Cul-de-Sac of Lost Dreams
Big front page NYT article on Beth Court, Moreno California, titled A Cul-de-Sac of Lost Dreams.
Its a piece in the making since January, with lots of those small human elements that personalizes the housing boom and bust. (EG: “a new homeowner lugged two large shopping bags from Home Depot across his front yard, where his young daughter danced a mad jig in her pajamas.”)
The caption to a picture of the block “Loss and Opportunity, side by side” sums up the tone pretty well, as does this excerpt:
“The continuing economic fallout has brought a reckoning for those who believed that home equity would always rise, financing lives beyond their means, while also creating unexpected opportunities for people previously on the sidelines of homeownership.”
Pour a cup of joe, and begin your Sunday morn with this huge piece.
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So Cal Turnover
courtesy of NYT
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Source:
A Cul-de-Sac of Lost Dreams, and New Ones
JENNIFER STEINHAUER
NYT, August 22, 2009
http://www.nytimes.com/2009/08/23/us/23bethone.html
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August 23rd, 2009 at 9:15 am
there is aways going to be losers and winners- why there is any effort to keep foreclosures from happening is silly- the people who can’t afford their home move on with their lives and the ones who were on the sidelines can now afford a home-
isn’t that the way it is supposed to work?
August 23rd, 2009 at 10:06 am
What is sad is that the reckoning has affected so many who had no clue as to what was really happening underneath the illusion of home ownership. The dream itself was misrepresented.
August 23rd, 2009 at 10:29 am
” Hernandez bought their home in 1997 for $123,000, refinanced 2003 on $129,000. Blance rose to $230,000 in 2004; $323,00 in 2005; $374,000 in 2006; then, finally, $415,000, at 8.12 percent, in 2007.”
Where did all the money go? How do you burn 185k in 2 years?
August 23rd, 2009 at 10:34 am
So the Hernandez couple pulled out $300,000 in cash, from 1997 to 2007. And she’s bitter about the family who now lives there.
If I had pulled $300,000 out of my home during the last nine years I would be ecstatic. Just think: All he had to do was sign some papers every three years and walk away with a hundred grand. I’d feel like Warren Buffet. My empathy is not moved a millimeter for any of these people.
Aside from that article, also read the Op-Ed piece in NYX on the, “Uninsured”
The last sentence states that “…a nation as RICH as the United States should provide insurance coverage for all its people…” had my blood pressure up about 50 points.
The NYX editorial board hasn’t a single clue what Rich is. The United States is pathetically bankrupt and they want another couple of trillion dollars in expenses and more debt to cover national health insurance. Is there any sanity left in their cock-eyed world?
August 23rd, 2009 at 10:41 am
very well done article, nice respite from reading market stuff all day, actually a little bit encouraging, the purdent families are okay, the reckless not, interesting how when u get behind closed doors it’s pretty much all the same, like any organization company country, etc., now back to our regular programming, massive government debt worlwide, the show must go on
August 23rd, 2009 at 11:07 am
“and homes whose owners took out thousands of dollars in equity during the bonanza years are now worth less than half the price paid for them.”
It was a big, disgusting pigfest. Nothing gets under the skin of those who sat by during this unrelenting money 0rgy more than the equity withdrawal driven spending spree. These folks thought they were financial geniuses and spent like they’d actually earned it. (And yes, the banks and shadow banking system were unscrupulous enablers)
“But the saloon doesn’t exist without the gold mine, and the gold mine here was construction.”
No, the gold mine was easy credit. It only took the form of construction. And it was all an illusion.
““I think a lot of these investors are taking advantage of people’s problems out here,” Ms. Burgueno said. “I heard about a guy who bought like eight houses out here for $80,000. To me, it isn’t right.””
What a load of crap.
No, I’m not too sympathetic to the whole thing. I realize that some were victimized in this, but plenty of others kept their head about them and their greed in check. Those folks are now still waiting as the govt tries to prop this sham up.
By the way, that guy who paid 240K got ripped, IMO. And will probably regret not having driven a harder bargain.
August 23rd, 2009 at 11:08 am
Had it only been the home buyers who lost money the correction would have already occurred, and we would be well on the way to recovery; however, big money was involved, bondholders and other buyers of debt were the affected, and frightening that group with risk of loss simply could not be allowed to happen.
August 23rd, 2009 at 11:28 am
While everyone can share in the blame and greed that has gotten us to where we are today, it is not appropriate to place the preponderance of blame on the individual homeowner who was plastered with offers to refinance and take out home equity loans and who succumbed to these enticements.
Who were the smart suits in the room who purportedly best understood the loan risks?
Who were the ones who exerted pressure down through the financial system to continue to generate more and more mortgages that could then be profitably securitized?
Who advocated for the use of subprime loans, no documentation “liar” loans, interest only loans, reverse amortization loans in order to keep the product flowing regardless of risks?
Who influenced our governmental officials to deregulate and allow investment banks to leverage to irrational multiples?
