Rescues for Homeowners in Debt Weighed (Some of these homedebtors are DOOZIES!)

[El Pinko]

http://biz.yahoo.com/nytimes/080222/1194749379008.html?.v=6


Rescues for Homeowners in Debt Weighed
Friday February 22, 12:37 pm ET
By EDMUND L. ANDREWS and LOUIS UCHITELLE

WASHINGTON — Prodded in part by some of the nation’s biggest banks, the Bush administration and Congress are considering costly new proposals for the government to rescue hundreds of thousands of homeowners whose mortgages are higher than the value of their houses.

....

The housing slumps of the mid-1970s and late 1980s were confined to the coasts. The current bust, while leaving some cities relatively unscathed, has cut a far wider path and it comes just when home debt is at its highest level since World War II. For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price. Mr. Breakstone, a 42-year-old lawyer, and his wife, Lori, chief of customs agents at Memphis International Airport — who together earn more than $250,000 a year — managed to extricate themselves by paying off the mortgage. But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.

....

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.

....

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






I really do feel bad for most people who got in under their heads due to predatory lenders and housing-bubble hype, but as for Mr. Breakstone, who is STILL spending an exorbitant amount of money on his lifestyle... :nopity:

[soothsayer]

1. caveat emptor

[demnan]

2. I saw a lot of this these past few years

People were buying homes as status symbols, saddling themselves with more debt than they could afford to buy McMansions. I settled for a small 2-bedroom condo, and for the last two years its been all I could do to pay the mortgage due to settling for a lower paying job. But at least I have a fixed rate mortgage on a smaller priced unit.

People don't account for bad luck when they buy status symbols. But bad luck comes anyway.

Now I've gotten a job more in line with the wages I made before, so I won't be sweating the mortgage quite so much.

[Justyce]

12. That's what I did... prepared for hard times when buying

a house. I have a small older house, but the payments are low enough that I don't have to sweat it. I'd rather be able to sleep at night than worry about being able to make a huge house payment just to impress the neighbors...

[peace13]

3. Too sad.

Unfortunately those of us who have lived within our means will pay for this. Federal programs for people with huge material needs who are suffering financial disaster will step in front of the low income and homeless Americans who have suffered for years. Suffering people at both ends of the spectrum with those still afloat in the middle to pull it all together. Go figure. This time I fear the pool in the middle will be too small to float the boat.

[NashVegas]

4. No Way Should We Bail These People - Here's Why:

But millions of others are trapped in their homes. They have jobs, make their mortgage payments on time, but cannot raise enough cash to cover the shortfall.

The problem with the bubble bursting is with people who bought as an investment more than they bought to have a home. Maybe they couldn't afford to get into the neighborhood / town they really wanted to, so they took what looked like a good investment, expecting it to push them up the ladder, only to find out it wasn't.

In the case of this man in the story? He had his home custom built. You'd *think* he'd have planned on staying in it for more than 8 years!

edited to add: I have a horrible belief that the financial industry is going to try to cut a deal with whomever the Democratic candidate will be - they'll throw their political muscle our way if we bail them out. I pray the nominee won't be tempted.

[htuttle]

5. His mortgage is 50% more than I make in a month!

...and he's 2 years younger than me.

I have absolutely no sympathy for Mr. Breakstone.

[dmallind]

6. Income relative?

This is no more extravagant than a family making $50K buying a $134,000 house

Why is one worth more compassion than the other? That cannot be answered other than "they aren't" without resorting to envy and resentment against those with higher incomes.

EDIT - on the other hand, there is little excuse for someone with $250K in income to be struggling with a $670K mortgage, unless they are horrible budgeters.

[El Pinko]

7. Because a family making 50k would have to cut necessities to deal with this.

Breakstone is spending $14K per month on god knows what - all manner of lifestyle amenities that the vast majority of us don't feel deprived to do without.

Compassion has nothing to do with it. He is not in a position to engender compassion. He doesn't even have a problem.

