6
2009
Housing Market Bailout and a Stupid Stupid Whore
An article by TheEvilGenius
I was watching the daily show the other night where Jon Stewart lambasted the “expert advice” of CNBC and Rick Santelli specifically on his “Fu&c the homeowners” rant on Wall Street. Pretty funny. Don’t need to watch the whole thing. A few minutes should give you the gist.
And I agree with Stewart for the most part, but having been a real estate broker myself at the height of the flip ‘n greed phase, I’m also a bit in the “fu*k the homeowner” camp too.
Watch this video below, and we will talk about it some more.
Now we see from the video that we have a School bus driver that is in danger of losing her $800,000 house to foreclosure. Yes EIGHT HUNDRED FRIGGIN THOUSAND DOLLARS. Was it an inheritance gift, nope. Is she like the CEO of Bus Drivers America? Nope. She is just an ordinary run of the mill bus driver.
I don’t believe there is any shame in being a bus driver. BUT, I would have to guess that an $800k house is stretching the pocketbook for the majority of even well-to-do Americans. At the height of my fancy pants days, I lived in a house that was $500k. I was making about $150k a year base and about $100k more in stock, bonuses and options. And I really thought that was a stretch. When I moved to Florida, I seriously downsized. Yes, I miss the marble floors and everything, but not enough to carry more than twice the mortgage I have now.
These days, I live in an average $250k home that I bought at the time for about $150k and pimped. It’s in an average neighborhood; with an average mortgage of about $1300 a month included all taxes and all the crap. The point though, is that when I moved down to Florida, I COULD have bought a $700k house in cash!
I didn’t because:
- I have a brain.
- That brain told me that buying something that expensive was just retarded, and unnecessary
- That brain also told me that there might be a rainy day sometime in the future (and there has been). That I might be better off squirreling some of that cash away in case I ever need it, and it might as well be making me money at the same time.
So did I buy that $700k house? No. Because that would be just stupid. I put some in savings, some in retirement, some in the stock market, some in rental properties, and some in my business. But yet you have this woman, who I am guessing maybe makes $30-60k a year with a mortgage of $4796 a month not including things like taxes, insurance, PMI, utilities, and maintenance on that behemoth.
What is does she have to say about it?
Bus driver Minta Garcia admits that she and her husband bought more house than they could afford, but she said “the lender made the purchase all too easy.” Now the home that she purchased for $800K is worth $675K and she wants Obama to “Stop the foreclosures”.
Seriously? Just FUCK YOU!
At some point you have to take responsibility for your stupidity. I hope you lose the house, kill your future credit, be forced to wear a sign highlighting your stupidity, and have to ask your local church for cheese. Vanity and/or laziness made you buy that house and you deserve to be at the reverse end of the spectrum for a while.
Please understand that I am FAR FROM SAYING that the banks didn’t do anything wrong. Back then, banks were lending 95%+ on primary mortgages, and there was a booming business for “hard money” loans to cover the difference. They should definitely have known better. I believe that them going out of business is just Karma. I think what they did was criminal in some cases, but at the very minimum it was just plain ‘ole greed and most of them will get what is coming to them.
So now we have 2 camps of people screwed in the housing mess.
Camp 1: The people who bit off more they can chew AND investors who were looking for a quick flip and easy money. Those are my Fu*k you camp.
Camp 2:Then you have people who either bought within their means, or invested for the right reasons, but are now screwed because the property is not worth what they paid for it because of assholes in Camp 1.
I am personally in the second camp. I own my home in Florida, but I also own 2 rental properties near the university. I bought my rental properties for the right reason (not to flip but because they had a decent CAP rate, I got them WELL below market value, and they were stand-alone money makers)
Because I bought my rental properties correctly, they are still doing fairly well. As long as I keep renting them out, even at a discounted rate, I’m just fine. However, there is a good chance that I am going to be moving far away in a few months. That leaves me in a conundrum. The market value on my house is about 70% of what it really should be, and my investment properties are probably between 50 and 60% of what they should be.
