The bailout to end all bailouts

Parent Cafe
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<p><a href=“http://www.nytimes.com/2008/02/22/business/22homes.html?hp[/url]”>http://www.nytimes.com/2008/02/22/business/22homes.html?hp&lt;/a&gt;&lt;/p&gt;

<p>“Not since the Depression has a larger share of Americans owed more on their homes than they are worth. With the collapse of the housing boom, nearly 8.8 million homeowners, or 10.3 percent of the total, are underwater. That is more than double the percentage just a year ago, according to a new estimate of the damage by Moody’s Economy.com.”</p>

<p>THE BREAKSTONES MAKE $250,000 A YEAR. I don’t think it is the government’s job to help them stay in their house.
I don’t think it is the government’s job to help many of these homeowners. If the homeowners need a bailout, let the banks cut interest rates or the loan amounts. The banks profit, the banks should take the losses, even if that puts them out of business. New banks will takeover.</p>

<p>"The Breakstones are similarly in danger of sinking, despite their high income. After forking over $65,000 on the house they just sold, they are struggling with $670,000 in debt on their present, larger home — perhaps more than the house itself is worth.</p>

<p>The Breakstones, each previously divorced, married in 2006, bringing three children to their union. They needed a bigger house than the one Mr. Breakstone had built.</p>

<p>Mr. Breakstone thought that he could sell his other home quickly, but it sat on the market for 17 months and finally brought only $170,000. He covered the shortfall by borrowing against his present home — bringing it closer to being underwater, too.</p>

<p>Now the Breakstones are saddled with $4,000 a month in house payments, and $14,000 more in fixed outlays, including child support, car leases, taxes, consumer debt and utilities, using up the bulk of their income.</p>

<p>“I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.” "</p>

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<p>I read that article with growing disbelief. If the paper wanted to make me feel bad for the people caught in the mortgage crunch, they sure picked the wrong examples. The Breakstones were the most unsympathetic of the bunch (they took on the new 675,000 mortgage because of their blended family of *three *children–my gosh, no wonder they needed a palace!), but all the others were also people who plainly may be a little uncomfortable, but are not living on the edge (such as the other family hoping not to “dip into” their $100,000 of savings–makes you want to cry.)</p>

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<p>Yup, they just got not get by without what, probably a 4500 sf house in Memphis where $700,000 or whater they paid goes a LONG way for a family of 5. My parents raised three kids in a house with no more than 1200 sf and 1 bath and many of my friends had similar modest homes. Sympathy factor–less than 0. </p>

<p>It’s not a financial problem, it’s mass stupidy and greed. The cure for that is pain and a hard lesson in reality.</p>

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<p>His front door costs more than my mortgage payments for an entire year! (and I am being perfectly serious. :rolleyes:)</p>

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<p>OTOH you have a guy with some good old midwest common sense.</p>

<p>[Keep</a> It Simple, Says Yale’s Top Investor - New York Times](<a href=“http://www.nytimes.com/2008/02/17/business/17swensen.html?em&ex=1203829200&en=b0ff9e155a8c18bb&ei=5087 ]Keep”>http://www.nytimes.com/2008/02/17/business/17swensen.html?em&ex=1203829200&en=b0ff9e155a8c18bb&ei=5087 )</p>

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<p>I have little sympathy for people who bought more house than they were able to afford, especially in areas where it was a CHOICE, like Olive Branch MS. I have even less sympathy for the lenders that fed the frenzy by lending to the gullible, greedy or just plain dumb.</p>

<p>I wonder, though, about places where the prices are so incredibly inflated that there was no other way to own a home. If lenders refused to lend to people who couldn’t afford the mortgage, in the long, long term, wouldn’t that have held down prices?? Even in very attractive areas like CA for example, wouldn’t tight mortgage rules reduce the number of owners, but also hold down prices?</p>

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<p>Tighter lending standards would have led to lower prices. We then wouldn’t have had people borrowing money on inflated assets.
Buyers would have been people that could afford their homes.
We would have had less speculation.</p>

