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SubPrime Loans & Foreclosure
Debtor Nation; The rising risks of the American Dream, on a borrowed dime
by Jonathan Shaw Harvard Magazine July August 2007 Edition
http://www.harvardmagazine.com/2007/07/ ...
Ation.html
Read, be warned and be frightened is my advice.
What can you as an individual do about it?
Get yourself out of debt and sock your money in a sock stuffed under your mattress probably is the best bet.
We Americans are spenders and to be spenders we are increasingly borrowing the money we are spending.
And to make matters far more disturbing, we are borrowing not from fellow Americans, but from investors abroad.
How much are we borrowing?
“In 2006, the infusion of foreign cash required to close the gap between American incomes and consumption reached nearly 7 percent of gross domestic product (GDP), leaving the United States with a deficit in its current account (an annual measure of capital flows to and from the rest of the world) of more than $850 billion.
In other words, the quantity of goods and services that Americans consumed last year in excess of what we produced was close to the entire annual output of Brazil.” Just for the record, Brazil is the tenth largest economy on the planet.
The mechanics of borrowing are really quite simple: the borrower is saying that while he needs to borrow money now he fully expects to be making more money in the future so that he will easily be able to pay it back.
Being a debtor individual or nation is not always bad.
If the money borrowed is used to enhance ones future income to cover the debt and then some there is no problem.
The United States was a Debtor Nation for over a hundred years as a new and growing nation.
The money was used to build infrastructure, roads, railroads, factories, ports and cities.
In other words the money was invested in making the future more profitable.
That does not appear to be the case today.
Today’s borrowing is more and more for “consumable rather than productive goods”.
During the past six years we have borrowed between “between half a trillion and a trillion dollars a year for the past six or seven years—that in 2006, our investment balance with the rest of the world (what we pay foreign investors on their U.S.
Assets versus their payments to us on our investments abroad, historically nearly equal) tipped to became an outflow for the first time in more than 50 years.
We are a debtor nation swiftly heading deeper into debt.” THIS then is the problem in a nutshell: our outflow is greater than our inflow and due to the nature of our spending ( last statement in paragraph above) we are not likely to have the funds to pay our indebtedness back in the future.
At the point where we are not able to repay our indebtedness who ever holds our note, or mortgage, controls us.
The article relates how President Eisenhower control the actions of Great Britain in the 1950’s because the United States “owned” Great Britain due to their indebtedness to us.
Does it scare you to realize that another country in the world can actually dictate the policy of the United States?
I have blogged several times on how much we are becoming indebted to China folks.
You might also make note of an article in today’s N&R concerning how influential Iran is becoming in Central and South America.
This is a long article but well worth your time to read.
We Americans need to get some control over our own and our governments spending and do it soon before we are no longer the greatest nation on Earth.
BB I am an Opinionated Older Lady Who Speaks Out.
You may not always agree with or like my messages, but they are sincerely given.
Coming from looking back over a lifetime of social activism.
August 16th, 2007, 8:47 pm Reply with Quote: Report this post
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I think my family is very fortunate indeed to be out of debt for the most part, except for the mortgage.
And if I can stay with my job for only 5 more years, we'll be able to pay that off as well.
Keeping away from credit card balances and car payments is the real key to keeping things running smoothly, fer shure.
August 17th, 2007, 8:05 am Reply with Quote: Report this post
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I completely agree Brenda.
I think Fiscal responsibility is perhaps "the" most important thing in America right now.
Not only for our government, and our country but for each of it's citizens.
The rate at which we consume and live is outrageous.
Worst yet, is people have no clue as to how bad it's going to get if the bubble bursts and you can't make the minimum payment.
August 17th, 2007, 12:16 pm Reply with Quote: Report this post
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Yesterday, as I was driving home, I listened to a tale of woe from some woman in Florida who was about to lose her home in the sub-prime meltdown.
Her story was remarkable to me, because it really sounded to me like she had let herself in for virtually all of her trouble.
She started off up in New York with a house and over $100,000 of equity.
Right at that point, I thought "Hoo boy!
What would I do with a net worth of $100,000!" but on with the story...
She sold the house and bought a far more expensive one in a new development down in Florida.
She moved down there and started looking for a job to pay her 5.3% mortgage.
That's right... she moved a couple of thousand miles and hadn't got a job to support herself before making that huge a jump.
So the best job she could land wouldn't cover her monthly payments, and she started borrowing to make ends meet.
When she started missing payments, she went looking for a new loan to pay off her original one, hoping to borrow some extra to pay down some credit card debts.
Enter the shark..
A corporation that loans only based on equity, and doesn't bother to check to see if a borrower can make the payments.
This lady got her $20,000 check, and a 10% mortgage with payments twice as big as before.
Why did she sign that?
Partly to buy a little time, it seems.
But it didn't buy enough time, and the loan had a huge pre-payment penalty, and a balloon rate shift up after a couple of years.
So it appears that she will lose all of her equity, particularly since her home's value has gone down since she bought it.
I'd like to have sympathy for this person's plight, but how stupid do you have to be to move away from a stable home/job without making sure you have at least a decent chance at meeting your basic obligations?
It's very sad indeed, but really -- you can't expect anyone to step in and protect you from the consequences of bad decisions that you make on your own.
Now, things would look a lot different to me had she moved to follow a job that she had landed in FL, then had it cut by her employer.
