11.5 Million More Foreclosures? Bring Them On!

Jon Talton over at the Seattle Times pointed me toward an interesting paper by Amherst Securities Group titled The Housing Crisis—Sizing the Problem, Proposing Solutions (pdf).

Here’s their conclusion (emphasis mine):

If governmental policy does not change, over 11.5 million borrowers are in danger of losing their homes (1 borrower out of every 5). Politically, this cannot happen. Successive modification plans will be attempted until something works. The success rate on mortgage modifications can be raised by making greater use of principal reductions. The moral hazard (strategic default issue) must be addressed by first recognizing it as an economic issue, not a moral one. The costs of default must be made explicit. The 2nd lien issue must also be addressed.

However, supply side actions alone will be insufficient to address the housing crisis. Demand side actions are needed: providing leverage for investors to buy real estate, and increasing credit availability on prudent terms to borrowers with less than pristine credit.

I’d like to briefly discuss the ideas proposed in this paper. Even though it isn’t a Seattle-specific topic, I think that proposals like this are worth some print here. Let’s take the sections I emphasized in their conclusions one at a time.

First, let’s talk about the reasoning that is presented for making the dramatic changes suggested. Here’s an excerpt from the first section of the paper:

There are roughly 80 million homes in the US, 55 million of these have a mortgage.

…we conservatively conclude that 11.57 million borrowers are in danger of losing his/her home. That is about 1 out of every 5 borrowers; an impossible number, and one that is politically unfeasible. Moreover, if the resolution of the currently delinquent loans is not handled well, home prices will drop further thus reinforcing the cycle.

When you throw around phrases like “1 out of every 5″ it sounds like you’re talking about really big numbers, but I contend that the “crisis” is not nearly as dramatic as they make it out to be.

According to 2006-2008 data from the US Census Bureau, there are roughly 115 million households in the USA (there are certainly more today, but we’ll use this number for the sake of discussion). If 11.57 million of those households are in danger of foreclosure, we’re talking about 10% of the population. How is allowing something to happen that affects only 10% of the people “politically unfeasible”?

Furthermore, to even arrive at our 10% number, we must assume that every one of the 11.57 million homes in danger of foreclosure is actually owned by a separate borrower. Many, many people took out crazy mortgages during the bubble to buy “investment” properties that they never have and never do intend to live in. This paper assumes a 1:1 relationship between homes and homeowners that is certain not to exist. In reality, 10% is the maximum amount of the population that would be affected if all of these homes were “lost” to foreclosure.

Since over 90% of the people in the country will not be losing their homes, anyone proposing major changes to the way foreclosures are treated is going to have to do better than “Politically, this cannot happen.”

Obviously I don’t think they have made the case that anything needs to be done about this “crisis,” but let’s briefly address some of their proposed “solutions.”

The costs of default must be made explicit.

Here they are suggesting various penalties for strategic defaults, including taxing missed mortgage payments as income. I doubt this would prevent anyone from defaulting, but it might stop them from living rent-free for a couple years, boosting the economy in other ways as they spend the money that they are no longer paying on their mortgage.

…providing leverage for investors to buy real estate…

This is a suggestion for a sort of Public-Private Investment Program (PPIP) in the real estate sector. Because that plan worked so well when we tried it last year. (Hint: No, it didn’t.)

…increasing credit availability on prudent terms to borrowers with less than pristine credit.

Translation: If you play nice with the bank, you get special super-easy financing to get you into another mortgage immediately after you leave your current underwater home. Extending more easy credit to people who have proven that they are not capable of responsibly handling credit. Sounds like a great plan, doesn’t it?

In summary: The growing number of foreclosures is not a “crisis.” It is a necessary market clearing that should be allowed to take place so home prices and sales volumes are allowed to naturally get back to a sustainable, sane level. Furthermore, the solutions proposed in this paper are misguided at best, and would be counter-productive at worst.

  

About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market.

127 comments:

  1. 1
    S. Marty Pantz says:

    “Many, many people took out crazy mortgages during the bubble to buy investment’ properties that they never have and never do intend to live in.”

    For what it’s worth, either during the midst of the bubble, or shortly after it burst nationally, I read a stat that said that about one-third of all real estate purchases made during the bubble were for flips, investment (rentals), and second or vacation homes–not as the primary residence. Yet, every single article or TV piece I see these days on foreclosures is an example of the primary residence.

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  2. 2
    Ben says:

    RE: S. Marty Pantz @ 1 – I wonder if a significant part of the primary residences were actually rentals. There was (maybe still?) a lot of outright faud going on. I do know that many people who bought houses that turned into rentals still claimed homewner exemptions. This is true for many who bought multiple houses as well. This practice was/is widespread and would account for some portion of your data set.

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  3. 3
    Dweezil says:

    Tim references 115 million households from the Census to reach 10%. Am I reading it wrong, or do these households include apartments? I don’t think individual apartments can be foreclosed.

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  4. 4
    EconE says:

    The rent seeking speculating landlords need to be squeezed out of the market once and for all. Homes should be owned by people that live in them and have a vested interest in the community. If realtors preach “community stability” as a reason for buying vs. renting, then why might I ask, do so many of them own rentals?

    You want to collect rent?

    Get a roommate.

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  5. 5

    What’s Missing From the Article Above IMO

    The percent of foreclosed, short sale and/or behind payments units to all listings.

    Nationally, it’s about 50%, but because Seattle’s home prices are so high to afford, I imagine Seattle’s even worse.

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  6. 6
    LA Relo says:

    Let’s recap: “providing leverage for investors to buy real estate”

    Ok, so we combine the loans into credit based traunches, and sell them to Bear Stearns, Lehman Bros, and Merril Lynch. Sound good?

    Then: “increasing credit availability on prudent terms to borrowers with less than pristine credit.”

    I know, how about a loan where a “sub prime” borrower who only has to pay a portion of the interest accrued each period?

    Sound good?

    I look forward to the day when people realize that lower housing costs are a good thing and foreclosures are the only solution to a problem of too many people owning homes they cannot afford.

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  7. 7
    The Tim says:

    While we’re on the subject of foreclosures, this kind of nonsense should result in massive fines for the banks.

    “This is the worst I’ve ever seen it,” says Ira Rheingold, an attorney and executive director of the National Association of Consumer Advocates. Diane Thompson, a lawyer with the National Consumer Law Center, has defended hundreds of foreclosure cases. “In virtually every case, I believe the homeowner was not in default when you looked at the surrounding facts. It is a widespread problem throughout the country.”

    Homeowners in Florida, Nevada, Texas and Pennsylvania have filed lawsuits alleging that they were victims of mistaken foreclosure. In many of those cases, the bank went so far as to haul away belongings and change the locks on the wrong homes.

    One such suit was filed in March by Pennsylvania homeowner Angela Iannelli. She was up to date on her payments when, she says, she arrived home in October 2009 to find that Bank of America had ransacked her belongings, cut off her utilities, poured anti-freeze down her drains, padlocked her doors and confiscated Luke, her pet parrot of 10 years. It took her six weeks to get the bank to clean up the house.

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  8. 8
    James Baker says:

    I find this post lacking in compassion as well as political awareness. Say what you want about the best ways to right the market, but ten million people being kicked out of their homes would *absolutely* be a huge socio-political crisis.

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  9. 9
    joe dirt says:

    It’s true that a lot of the homes at the foreclosure auctions are still clearing out flippers, builders, landord properties etc. And there are buyers for everyone of them at the right price.

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  10. 10
    NumberMonkey says:

    RE: James Baker @ 8 – I dunno, we tolerate 15 million children living in poverty without too much crisis. What makes homeowners so special that their falling on hard times would be a socio-political crisis for the country?

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  11. 11
    Vellebue Renter says:

    By James Baker @ 8:

    I find this post lacking in compassion as well as political awareness. Say what you want about the best ways to right the market, but ten million people being kicked out of their homes would *absolutely* be a huge socio-political crisis.

    Sorry if this sounds a bit insensitive to you but, ever heard of personal responsibility & “You reap what you sow”? Did you ever think it might be grossly irresponsible for those 10 million people to be buying homes in the first place?? Fully knowing that there was a good chance they could not afford it long term, but lied to get into anyway…..and of course expecting the government and tax-paying responsible home-owners and renters to bail them out??

    I’m sorry but I will never be able to own a home, but I dont ask for a handout or feel I am entitled to anything my bank account balance & long-term income says I am not.
    I will never be able to afford a home and its people who think they are “entitled” to things that other people are paying for that are bringing down this society.

    I’ll get off my soapbox now….

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  12. 12
    Ahau says:

    RE: James Baker @ 8 – Maybe I missed something in my reading, but it said there were 11.57 million households at risk, not ten million people. The Tim translates this to 10% of the population, which would be 30 million people losing their homes.

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  13. 13
    Lo Ball Jones says:

    Wow!

    Living in the home town of Microsoft has taught you guys well.