Who engineered the complex, high-risk financial products and off the books accounting schemes and special purpose vehicles?
Who cajoled and essentially bribed the rating agencies into developing and then keeping unrealistic rating models even after the true risks became apparent?
Who simply bought “insurance protection” in order to continue to perpetuate the failing model rather than self-regulate once the risks became apparent?
Who secured governmental bailouts in order to keep their business as usual and their bonuses flowing even after the financial markets collapsed?
Who manipulated the commercial banking regulations and secured exemptions to continue risky banking practices in the midst of the worst financial crisis this nation has perhaps ever seen?
Who pressured the accounting standards board to rescind mark to market valuations thereby permitting the reporting of higher profits and providing cover for continued excessive bonuses and compensation schemes?
August 23rd, 2009 at 11:33 am
Great list, BSNEATH. Of course, they’re trying to do it all over again (or some variation of the “game”) because we as a nation have no idea how to create/maintain a structurally sound economy that works for the “many” over the few anymore. All smoke & mirrors.
August 23rd, 2009 at 11:42 am
Does this mean that the Community Reinvestment Act, which forces banks to provide a certain amount of mortgages to people who can’t afford to own homes, will be repealed? Will HUD, which encouraged the GSEs and banks to keep lending so that political goals regarding home ownership rates could be met, be shut down? Will the government finally realize that it has no business meddling in the housing market?
August 23rd, 2009 at 11:44 am
Bunch of pathetic losers that didn’t even have a rudimentary understanding of basic money management. No sympathy from this corner…..in the end, back where they belong — renting.
Also, who wrote that article? A five year-old on summer break? The editor that let that POS go to press should be fired.
August 23rd, 2009 at 12:02 pm
VangelV Says:
“Does this mean that the Community Reinvestment Act, which forces banks to provide a certain amount of mortgages to people who can’t afford to own homes, will be repealed?”
I’m sorry, but we close for mindless drivel at 4:00 a.m. Sell crazy somewhere else.
August 23rd, 2009 at 12:09 pm
What really irks me is when bankers use the “Flip Wilson Defense”…… “Greenspan made me do it. If interest rates were not so low I never would have done what I did.”
If you think back at how weak our economy was after the Dotcom Crash, 9/11, Anthrax Scare, SARS, etc., The economy was growing very slowly, companies had stopped investing and we were truly at risk of a deflation spiral. Now if you also take away the irrational credit expansion of the 30x leverage, the housing bubble and the related consumer binge and substitute in its place rational lending practices to individuals and more capital allocated for property, plant and equipment investments by the private and public sectors, then we would have had a very different outcome – higher productivity, a more competitive economy in the global marketplace, fewer bad investments in housing and commercial real estate, stronger household balance sheets and no financial collapse. In other words the lower interest rates would have been used for efficient allocation of capital and would have been a “force for good” (as our good friends at Goldman like to say about themselves).
I am no Greenspan apologist. He royally screwed up with his hands off, self-regulation ideology and therefore history will correctly show that he shares in the responsibility for permitting the banks to promulgate a financial crisis.
But too much of the blame is being placed on his interest rate policies. It has become too easy for the banking community to deflect responsibility and to rationalize that it was Greenspan’s interest rate policy and not their own actions of taking advantage of a deregulated marketplace in order to engage in risky and indiscriminate behavior.
Bankers are wrong to say: “Greenspan made me do it.” They would be far more correct if they said: “I convinced Greenspan and the government to let me do it and boy did I screw it up.”
August 23rd, 2009 at 3:19 pm
My daughter who lives in Anchorage bought a condo in 2001. Three years ago she had it appraised as she was considering refinancing it. She asked my advice. I asked her if she had a valid reason for taking the equity out (i.e. paying off debts, buying a new car, etc..). She said no but since everyone else she knew was doing it, she was thinking about it too. I told her, it’s your decision. But before you do please consider this; since you don’t have a specific “need” for the money why increase your house payment and put yourself further in debt? Your friends will end up making higher mortgage payments and for a longer period until their homes are paid off than you. Well, she never did refinance. Last year, her husband lost his job and eventually his unemployment benefits ran out. She works for the state and while money is tight, they can survive on just her income. This father’s day I received a special card, with a note written inside thanking me for the advice I’d given her three years ago. And to the people who used their homes as ATMs, I’m sorry but I really have no sympathy for you. Waste not, want not.
August 23rd, 2009 at 3:51 pm
BSNEATH – Excellent posts! Keep posting here!
August 23rd, 2009 at 4:45 pm
kudos Pat G., touching………………coming from corp a, the flip wilson defense is rampant at all of em for the most part……………..we must keep up and do whatever to match the competition even though the competition may be idiots…….the fact is the higher ups want yes men and women, sorry but true
August 23rd, 2009 at 4:56 pm
Thanks Thor.
August 23rd, 2009 at 5:06 pm
We Are Doing It All Wrong!
