Wealthy May Be Next In U.S. Home Crisis

[n2nh]

Quote[/b] ]"The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it," said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A "prime" borrower is one with good credit.

Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans.

"For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost," said Chicago-based real estate agent Marki Lemons.

* LINK * (http://www.reuters.com/articlePrint?articleId=USN1530426720080117)

[kg6amw]

Quote[/b] (n2nh @ Jan. 17 2008,03:26)]Quote[/b] ]"The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it," said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A "prime" borrower is one with good credit.

Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans.

"For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost," said Chicago-based real estate agent Marki Lemons.

* LINK * (http://www.reuters.com/articlePrint?articleId=USN1530426720080117)
I don't feel sorry for any of them. As a former banker I suspected that greed and poor judgment had over taken senior management of many banks and brokerage houses. Coupled with this is inordinate number of people driving around in very expensive cars while I drove an old domestic added to my suspicion. Now what they all need is about 4-8 years of suffering and regret and maybe, just maybe some wisdom and character might seep in, although I doubt it.

[nx6d]

Quote[/b] (n2nh @ Jan. 17 2008,02:26)]Quote[/b] ]"The next wave of problems will come from prime borrowers who bought too much house or borrowed too much against it," said Michael van Zalingen, director of home ownership services at Neighborhood Housing Services of Chicago. A "prime" borrower is one with good credit.

Real estate agents warn that some high-income borrowers have already been forced to sell or leave their homes and more will follow. Especially those who used their homes as ATMs, withdrawing cash via home equity loans.

"For those who utilized home equity loans for five to ten years to finance their lifestyle, the chickens are coming home to roost," said Chicago-based real estate agent Marki Lemons.

* LINK * (http://www.reuters.com/articlePrint?articleId=USN1530426720080117)
It's not just "the rich" that are going to be in trouble.

When I lived in the Bay Area, there were many middle class people who were "equity rich" that refinanced and bought rentals with the expectation the rentals would appreciate. Most were renting for less than the mortgage amounts, even in the good times.

Some of the those people, while maybe not on the forclosure bubble, surely have lost the equity they had in their main residences because the rental property market is dead with lots of deflation in prices.

Dave NX6D
Modoc County, CA

[N2RJ]

Exactly right, Dave.

Also, why do people assume that "prime" means "rich?"

We have a $500k house, but we are not rich.

[KG6WOU]

Quote[/b] (N2RJ @ Jan. 17 2008,09:36)]Exactly right, Dave.

Also, why do people assume that "prime" means "rich?"

We have a $500k house, but we are not rich.
Got that right.

We are house poor, although that will be good in a downturn, since we are paid for....but we can't be bailed out! WHERE DID I FAIL?http://www.qrz.com/iB_html/non-cgi/emoticons/rock.gif?

There are quite a few people I know around here who have financed their lifestyle with their home equity. I'm not going to be losing sleep over them. Some of them have plenty of income, but it's never enough to keep up with the Joneses' around here. If you get caught in that game, shame on you.

Gambling is gambling, be it on the come, the appreciation of a home or drawing to an inside straight.

[W1GUH]

There was a time when a few of my colleagues were taking business courses, and it seems that every one them were taught that the following is the way to get rich.

1) Buy a house
2) Wait while it appreciates in value
3) Take that equity and buy a rental house
4) Repeat steps 2 & 3 and eventually you're wealthy.

I wonder if they're still teaching that in b school?

[ab1ga]

We all may be richer than we think we are.

The most recent data available on Wikipedia is for 2006, which has median income in the US at about $48,000 per household. New Jersey had the highest median income in 2006 at $66-67,000 per household.

In 2006, if you were part of a household making $100,000 or more, you were in the top 15%.

To me that's wealthy. Lots of people may consider this to be middle class, but when you look at the definitions used to defines "class" in the US, you'll notice that people in the 98th percentile of household income are considered "upper middle class."

One obstacle to simple statistical analysis is that the distribution is bimodal. One peak is over $100k, the other is in the high teens.

BTW, the household income number is tabulated using pre-tax income from all members in the household. If you look at personal income, then 7% of individuals earn six-figure salaries or better.

We may think we're doing lousy, but there are many who would give their eye teeth to swap with us.

[KC2ESD]

Well thank God my house is paid off a long time ago by my folks. I been thinking of taking a home equitly loan out to fix up the house such as new windows but with the economy and the "R" word in the news I'm going to hold off getting a loan for now and just fix up the house when time and money allow. I don't want to lose the house if I get laid off for some reason. Don't worry though, the weeds will be still removed from the driveway.

73 de Rick KC2ESD

[KD6NIG]

The other thing I never understood was the fact that people would sign a loan agreement for hundreds of thousands of dollars....

And wouldn't apparrantly even take the time to read it!