    You propose not allowing the Free Market to do its job, to restrict the right of individuals to use foreclosure and bankruptcy and other legal methods in order to prop up prices.

    Are you sure you’re not one of those “Evil Banksters”. No, you’d say you’re not. Just a simple honest Seattle Nice Guy. Using all the same techniques.

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  14. 14
    The Other Ben says:

    By James Baker @ 7:

    I find this post lacking in compassion as well as political awareness. Say what you want about the best ways to right the market, but ten million people being kicked out of their homes would *absolutely* be a huge socio-political crisis.

    I don’t understand people’s complaints about this – remember that most likely it would just be people *moving* into rental homes. I currently rent, and I’ve moved with my family 4 times in the last 3 years – and our lives haven’t ended. I have a good credit score, but I don’t need it because I don’t plan on borrowing money in the near future. People “losing their homes” is much less of a terrible thing than the wording makes it sound like. If anything it’s a boon for them to have the albatross of all of the debt lifted from them. The real losers are the banks, not the homeowners.

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  15. 15
    LongJohns says:

    RE: Ahau @ 12

    This situation affects more than the 11.57 million households or 30 million people removed from their homes, but the family and friends who will bear the burden of the financially incompetent. Do not overlook the families who already support those who have been left abandoned. It may be their fault yet it will and will continue to be somebody else responsibility to clean up.

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  16. 16
    Julie Lyda says:

    By The Other Ben @ 14:

    The real losers are the banks, not the homeowners.

    You don’t understand the real problem. The real loosers are the pension and retirement funds.

    The banks don’t own these mortgages anymore, they were all securitized and sold as investment CDO’s to pension and retirement fund accounts.

    The banks are only “servicing” the loans. (Collecting the monthly payments for the “investors”.) And making a ton of money in the process in fees.

    The banks have already been paid, they sold the loans.
    The banks got paid again with the bailout.

    Now you and I are going to pay for all this down the road in higher taxes.

    By the way, has everyone checked where their retirement or pension funds are invested? Might be a good idea, since most the Mortgage Back Securities and REIT funds are being downgraded by Moody’s to junk status.

    Oh, and let’s not get started with Moody’s. How in the heck are they still in business?

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  17. 17
    GetAClueByFour says:

    Are you kidding me Tim!

    It’s called Margin compression. If you allow 11 million foreclosures to officially be put on the books and officially recognized by the investment trusts as duds, you will collapse the investment and pension entities that are margined out from this whole ponzi. The reason why this pain isn’t being realized right now, even though most of these homeowners have stopped paying, is because Bernanke and friends are using .gov to cover this up in various ways. Like accounting fraud being allowed and instituted by .gov, taxpayer money through the different a,b,c plans via Bernanke and Geithner, Freddie, Fannie, etc.

    Geez, wont y’all report on the truth and tell it like it is!

    Have no f’n clue why the feds balance sheet continues to increase as well as .gov deficit is 12% of GDP, which come’on now, GDP is already to basically 100% of GDP if you count transfers out of the Social Security and Medicare programs.

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  18. 18
    GetAClueByFour says:

    If i could edit, I meant:
    Debt is already to basically 100% of GDP if you count transfers out of the Social Security and Medicare programs.

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  19. 19
    EastBellevueEtherBinge says:

    RE: James Baker @ 8

    “Their” homes? I suppose just like the government gives us “their” (the government’s) money…

    I know “personal attacks” are taboo but, I want the “other” James Baker! :-)

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  20. 20

    By EconE @ 4:

    The rent seeking speculating landlords need to be squeezed out of the market once and for all. Homes should be owned by people that live in them and have a vested interest in the community. If realtors preach “community stability” as a reason for buying vs. renting, then why might I ask, do so many of them own rentals?

    I used to think this way too. But then I came to the conclusion that there are people who want to live in houses who have either no aptitude or ability to maintain a house. They need to rent, both to protect themselves and their neighbors.

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  21. 21
    NESeattleSeller says:

    RE: The Tim @ 7 – I can’t agree more. Banks that can’t keep track of who owes them money need to be severely punished – as in the executives need to be held personally responsible. It is beyond me why a poor person who takes what doesn’t belong to them and turns another’s life upside down can get prison time, but when a rich person does it through a corporation a simple return of the money (perhaps with interest) is the worst that can happen. If (as our Supreme Court would have it) corporations are people with the right of free speech, why can’t they do prison time?

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  22. 22

    By Ben @ 2:

    RE: S. Marty Pantz @ 1 – I wonder if a significant part of the primary residences were actually rentals. There was (maybe still?) a lot of outright faud going on. I do know that many people who bought houses that turned into rentals still claimed homewner exemptions.

    I’m not sure what you mean by “homeowner exemptions.” There were a lot of people who fraudulently claimed they would reside in the property to get a better interest rate. But as far as income taxes are concerned, it’s better that the property be a rental.

    As I’ve mentioned in the past, I had been seeing a lot more people filing bankruptcy that owned multiple houses. That seems to have slowed, while the percentage of Chapter 7 debtors that own (or owned w/i a year) a single house has seemingly gone up. Most of them bought rather modest homes quite some time ago, and maybe 30-40% had a variable rate. Many, if not most of them are seemingly the “house as an ATM” type.

    I still say the solution is bifurcation of claim (the so-called “cramdown”) in Chapter 13.

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  23. 23
    EconE says:

    Raise your hand if you work In the RE industry and owe less on your home than you paid for it.

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  24. 24
    Scotsman says:

    RE: Julie Lyda @ 16

    Exactly.

    This is a pretty illuminating post topic- it shows the mindset of 20 years ago where the omnipotent nanny state will be able to step in and make everything right at no perceptible cost. And it worked when credit expansion was booming and the concept of payment tomorrow for a burger today was accepted by all. But now that the credit card is maxed out nobody seems to even remember that costs and benefits have been paired for centuries. Now it’s time to pay and everyone is looking for the painless solution that magically disperses costs into thin air instead of plopping them into our collective laps. That solution won’t be found- math doesn’t allow for it. So the next phase will involve the recognition that someone will indeed get stuck with the bill. Then the fun begins- will it be the taxpayers, banks, or home-owners? You can dilute the losses, but you can’t make them vanish. Eventually people will figure it out.

    As an aside, the bond market has been taking quite the dive for the last couple of days. The end of cheap money will be a complicating factor not only for housing, but for the entire economy and government strategy. More than ever, I’m convinced we’re cooked in the end, the only question is when.

    http://www.ft.com/cms/s/0/e550f996-0304-11e0-bb1e-00144feabdc0.html

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  25. 25
    EconE says:

    RE: Scotsman @ 24

    I don’t think that pensions are really the issue. If you think about it, the pensions assumed that the FB’s would be paying off their 6% mortgages in their entirety. Now, the same FB’s are screeching for principal writedowns and/or 4% 30 year fixed mortgages.

    Let’s do the math….and keep it simple.

    A $400,000 mortgage at 4% has a payment of $1909.66 with total interest of $287,478.03

    A $200,000 mortgage at 8% has a payment of $1467.53 with total interest of $328,310.49

    So, if a FB loses their *supposed* $400,000 house, they can ultimately rebuy a similar house for $200,000 and not only will their mortgage pament be lower but the pension funds will get more interest.

    Good luck explaining this to a 6%er however.

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  26. 26
    Scotsman says:

    RE: EconE @ 25

    You have a point, but the increase in interest doesn’t make up for the principle loss. The system as a whole may see some improvement, but certain mortgage holders are going to get stuck with a principle loss. Those payments coming in cover both principle and interest.

    In the long run it probably won’t matter as the pensions are screwed anyway. They were counting on 8+% annual returns from now until hell freezes over, and those rates of return are gone for a long time. They will be lucky if they get half that over time. Plus, many of them, like the Wa state system, have been underfunded even at the 8% rate, let alone at 3-4%. Their people aren’t going to get what they think they have coming, but this will be the last issue to come up.

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  27. 27
    hrpuffinstuff says:

    “Sooner or later a stock (insert asset) trades at its true value.”

    lets get to the true values sooner than later, and be fair to those who called this mess correctly.

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  28. 28
    EconE says:

    RE: Scotsman @ 26

    Yeah. I see what you mean. I still think that the pension issue will be taken care of in the long run. Somehow the system will be manipulated for their advantage. I’d love to see what CALPERS has in their portfolio broken down to the individual stocks etc.

    WRT foreclosures, I know people in CA that have lost their homes and are actually glad they did as they realize that they’ll be able to buy similar homes in the future for far less. They also realize that spending less on a home frees up money to be spent in other areas of the economy.

    There are even homeowners that like the fact that prices are coming down. It’s much easier to upgrade from a $100k home to a $200k home than it is to upgrade from a $400k home to an $800k home.

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  29. 29
    hrpuffinstuff says:

    The pension funds or individuals made a bad choice to invest in MBS. I lose money on investmets quite regularly – part of the game.

