<p>[:</a> L.A. Times: Foreclosure woes hit pair who moved from Wisconsin to California](<a href=“captimes.com | The Capital Times: Madison WI News”>captimes.com | The Capital Times: Madison WI News)</p>
<p>They should blame themselves. This is not a case of a family trying to put a simple roof over their family’s head. I feel for those people–they’re trying to just get by. The situation of the family in the article is different. They kept wanting a “bigger piece of the pie”. This is what happens when parents are silly enough to base decisions on their current financial income without regard to what the future may bring.</p>
<p>You need not buy a house you cannot afford to have a roof over your head. The fact is most of the people caught in this were buying out of their price range be it at the low end where somebody making $40,000 buys a $400,000 house or over $1,000,000.</p>
<p>Sounds like a big part of the problem for these two was taking out the $100,000 second mortgage. If they had that equity back, they might not be in this position.</p>
<p>Another cause of their woe is their line of business, which was totally dependent on a hot housing market.</p>
<p>Hanna, I also didn’t really understand about that second mortgage, especially if their business was doing so well. There may have been some other overspending issues as well.</p>
<p>But you know what? At the end of the day, I still respect those people. They made a really stupid move, but they admitted their fault in it, didn’t try to blame it on someone else or “the system”, didn’t squawk for government bailout and moved on. I respect that. Not so much the seething masses constantly whining about how they were taken advantage of and how they are entitled to government money.</p>
<p>I agree, 1of42 - they were refreshingly honest with themselves and the reporter. And I would think they will rebound from this mess.</p>
<p>But I thought people were GUARANTEED success?!!111 In any case, there really is no such thing as a “stupid move”. Nobody can predict the future. They are bad decisions, but you can’t fully know that until after you witness the results.</p>
<p>As 1of42 said, it is nice to see some people take some personal responsibility. Even those so-called preyed-upon homeowners contribute to this widespread problem. Mortgage broking takes 2 parties, not just 1.</p>
<p>I can close my eyes, cross my fingers that all will go perfectly, and then cross the street in front of me. I might make it across safely. I might make it back safely the same way. If I continue this course of action however, sooner or later- well- the outcome is predictable. Some, in recent years have chosen to purchase a home planning on using all their available money to buy the costliest house they can, borrow the maximum amount they can, then counted on adjustable rates to remain the same, and depended on their income to hold steady or increase, their health to remain good, and depended on the value of their home increasing. If every one of those factors held true, then they could afford their purchase for years. Sadly, every single one of those factors had to work perfectly for their plan to work.
The family in the article seem to have had this plan. It is unfortunate that it didn’t go well for them, but it is difficult to feel sorry for them. I liken their situation to my example of crossing the road with eyes closed. When one’s plan for the future is crossing their fingers, choosing mamimum risk and needing all factors to work perfectly, thats just not a good plan. I applaud this family’s honesty and am thrilled they take responsibility for their actions. I respect them too.
I think much like 1of42(post 7), except I wouldn’t use the phrase that some feel “entitled to government money”. I’d word it that some feel “entitled to my money.” Government money is actually taxpayers’ money. As taxpayers, some expect us to help them recover their losses. Wish I could take a home equity loan, go to Vegas, gamble it all on one turn of the roulette wheel. If I won, great! If I lost, blame the casino and expect other taxpayers to bail me out. A fun fantasy, but in real life I won’t take that risk.</p>
<p>@younghoss</p>
<p>That reminds me of this news video story I saw recently. They have parking lots set up in California for people who want to live in their cars. They interviewed one woman and she had a decent enough income, HOWEVER here daughter was settled in there so she didn’t want to move from Santa Barbara (“their home”). Ridiculous. A lot of these foreclosure stories are not so bad as the media makes them out to be. Some just have to live somewhere cheaper. Not THAT big of a deal.</p>
<p>Theres no reason to feel too sorry for the Magsams. Assuming that they bought their first home with 20% down (it actually could have been less), their initial investment was $28,000. Taking selling costs into account, the pulled over $44,000 out after their first sale, including their initial investment. Even if they put it all into their down payment on house #2, after the sale of house 2, they now have over $245,000, which is exempt from capital gains taxes. They put $148,000 down on house 3, meaning they were able to bank over $97,000. They pulled another $100,000 out with their second, making it $197,000 in their pockets. By the time their house goes to auction, they will have converted $28,000 into $197,000, benefited from the home mortgage deduction, and lived the California dream for 9 years, not to mention living rent free for the past six months. Sure, their credit will take a hit, but they have the nation’s sympathy, and by the time the housing market bottoms out and the credit crunch is resolved, they’ll have no trouble getting another loan, assuming they can meet whatever income standards will be in effect. I can understand why the couple who rented in Wisconsin during the last 9 winters might resent having their tax money earmarked to keep the Magsams in their California home at a discount and to bail out their lenders.</p>
<p>I appreciate their honesty, but honestly I have no sympathy for them.</p>
<p>I do truly feel bad for those that purchased very modest homes well within their means and, for whatever reason, are now facing trouble. In that way, I mean someone that saves up a 20% deposit, buys a property where the mortgage payments are well within their means, and holds onto it. </p>
<p>However, many of those currently getting screwed over by the current real estate market made what were, simply, incredibly stupid financial decisions. </p>
<p>What they and many others did was the real estate equivalent of investing your entire life savings in a single ‘hot’ stock and then losing your shirt when the company tanks. They attempted to live beyond their means and it caught up to them. It seems their biggest mistake was calculating their wealth as the ‘potential’ for the property to increase in value down the line vs. calculating their actual wealth via the equity they have in the home. </p>