I now have to decide between selling them at breakeven (and in one case taking a loss of about $20-30k) or 
holding on to them and worrying about finding a property manager I can trust (harder than you think) with the possibility carrying about $2500 a month in debt if I can’t get them rented out. Yes, I planned ahead and build into my investment model 10% as a vacancy allowance, but that will only carry me so far. There is also the real possibility that they will take a year or more to sell even at a discounted price.
That’s a real concern.
I’m guessing that is not so different from the scenario for a lot of Americans. For whatever reasons, they need to move away (lost job, new job, etc) and they have a house that is now worth less than they paid for it. Since their old house ain’t moving anytime soon, they probably will not be able to get a loan for the new house at their new location.
If they sell their current house, they lose money. If they keep their current house, they will either not be able to get a loan for a new house, or if they do, have to deal with the headache and possible financial crutch of having to pay the mortgage on TWO houses if they can’t rent the other.
Tough call.
Will a housing bailout help?
I really don’t think so. Any experienced realtor or broker will tell you that the housing market is cyclical, typically on 5 year swings. Sometimes they coincide with a stock market downturn, sometimes they don’t.
I do believe that this is going to be a longer than 5 year swing, and much deeper than others. This is because the level of greed and stupidity far surpassed anything we have seen before.
But, given how slow the housing market usually responds to anything, I can’t imagine ANY difference happening from a housing bailout.
If the government decides on a foreclosure bailout, then maybe some more people will stay in their homes. That means a few less houses on the market. The problem is, that there are still SO MANY properties on the market now (not even talking about foreclosure properties), that all those will still need to be absorbed before we see any change in property values. And that takes a long time in the best of scenarios. Like multiple years long. Until demand again exceeds supply, property values won’t get better. No housing stimulus is going to make that happen.
And until the economic situation improves, consumer confidence rebounds, and we get a little glimmer of greed and vanity back again (a little is a good thing), I just don’t see a whole lot of people going out and buying stuff.
Well that’s just my take. Would love to hear what you guys have to say about it.
JJ
Stay cool… and if you in the mood for something lighter, and are not easily offended, check out the new site. www.shortbushumor.com
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Every time I find myself reading something like this, it makes me feel like I should just stay in school as long as possible to keep deferring my loans. Maybe once I graduate, things will be reasonably back to normal and I’ll be able to enjoy getting a real job and actually buying a house.
This housing market situation has unfortunately become a debate of extremes.
JJ, you are a very well educated person and you have actually worked in the industry. You are ahead of many people. Homebuyers are sometimes educated…and, well sometimes they are not.
The problem is that our society encouraged a culture of investment in real estate. Remember George Bush’s ownership society? You have a couple of things that happen in this scenario…
1. Lenders who convince home buyers what they can afford, even if they may not be able to afford it.
2. Housing market that keeps going up and analysts who claim there is no bubble…there will not be a bubble, etc, etc. I can’t tell you how many article I saw on this topic.
2. Home buyers who have family, friends, and neighbors who are buying and succeeding. People begin to think, “Why can’t I?”
I agree that this woman was irresponsible and should have been more informed. But I know from my experience how much mortgage brokers pushed buyers in the last few years. If you were not that savvy and educated, I can see how you can be talked into something. The mortgage broker doesn’t care anymore because they already made their money.
Real estate is one industry that drives me mad because everyone is a broker and everyone seems to know the business but what I have experienced is that there are very few people you can trust when it comes to real estate.
In the end, we are stuck. Should we let mortgages fail? How much longer could we go if we did nothing? It is the same argument that people are making about capitalism/socialism (which are greatly mis-used terms by the way). Sure capitalism, in theory, would correct itself through the power of the free market. The question is whether people are willing to accept the consequences of that. If a person no longer has a job because the market is correcting itself…how does that help that person? I think Americans, and no country for that matter would be able to ride out a purely free market because people would not be able to accept the conditions that would occur as the market corrects itself.