    Let the market correct!

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  30. 30
    Julie Lyda says:

    Investors, pensions, retirement accounts and you, the taxpayer will pay.

    “The potential for lender buybacks has not gone unnoticed and it involves not just Fannie Mae and Freddie Mac. The biggest case so far concerns the Maine State Retirement System and other mortgage investors who sued the Bank of America — the successor to Countrywide Financial — claiming that loans worth $352 billion should be bought back at face value. The suit has just been dismissed — but “without prejudice,” meaning it can be re-filed. As a result of the dismissal, says Bank of America, its liability has been reduced to not more than $31 billion — a sum greater than the profits of the entire banking system in the second quarter.”

    “Meanwhile, other claims loom. As examples, the Federal Reserve Bank of New York and several large investors want Bank of America to buy back mortgage-related securities worth $47 billion. On the West coast, the Federal Home Loan Bank of Seattle has sued 11 lenders, seeking buybacks worth $4 billion.”
    http://ht.ly/3bDMA

    Investors are now filings suits for buy backs of these MBS’s. They are “demanding the repurchase of loans that were originated in violation of underwriting guidelines, and compelling the sellers of ineligible or predatory mortgages to bear the costs of modifying them for homeowners or repurchasing them from the Trusts’ collateral pools. ”

    Institutional Holders of Countrywide-Issued RMBS Issue Notice of Non-Performance Identifying Alleged Failures by Master Servicer to Perform Covenants and Agreements in More Than $47 Billion of Countrywide-Issued RMBS

    http://www.prnewswire.com/news-releases/institutional-holders-of-countrywide-issued-rmbs-issue-notice-of-non-performance-identifying-alleged-failures-by-master-servicer-to-perform-covenants-and-agreements-in-more-than-47-billion-of-countrywide-issued-rmbs-105221854.html

    Oh… and we won’t talk about when they open up these can of worms and find the same mortgage resold multiple times to different investors.
    http://www.washingtonsblog.com/2010/10/mortgages-which-can-legally-only-be.html

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  31. 31
    EconE says:

    RE: Julie Lyda @ 30

    Raise your hand if your mortgage is less than the purchase price of your house.

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  32. 32
  33. 33
    David Losh says:

    RE: Julie Lyda @ 30

    I’m liking you people. Your photo looks like something from Leave it to Beaver, but you have hit the nail on the head many times over.

    Yes, you are correct, the houses, the assets, mean nothing to the system that is in place today. The debt is the only thing that matters. The debt is what is being bought, sold, and traded, and no one cares if any one is paying, because people do pay.

    I’m not a lawyer. I’m just a 6%er, but what I know is that this paper Tim is writing about is a bunch of BS. These financial types are scared to death that people will stop paying.

    I haven’t used the term WAKE UP in a long time, but WAKE UP.

    There are already 18 million vacant housing units in the United States if I remember correctly. Another 11 million would just be another drop in the bucket.

    How about you pay cash for your next home?

    How about rather than invest in stocks you make bird houses and sell them for $5? How about washing windows? Do you know what the return is on washing windows? 80%, cash.

    How about you buy a 1977 gas guzzling Cadillac for $500 and when that breaks down you get another one? How about that?

    My point is, if you ever wanted to negotiate debt, now’s the time. Offer your mortgage holder 25%, OK 60%, you drive a hard bargain.

    It’s all a negotiation, and what papers, like the one Tim has posted, try to do is keep you in the game. The goal is to keep you paying as long as possible on properties that are way over priced.

    Well, negotiate yourselves out of debt. If the lenders don’t play ball be prepared with a plan B. I personally like Morocco, as I think I’ve mentioned. Banks there deal in cash, and returns on investment.

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  34. 34
    Ross Jordan says:

    11.57 million homes, whether 10% or 20% of the population, is a big political number. So doing nothing is probably not politically possible. On the other hand, giving free money to some subset of the population who made bad decisions probably won’t be all that popular with the other 80/90%. But I think the author is mostly right that the politicians are going to keep trying things until they find something that sticks. Whether that’s homebuyer tax credits, loan modification, cramdown, loan forgiveness or whatnot will all happen. Frankly, I think the only one that will work politically is inflation (money supply cramup) — because its not a political decision (the Fed doesn’t need to answer to voters). Getting unemployment figures down would also help, but I haven’t heard any proposals from the democrats or republicans that inspire confidence.

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  35. 35
    David Losh says:

    RE: EconE @ 31

    Do you know how I got my current home? Have you looked at my title? Have you looked at the geo tech report, land use, or delineation? Do you have any idea what you are talking about?

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  36. 36
    David Losh says:

    RE: Ross Jordan @ 34

    Oh, you’re under the impression the government will do something. They won’t, they can’t, whatever they do will make no difference what so ever.

    Yes, inflation is the only tool in the shed, but that seems unlikely.

    What Jonness pointed out, which was so true, is that the tax credit spiked the real estate market. Nothing changed, the price of housing spiked up, and is now down again, and will continue to fall.

    So for whatever number of Billions of dollars the federal government spent, they accomplished nothing other than saddling a group of consumers with a debt, and loss of equity. The tax credit buyers, in my opinion, will be the next round of foreclosures.

    That’s why this paper Tim is quoting is so bogus. The barn door is closed. There is nothing to do.

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  37. 37
    Chris says:

    RE: The Tim @ 7

    Tim – here’s a warning from Max Gardner who, along with Ira Ira Rheingold, has been warning of an Enron-like end to securitization and predatory lending for years. This article is from 2005.

    http://www.abanet.org/genpractice/newsletter/lawtrends/0509/business/mortgagesecuritization.html

    Securitization is a complex series of financial transactions designed to maximize the cash flow and cash out options for loan originators. The securitization and sale of assets is what gets the “off the balance sheet” boost in reported income for the originator. The originators secure immediate liquidity from assets that, in some circumstances, could not be readily traded in the capital markets. On paper, it sounds simple, in the real world it involves the creation of numerous Special Purpose Vehicle Corporations (SPV) designed to create the legal impression of an actual BPF sales transaction. However, the residuals, credit enhancements, and other derivative rights retained by the originators in the transferred assets create a Pandora’s Box of problems. A good example is Enron. Enron had enhanced the credit worthiness of thousands of asset-backed securitizations with Enron stock. When the Enron stock tanked so did the securitizations and Enron had to “recognize” all of these “off the books” transactions as liabilities. We know the rest of the story.

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  38. 38
    Macro Investor says:

    By James Baker @ 8:

    I find this post lacking in compassion as well as political awareness. Say what you want about the best ways to right the market, but ten million people being kicked out of their homes would *absolutely* be a huge socio-political crisis.

    Since you’re new here I’ll excuse your arrogant tone just this once. Foreclosure is actually a relief for millions of people under the stress of just scraping by with an investment they never should have gotten into. The typical rental cost of an equivalent Seattle home is between 1/3 to 1/2 less expensive. Many are so far under water they would never make back the equity loss in their entire lives.

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  39. 39
    EconE says:

    RE: David Losh @ 35

    Here’s your quote from June 8, 2007…

    “Now let’s talk about debt. I’ve sold my properties and have a personal residence that I have mortgaged to the hilt.”

    Yes, I do know what I’m talking about.

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  40. 40
    Jonness says:

    “Jon Talton over at the Seattle Times pointed me toward an interesting paper by Amherst Securities Group titled The Housing Crisis—Sizing the Problem, Proposing Solutions”

    The link you provided shows the document has been removed due to copyright infringment. However, I posted a link to this study in one of your threads yesterday, and it works fine.

    http://www.politico.com/static/PPM170_101006_amherst.html

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  41. 41
    Macro Investor says:

    This recession is truly the long haul. The gov and banks are hoping they can hide all the bad paper until the economy grows and makes it all worth face value again. But oil supplies are tight. Any recovery will stretch supplies again and shoot up prices. Peak debt meets peak oil. No quick fix.

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  42. 42
    Scotsman says:

    RE: Julie Lyda @ 30

    I’ll be surprised if BOA survives in its current form. It seems to be at the hub of so many of the problems that keep popping up. Now it’s supposed to be a target of wikileaks. We’ll see.

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  43. 43
    Jonness says:

    By softwarengineer @ 5:

    What’s Missing From the Article Above IMO

    The percent of foreclosed, short sale and/or behind payments units to all listings.

    Nationally, it’s about 50%, but because Seattle’s home prices are so high to afford, I imagine Seattle’s even worse.

    Just for fun, I looked at an REO on a lake today that sold for $540K in 2006 and is currently listed at $340K. Personally, I wouldn’t feel safe paying more than $250K for it. The previous owners used a 0-down 80/20 loan, so it’s no surprise within a couple of years the $3205.00/mo. payment became impossible to keep up on just two years after moving in.