STOP SPENDING SO DAMN MUCH MONEY, IDIOT! (not you, Breakstone)

[blondeatlast]

9. And because he feels entitled to it and would resent the fact that we might

expect him to cut back.

[dmallind]

15. How do you know?

This is a bit of armpchair psychology. How do we know what he feels?

The only problem this guy has other than allowing himself to be held up as an example of idiocy is budgeting. $670K is far from extravagant for $250K in income - that's well within the old, traditional pre-bubble guidelines of 3x gross income. To treat them as extravagant when you would not treat anyone at a lower income for buying a house at 2.68 times their income is indefensible logically speaking. Because if we use the criteria of "need" then no-one, regardless of income, would avoid charges of extravagance if they lived in anything beyond a privately owned prison cell. Since humans can clearly live in prison cells, anything else beyond such spartan accommodations with perhapsa small kitchenette is based only on wants not needs.

If he's silly enough to admit struggling, and if he's honest in so doing, then sure a simple budget would be appropriate. Notice though that we are dealing with what the reporter says which may be inclined more to sell copy than prtray an acurate picture. Obviously the family is not struggling all that much for cash if they can come up with $65K to close out their last mortgage.

[Romulox]

27. His finances only became an issue when he appeared with his hand out in a newspaper article.

Welfare for the wealthy is the American way, I guess.

[blondeatlast]

30. Good point about the "sexed-upness" in the article. I think I overreacted, too.

My bad--I'll admit it.

[dmallind]

34. nae worries NT

[shain from kane]

20. This man and his wife are working so hard and so many hours, and yet they have the time to go out

and spend another $14,000.00 EACH AND EVERY month. You know, after a couple of months of this spending, wouldn't you have about all that you really need for awhile, and it's time to cut back and pay down on your indebtedness. Of course, they refer to it as fixed obligations, which I find as doubtful. Fixed by their definitions, not normal people.

[htuttle]

13. For one thing, I haven't seen a $134,000 house in almost 10 years

Maybe somewhere in Turkeyneck, AR or Fuckincold, ND, you can find one, but house-flippers bid up the price of houses everywhere there are jobs.

A family making $50K really has no fucking chance of buying a house anymore, and hasn't for some time.

[dmallind]

16. You can buy TWO liveable and in fact quite reasonable houses in Buffalo for that. NT

[NashVegas]

18. Yep. That's What So Freaking Nuts.

It's one thing for the "investor class" to demand the corporations they buy into cut back and cut back and cut back on all spending that doesn't include dividends or increase the price of the stock.

People who earn their income by labor - us grunts the investor class wouldn't make a dime without - have a right to decent, affordable housing.

[YOY]

23. Jesus in Arlington, VA my wife and I together make nearly double that

and we can't afford anything outside of the Ghetto and are stuck in a cycle of renting.

[dmallind]

29. undoubtedly true, which is why housing stories should not be generalized

For you, $670K would not be a particularly extravagant house either, but is undoubtedly unaffordable (is for me too BTW).

[YOY]

32. 670? It's a 2 br 2 1/2 bathroom in South Arlington. (North is more "well to do")

In a town where most folks work for the Government or contract for roughly similar pay (save the high level consultant wankers who should be run out of town for really raping the American tax payer and not offered jack...)

North Arlington is white bread and yuppyish.

South is highly Latin (Ecuadorean, Salvadorean, and some Peruvian Columbian) makes for some cool neighbors and interesting eats but I digress.


It used to be 1/3 of that. What you'd expect for a realtively crime-free major urban area!

Why did it go up? The ARMs and the "Flippers". Greed greed greed...