Davina, don’t count on it
There will always be something coming down the pipe to screw things up. Deferring pain is not usually the best option.
Finish up, get a job, pay your dues and try to stay on top of the crap that matters. Eventually when things do turn around, you will have all your ducks in a row and be ready to rock out with your c*ck out !
Just my $.02, which at the current moment is worth about $.0001
Hey Mike nice to hear from ya.
I agree that the market situation being a case of extremes. As for educated, lol. Well, I’m opinionated at the least.
I also agree that a free market system would eventually correct itself over time, but 1. we are not willing to wait that long, and 2. we are definitely not able to handle the reprecussions.
Using that same logic, Global Warming will correct itself over time regardless of what we do, we just might not be here by the time it does
So, as you said, we are stuck.
But I do think that people need to step up and take some responsibility, and like most lessons, it will probably stick in a little better if it hurts.
I know mortgage brokers pushed pretty hard. I also know that 90% of all realtors and brokers are complete idiots, knowing just barely more than most Americans about how things actually work.
And I know about greed. A lot. As an MBA, a fancy exec and an investment realtor, I know a lot about greed.
But, going back to Real Estate, you have to remember how most home purchases start. You go to realtor.com or drive around a neighborhood. You find a house you like. You ask the price.
At this point, and long before most talk to any bank, you should know if you can afford it or not.
I don’t know about you, but before I plunk down my lifes savings and make the biggest commitment of my life, I do a little homework. Call me old fashioned that way.
So yes, the mortgage brokers did push, and I am sure they and the realtors painted a rosier-than-reality picture. But YOU (and by you I mean them) started the discussion, you picked out the $900k house, not them. They were just reinforcing your own stupidity.
If you are not willing to put in the minimal effort to protect your own ass, I don’t really feel that bad for you. Educated or not, it’s not rocket science to figure that $3000 a month income, and $2500 mortgage payment is NEVER a good idea, no matter how sweet people tell you the deal may be.
If you really can’t figure that out (and I can’t imagine anyone over the age of 12 that couldn’t) Sadly, sometimes darwinism is the the way to go
I don’t think most people realize how bad shit can really get. Just read about the Great Depression, or look at the current conditions in many places around the world, and you can see that it can get much much worse.
We can learn from our mistakes and admit them, or keep ourselves in denial and point the finger everywhere but where it belongs. If we choose the latter, I just can’t see how we could NOT end up as one of those failed economic countries.
On a positive note, I just saved a lot of money on my insurance switching to Geico. (Kidding, had them, they suck)
Hey Davina,
Just reread your post and wanted to add something to my comment.
If you are thinking about staying in school to get an advanced degree, and not just staying in to avoid the current mess, I might agree.
But there is a caveat.
The advanced degree better get you quite a bit more than your current degree.
For example, I am an MBA. I STRONGLY recommend that over a bachelors, the prospects are like night and day difference. Same thing for CPA and bachelors in accounting. Same thing for pre-law and a JD.
But if its something like Psychology where the difference between a bachelors and a masters is squat, then it is probably not worth it.
I’ve wanted to get my PhD for a long time, but realistically there is a snowballs chance in hell it will get me a dime more than I can make with an MBA. So for now, its just not worth it. When the missus is out and making the big bucks, I might get one, but it will only be so I can make people call me Dr. FancyPants instead of Mr. FancyPants.