    Examples like this make it obvious area home prices will not stabilize until the homeownership rate adjusts down at or below the historical norm. The amount of credit money available in the buyer pool available to chase assets in the asset pool has dramatically shrunk (banks massively leverage deposits to lend money in times of fat and refuse to lend during periods of high default). To top it off, high unemployment further reduced the amount of money in the buyer pool.

    On the way down the bubble-pop feeding cycle, exists a dangerous (market specific) price threshold. If prices drop below this point, Armageddon sets in, and the feeding cycle begins to eat itself alive. Seattle prices might or might not cross the Armageddon threshold. If they do, people don’t want to have leveraged their next 30 years of paychecks into the game. Otherwise, the $200K dollar loss in the above example will seem like child’s play in comparison.

    It’s one thing to use a 0-down 80/20 loan to buy an overpriced house, but it’s extremely scary when you are using real money you really worked hard for years to save to make a real down payment. Thus, prices will continue to fall until employment substantially increases or the government destroys the dollar.

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  44. 44
    David Losh says:

    RE: EconE @ 39

    You have no idea what you are talking about. How did I get my property?

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  45. 45
    The Tim says:

    RE: Jonness @ 40 – Bummer. It was working when I posted the link this morning. I downloaded the pdf for my own use, but wasn’t going to host it on my site since there was a sternly-worded copyright notice at the end. Thanks for the alternate link. I’ve updated the post.

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  46. 46
    justtalkingre says:

    Commonly I hear folks refer to those loosing their homes are irresponsible and fraudulent liars that manipulated information to get the loans on their homes or investment properties. In working with many folks thru those times, what I observed was a level of trust in the banks and financial industry. The average American trusted the banks as professionals that better understood the industry and had found a way to offer this opportunity and KEEP THEM SAFE. They were wrong, the banks had no intention of keeping them safe. Sadly the American public was duped. So now what?
    Here we sit in Seattle with property values down 30% from 1st Qtr 2007. All of the buyers that worked years to save their 20% down, or the homeowner that had owned the home for years and refinanced to send their kids to college. Now underwater in their homes and years away from breaking even thru no fault of their own.
    Yes, there was a small percent of bad apples, even here in Seattle but that does not fit the average person that may be considering a strategic default. The banks created this now we need them to make a Principle adjustment and relieve some of the burden of these home owners. Hold the appropriate people responsible, the banks, they were the experts and they let us down.

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  47. 47

    By Macro Investor @ 38:

    By James Baker @ 7:
    I find this post lacking in compassion as well as political awareness. Say what you want about the best ways to right the market, but ten million people being kicked out of their homes would *absolutely* be a huge socio-political crisis.

    Since you’re new here I’ll excuse your arrogant tone just this once. Foreclosure is actually a relief for millions of people under the stress of just scraping by with an investment they never should have gotten into. The typical rental cost of an equivalent Seattle home is between 1/3 to 1/2 less expensive. Many are so far under water they would never make back the equity loss in their entire lives.

    I think you’re assuming way more turnover than what there was. In King County the number of SFR houses sold per year peaked at just over 30000 a year. Many of those were repeat sales in different years, so fewer houses sold total than the sum of the yearly numbers. In 2008 and 2009 it was roughly 16,000.

    If I had to guess, the number of people underwater because they used their homes as an ATM is far greater than the number of people underwater because of the time they bought.

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  48. 48

    By Scotsman @ 42:

    RE: Julie Lyda @ 30

    I’ll be surprised if BOA survives in its current form. It seems to be at the hub of so many of the problems that keep popping up. Now it’s supposed to be a target of wikileaks. We’ll see.

    The decision to take over Countrywide was stupid. As I heard it reported, it was largely to gain access to their systems.

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  49. 49

    By Jonness @ 43:

    By softwarengineer @ 5:Examples like this make it obvious area home prices will not stabilize until the homeownership rate adjusts down at or below the historical norm. The amount of credit money available in the buyer pool available to chase assets in the asset pool has dramatically shrunk (banks massively leverage deposits to lend money in times of fat and refuse to lend during periods of high default). To top it off, high unemployment further reduced the amount of money in the buyer pool.
    . . .

    It’s one thing to use a 0-down 80/20 loan to buy an overpriced house, but itâ��s extremely scary when you are using real money you really worked hard for years to save to make a real down payment. Thus, prices will continue to fall until employment substantially increases or the government destroys the dollar.

    Two points on this. First, I think the number of people locked into condos will also be a drag on the market. Unless they can rent them out, they won’t be in the market for a house for years to come.

    Second, it’s much more risky to get an 80/20 than to put money down, unless you put a large amount down. Your exposure is greater with an 80/20 unless you put more than 20 down.

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  50. 50
    ray pepper says:

    So much to say but I will summarize my opinion:

    This is a National Crisis.

    There will be NO stopping the deterioration of Home Prices without Fed Interaction on a MASSIVE level. Prepare yourself friends (Tim) you are about to get REALLY pissed off because it will just to take too long to clear out this inventory on its own.

    People will only remain STUPID for so long and the social acceptance of walking away will be nearing an all time high in the next year or two and that is TOXIC to any Fed Induced Recovery.

    Never pay cash for your home in this environment. Stay VERY liquid and be ready because there will be more GEMS then you and I have ever imagined in the coming years.

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  51. 51

    By justtalkingre @ 46:

    Commonly I hear folks refer to those loosing their homes are irresponsible and fraudulent liars that manipulated information to get the loans on their homes or investment properties. In working with many folks thru those times, what I observed was a level of trust in the banks and financial industry. The average American trusted the banks as professionals that better understood the industry and had found a way to offer this opportunity and KEEP THEM SAFE.

    I’m not sure why anyone would even begin to think that. In my years of bankruptcy practice the only people I remember to trusted their banks were the small business owners who got so tied to one bank it made them very vulnerable.

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  52. 52
    David Losh says:

    RE: justtalkingre @ 46

    Really well said.

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  53. 53
    guest says:

    It is important to note that according to the census, 33% of all households are renter occupied. Therefore, your 10% calculation is way off.

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  54. 54
    Julie Lyda says:

    RE: hrpuffinstuff @ 29

    Actually the pension fund didn’t make bad choices. They were defrauded. Defrauded by the the sellers of the MBEs and Moody’s who rated them AAA, when Moody’s knew they were bad mortgages.

    “The first document everyone should read is by S&P, the largest of the rating agencies. The context of the document is that a professional credit rater has told his superiors that he needs to examine the mortgage loan files to evaluate the risk of a complex financial derivative whose risk and market value depend on the credit quality of the nonprime mortgages “underlying” the derivative. A senior manager sends a blistering reply with this forceful punctuation:

    Any request for loan level tapes is TOTALLY UNREASONABLE!!! Most investors don’t have it and can’t provide it. [W]e MUST produce a credit estimate. It is your responsibility to provide those credit estimates and your responsibility to devise some method for doing so.”

    I suggest you read the below link so you can fully understand the amount of fraud that is involved here.

    http://www.huffingtonpost.com/william-k-black/the-two-documents-everyon_b_169813.html

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  55. 55
    hinten says:

    By NumberMonkey @ 10:

    RE: James Baker @ 8 – I dunno, we tolerate 15 million children living in poverty without too much crisis. What makes homeowners so special that their falling on hard times would be a socio-political crisis for the country?

    Well, one big difference is that those children don’t vote.

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  56. 56
    tomtom says:

    By Julie Lyda @ 54

    Actually the pension fund didn’t make bad choices. They were defrauded. Defrauded by the the sellers of the MBEs and Moody’s who rated them AAA, when Moody’s knew they were bad mortgages.

    The pension funds made bad choices. Just because the used bond salesman knocked on their door with an enthusiastic sales pitch promising enormous riches, the customers don’t have to buy. To quote Bill Nye, “Extraordinary claims require extraordinary evidence.” Trusting the Ratings Agencies who are getting paid by the used bond salesman sounds obviously risky.

    Used bond salesmen are in the same category as used car salesmen, used stock salesmen, and used house salesmen.

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  57. 57
    Dirty_Renter says:

    By tomtom @ 56:

    Used bond salesmen are in the same category as used car salesmen, used stock salesmen, and used house salesmen.

    Hear hear

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  58. 58
    Dirty_Renter says:

    RE: Kary L. Krismer @ 48

    BAC had lent CFC over $2B, as well.
    The Angelo bent The KennyBoy over…..

    That said, BAC will survive.

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  59. 59
    Zipzippytgc says:

    RE: Kary L. Krismer @ 49

    The condo story is coming to roost. For many, condos was the place to wait out the storm, but special assessments and inability to sell are now in full view. Many in condos were the wise and wary, waiting out the housing disaster in low cost housing. But if you cannot get out of such housing and have other issues such as quality of life due to preponderance of renters, it is not low cost.

    Of couse, renting without cash flow is an eventualment recipe for disaster (special assessments, deferred maintenance, club houses closed and heatless will assure that).

