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More homeowners selling houses for less than they owe
Seattle Times ^ | October 7, 2003 | Kristina Shevory

Posted on 10/07/2003 1:31:34 AM PDT by sarcasm

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To: sarcasm
It's unbelievable how people are blind to cyclical forces. "Can't happen..because it hasn't happened" characterizes a lot of the "thinking" of the "bubble" heads hot after the latest trend.

Even people that should know better. Had a rather heated argument with my sister, who's a higher-up at FreddieMac - who are the Supreme Beings of the housing market.

I told her if jobs don't return - housing prices will go into the toilet and people will go upside down on their mortgages. She said no - this "cram-down" effect won't happen because FreddieMac won't let it. I countered that institutions can't stop a tide - and she countered that FreddieMac had the power and treasury of the Federal government to back it up. And I said - "well then, the Feds will go down with it."

She snorted at my ignorance. And maybe she's right, I don't know anything about the real estate market and government meddling in it. All I do know is basic economics, and that prices go where market forces direct them, and that even the power of the Federal government is limited in jacking up prices when people don't have the jobs and stupid money to prop up inflated top-of-the-bubble prices.

Here's the thinking as I see it: "The consequences are unthinkable. Therefore, it cannot happen. Therefore...let's not think about it."

21 posted on 10/07/2003 5:27:34 AM PDT by ctonious
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To: Poohbah
I see. So, is it safe to extrapolate that your anecdotal finances are no more representative than are the anecdotal finances of any other given person?

If so, I would agree. The nationwide statistics (record high personal debt loads and record low personal savings rate - in other words, incredibly poor money mismanagement on a national level) are much more meaningful and informative...
22 posted on 10/07/2003 5:30:11 AM PDT by AntiGuv (When the countdown hits zero, something's gonna happen..)
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To: AntiGuv
Fine. I'll weather the storm (if any does come).

But I can safely castigate these idiots, because if I had been earning 200 large at any point in my career, I'd be ready to retire now.
23 posted on 10/07/2003 5:32:42 AM PDT by Poohbah ("[Expletive deleted] 'em if they can't take a joke!" -- Major Vic Deakins, USAF)
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To: AntiGuv
The list of forclosures just in my local rag is unbeleivable. Some weeks it takes 3-4 pages. And the largest City in the area is only about 12,000 people.

These folks are buying at the max loan limits and then a new car,couple of jet skis, or snow mobiles, them when they hit a financial snag they let the house and all the toys go back.

This year the state is also experiencing a record bankruptcy filings.



24 posted on 10/07/2003 5:34:44 AM PDT by Area51 (RINO hunter!)
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To: sarcasm
bump for later reading.
25 posted on 10/07/2003 5:37:29 AM PDT by toothless
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To: Poohbah
I safely castigate such idiots as well, but I choose to do so in the course of trying to encourage an overall reduction in fiscal idiocy, not to the purpose of obscuring the facts and making everything look A-OK when it's not...
26 posted on 10/07/2003 5:40:42 AM PDT by AntiGuv (When the countdown hits zero, something's gonna happen..)
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To: ex-Texan
It's obvious.

How can housing keep going up at 10-20% every year when most raises are at 2-4%???

Right now in the suburbs of DC you're looking at $350K for a 1200 sq. ft rambler built in 1950.

It's just ridiculous.

If you didn't own a house before 3 years ago, and you make average income 50-60K per year, 100-130K per family, forget it, you are out of the market unless you want to drive an hour to work every day. But then, you have the problem with the public schools raising your kids.

Something's gotta give and we are getting the hell out of here.
27 posted on 10/07/2003 5:55:48 AM PDT by Hammerhead
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To: ctonious
"this "cram-down" effect won't happen because FreddieMac won't let it." Freddie and Fannie are trillion dollar houses of cards waitng to collapse.

here's a snippet from an article I had - can't find the link though>>

The first and simplest form of lending is the primary mortgage loan. The second form is that involving Fannie Mae: A mortgage-lending financial institution makes a mortgage loan, but instead of holding onto it, it sells it to Fannie Mae, and uses the cash to make a second loan. It can repeat the process, of selling the second loan to Fannie Mae, and make a third, fourth, and so on, loan. In this manner, a mortgage-lending financial institution could make five loans for $150,000. It sells the first four loans to Fannie Mae (which buys them with proceeds from the issuance of its bonds) and keeps the fifth loan. At the end of the process, the mortgage-lending institution has one loan totalling $150,000 on its books, and Fannie Mae has loans totalling $600,000 on its books.
These were the only two types of lending up to 1979-81, when the third type was introduced: Fannie Mae began creating Mortgage-Backed Securities. As the risk on the MBS became greater, the risk that Fannie Mae had became greater. But this is part and parcel of how the mortgage market, and thus the mortgage-bubble, expanded.
The Mortgage-Backed Security-
In the case of the MBS, Fannie Mae gathers its purchased mortgages from different mortgage-lending institutions, and pools them together. For example, Fannie Mae may bundle a thousand 30-year fixed-interest mortgages, each worth roughly $100,000, and pool them together into a $100 million Mortgage-Backed Security. Fannie Mae puts a loan guarantee on the MBS, for which it earns a fee. Fannie Mae promises that in case there is a default on the MBS, Fannie Mae will pay the interest and principal "fully and in a timely fashion." The MBS, once it has Fannie Mae's guarantee on it, is sold to outside investors in denominations of $1,000 and up. The insurance funds, pension funds, and so forth, become the owners of the MBS, but if anything goes wrong, Fannie Mae is responsible.
From the standpoint of those building the mortgage bubble, the MBS taps into a broader layer of funds to be used for housing, on the order of additional trillions of dollars. The sources of funds that can support the housing bubble have been extended very far into the U.S.—and international—financial markets.