[dmallind]

36. Partly true I think

But the thing is even with the worst of the horror stories about foreclosures and bankruptcies etc most people who buy houses manage to afford to pay for them. How they do so in areas like yours and the SF Bay Area etc is to be honest beyond me, but they do. I'm in the mid 100's range in income myself, and don't live all that extravagantly for that income (Nissan Altima base model car, no hugely expensive vacations, buy clothes at JC Penneys. I do have a 10K motorcycle and about half that in a couple of collections, and I take a few short trips to the opera every year that are not cheap but that's about it. I certainly spend more than average in entertainment but even then it's sports bars not sushi houses so $30-40 a pop rather than hundreds), and yet I would be unable to swallow the house payments for anything over maybe $350K mortgage at a push. Right now I am moving so I will have one 200K mortgage and one 180K mortgage but that's for a couple months or so and I would be hesitant to do so for a long time. I could certainly qualify for more, but would not want to. This would proce me out of your market and those like it for anything worth buying.

How then do so many in the high buck areas manage to buy houses I could never dream of even with a comfortably top decile income? Dunno really but my guess is a lot of them simply leveraged the increase in their existing home. If I were to move into Arlington now I would be screwed. But had I lived there when I bought my first house 15 years ago, the increase in the value of that house would have meant I would have had a huge chuck of that $670K in equity, so would need only a comfortable mortgage to buy the house you describe.

Just to set up contrasts the $180K mortgage is for a 2700 sq ft 4 bed 3 bath 2.5 car garage 1/2 acre lot 1993 built nicely decorated home in a quiet suburb of Buffalo. The price was about 50K higher than that which I had in cash. Population decline is mostly an urban Buffalo phenomenon and there is plenty of money in the suburbs, so who knows what factors made it avoid the bubble you folks saw. It's certainly not that there aren't flippers and ARMs and greed here of course.

[shain from kane]

8. He's a slave to an inanimate object.

[hatrack]

10. How can you POSSIBLY gross $250K and still have your shit un-together to this degree?

How is that even POSSIBLE?

Boo-fucking-hoo, Breakstones. PULL YOUR HEADS OUT OF YOUR COLLECTIVE ASS!!

[ThomWV]

11. Excuse me while I try to figure out how this is anything other than subsidizaiton of greed

If you want to absolutly guarantee that housing is unaffordable in this country then let the Government subsidize excessive home costs.

[Cronus Protagonist]

39. It sure is, but don't say that on here, you'll get flamed for it

n/t

[UALRBSofL]

14. I live in Florida and in addition to the sub-prime mortgages

which is basically what I call adjustable mortgages we have been hit with huge increases in homeowners insurance and property tax's. On top of that, the property in florida rose way too quick and much of it was due to the many hurricanes we had. Now that the price of homes are quickly lowering to there actual dollar value people who purchased homes here the last 5 years are stuck with homes that the value is much less then when they purchased it. When people sell there homes here many are having to bring money to the table just to sell there home. In addition, our insurance has increased a lot. After hurricane Ivan my wind policy has increased 600% as of today. That doesn't include my regular homeowners insurance or flood insurance or property tax's that have also increased a lot. So when you add everything together it's easy to understand why people are opting to let there home go into foreclosure because they just can't afford it any more when they are trying to pay for everything else like food on the table which has also increased exponentially along with everything else.

[eilen]

28. Yet people still agreed to purchase homes at those prices

The homes were worth what people were willing to pay for them. I agree that the prices were inflated. The prices for a Birkin handbag is over $10,000. Doesn't mean I'll buy one at that price, I'll find a handbag that is more reasonable, if I want, I'll buy a used bag and pay even less. If enough people looked at the the Birkin and said "No way, are they crazy?" They would lower the price. But there are enough idiots out there that want status and "NEW" and will buy into that crap. As for hurricane insurance, that's the price of Florida sunshine. I remember when land in FL was laughably cheap, I think my dh's grandfather bought a lot for $600.

I would move from FL. In my town you can still find a home for under $100,000. We never really saw the boom but then didn't get hit hard when the bubble burst and you don't need flood or wind insurance, just regular homeowner's and a snowblower or a strong back.

[k8conant]

17. Why didn't they just keep the 8-year-old house?

They wouldn't have had to pay the $65,000 all at once.

I've lived in the same place for 20 years. It's idiots like the Breakstones who drove up the asking prices in the first place. Even with prices coming down I have to go to my county commission to protest increased property tax assessments based on the bubble of 2005-2006.

