links for 2009-10-22

  • Definition of "moral hazard": exhibit A. (No, this isn't an old article during the subprime crisis. These loans are still happening.)
  • "Jobless recovery" is an oxymoron. If 70% of the economy depends on consumer spending, how does spending continue if jobs continue to fall?
  • Here's a basic supply and demand scenario. Foreclosures are being held off the market by Banksters (in order not to cause another collapse), credit is tightening, and people without jobs can't make adjusted mortgage payments let alone new ones, how is the following not blazingly obvious?: "If you thought home prices were bottoming out, you may be wrong. They're expected to head a lot lower." So here's the question: Why has the media avoided reporting what 1,000 bloggers have proven for over a year as obvious? And further, what else might they be lying to you about?
  • Does everyone understand that Congress is giving taxpayer money to the Banksters at little to no cost so that they can make billions off of our own money and do this to us?: "You may believe that your exemplary behavior shields you from unexpected credit card fees. Sadly, that is no longer the case. Starting next year, Bank of America will charge a small number of customers an annual fee, ranging from $29 to $99…But card holders who have never carried a balance or paid late fees could be among those affected." Boycott all the TARP banks. Move your money and use cash and credit unions. Stick it to them and get out of debt. (It's really a nice idea even if you're not mad.)

13 Responses to “links for 2009-10-22”

  1. 1
    Amy Scott

    There is a follow up on the first link.

    The Story Of 21 Year Old With The Underwater FHA Loan Is Even Worse Than You Think

    A few days ago we told the story of Denise Tejada, the 21 year old California woman who bought a house with an FHA backed loan with almost no money down.

    Readers were outraged.

    And rightfully so. It’s our money on the line and it is simply outrageous that our government is still encouraging these kind of loans to be made. Even if Tejada pays off her loan in full, it was an insane gamble on our behalf to have the government back her loan.

    But as it turns out, the gamble was even more insane that we originally reported.

    Scott Jagow, who writes the Scratch Pad blog for American Public Radio’s Market Place, explains:

    Denise got an FHA loan to buy her home for $155,000. She took out a second loan (called a 203-K loan) to refurbish the place. The total loan amount is about $183,000. She says, “In total, I gave the bank $5,087 + $1,500 which were all deposit and closing costs.”

    So her “down payment” was no more than 4% of the value of the home when she bought it. She will get all of that back and then some with the first-time home buyer tax credit.

    In other words, thanks to the various government tax breaks, Denise put absolutely no money down on her home. If she has to default on her mortgage, she’ll lose nothing except her credit rating. Of course, since she’s only 21 years old, there’s plenty of time to recover from that.

    How is the FHA still engaged in promoting this kind of lending? Barney Frank has explained that expanding home ownership is the policy of the United States. Now, more than ever, the government wants to promote home buying to prop up the great American home ownership scheme. If people like Tejada can’t buy a home with no money down, then the recession wins.

    Don’t you feel awesome for helping Tejada achieve the American dream?

  2. 2
    April C.

    Oh goody! I love these links, thanks. Because of your blog, which I stumbled upon a few years ago, I think?, I have found Glenn Beck and Mommylife and now my head is exploding from knowledge! But it’s good, no worries.

  3. 3

    Amy wrote:

    “Why has the media avoided reporting what 1,000 bloggers have proven for over a year as obvious? And further, what else might they be lying to you about?”

    And this, to me, is the biggest issue this country faces because it encompasses EVERYTHING. No one trusts anyone in authority any longer. It has (almost) become my default mode to assume everyone is lying to me – media, government, banks,etc. It doesn’t matter. It is easier (and more accurate) to believe that they are lying to me for their own crooked ends rather than doing what is true and right.

    And the government wonders why 50% of the people in this country won’t take the H1V1 flu vaccine? Maybe because we don’t trust them to tell us the truth in any other area of life.

    I sound like a cynical middle-aged woman. Yeesh.

    I have to come over here and rant now, Amy, because I’ve basically given up on writing this kind of stuff on my own blog. Hope you don’t mind! LOL! :-)

  4. 4
    Misty

    I wanted to comment on the first
    link. We know a boy who last year, at 18 years old, paid cash for a house. He earned the money and is working to fix it up. It is also encouraging because he is chosing to live at home while he goes to college and rent the house to seminary students. Just thought I’d give a happier story…we don’t hear these much:)

  5. 5
    Imajackson

    The crazy banking choices are the main reason I have kept my money with a credit union for many years. Banks want to make money for shareholders and credit unions (by and large) are accountable and PAYABLE to the folks who join them as members. It’s a fundamental shift in thinking from the ground up.

  6. 6

    The willful blindness of our Congressional “leaders” , the complicity of the media, and the ignorant complacency of an American public totally oblivious to the fact that we are staring into the financial abyss is maddening.

    If I hear the words “jobless recovery” again, I think I’ll throw a hammer through the TV and run outside screaming. Are we REALLY so dumb?

    Thank you, Amy for doing your small part to keep us aware.

  7. 7
    Amy Scott

    More from Karl Denniger today:

    I am hearing repeated anecdotes from multiple areas that foreclosed property held by banks with multiple full-price offers that include a financing requirement are being sold instead to people with actual cash at radical reductions from that price. This implies that these financing contingencies are regarded as not only potentially no good but factually no good, as if the banks know for a fact that the credit pipeline will (not might), within weeks or months (in the time required to close), disappear. There is no other rational explanation for this behavior.

