broke?

Yea, even the comments on that SacBee article were 99% opposed. Pretty impressive to get that much agreeance on anything nowadays.

PeonInChief said...

I guess it's just that I have no interest in a big screen TV, boat, outdoor kitchen (does a charcoal grill count?) or a spa bathroom, but I just don't see that I've been a chump for renting and buying none of those things. Yeah, people did that, they got themselves into trouble. But it's nothing like what Goldman, Citi and the other denizens of Wall Street did, and that's where my venting is directed.

And most people in California have put less than 20% down on their first houses for, like, 30 years. The problem wasn't the down payment, but the bubble.

And I too am glad that BT has returned to the blogosphere. Do you still have the snow in the freezer?

Buying Time said...

PIC - Yes, it's now an ice ball...I think my daughter forgot about it. Speaking of the snow...it wrought havoc on our plants.

Sunshine - That's exacly the kind of story I had in mind when writing this. Seriously...a dog walker. Wow.

Speaking of discretionary income, my kids both have birthdays in March, so we figured we would take them to Disneyland this year. (Seems I'm the only parent whose kids haven't gone yet.) Boy was I in for an ugly surprise....a 3 day park pass for 4 people is $600!!!

husmanen said...

Strategic defaults. What about those that went with the general flow, bought at the top, didn't take any money out, have no toys, can barely make the payments, but can?

A contract is a contract. If you don't make the payment the bank takes the house. It doesn't say the bank will only take it back when it is worth more.

I have no problem with strategic defaults. They actually might provide a stimulus to the economy as money going to the bank could now be used for goods and services.

PeonInChief said...

BT--

I'm sure you've read up by now, but leave all the plants alone. Don't cut any of the black stuff off (no matter how painful it may be to see your yard in that condition). Some stuff may come back from the roots in the spring. So wait until at least mid-April to see what survived.

The exception is the plant that you never really liked. The justification to self is this: "This plant isn't going to come back well. I just know it. We'll put it out of its misery."

Buying Time said...

Husmanen - I don't have a problem with strategic defaults either, in fact I think they will help repair houshold balance sheets and stimulate the economy (free up cash). I'm mostly disgusted with irresponsible folks (like Sunshine mentioned) getting a free pass...and then get to keep all the goodies. Folks like my little brother, responsible, 20% down, etc...I have no moral issue with them walking.

PIC - Oh dear...no I didn't know that...so I actually trimmed a considerable amount this weekend. My neighbor suggested that the lilies should be cut back and they will grow back. Opps.

PeonInChief said...

Oh, well. You can always replant.

PeonInChief said...

One other thing, even though we're not likely to have more freezing weather. If a freeze is predicted, water the garden thoroughly. As you will recall from high school physics, water freezes at a lower temperature than dry ground, so a good watering will protect the roots.

Amy said...

I don't really think that everyone who uses an 3.5% down FHA loan is irresponsible, as many of you have said or implied here, and this sort of mortgage is not the cause of the housing bubble or the majority potential future defaults in the next couple years -- thousands of traditional mortgages are going into foreclosure, too. My husband and I searched for 6 months this last year for a first-time house, having refused to buy during the bubble, and finally bought the least expensive, smallest house we had made an offer on that we really liked -- 1,700 s.f. at $280k in Fair Oaks. We saved a lot of money for a down payment, but coming up with 20% while living in Northern Cal, which doesn't exactly have cheap rents unless you live in the slums, would have been extremely difficult given the money we put into advanced degrees and student loans. Also, we needed to set some money aside to make repairs to the home, which is a light-medium fixer (we're DIYing most things). We were actually approved for a 450k mortgage, but wisely -- and responsibly -- only looked at homes within our budget, which had nothing to do with the mortgage company's calculations. Perhaps paying 20% down will make some people more dedicated to their mortgage, but that's not what I'm seeing or hearing in articles, blogs, or in the news. A lot of people who sunk 205, 30% or more as down payments into their homes are also walking by choice or defaulting because they've lost jobs, face illness, etc. If you stretch for a mortgage no matter how you pay for it, and esp. if you use your house as a piggy bank, it's a lot harder to come up with the monthly payment if you lose your job than if you buy a modest home. Even if hubby and I end up temporarily unemployed, we could still pay our mortgage with less than ideal temp. jobs. We couldn't if we'd bought a bigger house in EDH, Folsom, Land Park, etc. So please don't blame a loan program that's a great help to a lot of people dedicated to living in their new neighborhoods for many years.