Has the bubble burst?

News and Review ^ | Sep 21 06 | Sasha Abramsky

[GodGunsGuts]

Just like you, Petronski. You strain at a gnat and swallow the camel.

[GodGunsGuts]

Nope, no reason to be concerned. Nopardons, petronski, and toddlerpatriot will no doubt interpret this chart as a signal to go long!

http://www.schwab.com/public/file?cmsid=P-1536370&filename=5.gif

[Petronski]

Your autobiography is coming along beautifully.

[Petronski]

And what did you learn reading chicken entrails this morning, merlin?

[GodGunsGuts]

You're absolutely right. And you will definitely be included in Chapter 7. "GGG continued to profit off the gold-bull, while Petronsky, mistaking a mineral on the Periodic Table for a vengeful pagan bull-god, spent the rest of his days (most of which were spent in an insane asylum) chanting and genuflecting in front of his golden idol in a vain attempt to escape the wrath of an inanimate object."

[stultorum]

OK, just a little. Say, 20% and then stabilize.

[old and tired]

Am I supposed to feel sorry for these morons? What's the point of this article? That some people are living way over their heads? That's news?

Anyone who's only taking home $4,000 a month shouldn't be carrying "two hefty car payments". These people have chosen a lifestyle over security.

[Mr Rogers]

There may be circumstances where it makes sense to rent. For most Americans though, home ownership is the key to a better life for themselves and their families.

I own my home...all except about 95K of the 350K, and I should have it paid off in 7-8 years. However, I was in my late 30s before I bought my first home. I'm in the military and move a lot. And in many places, it is cheaper to rent a house than to pay the mortgage.

It also isn't correct to say most folks use their homes to build up equity. People who buy using 30+ year mortgages are renting from the bank for the first 5-10 years, since you are paying almost entirely interest.

When I was in Washington state, I could rent a home for 2/3 the price of a mortgage. And while I didn't build up a small amount of equity during those years, I also had the down payment invested in the stock market.

I'm not against home ownership, but young couples who buy are often counting on the value going up. If it doesn't, or if one gets laid off, they are in deep doo-doo. One needs to balance those risks and decide what to do. The couple in this article didn't think at all, as best I can tell.

[montag813]

leapfrog to 9.375 percent in one go, and from then on rise incrementally to a maximum of 12.375 percent. They weren’t aware that their variable rate was tied not to the prevailing mortgage rates but to a market index based out of London, which circulates money at a far higher rate of interest than does the fixed-rate-mortgage market. The final poison pill--a $7,300 penalty if they chose to seek new financing during the first three years--discouraged the Philbrooks from refinancing once high rates kicked in. Not understanding the first three provisions, the couple were not fully appreciative of the dangers of this refinancing clause.

What is all this shit? 10yr rates have barely budged upward in 2 years. And the Fed only increased rates 3.5%. How could someone be paying 13%? I think some mortgage brokers need to be doing jail time.

[montag813]

I borrowed too much and I don't make any money... It must be somebody else's fault. Yeah, that's it. They enticed me!

Agree on main point. But there are clearly some mortgage brokers who engaged in deceptive or outright illegal activity.

[churchillbuff]

It does sound like a suspicious arrangement.

[montag813]

Watching all this from New York City, it is disturbing but things here seem to be just fine. Prices keep climbing, people keep buying. Not as much as before of course. But even people who can't get their desired price for a condo can rent it out and easily pay for their mortgage and maintanance. The super strong rental market in NYC is permitting many sellers to ride this out. At least so far.

[stylin19a]

their refinance leaves them with 34k in equity- approx 11%.

I love stories with a happy ending.

[ladyjane]

These people were careless to be sure, but they were also lied to.

Percentages, rate and interest are taught in the fifth grade. These people wanted to believe.

[Amerigomag]

I've reviewed this classic thread. A whole lot of folks with limited knowledge of the California market and the pressure on lenders to meet the market demand.

Buried deep in the story is a clue pointing to what got the Phillbrooks in trouble. Few replies suggested the intitutional culprit. References to the Phillbrooks willingness to live well beyond their means never asked the obvious. How did they do it ... qualify for the loans?

I can remember when California lenders required a 20% down payment and the debt service on the note, including principle, interest and taxes was limited to 25% of family AGI. Care to venture a guess* as to the maximum permissible % of AGI that qualifies a buyer today if they are willing to sign an ARM?

*don't be cautious or you won't even come close.

[Jason_b]

Our government lives beyond our means. So it isn't surprising the people imitate their government.

[GodGunsGuts]

Excellent point.

[rlmorel]

Oh come on. That statement is a non-sequitur. It really has nothing to do with the discussion.

[Kay]

Hey, good points. Hadn't thought of it that way before your post.

We paid off our house within 10 yrs. Many folks told us it was not a tax smart thing to do but we don't like being in debt for any reason. Now, from your points, I realize that we were actually protecting our investment. Thanks.

[Kay]

I don't understand why Greenspan would write that. When we bought our house, a senior relative told us that he bought his house in the 1940s at 4% interest. I was flabbergasted and thought we would never, ever see those days again. Lo & behold, we did see those days after all. Why would I want an ARM when the interest rate is at a 60 yr low?