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  60. 60
    EconE says:

    Care to bail someone out of their 800k+ cash out?

    http://www.redfin.com/WA/Seattle/1612-38th-Ave-E-98112/home/139439

    I wonder what the owner did for a living?

    REIC perhaps?

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  61. 61
    EconE says:

    RE: Zipzippytgc @ 59

    Many in condos were flippers.

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  62. 62
    Blake says:

    RE: ray pepper @ 50
    Agree… it is a HUGE problem and things are very precarious right now. Not surprised to hear Larry Summers say they MUST pass the $900 tax cut/stimulus now or we’ll have a double dip. He’s often full of hot air, but often right. “We” have to continue to throw money around and bail out everything or everyone until…?? Fact is: If the housing crisis continues as it is the whole system comes crashing down, again. What a mess…

    http://www.project-syndicate.org/commentary/stiglitz131/English
    -snip- The mortgage debacle in the United States has raised deep questions about “the rule of law,” the universally accepted hallmark of an advanced, civilized society.

    With one out of four mortgages in the US under water – more owed than the house is worth – there is a growing consensus that the only way to deal with the mess is to write down the value of the principal (what is owed). America has a special procedure for corporate bankruptcy, called Chapter 11, which allows a speedy restructuring by writing down debt, and converting some of it to equity.
    It is important to keep enterprises alive as going concerns, in order to preserve jobs and growth. But it is also important to keep families and communities intact. America needs a “homeowners’ Chapter 11.”
    (… gotta write it down and clear the books!!)

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  63. 63

    By EconE @ 61:

    RE: Zipzippytgc @ 59

    Many in condos were flippers.

    I didn’t see that a lot locally, although perhaps some of the downtown condos were an exception. Clearly the case in LV and Miami.

    When I wrote my original post on this topic though, I was thinking of younger buyers, planning to buy and then sell a few years down the road.

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  64. 64
    EconE says:

    RE: Kary L. Krismer @ 63

    I followed new construction condos all over Seattle, Bellevue and Kirkland. There were many many flippers.

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  65. 65

    RE: EconE @ 64 – They probably mainly dealt directly with the listing agents. I remember reading a case out of Bellevue where the flippers were the listing agents!

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  66. 66
    David Losh says:

    RE: EconE @ 64RE: EconE @ 61RE: EconE @ 60

    You have no clue what you’re talking about. Keep clicking the Google search.

    I’m a 6%. What do you do?

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  67. 67
    EconE says:

    lol

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  68. 68
    David Losh says:

    RE: EconE @ 67

    Really, what do you do. You seem to think people in my business are out to get you, or working on commish. That’s not the business.

    The business is all numbers. It’s money in, and money out.

    So what’s your business?

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  69. 69

    Interesting that through the course of this thread, I’ve read a conflicting opinion from two of Seattle Bubble’s real estate professionals. David Losh says it’s good to pay cash for a house when possible, and Ray Pepper says it’s good to pay as little cash as possible for a house.
    Hmmm? So which is it?
    If you pay cash for a house it goes down in value and you need to sell, that’s real money you’ve lost. If you put almost nothing down and it goes down in value and you need to get out, you’re not out very much, and may end up living there for an extended period of time without making payments.
    But, if you pay cash for a house, it’s yours. It’s a real house that you really own.Not the bank. And you’ll have no mortgage payments. And if things get really out of hand in society, that house can come in handy, at least as a place to store canned goods and ammo.
    I see both sides, but more agree with David. I’d rather not involve any lender if i could help it.

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  70. 70
    Hugh Dominic says:

    RE: justtalkingre @ 46 – This is just rubbish unless the banks are allowed to fail. Principle reductions, short sales, and foreclosures cause bank losses. Bank losses cause bailouts. Bailouts cause deficits. Deficits cause taxes and dollar devaluation.

    The whole scheme works to push the burdens of the irresponsible onto whoever has money. Bankers, shareholders, and homeowners need to go down hard, and those who did not perpetrate this disaster should be protected as much as possible.

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  71. 71
    Hugh Dominic says:

    RE: James Baker @ 8 – Sorry, I just don’t see a tragedy in this. One time when I was renting, the owners decided not to renew the lease. I had to move. Inconvenient yes, tragic? No way.

    This is the same situation, but even less tragic because these 11 million renters have not even been paying their rent.

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  72. 72
    Jonness says:

    By Kary L. Krismer @ 49:

    =Second, it’s much more risky to get an 80/20 than to put money down, unless you put a large amount down. Your exposure is greater with an 80/20 unless you put more than 20 down.

    I don’t get it. If you put 0 down and the home goes underwater and you lose your job, you live rent free for 2 or 3 years, file bankrupticy, and then walk. But if you put $100K down, you lose $100K. Under scenario A, your exposure is $0. Under scenario B it’s $100K.

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  73. 73
    Jonness says:

    By Ira Sacharoff @ 69:

    But, if you pay cash for a house, it’s yours. It’s a real house that you really own.Not the bank. And you’ll have no mortgage payments. And if things get really out of hand in society, that house can come in handy, at least as a place to store canned goods and ammo.
    I see both sides, but more agree with David. I’d rather not involve any lender if i could help it.

    I think it depends on the economic environment, and a person’s individual financial situation. I came across my cash on hand the old fashioned way (lived frugally, worked hard, scrimped, and saved). This makes it all the harder to place my life savings into an upside bet amidst a declining market where the bottom is not in plain sight. I’m guessing a lot of other people feel the same way.

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  74. 74
    blurtman says:

    RE: tomtom @ 56 – Misrepresenting the risk of securities that you sell is fraud. Even though purchasers of the securities were lazy, and relied too often on the ratings of Moodys and S&P, the investment banks that created these securities and that sold them to pension funds committed fraud by not making accurate disclosures. Recall the wrist slap civil fraud settlement of Goldman Sachs for not disclosing to purchasers that the mortgages in the securities they purchased were placed there by a client who wanted to short the securities. Recall the unprosecuted fraud of Citibank who knew about the lousy mortgages they were buying and selling, and yet not making adequate disclosure about. Richard Bowen, former senior vice-president and business chief underwriter with CitiMortgage Inc., testified:

    “In mid-2006 I discovered that over 60% of these mortgages purchased and sold were defective. Because Citi had given reps and warrants to the investors that the mortgages were not defective, the investors could force Citi to repurchase many billions of dollars of these defective assets. This situation represented a large potential risk to the shareholders of Citigroup.

    “I started issuing warnings in June of 2006 and attempted to get management to address these critical risk issues. These warnings continued through 2007 and went to all levels of the Consumer Lending Group.

    “We continued to purchase and sell to investors even larger volumes of mortgages through 2007. And defective mortgages increased during 2007 to over 80% of production.”

    Robert Rubin knew this was being done on his watch, yet it continued and Rubin is not in jail. Hank Paulson, under whose watch Goldman Sachs committed fraud, was the Secretary of the US Treasury!

    After it became apparent that Moodys and S&P were complicit with investment banks in massive fraud, Bernanke continues to utilize their ridiculous ratings to buy toxic crap from the banks.

    This is the absolute definition of crony capitalism.

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  75. 75
    EconE says:

    RE: Ira Sacharoff @ 69RE: David Losh @ 68

    I see a bunch of agents angry at the banks that take absolutely no responsibility for how they conducted themselves during the bubble. We were browbeaten by Losh (and many others) time and time again. Harangued for being renters. For not OWNING a house. Lowly loser dirty filthy renters.

    But then, I go and research public records.

    What do I find?

    Most of the REIC doesn’t own JACK $HIT other than a big a$$ load of debt.

    Losh telling us to pay cash for a house? LOL!

    Priceless.

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  76. 76
    EconE says:

    RE: blurtman @ 74

    The banks were corrupt. None of the bubble heads deny that. I’d love nothing more than to see them in jail. It doesn’t mean that I want to pay for HELOCed swimming pools and BMWs.

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  77. 77

    By EconE @ 75:

    RE: Ira Sacharoff @ 69RE: David Losh @ 68

    I see a bunch of agents angry at the banks that take absolutely no responsibility for how they conducted themselves during the bubble. We were browbeaten by Losh (and many others) time and time again. Harangued for being renters. For not OWNING a house. Lowly loser dirty filthy renters.

    But then, I go and research public records.

    What do I find?

    Most of the REIC doesn’t own JACK $HIT other than a big a$$ load of debt.

    Losh telling us to pay cash for a house? LOL!

    Priceless.

    I don’t disagree with you. Plenty of folks in the real estate industry are quick to blame others without taking responsibility. Way too many. “Wasn’t me, it was those danged bankers.”
    But I believe in the power of redemption. Every last one of us has done things we’re not especially proud of, and people are capable of change. Simply to dreg up what someone has done in the past to paint what they’re saying now as invalid doesn’t seem fair.
    Maybe Losh now realizes that what he formerly believed and preached was wrong. Lots of people have changed their tunes on all kinds of subjects.
    If someone has been wrong in the past, do you assume that everything they say in the future will also be wrong?

