June 16, 2013

Fed Study: Angeleños really did use houses as ATMs

In the latest installment of Formerly Middle Class People Deserved To Lose All Their Money, the Wall Street Journal informs us of a study from the Federal Reserve Board’s Steven Laufer. Not too surprisingly, the paper says these longer-term FBs would have been fine if they hadn’t kept taking equity out of their houses just because they could.

Study: How Using Homes as ATMs Fueled Foreclosures

130614-la-townhomesBy Nick Timiraos, The Wall Street Journal
May 28, 2013, 11:58 AM

The conventional wisdom of the housing crisis goes something like this: Too many people bought homes as the housing bubble inflated. Some were unlucky in their timing, while others overextended themselves by putting too little money down. All of these top-of-the-market purchases led to an explosion of foreclosures once home prices dropped sharply and the economy hit the skids.

Amid the current debate about whether a new bubble is forming in the housing market, it’s worth looking at a paper published in March that challenges conventional wisdom by showing that a significant share of foreclosures came from people who bought their homes before 2004.

So why did so many people who bought their homes before the housing bubble fully inflated end up losing their homes anyway?

20130614-la-freemoneyThe paper concludes that if only California had laws like Texas (which forbids borrowing more than 80% of home equity), not only would fewer FBs gotten F’ed, but homeowners (as opposed to homedebtors) would have had more money to spend because houses wouldn’t have cost so much.

Which is ridiculous, because why do you think these FBs borrowed all that equity in the first place? They sure as heck didn’t invest it in infrastructure.  Heck, no.  They spent it.  We’re cheered to see Larry Roberts (OC Housing News) agrees with us.

Then again, that study also says people defaulted because (among other reasons) they assumed their home prices would keep going down. This shows why the study was in Los Angeles instead of the Real Bay Area. Everyone knows in the RBA, prices only go up.

There’s also a very important reveal in the paper. Laufer’s model shows that home prices would be 14% lower if all that equity extraction hadn’t taken place. And as we know, the Real Estate industry will simply not allow that to happen.  They might as well throw away tax-deductibility of mortgage interest too.

Comments (4) -- Posted by: madhaus @ 5:02 am






July 25, 2009

Stop Sitting on Your Assets: How to Safely Leverage the Equity Trapped in Your Home and Transform It Into a Constant Flow of Wealth and Security

It’s Saturday and that means it’s time for another Burbed book recommendation!

Stop Sitting on Your Assets: How to Safely Leverage the Equity Trapped in Your Home and Transform It Into a Constant Flow of Wealth and Security

FROM THE BACK COVER: Are you caught up in the financial thinking of the last century? That’s when we learned to buy a home and pay it off as quickly as possible. It made sense in the conditions that existed back then. It doesn’t make sense today. How would you like to: 1) Safely leverage and compound assets you didn’t realize you had? 2) Become your own bank and build family wealth? 3) Pile up stock market gains, but never take the losses? 4) Lock-in a rich, secure and carefree retirement? 5) Transform the IRS into your wealth-building partner? 6) Create real wealth, empowering you to help others? 7) Get to your existing retirement funds with little or no taxes? 8) Leave a fortune to your heirs? STOP SITTING ON YOUR ASSETS make these strategies crystal clear — and you can apply them with security and ease. If you own a home, you owe it to yourself to know about today’s new reality: You are sitting on a potential fortune that can safely and confidently be put to work to build a massively abundant financial future. A future so rich that — before STOP SITTING ON YOUR ASSETS — could have only existed in your dreams.

Heh. I love the pun. Assets. Heh.

It’s another Saturday, and another book that pleads with you to load up on debt. There are so many books that recommend you do this, that it must be a solid strategy that you should follow – otherwise why would these authors write them, why would publishes publish them, and why would consumers snap them up?

Looking through some of the other reviews, apparently it has some great tips on how to co-mingle your life insurance and your mortgage together. Intrigued? Buy it and retire wealthy!

And when you do become wealthy, please help this site out, click this link to learn more!

Comments (2) -- Posted by: burbed @ 5:01 am

July 18, 2009

Untapped Riches: Never Pay Off Your Mortgage — and Other Surprising Secrets for Building Wealth

It Saturday! That means it’s time for Burbed book recommendation!

Untapped Riches: Never Pay Off Your Mortgage — and Other Surprising Secrets for Building Wealth

Why do some folks get rich while others just get by? The biggest stumbling block for most people is believing they lack the capital required for serious wealth-building. Untapped Riches dispels this myth. This remarkable book reveals that most homeowners are in fact sitting on “untapped riches.” Working diligently to pay down mortgages, they are unwittingly tying up money in equity they could be investing elsewhere for greater return.

Offering 40 wealth-building and wealth-protection strategies, many of which fly in the face of conventional wisdom, Untapped Riches will change how readers think about borrowing money, investing, and mortgages. Challenging the idea that it is more financially sound to be debt-free, the authors believe that there is both good and bad debt — and that the former is essential to generating cash flow and building significant wealth. Real estate tycoons know it’s all about leverage. Now, the authors, who made their own fortune in real estate, show how anyone can get the cash they need, and really put it to work.

Why pay off your mortgage when you can easily use that money to earn more money! Like… buying more real estate!

Let’s face it, debt equals wealth. It’s what saved this this country in the first part of this century, and… uh… yeah!

Being debt free is for suckers. It’s what The Man wants you to believe is a good thing, so that you’ll never rise and become wealthy!

So load up on debt, and while you’re at it, help this site out, click this link to learn more!