<p>Real estate is always always a long term game. When the market is booming (as it was a few years ago) there are opportunities to quickly trade up the property ladder by banking on increases in the value of your current home… however as these folks found out continuing that strategy for too long, into rough seas in the real estate market, is a train wreck waiting to happen. Suddenly the ambitious home bought on the trade-up is worth a lot less than was paid for it and, in short, you’re screwed. They were speculating in the market and got burned. </p>
<p>The fact that their own personal income was directly linked to the success of the real-estate market only further increased the impending doom. That’s like folks who place the vast majority of their retirement savings in stock for the company they work for… if the company goes bust you’re both out of a job and out of a nest egg. D I V E R S I F I C A T I O N 
Granted that in their case this poses a bigger challenge, but they really probably should have saved up wealth in areas other than the real estate (rather than putting everything they had into the market) so that on a rainy day they still have real assets to fall back on.</p>
<p>
Exactly. So far as I’m concerned these folks that played the market and got burned can go and rent a small apartment for 5 years and get themselves back in order.</p>
<p>I can’t tell you how many wealthy people I know that carry a huge load of debt, that mortgage their houses to the max. Sometimes I feel a tang of jealousy as they buy and do all the things they like, go on all the fancy vacations. I hate to admit it, but that would be me if I married someone else like me. Thank God that I didn’t and my husband plans as if a rainy day is a guarentee, (as it is) and he keeps me on a tight budget which though not always fun- is very reassuring in tough economic times.</p>
<p>Also we have learned- though don’t always remember- that the “stuff” doesn’t fill the hole in your heart and you’ll never be or feel more adequate because of the “stuff” you have. (house, car, clothes)</p>
<p>It was refreshing though to not have the blame be thrown everywhere BUT themselves.</p>
<p>Doh! My quote above was a paste from another thread… Too late to edit now, but I meant to copy the bit about people who’ve been renting all this time having understandable resentment towards proposals to use tax dollars to help bail out those that made bad decisions in the real estate market. They need to take responsibility, and accept the pain, of their own poor decisions.</p>
<p>2by2,
We live in a fairly wealthy area and make a very good income. I used to constantly wonder how everyone else had so much more stuff than we did. I finally found out…they have accounts all over town and they don’t pay their bills on time. </p>
<p>I got to know several business owners and found out that the people we all perceive as the wealthiest hardly ever pay their bills. </p>
<p>And I have to get going to work so I won’t even start with the story about how for years people told us we were stupid not to take a second or home equity line and use the equity in our primary home to buy a boat, RV, vacation, etc. </p>
<p>To each his own but I refuse to feel sorry for people like the ones in this story. And I don’t feel it is my responsibility to bail them out.</p>
<p>As I always tell myself (when there’s a temptation to splurge on something really big)… the joy of that splurge almost always wears off long before the payments get paid off! ;-)</p>
<p>Personally, I prefer to buy a newish used car (spending about 1/3 of what it cost new just a few years ago) and put the extra cash away for retirement. When I go to retire, that car (new or used) will be a distant memory (might not even be able to remember much about it), but that money I saved will still be there and will be worth much much more than it was when I initially saved it. </p>
<p>Sure a friend might drive something much fancier and much more expensive than me, but I have the comfort of knowing that in the longer run I’ll be much much better off. </p>
<p>Some simple calculations can often reveal some staggering results. For example if you max out your buying potential to buy some silly McMansion such that you only pay the stated payment for the term of the mortgage you’re ultimately going to pay through the nose (although most people never bother to calculate that out). Let’s say you buy a house at 770,000 and put about 10% down with a 30 year fixed mortgage (this falls just under the new ‘jumbo’ limit so a little more and it gets even worse). If you max out your buying potential and can only make the normal monthly payment then at the end of that 30 years the value of your house will have to at least more than double just to break even. Most people forget that and think 'hey so and so bought for 200k, sold for 250k after a few years so that’s 50k profit right? No not really. </p>
<p>However, if someone was more modest and say spends 300k on a home under the same loan terms such that they can pay an additional 50% on top of each mortgage payment (which goes directly towards the principal) then not only will they own the home outright after just about 15 years (half of the other folks) but they’ve saved hundreds of thousands in interest (that they could have invested in retirement funds to get, on average, a very nice return) and every penny that the house increases in value after just 15 years is equity in their pocket… not just offsetting all the wasted funds that the other family is paying on their McMansion. </p>
<p>As I always say, truly rich people (except bizzionares) that actually have a true high net worth and not a false high appearance of net worth are generally the ones with their money in the bank (or retirement accounts) not the ones with a chunk of change sitting in their driveway, wrist, or other vanity location ;-). Hey even Warren Buffet (richest man in the world) lives in the same small house he bought ages ago, drinks coke and eats hamburgers ;-).</p>
<p>I too once thought of some friends “wow they mush be loaded to afford all that stuff” then realized that actually they’re in major debt and screwing themselves over in the long run.</p>
<p>In the long run we all are dead. I don’t particularly admire WB for living such a lifestyle but if he enjoys it fine. I think there is a fine line between doing some living for today and putting everything out to some date in the future. By that some date in the future you could suffer bad health, the loss of others important to your enjoyment of things like trips and dinners, etc etc. I think fun done now has much more value than fun done 30 years later as you get all the time in between to reilve that great time you had. So don’t go broke to have fun now but don’t bet everything on the future either.</p>
<p>rocketman08: I might actually cut and paste what you just said and send it to my cousin who lives in CA and just sold his old house for $970,000 because it had a small backyard and “only” 5 bedrooms to upgrade. He keeps telling me that he’d be foolish not to because he’s making so much on the appreciation that it’s better than investing the money.</p>
<p>I’d like to know what part of Cali is still seeing appreciation. Most areas are down 10-30% and worse.</p>