Sheesh...why don't folks just buy houses to live in?

[NashVegas]

21. After 9/11

Nervous investors wanted someplace to put their money. The Fed made real estate very convenient with it's interest rate slashing.

We had a luxury home builder just file for bankruptcy the other day. Poetic justice, IMO.

[UALRBSofL]

22. k8conant that would be the smart thing to do

But the part of florida I live in has a large military influence because we have a navy base and a couple air force bases here and they purchase homes, two years later get orders and have to sell. They are stuck with bringing money to the table. This has happened a lot here where I live.

[eilen]

19. What about the 60-odd year old woman

who put herself in such debt-- thinking she could afford it selling furntiure? When was she going to retire? How many years did she intend on paying the mortgage? Upsizing at 60 is idiocy and taxpayers are expected to bail her out? I think the banks should take the hit and refinance these loans and leave the government out of it. The banks allowed these loans to go through, they should fix it. I had to jump through hoops to qualify for an FHA when we bought our home and FHA has limits on the amount mortgaged. Closing costs are paid by the buyer, not the seller so I was a bit confused on that part of the article.

When you invest money, you are taking a risk. The margin call is in and people who took those risks are going to have to tap their retirement accounts and savings and cash in their assets like anyone else who loses on a bet and start over again. The government needs to replace the regulatory contraints on financial institutions in respect to credit and mortgages in order to protect people from predatory lenders and communities from foreclosure desolation (as well as from tax inspired greed which allowed rampant development without adequate infrastructure). That means ceilings on interest (bring back usury laws) and roll back the legislation on bankruptcy for individuals.

We refinanced our home to a 15 year fixed rate when the rates were low. We did not take money out, just refinanced for the amount owed and the costs associated with closing the new loan. Our taxes keep pushing our monthly payment higher but we are lucky not to be paying the PMI anymore. Our home is small by today's standards, built in the mid 1970's, under 1500 square feet but how much square footage does 3 people need? I could have 4 kids instead of one and still be fine-- three bedrooms= parents in master, two kids in the other bedrooms, guests can stay on a fold out couch, sleepovers in sleeping bags in the den. When we have family visiting, that is pretty much how we do it.

I don't know why responsible people should have to constantly have to bail out reckless acquisitive fools.

[UALRBSofL]

24. I can understand the issue about bailing out people

And how it doesn't seem fair. However, look at the big picture, look ahead a year or two, letting these homes go into foreclosure only hurts the economy and it also hurts the community as a whole because these foreclosures cause the home values in that community to drop like a rock. When these homes go into foreclosure, the community pays for it.

[snappyturtle]

25. After I read about the sixty year old I summed it up that she bought

for investment. For all we know her divorce was a disaster and the ex- walked off with the retirement. It can happen. Did to me. OK...so she listens to all the hoopla on the housing market. "Better get in now before prices escalate more." This stuff went on for years. Looking to add to her "wealth" she bought a home to sell off in the future at an appreciated price. The banking industry lured people into the market. At least that's part of the story. I agree with your solutions but not with your assessment of risk in the housing market because it has been a standard bearer of "safe" investment during all of my life-time....ups and downs...but not plunges which I place on the mortgage, banking and real estate industry.

[El Pinko]

26. I didn't want to cite her because of her more limited means and not knowing the whole story.

I'm not really in favor of government bailouts, BTW. I don't think that one of the functions of government is to prop up house prices.

[eilen]

31. i agree.

If the government does take control of the foreclosures, could you foresee a similar legislation to the homestead act? Some cities have used that to get middle class families to move back in from the suburbs.

[snappyturtle]

37. Oh, I'm not in favor of bailouts either BUT I think the banking

people need to do something to keep people from going under.....especially since they were big players and winners.