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<p>Not to mention that the family’s list of “fixed outlays” includes car leases, child support, and consumer debt, along with taxes.</p>

<p>Funny, I’ve never paid a penny for a car lease, child support, or consumer debt. If those outlays are fixed – as opposed to being a function of choice – then it’s news to me.</p>

<p>I suspect that this unsympathetic angle isn’t an accident. The NY Times knows how to find an uneducated senior losing her home if that’s the picture it wants to paint. This article is meant to show a different side of the issue.</p>

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<p>you’ll like these. In one story, people are cashing in their 401ks to pay dept. and the other is about a family that made poor financial choices. Like building an addition to their house after losing his job. It’s hard to feel sorry for some of these people</p>

<p>[Tapping</a> 401(k) to tackle debt | Philadelphia Inquirer | 02/20/2008](<a href=“http://www.philly.com/philly/business/15792942.html]Tapping”>http://www.philly.com/philly/business/15792942.html)
[A</a> family’s struggle against great debt | Philadelphia Inquirer | 02/18/2008](<a href=“http://www.philly.com/philly/business/15728492.html]A”>http://www.philly.com/philly/business/15728492.html)</p>

<p>Trent Charlton knew the risks when he borrowed $10,000 from his 401(k) and cut his retirement savings in half. <half means=“” he=“” had=“” 20k=“” saved,=“”></half></p>

<p>But Charlton, 40, an account executive at an Irvine, Calif., trucking company, said he had little choice because he and his wife could not keep up with monthly expenses after American Express reduced the limits on three credit cards. <ding, if=“” you=“” max=“” out=“” 3=“” credit=“” cards,=“” need=“” to=“” have=“” a=“” clue=“”></ding,></p>

<p>I can’t feel sorry for these people at all</p>

<p>The Grandes borrowed more than $100,000 - much of it on credit cards - to double its size four years ago because they wanted enough room for their five children and did not want to move.</p>

<p>But now, the Grandes are fighting to stay there, having repeatedly fallen behind on their mortgage payments, which climbed from $1,841 to $2,487.</p>

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<p>You wonder about some people’s either stupid or at the very least magical thinking decisions. You also have to wonder if they got any advice from any one, even family members.</p>

<p>That being said, my cousin bought a home in CA, he could not afford to buy it on his own (just out of college, good job, but no time for a down payment to be saved yet and wanting to avoid throwing away money on rent), so he and a buddy went in on it together, with their wives :eek: and the plan was to pay for three years, sell and each use the profit for a new down on a place they could hopefully then afford.</p>

<p>They are young and a “victim” of the CA real estate hype that tells you you’d better jump on the bandwagon now, no matter how it hurts, or it will only get worse. This was two years ago, we all saud don’t do it, don’t ruin a friendship, don’t get into the market now, it’s about to go down, wait and watch and see what happens.</p>

<p>Despite advice from parents and other family members, they still proceded. Now the other couple now has a baby, the prices of homes in their neighborhood have fallen by more than $100k and they went in with no equity. Even if they do the morally right thing of staying there for years, the loan will readjust in a year, the payment will change, and they will still have not built any equity.</p>

<p>Live the people in the articles, this couple is not evil, but they were stupid, caught up in the hype and they will need to suffer some consequences. Hopefully they can do a short sell and get their own place, but their credit will and should be damaged by it.</p>

<p>So far I have yet to read an article highlighting any one who cannot be classified as either stupid or greedy and i have not yet seen a story which engenders sympathy.</p>

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<p>Since my crystal ball fell down a storm drain and my cat ate all my tea leaves, I’ve had problems calling millions of people stupid or greedy for making poor choices. I’m sure some homeowners are either or both, but certainly all of the nearly 11% of homeowners in the US who are currently in trouble don’t deserve your condemnation.</p>