I don’t disagree with many of the arguments against the people who got themselves into contracts that they couldn’t afford. However, the question at this point, in my opinion, is not whether or not they should have gotten themselves into the situations they’re in… because they’re already there. The question now is – to help or not to help. I think it’s awful that we don’t question bailing out AIG, automakers, or failing banks, but to give a little to your neighbor because your neighbor didn’t think everything through seems a bit mean and hypocritical. If one is against the stimulus for mortgage-holders, it seems that one should be against TARP as well, as TARP is helping out businesses that did not adequately manage their financial position. Free market is free market… let the chips fall where they may.I believe, though, very strongly in John Rawls’ Original Position, and the idea of a thick Veil of Ignorance. Let’s forget for a moment what we chose to do or not to do… let’s forget about our anger and frustration at people who made bad choices. Let’s start from a position of maximizing the most good for the most people, and imagining that we don’t know whether or not we were the person who bought a home we could afford or whether we’re the bus driver with the $800k mortgage. If we put aside our own personal feelings on the situation, and think about what will help the most people, I think that will result in a shorter recession/ depression.Not that I’m a Dr. Phil fan, but he says something that’s very wise to married couples who are fighting, “Do you want to be right, or do you want to be married?” To apply that to this situation, do we want to sit on our high horse of righteousness and deny those who were unwise assistance because we feel it is the morally right thing to do, or do we want to put that aside and make decisions that will result in a quicker recession and, hopefully, a better outcome in the long run for all of us?I don’t know that a mortgage bailout is the right thing to do, but I do suspect that doing nothing will not help the situation and could prolong it. I’m selfish – I want to see the outcome that’s going to help me the most, and if that means giving money to stupid people who entered into stupid contracts so the economy doesn’t keep spiraling out of control, and I get to keep my job and my home, so be it. Yes those people in your Camp #1 are douches who deserve whatever’s coming to them… but to be honest, I’m more concerned about seeing things get better quicker, instead of putting my righteous indignation first.http://plato.stanford.edu/entries/original-position/
Man, I’m getting some great comments. Thank you guys!
Nikita, I’ll get back to once I know a little more about what you are talking about. (TARP and John Wrals stuff)
I really don’t know anything about them in all honesty.
And really agree with your position that we are better off doing what is the best for the most people. I’m just not sure what that is yet.
Then again, if I did know the answer to that question, I probably wouldn’t be sitting here in my underwear* responding to your comment
*underwear in theory, didnt want to get you excited and/or violently ill
lol. I got about 2 sentences in to the original position and nodded off. Man, no need for sleeping pills anymore, just point people to that thing.
Might take a little while longer than expected to get back to you Nikita
I’ll get there, it will just have to be about a paragraph a day on that one.
Rawls isn’t super-exciting???
Yes, he’s a little dry… but I highly recommend his philosophies.
The Original Position suggests that when making policy decisions, people should pretend that they do not know where they fall in society (eg: rich, poor, middle class) – that when people don’t know where they’ll fall on the spectrum (making their decisions from behind a thick Veil of Ignorance) they’ll be risk averse, and fear that they’d fall into the poorest sector of society. Therefore, they’ll create a system that benefits the most disadvantaged people of society (maximin theory) because they want to be sure that, should they fall in the lower end of the spectrum, there are programs to take care of them.
Rawls incorporated the maximin theory from the minimax idea in game theory – it’s the idea that when you make a decision, you want to minimize the maximum possible loss. Maximin suggests you want to maximize the minimum gain. For an example of the minimax theory, watch the scene in A Beautiful Mind where Russell Crowe as John Nash is talking about picking up the three women in a bar…
TARP is the Troubled Assets Relief Program (http://en.wikipedia.org/wiki/TARP) and it’s the portion of the bailout approved under President Bush (43) that allows the government to buy the bad mortgages of financial institutions. My thinking is that if we’re willing to bail out banks, we should be willing to bail out our neighbors. It’s part of what ticked me off most about Santelli – where were his complaints when AIG was taking spa resort vacations on our dime?
I also agree with you that I don’t know whether or not a housing bailout will help… but again, if we’re willing to throw money at businesses, we should also be willing to do so for homeowners. And, even if it doesn’t stop property values from falling, it may stop people from getting kicked out of their homes. And that can’t be all bad…
Thanks for your comments and thoughts!