Why are we buying up trillions of dollars of toxic mortgage assets that we know they are going to fail when with a far smaller investment we could be saving homeowners and converting much of this toxic debt into refinanced investment grade paper? Our current approach seems to be illogical.
Millions of homeowners are being forced into foreclosure. These are individuals who will have their credit ratings ruined and who for the next 7 years will by necessity become renters (or will move in with relatives or worse become homeless). Thus we are seeing a permanent reduction to the demand side for housing at a time when we have a huge surplus of housing stock.
The alternative is to develop policies that will permit homeowners to keep their homes and protect their credit ratings. If a homeowner faces foreclosure because he/she can pay only, say 80% of his/her monthly mortgage, does it not make more sense to keep this 80% cash flow contributing towards the servicing of mortgage debt and finding some means to cover the remaining 20% until the homeowner has the where with all to return to self-sufficiency? Isn’t this better public policy than to have the government buy their bad mortgages knowing full well that this debt will be worthless and its costs will ultimately land on the doorstep of either the taxpayer or the middle class in the form of a debased currency and lower living standards? Why are we so quick to look askance at the moral hazards of “too big to fail” banks, but yet we dig in our heels to enforce moral hazard risks against individual homeowners? Simply, we are doing it all wrong.
There are many ways that we can assist the individual homeowner and lessen the moral hazard risk. Perhaps we can take a public equity interest in a percentage of the value of a home that is refinanced. Home prices will eventually appreciate again and mortgage principal balances decline over time thereby freeing up equity for eventual repayment. If the Federal Reserve is comfortable with subsidizing zero interest rates to banks, perhaps it should find greater comfort with subsidizing home mortgage interest rates to homeowners. Perhaps through a 5/30 variable/fixed product that reduces cash flow requirements of individual homeowners while they get back on their feet.
I am just making suggestions. I am certain others have much better ideas if they were just to focus in the right direction of helping the homeowner first with pass through benefits to the banks rather than looking at direct bank bail outs.
Obviously this is not a cure all. Millions of fraudulent mortgage loans were sold where the purchaser never intended to repay and the financiers didn’t care because the loans were packaged and sold to unsuspecting third party investors such as pension funds and foreign institutions. This fraud will burden our economy for decades to come and there is not much that we can do about it but learn and put into place the proper system of controls that will prevent future occurrences while not stifling our market based economy.
So I ask again, why are our governmental officials so keen on bailing out the banks and yet we will not bail out the homeowners when the total cost to our economy would be so much less and the benefits to the individuals who make up our society would be so far greater?
Education appears to be paramount as most people strongly oppose “bailing out” the homeowners while they do not object as much to buying the toxic debt simply because it is too complicated for them to understand. Rather than try to explain the true circumstances of our current economic and financial crisis and the best options going forward, our leadership instead is taking the path of least resistance and our politicians are ensuring that they do not “bite the hands” that continuously feed their need for campaign funding and for the personal gains and perquisites that they rationalize they are entitled to due to their positions of power. How many politicians over the years do you suppose have received sweetheart mortgage loans or have had some “kind benefactor” acquire their property for a really good price? Aren’t these people now somewhat compromised – just as their benefactors had intended them to be?
I am not very optimistic that reason will prevail. Corruption on the other hand is likely to continue unabated.
August 23rd, 2009 at 6:25 pm
my guess is ben and tim made a decision who too save, and they belive they can control wall street thru regulation, and the believe that at least these guys are smart enough not to do it twice, and after all we are saving banks not people so there can be no chorus of bias because we all have money in banks…….a simple fork in the road which way do we go………….my personal believe is that ben is shyting bricks because copper and crude oil are rocketing and the dollar is tanking……………we crumbled at 140 a barrell because that was a 4k tax to each family in additional gas costs and no company on earth could budget for anything, goldman is calling for 85 dollars in oil, like the market will not take it too one hundred, it is one of the few charts, ie, the uso, that has accompanying volume to back up the upticks in price, a very similar price and volume can be seen with jjc, the copper etf………….the chorus is no no no inflation in forseeable future, and yes for lot’s of things yet imho these two tell the story…………..i guess the logic is everyone can have chickens and picks and a garden, yet, no one can grow oil or copper
August 23rd, 2009 at 6:47 pm
Thor
I think you’ve created a monster. :)
August 23rd, 2009 at 10:39 pm
They should never have chosen Moreno Valley to highlight, and the NYT article barely hints at the real problem with the area. Moreno Valley was a development community that grew dramatically in the late 80s as people from South-Central LA fled the inner city gang violence. They moved to Moreno Valley because you could get a house there cheap.
The problem? They were fleeing the gangs. Turns out they WERE the gangs! So basically, Moreno Valley is gangland. The only people who live there are the people who are stuck there and can’t afford to live anywhere else.
Using Moreno Valley as a proxy for the California housing market is like using Compton as a proxy for the California crime rate. It’s not a representative sample.