  8. 8

    If they are paying off their loan, I would much rather see people who buy a house and pay it off rather than wasting money and resources on expensive rent.

  9. 9

    I’m ticked that my Chase credit card is going to start charging a $30 annual fee next year. Thing is, the 3% it pays on gas and groceries (and 1% everywhere else) is hard to turn down. I’ve done the math and even with the fee I’m still better off keeping it – but I’m debating whether or not to just on principle …

  10. 10
    Jan Dillah

    I too believe in home ownership. However, we have gone too far in believing that rent is always an expensive waste of money. If you don’t have 10% to put down and at least 3 months of expenses saved in an emergency fund, that house is more likely to be a curse and not a blessing.

    Rent used to seem expensive when the cost of rent made a house payment in a market that saw double digit appreciation. Even after this market stabilizes (which is a several years away in my opinion), that sort of appreciation is unlikely to recurr (except as a function of high inflation).

    While many people in my industry (CPA) saw the problem and knew that there would be a correction in the housing market, I have to admire a man I met at a conference who sold his home in 2004. He cashed out and found a condo to rent. He will sell his practice this year and move to warmer climes. Because he wants to understand the local housing market and find a deal, he plans to rent in the new location for a year or so.

    We purchased our home in 95 before things got really crazy. We bought appliances, built a deck, painted several times, put in a yard and a garden shed. Our home is worth about 10% less than what we paid for it before improvements. I am not complaining about not seeing huge returns. I enjoy our home and I am thankful for it. However, the correlation between home ownership and wealth building came from the need for prudence and self dicipline as much as home appreciation. When the govt misread that relationship and removed the need for prudence and self dicipline they also removed the opportunity to give folks those wealth building tools.

    Last note, i have worked in public accounting for 20 years. Over the last 6 I have done a great deal of financial counseling. Too often I have had to have difficult conversations with single or widowed women who have put their home above reason. They cannot afford to keep it, they are unwilling to sell it, they cannot bring themselves to cut costs by sharing it. It is idolatry.

  11. 11

    Two more things.

    BANK FINANCING
    I was called on to verify employment for someone who is in the process of refinancing their home. She works part time and makes 1/10 what her husband makes. The home has more than 50% equity and they are not taking out any cash. They live frugally and their credit is sterling.

    When the underwriter LOST the information the first time, she called me back to go through the process again. I insisted that she send me an email so that we could both have verification of the conversation. At that point she admitted that this income wasn’t really an issue in approving the loan.

    HOMEOWNER PSYCHOLOGY
    Here in southeast Michigan, I am hearing stories of homeowners who are upside down on their current home. They have been making the payments, but now realize that they can trade up to a “nicer” home for the same or for LESS money. I don’t know how they pull off getting the second home and walking away from the first. I also disagree with them about walking away from their obligation on the first home. However, I do understand that when there is no moral compass, why that strategy seems so appealing.

  12. 12

    Also, though if you cannot afford to rent and there are grants available for a down payment as part of a Rural development loan process, which you never have to pay back if you stay in the house 30+ years, how is that different than what the homesteaders did way back when?
    For us here to rent a 4 bedroom house with a family of 6, our rent payments would be over $1400 a month. We could easily live in a smaller house, but getting someone to rent to you with 4 children a smaller house, you would blessed to get into a three bedroom…..and then it may be an apt with no yard and close neighbors and still pay at least $900 monthly. With a grant and rural development loan people are able to pay much less than rent and if they stay in the home and do not move around all the time, they give to the economy and build up local growth and economy.

    Many people here in a downtrodden local economy have been able to do that here and it helps people to save money as money they would be putting towards rent, now can be paid on their loan if they have extra or put into the community as well as being able to buy homes for people who would never be able to otherwise like disabled people who live on disability, single parents, and first time home buyers who are below poverty level and no chance of getting above it even though family works hard.

  13. 13

    Homesteaders didn’t take money from others in order to subsidize their homestead. They took their own money and sweat equity and invested in a piece of low cost property. The government sought to develop the property by giving homesteaders an opportunity NOT a handout.

    This is NOT the same as what we do today. We take folks and put them in homes they cannot afford, either by taking money through taxes from other folks OR by forcing banks to give loans they wouldn’t otherwise lend. Since the government is broke what we are really saying is that we want to live in a nicer home than we can afford and we are ok with running our children and grandchildren into financial ruin to meet our own needs. This is selfish and immoral.

    The economy is rough, not doubt about it. But the reality today is that we have come to expect a standard of living we cannot afford. We expect an average home to be around 2400 sq ft when in 1970 we were content with 1400 sq ft.

    Home ownership costs more than the monthly payment, taxes and insurance. Real estate agents use the ruse that you can buy a home cheaper than renting and when the market was hot they got away with that. Broke homeowners simply took money out of the “equity” to cover the cost of the new water heater when the old one died. My advice is that you need to consider 10% – 30% in addition to your house payment as a set aside to cover future maintenance costs.

    People who manage money well look at the total cost of ownership. People who don’t manage money well look at the cost per month.


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