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<p>“That being said, my cousin bought a home in CA, he could not afford to buy it on his own (just out of college, good job, but no time for a down payment to be saved yet and wanting to avoid throwing away money on rent), so he and a buddy went in on it together, with their wives and the plan was to pay for three years, sell and each use the profit for a new down on a place they could hopefully then afford.”</p>

<p>The government tempts them into magical thinking (i.e. that “rent” is throwing away money) by having renters and those with small mortgages subsidize those with big ones, with mortgage interest tax deductions. It’s just a government redistribution scheme from the poor to the rich, coupled with a hefty subsidy for realtors.</p>

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<ol>
<li><p>Many of the foreclosures were not even real homebuyers but flippers hoping to make a quick buck. Those are most of the empty homes you see in brand new subdivisions. People were buying three and more homes at a time. </p></li>
<li><p>Buying a home you can’t afford and counting on inflation to bail you out in just a few years is stupid and greedy. That’s about half of the remaining foreclosures.</p></li>
<li><p>Nearly everyone is living way beyond their means–that’s most of the rest. You have maybe 10% with legit sad stories they could not expect.</p></li>
</ol>

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<p>We have always been extremely prudent in our decisions. We did not overextend ourselves. We drove Hondas paid for by cash while some others in our neighborhood drove Lexuses financed by home equity loans. Now if those loans are hard to pay back, are we supposed to feel sorry for them?</p>

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<p>Nearly everyone with a “small” mortgage today bought the best house they could afford 20-30 years ago. Just inflation in incomes and values make that look cheap today. They had 20-30 years of the same valuable deduction.</p>

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<p>“Now if those loans are hard to pay back, are we supposed to feel sorry for them?”</p>

<p>No, but your tax dollars may bailout these borrowers (or the lenders).</p>

<p>I don’t know why some of these people should stay in these loans.</p>

<p>If the loans are worth quite a bit more than the house, and rent is cheaper than the mortgage and other costs, it may pay to walk.</p>

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<p>Meanwhile they all got to live in those wonderful homes for years, with their mortgage interest deductions subsidized by people like me, or those who rented, and now they get to ruin my neighborhood to boot.</p>

<p>How 'bout letting me move in for the next five years rent-free in order to keep the neighborhood up, and real estate values stabilized? (alternatively, they might say that once I move in, there goes the neighborhood. ;))</p>

<p>(Actually, the best possible solution is to use all those houses to grow marijuana.)</p>

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<p>How many years have you been deducting your mortgage? Just because your house is nearly paid-off and your benefit is now lower does not mean you or any other homeowner did not enjoy a very valuable deduction at the time. Now it’s others turn. If you wish to enjoy a larger benefit again you can refi and start deducting all over again.</p>

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<p>Somemom’s cousin and friend are young, this will be tough, but they will get past it. The people in these examples are old enough to know better, have high enough incomes to afford paid advice if nothing else, and are old enough to be concerned about retirement and to be conservative.</p>

<p>I have not bought a home in almost 15 years, but prior to that, in the mid to late 80s, I bought 3 homes, and I never understood how people could ever afford the amount of mortgage the realtors and the calculators said you could afford. I guess we were lucky, in the course of buying our first home, we almost got badly snookered - builder tried to run off with our earnest money, then one year after we closed on another house from a different builder, DH lost his job, and we ate a lot of beans trying to make the mortgage payments for a few months. We learned our lesson at age 27, and bought conservatively after that. Although financially, we would have been better off buying a more reach house for this last move we made 15 years ago.</p>

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<p>what I said was: “So far I have yet to read an article highlighting any one who cannot be classified as either stupid or greedy and i have not yet seen a story which engenders sympathy”</p>

<p>WashDad- maybe it sounded harsh, harsher than I meant it, but what I think is that the stories I have read have not been the people I would feel sorry for, they have been the greedy and stupid or at least ill-advised. Yes, there must be tons of people out there deserving of my sympathies, but I have not seen them profiled. Why don’t the reporters choose more sympathetic characters?</p>