[eilen]

41. Investing in your home

was considered a safe investment because.... you are expected to stay there and live in it, holding the investment over a long time and it is safe because you live there and take care of it. Some homes are really not great investments, especially if they require a lot of extra work like new custom homes do (lawn, new deck, landscaping, finishing the "bonus" room, the basement, new drapery fixtures and shades for the zigundus windows 20 feet up the wall, the endless repairs d/t the builder requiring his workers to slap it all together as fast as possible etc. Also if it is a very old house that needs everything replaced, mechanicals like furnace, new wiring, new piping, new roof, repair of foundation and don't forget the lovely crumbling plaster walls.

We purchased our home in 1998 for $82,000, when we were considering (trying to) sell it the realtor felt that it could sell for $129,000 in 2006. It didn't. Due to challenging circumstances, the best offer we received was $112,000, with agent fee of 7%. We owed about $65,000 on our mortgage still. In order to find a decent school district near Nashville, it would be at least $200,000 for something similar to what we were moving from. We decided to stay in NY after all because owing $65,000 was hella better than $150,000--- and our school district in upstate NY was still way better. We have decided we will stay here, pay off our mortgage until such time as we decide to downsize to a condo or apartment when we are old and decrepit and can't handle the snow in the driveway or mowing the grass.

Therefore, our home ownership will see us through not a few economic cycles when it's value will vacillate according to the market forces. Owning and living in a house for 3 years and wanting to sell then and finding out it is worth less on the market is not necessarily a failed investment, you haven't allowed it to mature.

[dysfunctional press]

35. it sounds like she bought it as an investment...

planning to sell it in a few years to help fund her retirement.

house prices were only supposed to go up, remember?

[Romulox]

33. How did this bozo Breakstone pass the bar?

So this attorney sold his previous house at loss to finance the purchase of a larger, more extravagant house, which also is worth less than he paid for it?

I don't think a government bailout would help this guy. He'll probably just spend the money on:

For Stuart B. Breakstone, the problem hit home when he was forced to come to the closing on the sale of his eight-year-old custom-built house with a check for $65,000. The money, out of his own pocket, was to pay the difference between what he still owed on the mortgage for his home and the lower selling price.

...

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.

[shain from kane]

38. It used to be that when you purchased a house, you knew that if you sold it the next day, you

would immediately lose the 6% realtor's fee, and other title expenses.
Therefore, generally, the trend for the asking price for a home sale was 106% of your purchase price. You didn't want to take a loss. After a number of sales, the asking price became 106% of the previous purchase price, then 106% of the next purchase price, then 106% of the next purchase price, and so on. This accumulation of modifications through a number of sales created the artificial assumption, with the inflation factor in the general economy, that there was a huge appreciation in the fair market value. And I'm not even addressing the role that speculators used to increase the fair market values through flipping.
So now, we are suddenly confronted with the fact that the houses are being sold for $670,000.00, and more, and the 6% fee, and someone has told me that it is now 7% for residential property, and often 10% for commercial property, and the house must increase in fair market value within a relatively short time by $50,000.00 to $100,000.00. It just can not be sustained.
Add to that, is why would anyone pay $670,000.00, or whatever figure, for someone else's house, when they can borrow the same amount, and build their own house? Therefore, the $670,000.00 house sits on the market, until the price is reduced, compounding the previous problem.
Somewhere along the line, you would fully expect a lawyer to understand it. I would predict that his appearence in the paper will not enhance his ability to gain work, and his own particular problem will compounded. After all, who wants to hire a stupid lawyer, who thinks the gravy train will never end?

[leftofthedial]

40. when I bought this place, the realtor and the lender

both pitched HUGE houses, HUGE prices and flaky "creative" financing. At the time, I was unemployed, freshly divorced, had a decent wad of cash (I thought). They saw that wad of cash and thought "big downpayment = huge mortgage = huge commissions." They showed me some amazing places, but I insisted on a modest townhome and a conventional mortgage. I was able to pay cash for about 2/3 of the price. I'm STILL unemployed (except for the occasional temporary/freelance job and what music gigs I can get). If I'd done what they initially wanted, I'd be homeless now.

BUT I can't really make ends meet, even with my "1970's"-sized mortgage payment. Who's gonna bail me out?