A lot of these people are caught in these so called "flex" loans where after 5 years or a change in the prime rate, they suddenly find themselves paying 2, even 3 times what they were when they started. And they all seem to have the same mantra... "we didn't know it would do that!"

So either people don't read, the Banks don't point it out to them, or they don't know basic math.

Probably all 3. I had a buddy of mine who was going to go for one of those loans. He did want to do it right-he was only going to take out enough to pay off all his credit cards and other obligations, plus $1000 to take a trip. He had it computed down to the penny. He intended to go cash only and only have his regular non-credit card bills and his house payment every month.

He decided against it when I pointed out to him that there was NO WAY he could pay $1000 a month on a $300k 30 year loan and have paid back $300k to the bank.

He couldn't figure it out, and the bank didn't say anything but "sign here" but he was smart enough to at least take the papers home for 24 hours to review. He showed them to me and told me about the great deal he was getting.

I then showed him page 8-entitled "VARIABLE RATE AND ADJUSTED PAYMENTS AFTER INITIAL 5-YEAR TERM". He about went white when he realized how much his payments would increase, even if the interest rate stayed the same.

He decided against it.

But I don't feel sorry for anyone who didn't read the fine print. As for those who got the loans, paid off credit cards, then re-ran them up, and paid them off again the next year and kept the cycle going till suddenly the house value dropped....

Doesn't anyone read anything before they sign it anymore?

I know when I bought my last car the salesman told me my payment: $412/mo. I then looked at the loan document I was about to sign and it indicated $416/mo.

Sure, its 4 bucks. Sure, it turns out it was because my wife wanted the better stereo system and the salesman forgot to figure that in. But you can bet I noticed, and you can bet I didn't sign it till my questions were answered to my satisfaction.

I don't get how people can just randomly sign their life away for hundreds of thou without having a single question about anything within said document!

[K5FH]

Quote[/b] (KG6WOU @ Jan. 17 2008,10:38)]There are quite a few people I know around here who have financed their lifestyle with their home equity. #I'm not going to be losing sleep over them. #Some of them have plenty of income, but it's never enough to keep up with the Joneses' around here. #If you get caught in that game, shame on you.
See, that's the problem. #Never try to keep up with the Joneses. #Drag them down to your level instead...it's a lot cheaper.

[N7RJD]

Quote[/b] (W1GUH @ Jan. 17 2008,04:04)]There was a time when a few of my colleagues were taking business courses, and it seems that every one them were taught that the following is the way to get rich.

1) Buy a house
2) Wait while it appreciates in value
3) Take that equity and buy a rental house
4) Repeat steps 2 & 3 and eventually you're wealthy.

I wonder if they're still teaching that in b school?
Like Monopoly, you have to put up houses before hotels and build evenly and slowly as you can afford it.

Problem being that many, whether led astray or gone astray on their own, tried to change this method for the quick kill. They put up hotels right away and hawked everything they owned and would own for the next X number of years to pay for it. Now they are selling their hotels back to the banker for half of what they paid for them and hoping to make it past GO! a couple of times and pick up the pieces. What they are running into is having to pay rent to those they cross along the way and by the time they see GO! again they collect $200 for every $1000 it is costing them to get there.

Seems to me I heard once that Monopoly was created around the time of the Great Depression. One would assume the rules would then be defined by current events of the time to a certain extent. Could it be that while the Great Depression defined Monopoly so many years ago that Monopoly is now defining what will come next?

Yes this is all over simplified but it sure does sound familiar, doesn't it?

[KG4JYD]

Ron Paul discuses this here:
http://ronpaullibrary.org/document.php?id=504


and here:
http://ronpaullibrary.org/document.php?id=622

[N7RJD]

Quote[/b] (KG4JYD @ Jan. 17 2008,10:55)]Ron Paul discuses this here:
http://ronpaullibrary.org/document.php?id=504


and here:
http://ronpaullibrary.org/document.php?id=622
It is also discussed in depth Here (http://richard_wilding.tripod.com/monorules.htm) and without the political spin.

[nx6d]

Quote[/b] (KC2ESD @ Jan. 17 2008,13:50)]Well thank God my house is paid off a long time ago by my folks. I been thinking of taking a home equitly loan out to fix up the house such as new windows but with the economy and the "R" word in the news I'm going to hold off getting a loan for now and just fix up the house when time and money allow. I don't want to lose the house if I get laid off for some reason. Don't worry though, the weeds will be still removed from the driveway.

73 de Rick KC2ESD
Hey,

I thought you left RagChew, station.

What gives?

[KG4JYD]

Quote[/b] (n7rjd @ Jan. 17 2008,18:05)]and without the political spin.
I think you fail to realize that in this era of big government economics and politics are intertwined.

If we get someone like Ron Paul in office and get the government out of the free market, then they won't be intertwined.