<p>The person who moved ahead of his wife for his job, then stayed in the new town when the job was lost, still paying rent and mortgage both! Why did he not move back, yes there was family in the new place, but they could have moved back until the old house sold. The attny who had to get a bigger house for three whole kids in a blended family! </p>

<p>One of the stories was some one who was not willing to sell at a price that would cost him $5-6000 at closing- in today’s market, you desperately need to sell, but you won’t pitch in $5k to get out from under it :eek: That seems short sighted.</p>

<p>The reporters are either profiling the bad choices or (it could happen) inaccurately reporting facts or the mortgagee. There are choices made here, not the ones people want, but in some cases the people profiled could have made hard choices to work out the financial end as the highest priority.</p>

<p>I have a sister who bought a home in SoCal in the early 1980s, so for $150-200k- why when her hubby lost his job in the 2000s did they owe in excess of $350k and still have major repairs (roof, paint, etc) needed on their home? Why did they not work hard to pay it off so things would be stable no matter what happened? When he was laid off they had owned their home for 20 years, they should have been almost paid for, not owing twice what they paid on it with a first and second that totaled 100% of the value.</p>

<p>I had a friend in the early 90s down market who lived in one home, extensively remodeled it- more than nesc; then when they finished building their dream home nearby, they had to walk from the first home- they had $360k into the temporary home, the bank sold it for $220k. I did not feel sorry for them, they did not even feel sorry for themselves, they felt stupid for remodeling the temp home- they made a choice, it hit their credit and the new people got a good deal on a home. Having worked in real estate development over the years, I have seen more stupid than sad stories. The sad ones are health issues, but even in the article shown, the guy who makes ¼ of his old income made some really poor decisions along the way to final troubles.</p>

<p>I do feel sorry for people getting caught in the “gotta do it no matter what” hype, been there, done that; but some of the decisions highlighted in these articles are so risky- taking out retirement $ (risking losing future retirement monies and a potential tax liability); leasing a BMW you cannot afford, remodeling so the kids have a place to come home to (not that the kids live there and need a room, but I read that to be a place for adult kids to come home); the diabetic with serious complications who overbuilt, lost his job and then invested $65k in a business venture that went down the tubes before it opened- why didn’t he use that money to pay down the mortgage?</p>

<p>Too many people ascribe to this theory of life:</p>

<p>“I used to think,” Mr. Breakstone said, “that I would pay the piper later and enjoy life now. I’ve totally reversed that view.” " </p>

<p>They should not be encouraged by every media article and family members to embrace it! I think that is what drives me the most crazy, the media hype that causes people to believe they will live happily ever after, cannot lose money in real estate, and will make tons of money in appreciation.</p>

<p>Oh, and I was definitely young and dumb in my first home with a mortgage interest of about 16% because “you have to get into the market while you can” I wish family had not been on that band-wagon, we were hurt by working so much to make the huge payment and only lost a little on the house. But the needing to make changes because you want to and then crying bailout is the point- take your risks, but don’t ask for help, take your lumps.</p>

<p>But then that brings up the issue of the entire cities and neighborhoods being hit. I do not know how I would feel if I lived in a development that was 25-75% empty homes :eek:</p>

<p>Having spent some time the past few years working in different west coast towns, reading the daily paper, I can see the media hyping up the info- how much you made last night living in your home one month and then how desperate it all is another month. Any one who owns a home which was/is over-valued, could survive if they keep the home an live in it until the market readjusts- 1 year, 2 years, 10 years I don’t know how long. The problem is then the loans changing terms. I just think the media is a big part of the fault. When I worked in an area with stellar appreciation the stories in their newspaper were sad in their reveling in the newfound riches. People need to be encouraged to do things the very old-fashioned way, pay off your house as quickly as you can, protect that asset and that place to live. Not encouraged to take out equity and invest in the stock maret (late 1970s) or take out equity to pay off cars & credit cards (yes, pay for dinner out over a 30 year ammortisation) not encouraged to take out equity or borrow from their 401k and invest in other real estate, not buy 10 rentals that do not debt service using 100% financing.</p>