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  78. 78
    David Losh says:

    RE: EconE @ 75

    Again, you have no clue what you are talking about. You haven’t understood a single thing that has been written here.

    Brow beaten? That’s too funny. Isn’t that what you are trying to do here?

    What do you do? How do you make money? How many houses have I paid off? What do I own? What’s my title report say? Land use? How did I get my property?

    What do you actually know?

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  79. 79
    ray pepper says:

    RE: Ira Sacharoff @ 77

    A couple things. Real Estate Agents were simply the pons in the game. Don’t point fingers at them they LOST big time too!

    Ira in a declining asset environment your cash becomes MORE valuable while your fixed assets (home) declines. At 4% use as much of the CHEAP money as you can get while saving as much liquidity as you can. If you have enough cash you can ALWAYS pay off your home but tapping that homes equity will continue to be very difficult as the property continues to decline.

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  80. 80
    David Losh says:

    RE: ray pepper @ 79

    Actually you are the example I was thinking of when I made my comment.

    In Real Estate you can trade up from any property, build a cash reserve, and continue to play with the interest rates, which is true enough a good thing to do. You can pay off at any time.

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  81. 81
    EconE says:

    RE: David Losh @ 78

    What am I misunderstanding?

    I pull public records, I see that you have multiple mortgages on your home and I see no subsequently recorded reconveyance.

    Case closed.

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  82. 82
    David Losh says:

    RE: Hugh Dominic @ 71RE: Jonness @ 72RE: Hugh Dominic @ 70

    I don’t think any of you under stand what has happened. I talk with people from all over the world. The gentleman I was talking to today is from Turkey. Real Estate is booming in Turkey. There are no interest payments there, only return on the investment. In Peru there are mortgages at 60% of the sales price, 40% down.

    In Spain the price of property has quadrupled in 15 years. Many, many properties have mortgages, and 0 down mortgages. It’s the same in Greece, Italy, Germany.

    All of that makes up the $600 Trillion derivatives market, securities, equities, stock market, corporate profits, and cash reserves. Stick a fork in it, the financial markets are done.

    Let’s say you were frugal, and saved your money. Now you’re upset because things are looking really crappy. You waited, and saved, you want prices to come down so your money will mean something. I understand. We work really hard for our money, it’s precious to us.

    So you are sitting on a cash down payment for some dream home. I can tell you from experience that Real Estate is a hard knocks, hard work business, but you can trade up. You’re going to need to trade up.

    You’re going to have to make your money work for you. Yes, I have made money buying and selling gold, paintings, furniture, guns, cars, stone, and clothes. If you think your 401(k) will be there, or Social Security, or any fancy investment instrument, think again.

    I just don’t think the majority of people in the world realize what has happened to money. Money has changed dramatically in the past ten years. You’re really going to have to think in terms of what you can touch, hear, and smell. Your going to need something real.

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  83. 83
    David Losh says:

    RE: EconE @ 81

    So what does that mean? Why do I need to reconvey? What’s the law say about that?

    Do I have to hold title in my name? How did I come by my property?

    What do you actually know?

    And what case is closed? Are you an attorney? What are the terms of my Note? Am I required to make any payments on my Note, or is it just debt against an asset? Who owns my Note as long as we are at it? Who’s the lender, investor?

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  84. 84
    EconE says:

    RE: David Losh @ 83

    Wow. Just…wow.

    1000 more nonsensical words please.

    Rate this comment: Thumb up 0

  85. 85
    zipzippygc says:

    RE: EconE @ 64
    I think you are over estimating condo flippers, except on newer construction during 06-07. This town has always been relatively unaffordable and you have legions of people living in what they could afford – 175K condo mortgage, an 16K car with 10% down, and a 45 minute commute to downtown for their line worker job making just above median. And they are stuck like rust, but actually not bothered too much about it……until those renters who did not get any HOA documents from the third party rent agency slowly change the mores and the special assessments tick up due to lousy inspections, codes and some dues collections issues also ticking up.

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  86. 86
    zipzippygc says:

    RE: David Losh @ 68
    Dangit David L., now I have to ask – what do you do? These inside chats beg the question.

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  87. 87
    David Losh says:

    RE: EconE @ 84

    It’s another pithy comment.

    You don’t get it. You started with your HELOC question after Julie Lydia’s comment . You have gone after other Real Estate agents, like myself, Kary, and now Julie Lydia.

    Julie Lydia has provided you with great information.

    You have provided nothing.

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  88. 88
    David Losh says:

    RE: zipzippygc @ 86

    Sorry.

    The names in blue provide a link. My link connects to my Real Estate web site at http://www.BuyingSeattle.com

    I’m a Real Estate agent with a set of companies that prepare properties for sale.

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  89. 89

    By Ira Sacharoff @ 69:

    Interesting that through the course of this thread, I’ve read a conflicting opinion from two of Seattle Bubble’s real estate professionals. David Losh says it’s good to pay cash for a house when possible, and Ray Pepper says it’s good to pay as little cash as possible for a house.
    Hmmm? So which is it?

    Ignoring who said what, because I don’t think what I’m about to say matches their opinion, it’s better to put as little down if you think prices will increase, and better to pay cash if you think they will stay flat/decrease.

    Ignoring owning a house for stability and control (my reasons), if you’re looking at financial reasons to own a house it’s to get a return. If prices are going to go up, leverage will increase your returns to incredible levels. If prices stay flat/decrease, the only way to get a return out of the house is by living in it and not paying rent.

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  90. 90

    By Jonness @ 72:

    By Kary L. Krismer @ 49:
    =Second, it’s much more risky to get an 80/20 than to put money down, unless you put a large amount down. Your exposure is greater with an 80/20 unless you put more than 20 down.

    I don’t get it. If you put 0 down and the home goes underwater and you lose your job, you live rent free for 2 or 3 years, file bankrupticy, and then walk. But if you put $100K down, you lose $100K. Under scenario A, your exposure is $0. Under scenario B it’s $100K.

    With an 80/20 you’ll likely still owe the second mortgage, so your exposure is the amount of that mortgage. Putting zero down with a single (100%) mortgage would be entirely different.

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  91. 91

    By ray pepper @ 79:

    RE: Ira Sacharoff @ 77 – A couple things. Real Estate Agents were simply the pons in the game. Don’t point fingers at them they LOST big time too!

    Here’s my controversial comment of the day–blaming agents is foolish.

    Agents represent people. Roughly half the parties to transactions they represent are sellers, and want their agent to get higher prices. In doing so, the agent is merely doing their job.

    As to the buyer side, I’m sure there are agents that didn’t hold their clients back well enough, or even didn’t even attempt to do so. But in the end it’s the clients that make the decisions, not the agent. Agents provide advice, they do not make decisions. I’ve mentioned before a client that made three offers over what we suggested was reasonable. Fortunately they didn’t make the fourth. But that was their decision, not mine to make.

    Agents act on behalf of their principles. They are not guardians.

    What you are trying to blame agents for is human nature–a herd mentality that creates bubble type situations. If we were that good at controlling human behavior, there would have been twice as many sales in King County last month.

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  92. 92
    Dirty_Renter says:

    RE: Kary L. Krismer @ 91
    Kary, I think everyone is to blame –
    Buyers
    RE Agents
    Appraisers
    Mortgage Brokers
    CBs
    IBs
    Monolines
    Ratings Agencies
    The Fed
    SEC
    Bank Examiners
    Greedy Pension Funds
    GSEs
    Congress
    Executive Branch

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  93. 93

    RE: Kary L. Krismer @ 91RE: David Losh @ 87RE: ray pepper @ 79

    Ray: So you’re saying agents are not to blame because they were stupider than most people?

    Kary: Certainly agents are not wholly to blame, but we’re supposed to be real estate “experts”, “advisors”, and working in our clients best interests. When sales were falling, inventory rising, and prices dropping in most cities other than Seattle, we were then merely salespeople just doing our clients bidding, shedding our expertise and obligation to look out for our client’s best interests?

    David: I’ve been subject to EconE’s attacks as well. For whatever reason, he never attacks Rhonda Porter, who makes real estate loans, or Jillayne, who teaches real estate.
    I can’t figure him out. He’s a mystery man. Maybe he fancies himself a combination of Wikileaks and The National Enquirer. If you’re a real estate agent and you ever borrowed money, or said something in a drunken stupor, or ever had an affair, or ever smoked a joint, watch out. EconE is spending countless hours delving into public records in an attempt to expose you. That’s his mission.

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  94. 94

    By Ira Sacharoff @ 92:

    Kary: Certainly agents are not wholly to blame, but we’re supposed to be real estate “experts”, “advisors”, and working in our clients best interests. When sales were falling, inventory rising, and prices dropping in most cities other than Seattle, we were then merely salespeople just doing our clients bidding, shedding our expertise and obligation to look out for our client’s best interests?