28 posted on 10/07/2003 6:00:07 AM PDT by petercooper (Unfortunately, l live in a blue state)
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To: petercooper
found the link>>

http://www.larouchepub.com/other/2002/2924fannie_mae.html

I'm waiting for the bubble to pop in the NY metro area
29 posted on 10/07/2003 6:04:38 AM PDT by petercooper (Unfortunately, l live in a blue state)
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To: AntiGuv
not to the purpose of obscuring the facts and making everything look A-OK when it's not...

Everything's OK here. If it's not OK for you, I suggest you stop wringing your hands and do something besides meddle on other peoples affairs.

30 posted on 10/07/2003 6:05:44 AM PDT by lewislynn
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To: lewislynn
You seem to have missed the opening of my statement. More importantly, I'd suggest you find yourself a point before you go trying to pretend you made one.
31 posted on 10/07/2003 6:10:57 AM PDT by AntiGuv (When the countdown hits zero, something's gonna happen..)
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To: sarcasm
The woman, who didn't want her name used because she's embarrassed, said she and her husband earned more than $200,000 a year, lived in a 3,200-square-foot custom-built home on an acre, and bought a new car every year.

More of that high-end living. That says it all. These stories never cease to amaze me because they all have one thing in common: it's the economy's fault. Anyone who makes $200K a year that winds up in bankruptcy doesn't get too may tears from me.

32 posted on 10/07/2003 6:20:10 AM PDT by Space Wrangler
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To: sarcasm
interesting .... wonder if I should buy my house now (3000+ sq ft, 160K) or wait a few years and watch the market collapse.
33 posted on 10/07/2003 6:31:15 AM PDT by Centurion2000 (Virtue untested is innocence)
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To: sarcasm
"It's awful and embarrassing to do a short sale and admit you're a deadbeat," she said. "(But) people make mistakes. This can happen to anyone."

Hmmmm. I feel sorry for this woman, but she's wrong. Her plight doesn't happen to just "anyone." It happens to those who've foolishly overextended themselves.

34 posted on 10/07/2003 6:34:43 AM PDT by shhrubbery!
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To: 17th Miss Regt
Re post 15: You must be the recipient of a clandestinely leaked Democrap scriptbook!
35 posted on 10/07/2003 6:41:04 AM PDT by shhrubbery!
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Comment #36 Removed by Moderator

To: sarcasm
bump
37 posted on 10/07/2003 6:57:22 AM PDT by RightWingMama
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To: Centurion2000
interesting .... wonder if I should buy my house now (3000+ sq ft, 160K) or wait a few years and watch the market collapse.

Unless you absolutely need to own a house for some reason, just wait a few years. The "American Dream of Home Ownership" is the single greatest scam ever perpetrated on the public by the financial services industry - P.T. Barnum would be compelled to tip his hat to this bunch.

38 posted on 10/07/2003 7:03:50 AM PDT by Mr. Jeeves
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To: RightWingMama
It's amazing how poorly people manage their finances. We bought a 3,000 Sq ft home 10 years ago for $48,000. It is a more than solid 1920s built house which was livable inside and needed siding on the outside. We have put maybe $20,000 into remodeling and have a beautiful home. We have refinanced it twice and now have a 5% fixed interest rate. We borrowed more on the last financing to pay down some high interest debt. We used the house as collateral to pay off another building in full. We still owe just about what we paid for it, but we own a downtown building and we have put nothing at risk because we have enough savings to pay off the house if need be. It's on a ten year finance plan. I think young people are missing a lot sense of accomplishment when they try to start out with a $100,000 house instead of looking for older fixer-uppers. We have done this all our lives and have made lots of money on houses.
39 posted on 10/07/2003 7:11:40 AM PDT by WVNan
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To: Mr. Jeeves
The "American Dream of Home Ownership" is the single greatest scam ever perpetrated on the public by the financial services industry

Huh? We bought our first house a couple of years ago. Our monthly mortgage payment is essentially what we were paying for renting our apartment. We lived in that apartment for ten years, and in the end had nothing to show for it. The difference now is that a percentage of our monthly payment becomes equity.

Home ownership is a forced savings plan, which is good. And, if you plan correctly, you'll have a paid-off home by the time you retire -- a huge advantage when you're living on a fixed income.

So what's the scam?

40 posted on 10/07/2003 7:25:28 AM PDT by kevao (Fuques France!)
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