Comments (8) -- Posted by: burbed @ 5:57 am

November 26, 2007

Subprime mortgages, Citigroup, Acorn, NACA

Citigroup Feels Heat To Modify Mortgages – WSJ.com
In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn’t set to rise until next June, but she already is behind on payments.

Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.

This year, she says, their income fell after she suffered a short-term disability. Mrs. Brandon figures if she sold her home today, she wouldn’t get more than $450,000 — what a nearby home sold for in foreclosure.

She has tried for months to get her loan modified, and missed her June and September payments. Last month, Damien Gutierrez, a Citi Residential home-retention manager, offered to fix her interest rate at 6% for 40 years, she says. One week later, she says, he said he was authorized only to offer her a five-year fixed rate. Earlier this month, Citigroup offered her a six-month trial at 6%, saying it would extend the modification to three years if she keeps up with her payments, she says. Mr. Gutierrez didn’t return calls seeking comment.

[snip]

Ana Cecillia Marin, a 36-year-old single mother of three, owns a 20-year-old ranch house on a dusty, garbage-strewn acre in Palmdale, Calif. She says she earns $34,000 a year managing flower sales at a Los Angeles food store and selling clothes on the side. She bought her house in 2005 for $385,000. By taking out a first and second mortgage, she was able to buy it for no money down.

At first, her ex-boyfriend helped make mortgage payments, she says, but his construction jobs dried up. She hasn’t paid anything for months on the $76,426 second mortgage serviced by Citigroup, and she has also fallen behind on her $308,000 first mortgage, serviced by a unit of Bear Stearns Cos.

Ms. Marin says she got a foreclosure notice on her first mortgage. Judging from recent sales of similar homes in the area, it’s unlikely that Citi Residential will be able to recoup money owed on the second mortgage in the event of a foreclosure sale, because the first-mortgage lender gets its money first.

“I’m afraid I’m going to lose it,” Ms. Marin said recently of the house. Already, she had moved most of her belongings into a wooden crate in the yard. All that remained inside were the mattresses on which she and her children sleep.

[snip]

For years, groups such as Acorn and NACA have pressed Citigroup and other lenders to step up mortgage lending to lower-income customers. When subprime mortgages began going bad, these groups began pushing banks not to lower the boom on borrowers. They have leverage. The Community Reinvestment Act requires banks to help meet the credit needs of communities in which they operate, and regulators often seek feedback from the groups when deciding whether to permit financial institutions to open new branches. The groups sometimes organize boycotts.

None of this has anything to do with the Bay Area, but I thought I’d just post it for fun so you can learn more about what’s going on in subprime land.

Comments (9) -- Posted by: burbed @ 12:36 am

May 10, 2006

Debt! It’s better than working!

I keep seeing that real wages have held steady or have fallen in the last few years – yet people are living better than ever. What’s going on? Where is this money coming from (when not from Asia, anyway)?

Sonoma Housing Bubble
“A decade ago, I remember my mother telling me that after nearly 20 years of residing in their home, which my father had designed and built for about $75,000, my parents had a mortgage of over $500,000.”

“What happened?” I asked my mother disapprovingly.
She waved my concerns aside. “This house is a bank,” she said. “We’ll never pay it off.”
A bank?

“After that, I could never think about our lives in quite the same light. My parents were self-made. They were from poor, working-class families with five and eight siblings, and had put themselves through college, worked hard, and never got a dime from any parent or grandparent, dead or alive.”

“But suddenly I realized that their college educations and hard work might not have been enough to cover certain … luxuries.”

[snip]

“Lynn Ruth Miller, who bought her Pacifica home for $97,000 in 1985, is living on the equity from her house and investing part of that money to get earned income.”

“I could not survive if I didn’t do that because my fixed income is $720-plus a month,” she wrote. “Because of the rise in property values I am living very comfortably and could not possibly pay my bills otherwise.”

“Some even factor the monthly payments of the equity line into the equation. My mortgage broker, Michael Simmons, once had a client who took out a $500,000 equity line to pay for her elderly mother’s home care and the monthly payments of the equity line itself.”

“Geoff Caldwell of San Francisco, used an equity line to avoid expensive dormitory fees, by buying a house for his daughter to live in during college.”

Edward Malouf of Novato funded a condo for his son. “We paid all cash for it, and our son made every payment, as agreed,” he explained. “Because of this, we allowed him to keep the appreciation when he sold the condo, so he could buy a larger, three-bedroom one.”

“Equity lines and second mortgages haven’t always played such an integral role in American life. In the old days, taking out a second mortgage or an equity line had a certain stigma attached.
“It meant you were the sort of person who couldn’t pay your bills — that you were living above your means,” Simmons explained. But over the past 20 years, he’s seen things change.”

Indeed, treating the home as a bank has grown naturally out of a sea change in our attitudes about debt. Once, credit cards also carried a stigma; now they are ubiquitous in all classes of society. As more and more people began to pay exorbitant credit card interest rates, equity lines — with their relatively low interest rates — suddenly looked downright practical.

[snip]

“Say you have a house that’s worth $1.3 million. Is it a reasonable expectation that you’ll ever pay it off? Probably not. The most people hope for is that someday they’ll sell it for a profit or leave it to the kids, who might have to sell it but will maybe make a little money.”

[snip]

Ten years ago I was horrified by my parent’s use of our family home as a source of cash, but now I see things differently. Would it have been better to have paid off the house and lived mortgage free? Maybe. But going that route would surely have meant curtailing their choices earlier — never giving their kids college tuition, or working extremely long hours, or having to get corporate jobs instead of working for themselves.

Oh crud… this is what my mortgage broker friend has been telling me for a while. I guess I was all wrong after all.

Click here to post a comment -- Posted by: burbed @ 5:00 am