    I continue to believe real estate agents have no training or ability whatsoever to predict the future, and that doing such is not only not their job, but should be prohibited. As to other cities, some had gone up and down more than once without Seattle having had a blip. If an agent had informed their client about what was happening in the early 80s or early 90s in California cities, would they have done them any service?

    I also continue to believe that a lot of the real abuse wasn’t in the resale market, but the refinance market. Mortgage brokers putting pressure on appraisers to hit a certain number. As I’ve mentioned recently, I see a lot more of that in the recent bankruptcy filings, although part of that might not be pressure on appraisers. For some reason I see BECU as having made a lot or really questionable second loans, and I doubt they were pressuring appraisers (but I don’t know that).

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  95. 95

    RE: Kary L. Krismer @ 94
    So if real estate agents should not make predictions as it’s not their job, don’t some agents have some responsibility for making such statements as ” You’d better make an offer now because you might not be able to afford this house in a year or two”, or ” We’re living in a new paradigm now, real estate is no longer something that’s going to go down in value.”
    I heard these statements from real estate agents, and I’ve heard real estate agents say that to clients.
    Also, don’t clients ever ask you about your opinion on the direction of the market? I do, and I give my opinion. But I make it clear that it’s only my opinion, and that a lot of people who know at least as much as I do disagree with me.

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  96. 96
    ray pepper says:

    RE: Ira Sacharoff @ 93

    I love Econ E’s exposing. I find it quite entertaining! Its all out there on me and I love it!…

    As for Agents being stupider then most? I would just like to comment that I agree with Kary a bit. I never told anyone to buy or sell anything. I was always and will always be a facilitator to a transaction. I assist the seller to buy and sell and guide them through the process. If I get asked if it is a “good deal” I always state the same…”Do YOU think it is a good deal?”

    Until Agents realize this is the scope of their practice the madness will continue.

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  97. 97

    By Ira Sacharoff @ 95:

    RE: Kary L. Krismer @ 94
    So if real estate agents should not make predictions as it’s not their job, don’t some agents have some responsibility for making such statements as ” You’d better make an offer now because you might not be able to afford this house in a year or two”, or ” We’re living in a new paradigm now, real estate is no longer something that’s going to go down in value.”

    I would say those are things that should simply not be said.

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  98. 98

    RE: ray pepper @ 96 – I wouldn’t go that far. A real estate agent should be able to tell if the property is at a good price today relative to other similar properties. What it will be like even a year from now is a different matter.

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  99. 99
    David Losh says:

    RE: ray pepper @ 96

    There are fundamentals in Real Estate, like the 10% rule. It used to be if you put 20% down the property should rent for the mortgage payment. Then interest rates went crazy and it was if you put 10% down at an interest rate of 10%, rent should cover the mortgage payment.

    There are other Real Estate fundamentals that today are suspect. The market place is in disarray, pun intended.

    For me it’s always about the numbers. Will it rent for what you are paying? Is there an up side? Will it sell for more than you are paying today?

    You always talk about Gems so you must have an opinion.

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  100. 100
    EconE says:

    RE: ray pepper @ 96

    Ray…you’re the only agent here that I respect.

    You’ve been the only one that has taken a stance and stood by it. Every other one has either been wishy-washy, manipulative, condescending or bullyish.

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  101. 101
    Jonness says:

    By David Losh @ 82:

    So you are sitting on a cash down payment for some dream home. I can tell you from experience that Real Estate is a hard knocks, hard work business, but you can trade up. You’re going to need to trade up.

    What you say only makes sense in an appreciating market. Unfortunately, we are in a depreciating market, so it doesn’t work that way. Let’s say you traded up in 2007, all you did was lose more money. You say I don’t understand, but the truth is, I do understand. It’s about market cycle timing. You have to know when it’s best to hold cash, when it’s best to hold stocks, when it’s best to hold bonds, when it’s best to hold real estate etc., and how to diversify your risk by not holding too much of any one thing at any point in time.

    Imagine where people in Japan landed after following the “trade up” advice.

    http://www.marketoracle.co.uk/images/2008/japan-house-prices–nov08.gif

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  102. 102
    Jonness says:

    By Kary L. Krismer @ 90:

    With an 80/20 you’ll likely still owe the second mortgage, so your exposure is the amount of that mortgage.

    Perhaps in theory. But in actuality there’s a very good reason the banks no longer offer the 80/20. It’s a LOT more difficult for them to squeeze blood out of a turnip than it is to wipe out a cash downpayment just ripe for the picking.

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  103. 103
    Jonness says:

    By Kary L. Krismer @ 97:

    I would say those are things that should simply not be said.

    Realtors say them all the time. That’s why I would never hire a real estate agent who is also a Realtor (not that all Realtors are unethical, just that the organization they joined is highly suspect IMO). There’s a lot of risk hiring a person who belongs to an organization that purposely goes out of its way to put its salespersons’ best interests ahead of the clients they represent.

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  104. 104
    Jonness says:

    RE: EconE @ 100 – IMO, Ira has remained pretty level headed throughout this ordeal.

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  105. 105
    David Losh says:

    RE: Jonness @ 101

    OK, you got me with the swings in price from the tax credit. That doesn’t change the fact there are some properties worth owning, and paying off.

    That is the point. If you can afford a $400K mortgage, but buy a $200K house, you can pay down the principal balance. If you buy well, you can buy fix, and sell.

    The guy we were working for today is building houses to live in, and rent out behind. In this market. He builds the places himself.

    No matter how you look at the housing market today, you have to think that you will need to pay down the mortgage to get equity.

    I’ve come to the conclusion, from everything I’ve seen, that we will be in a market place of high down payments, or cash transfers of property. What ever you are saving, you’re going to need more.

    Building equity to trade up makes sense to me.

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  106. 106
    David Losh says:

    RE: EconE @ 100

    Give it a rest.

    If you have an opinion then put some thoughts together.

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  107. 107
    EconE says:

    RE: David Losh @ 106

    OK. I have an opinion.

    You squeeze peoples hands too hard when you shake them.

    Why?

    Is it a macho thing?

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  108. 108

    By Jonness @ 104:

    RE: EconE @ 100 – IMO, Ira has remained pretty level headed throughout this ordeal.

    Thanks. I’m the one EconE has bestowed ” wishy washy” upon.
    He could be right, but then again maybe not :)

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  109. 109
    EconE says:

    RE: Ira Sacharoff @ 108

    If you say what you mean you’ll always mean what you say.

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  110. 110
    ray pepper says:

    RE: EconE @ 100

    Thx Econ… In 2006-7 when I started 500 Realty I was bashed incessantly. I loved it and was blamed for single-handedly shutting down the News Tribune Real Estate Blog! Imagine that…It was me and not that people were not buying papers anymore. Reading the commentary here I find very entertaining. Tim’s bashing of old Agents calls I also find equally fun. We MUST laugh at ourselves first, understand our own mistakes, then cautiously laugh at others.

    I always stand behind what I say and Yes, I do tell Buyers when I believe they are purchasing a GEM, but in the last couple years I only said that a few times to “retail” Buyers.

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  111. 111
    ray pepper says:

    RE: Ira Sacharoff @ 108

    Absolutely love this:

    “Thanks. I’m the one EconE has bestowed ” wishy washy” upon.
    He could be right, but then again maybe not :)”

    Just came home from Monthly Claim Jumper Night and my laughing caused a bit of unsettling of the Gold Rush Chicken.

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  112. 112
    mwh says:

    RE: S. Marty Pantz @ 1 – dunno if your stat is right — it sounds inflated to me (in the interest of being factual, I’d love to see a cite for that “fact”). but just the sake of argument, let’s assume it’s true: that would mean that two-thirds of mortgages were on primary residences. Even based on your own (probably inflated) figure that means that the VAST MAJORITY OF LOANS WE’RE TALKING ABOUT INVOLVE PRIMARY RESIDENCES.

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  113. 113

    By Jonness @ 101:

    By David Losh @ 82:
    So you are sitting on a cash down payment for some dream home. I can tell you from experience that Real Estate is a hard knocks, hard work business, but you can trade up. You’re going to need to trade up.

    What you say only makes sense in an appreciating market. Unfortunately, we are in a depreciating market, so it doesn’t work that way. Let’s say you traded up in 2007, all you did was lose more money.

    That type of argument makes more sense with stocks or something else you can easily pick the entry and exit points on, and which doing so does not otherwise affect your life.

    Imagine that if Chase had so many foreclosed houses that they were able to offer stockholders subsidized rent on houses. Assuming you would take advantage of that, would you get into and out of your investment in Chase the same as if you weren’t taking advantage of that?

    The point is simply that where you live is not first and foremost an investment decision.

    I’d also point out that your planned exit point could also make short term trends irrelevant.

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  114. 114

    By Jonness @ 102:

    By Kary L. Krismer @ 90:
    With an 80/20 you’ll likely still owe the second mortgage, so your exposure is the amount of that mortgage.