Nikita
Thanks for the summaries. I read you comment a few days ago but haven’t got a chance to post.
I still plan to read up on both the Original Position and the TARP stuff so see if I can make any sense of them.
I am really torn on all the bailout and housing stuff. I know we need some sort of stimulus, and agree that we need to find a way to help those in need, but fucked if I can figure out the best way to do it. Seems like every option has a part the rewards the idiots (businesses or people) and penalilzed those who really try.
I’m doing some research now on Toxic Loans and the housing situation (which from what I have seen so far is FAR more complicated than the other bailout stuff..and I know a bit about real estate and lending) and hope to put together a new article in the next few days or so about it.
Anyway, thanks a bunch for taking the time to comment and helping explain some of this stuff to me and our readers.
It’s appreciated.
JJ
JJ, I think (read: know) your house and neighborhood is much nicer than you give it credit for.
Hmmm……trying to decide whether or not to sell your house at break even? I’m no expert, but I do consider myself to be a reasonably intelligent person: My guess is that with Obama pumping trillions of dollars into the economy in his efforts to curb the recession, inflation will go through the roof. That’s probably not a good thing as far as your savings and other investments go, but its great if you own a lot of real estate. If it were me, I would keep the real estate and invest my cash in something that will hold its value. The people who survived the economic downfall in Germany after WWI had gold or some other items of value.
I don’t really understand why people are so pissed off at the banks and mortgage brokers. A house is just like any other investment. If you make a bad investment in the stock market and lose a lot of money, who is there to get pissed off at but yourself? Was it really smart to operate on the idea that house values would keep going up forever? I’m not so sure that it’s greed. I think it’s incompetence on both sides.
By the way, your analogy about the free market system and global warming is pretty fucking rediculous.
Yeah but you are forgetting that mortgages cost money. And as a side effect of the housing crash, renters are a lot harder to come by these days and rents keep getting lower (becuase people who can’t seel their house turn to renting it out…excess supply, prices drop.
So I, like many others have to keep in the back on my head the trade off between paying a mortgage while my house sits empty until it sells and waiting for the price to improve, or cutting my losses and just selling at break even.
I do agree that prices will return in the long run, just haven’t figured out how long that will be and if the holding costs are worth it.
As for the free market system and global warming, I agree that it was a pretty bad analogy. The point I was trying to make is that things have a tendency to eventually work towards equilibrium on their own. It just takes time. Both a free market system and global warming will eventually reach an equilibrium without our intervention. The only question is what we are willing to tolerate while it works itself out.
I can tell you exactly why people are so mad at their banks. People expect their banks to protect them. At least a little bit. And, I don’t think that the free market/global warming analogy is fucking ridiculous. Or even just ridiculous. It’s an analogy, which is not to say they are identical, just similar in a way. At least, arguably. Cyclical, affect by human behavior/stupidity…similar.
In almost all cases, people’s homes are the single biggest investment they can make. Not being educated about the largest purchase you make is not a viable excuse to me. On the other hand, banks and investment groups that said they didn’t see this coming are being a little disingenuous at best. They may not have known WHEN this would happen or how badly things would go, but to say they were blindsided….well, that’s a lie and I would beat them all to the ground if they were to say that to my face.
As far as the video goes, that woman and her husband got a house that looked to be pushing 3000 square feet…FOR FOUR PEOPLE!!! I don’t place a lot of stock in housing price tags without a location attached since a house in Palatka, Florida that goes for $800k would probably go for no less than, oh, 8 million in Aspen, CO. That said, that was a huuuuge hunk of house they bought. far more than they “needed”.
OMG! I could go on forever about “free markets” (which we CLEARLY do not have in this country), dumbasses, liars, victims, criminals, bailouts and the whole nine, but I’ll just say this:
If everyone was held responsible for their own behaviors and heads were to roll in this fiasco, the losses would be heavy on all sides.