    Perhaps in theory. But in actuality there’s a very good reason the banks no longer offer the 80/20. It’s a LOT more difficult for them to squeeze blood out of a turnip than it is to wipe out a cash downpayment just ripe for the picking.

    I suspect the reason there are few or any 80/20s is that it’s difficult to sell the 20. Investors have wised up that “secured by real estate” does not mean safe. That’s something I’ve known for over 25 years, but apparently that’s not on the curriculum for earning a MBA degree.

    As to the individual borrower though, when you’re doing your planning you have to assume that they will come after you. The same is true of short sellers who don’t get a release. The most likely way they’ll come after you may be the same as on credit card debt. They’ll sell the debt to a collection agency. Your exposure is likely to last for six years, at least if Washington law is applicable, it could be longer.

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  115. 115

    By Jonness @ 103:

    By Kary L. Krismer @ 97:
    I would say those are things that should simply not be said.

    Realtors say them all the time. That’s why I would never hire a real estate agent who is also a Realtor (not that all Realtors are unethical, just that the organization they joined is highly suspect IMO). There’s a lot of risk hiring a person who belongs to an organization that purposely goes out of its way to put its salespersons’ best interests ahead of the clients they represent.

    I suspect a lot of this is due to your not fully understanding the different “Realtor” entities. If you were familiar with them you’d probably have the most problem with NAR, less with WR and less with SKCAR (or whatever your local is), unless perhaps you’re anti-development in general, in which case you’d hate all three. To join one you typically have to join all three.

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  116. 116
    Jonness says:

    By Kary L. Krismer @ 115:

    To join one you typically have to join all three.

    Therein lies the problem.

    “The National Association is the proud owner of numerous marks including but not limited to the terms REALTOR®, REALTOR-ASSOCIATE®, REALTORS®, the REALTOR® Logo and the Block “R” mark (which may be referred to collectively as the “MARKS”).

    The Marks are collective membership marks which serve to identify Members of the National Association and distinguish them from non-members*. Since 1916, when the unique term REALTOR® was first “coined” or “invented”, the public has come to recognize those who use the MARKS as Members of the NATIONAL ASSOCIATION OF REALTORS® and, as such, providers of real estate related services consistent with a strict Code of Ethics and the highest standards of professionalism. Member Boards**, through their use of the MARKS, are recognized as Member organizations.

    Members are licensed by the National Association to use one or more of the MARKS in connection with or in reference to themselves and their real estate businesses.

    Member Boards are licensed to use the term REALTORS® as part of their name, or in the title of their publication, and to use the REALTOR® Logo in connection with their name. Member Boards may also be licensed to use the Block “R” mark in connection with a Member Board logo.”

    http://www.realtor.org/letterlw.nsf/pages/mmmPartOne#OneI

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  117. 117

    RE: Jonness @ 116 – Note that the NWMLS is not a Realtor owned entity.

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  118. 118

    RE: Jonness @ 116
    As an agent, when you affiliate with a brokerage, those brokerages which are members of the Realtors group require you become a Realtor, and that includes all the ” big boys” like John L Scott and Windermere. These brokerages devote a lot of energy to see that their agents do things their way in order to become successful. But in addition to paying your brokerage beaucoup bucks, you then have to pay the Realtor group beaucoup bucks.
    It’s not so much by principle that I’ve chosen to not affiliate with a Realtor brokerage. It’s more that I’m cheap.
    The brokerage I’m affiliated with leaves me alone, lets me do my thing, and charges me almost nothing. I just can’t see myself being a cheerleader and being told to parrot BS lines in order to make sales.

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  119. 119
    Jonness says:

    By Kary L. Krismer @ 113:

    That type of argument makes more sense with stocks or something else you can easily pick the entry and exit points on, and which doing so does not otherwise affect your life.

    IMO, it’s much more important to live within your means than it is to get a perfect top or bottom pick of the housing cycle. In fact, just remaining aware of the direction of the overall trend is all a person really needs to do to protect him or herself. If you miss by 5%, it’s not a back breaker.

    I don’t see why picking the overall price trend in houses is supposedly difficult as long as a person manages the risk. Buying when prices are going down is a sucker’s bet. It’s much better to wait until a period of economic recovery begins, and this is easily recognizable by consistent meaningful gains in employment. Even if the market finds a bottom in the meantime and stabilizes, the typical homebuyer is better off waiting, because ongoing appreciation will not be eating into their down payments as they continue to save. Once prices begin to rise again (without government gimmicks), buyers can feel safe their dreamhouse will not turn into an economic prison trapping them underwater and unable to migrate if need be.

    The difference between living comfortably and living in a debt nightmare can be due to as little as a mere $100K dollars of debt overextension beyond what the income can support. Obvioulsy, this makes leveraging into a declining market unadvisable for most people. In addition, people should be extremely leery of buying into a highly volatile market. What makes bottom-picking so dangerous is not the fact the person might buy too late and miss the bottom, as the person has bought into an appreciating asset despite where the previous bottom was. The real danger is in buying too early and having the market collapse beneath you. So people should keep an eye on unemployment, as it is the true gauge of the health of our economy.

    The housing market will eventually heal, and RE will once again be a hot item. It’s just that it is going to take a period of years for this to occur.

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  120. 120

    By Jonness @ 119:

    By Kary L. Krismer @ 113:
    That type of argument makes more sense with stocks or something else you can easily pick the entry and exit points on, and which doing so does not otherwise affect your life.

    IMO, it’s much more important to live within your means than it is to get a perfect top or bottom pick of the housing cycle. In fact, just remaining aware of the direction of the overall trend is all a person really needs to do to protect him or herself. If you miss by 5%, it’s not a back breaker.
    . . .
    The housing market will eventually heal, and RE will once again be a hot item. It’s just that it is going to take a period of years for this to occur.

    I would agree with the first part. No matter when you buy, you should buy well within your means. Part of the problem prior to the 2007 mortgage crisis was that banks were willing to make too large of loans to people. That’s improved some.

    Buying when the market is “hot” has disadvantages, mainly needing to act quickly when a good house does come on the market.

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  121. 121
    David Losh says:

    RE: EconE @ 107

    Again you have no clue what you’re talking about.

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  122. 122
    David Losh says:

    RE: Jonness @ 119

    Real Estate isn’t an appreciating or depreciating asset. It keeps pace with inflation, it is a hedge against inflation. Real Estate stays constant according to the value of present and future dollars. If the price of gas, bread, education, and health care goes up so does the price of Real Estate. Commercial Real Estate keeps up with what the market will bear, it’s all rental income.

    To build equity you pay down the principal.

    The problem we have today is that we never had inflation, and the inflation we thought we had was actually a credit bubble. I personally never knew what a credit bubble was, or could be. I never saw debt as a security to financial instruments. The whole economy is just a house of cards.

    So what I was saying before, and will say again is there is a lot of opportunity today if you are willing to risk. If you continue to hold, or worse, turn your money over to stocks, bonds, or banks, I think you will lose.

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  123. 123
    Agents Ranking Real Estate Agents says:

    You’ve got to wonder if the government has any idea what they’re doing here. The administration is talking about eliminating home owners ability to deduct their mortgage interest and we’ve got people buying homes using FHA with 2.5% down. They’re making it too easy for people who are under qualified to get into homes and at the same time they’re talking about eliminating a major incentive to home ownership.

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  124. 124

    RE: Agents Ranking Real Estate Agents @ 123 – They’re not going to eliminate the deduction without also reducing rates. So whether you win or lose will depend on the size of your mortgage (or if you have none at all).

    Presumably the people with the larger mortgages will be better able to absorb the loss, unless their mortgage was through WAMU, Countrywide, Indymac, etc. ;-)

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  125. 125
    doug says:

    RE: Agents Ranking Real Estate Agents @ 123

    The deficit reduction council (the only political entity to advocate the elimination of the mortgage interest tax break) does NOT speak for the administration. No one in the adminsitration is ‘talking about eliminating’ that tax break, to my knowledge.

    If you want to know how seriously the administration wants to reduce the deficit, look at the tax deal passing right now.

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  126. 126
    Ione says:

    Tim, you are wrong on the number of homes that will be in foreclousre by 2013. The number is closer to 33.1 million homes that will be foreclosed upon. We already have about 10 million people who have lost home on the last 3 years. They are living in tents, sewer drains of Las Vegas, on the banks of the Sacramento River. As for your estimate of how many home in the United States have mortgages if you used the Case-Schiller index you are way off the mark. Look Seattle is in denial just like New York was 2 years ago. I know the parking lots of shopping malls are constantly packed, bars are seemingly packed as well; but when all of that credit runs out and they can’t pay the bills next year, it will be a different story. As for strategic defaults— Seattle is rift with them. We probably are the Strategic Default capitol of the United States. Get you facts right

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  127. 127

    […] 11.5 Million More Foreclosures? Bring Them On! – 12/08, 126 comments […]

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