Still, that could have happened while she was still in New York.
Ho hum...
April 24th, 2008, 10:19 am Reply with Quote: Report this post
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Ironically I think that, -that mentality is common in America.
In all likelyhood, she'll be the one to luck out, and because of her story being published someone will drop her a huge check in the mail and solve her problems.
I'm just waiting for the huge number of people that borrowed on all the equity that was gained during the "housing high-point" only to realize there house is now worth less then what they owe.
Added to that, bankruptcy is even harder because of changes a few years ago, meaning alot of people are going to be seriously screwed.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon April 24th, 2008, 11:20 am Reply with Quote: Report this post
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I have had someone tell me that their mortgage payments were OK "Because the bank wouldn't lend the money if they didn't think you could pay it back" Apparently abicating his brain functions to a third party was acceptable.
The bank doesn't care if you have anything to eat or anywhere to live.
All they care about is getting paid or recovering the most that can from your reposessed house.
The organized fossils ..
And their localities also, may be understood by all, even the most illiterate.
William Smith, Strata.
1816 April 24th, 2008, 1:40 pm Reply with Quote: Report this post
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I can't clearly say what's going on with my in-laws, (as we haven't talked about it in awhile.) but they bought there home for about 250,000 a long time ago...
And at one point, I know they came out and visited us their home was worth $750,000 at which point they took out an equity loan in an unknown amount.
Last I heard, the market was down to about $550,000 and supposedly things were getting really tough.
So assuming they did take out an equity loan of $600,000 or more, it's likely the house is now worth less then their loans....
Which seems to be a normal thing for Southern California residents...
Thus the reason we moved here....
I couldn't keep up.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon April 24th, 2008, 6:32 pm Reply with Quote: Report this post
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Quote: : I can't clearly say what's going on with my in-laws, (as we haven't talked about it in awhile.) but they bought there home for about 250,000 a long time ago...
And at one point, I know they came out and visited us their home was worth $750,000 at which point they took out an equity loan in an unknown amount.
Last I heard, the market was down to about $550,000 and supposedly things were getting really tough.
I bought my home for $90k.
The tax values now is $125k.
If I found myself with a virtual jackpot of a half-million of equity, I would cash out and buy a $200k home and live without house payments the rest of my years.
Geez! April 24th, 2008, 7:00 pm Reply with Quote: Report this post
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That's sort of what my parents did.
They bought a house out in Bullhead City, AZ for about $89,000 and after 2 years they sold it for about $250,000 ...
Since they've been in debt most of their lives, they paid off everything they owed, and put a sizeable downpayment on their new home in Asheboro.
I personally would have loved to see them buy a less expensive home, and have some free cash to enjoy travelling, etc...
But they ended up buying new.
Beautiful home, and coencidentally very similar to their home in Bullhead.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon April 25th, 2008, 8:10 am Reply with Quote: Report this post
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I hope this whole sub-prime chaos will be a lesson for everyone in fiscal responsibility.
Sure, there are people who have been taken advantage of in this situation.
But let's face it there are plenty of people out there who jumped into a $300K house with no money down with a meager household income having no earthly idea how they were gonna pay for their house once their arm adjusted.
It's this whole "live for the moment" mentality.
On a personal note.
A little over a year ago, I was at dinner with a friend.
We were talking about the housing market.
I could tell he was almost grief-stricken that I was not taking advantage of the "great deals" out there on a morgage and that I was insane for still renting.
I guess at the time I was being a bit foolish.
I mean at the time I was in between jobs and what I was doing was only bringing in $14/hr on a parttime basis.
Silly me for not taking the plunge and buying a house.
Who needs a stable income when you can use "the banks money."
For the record....
I am still renting.
Even though I have a great job now and have increased my income substancially from what I was making, I still believe that I will need to have 3-6 months of living expenses saved up before I even pick up one of those real estate booklets.
Last edited by Pineview Style on April 25th, 2008, 11:05 pm, edited 1 time in total.
April 25th, 2008, 5:25 pm Reply with Quote: Report this post
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Pineview Quote: : But let's face it there are plenty of people out there who jumped into a $300K house with no money down with a meager household income having no earthly idea how they were gonna pay for their house once their arm adjusted.
It's this whole "live for the moment" mentality.
I imagine it also made some sense in the "Flip this house" sort of market.
Some folks bought a quarter-mil house, made payments for a year and sold it for $400k when the hot market made it worth while.
I have a cousin who did that 5 or six times and now owns a $2m place in Hawaii.
But you have to be keen on constantly dealing and you have to know when to cash out and take your profits.
Not easy for gamblers to do.
Me, I'm glad I have taken the conservative course.
My descendants probably will as well.
April 25th, 2008, 6:04 pm Reply with Quote: Report this post
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Last edited by Pineview Style on April 25th, 2008, 11:28 pm, edited 1 time in total.
April 25th, 2008, 11:19 pm Reply with Quote: Report this post
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"I imagine it also made some sense in the "Flip this house" sort of market.
Some folks bought a quarter-mil house, made payments for a year and sold it for $400k when the hot market made it worth while.
I have a cousin who did that 5 or six times and now owns a $2m place in Hawaii."
I know several ppl, too, who have made good money flipping houses.
Some people have a knack for making money on real estate and have done well.
I thought about doing it, but I didn't want to increase my risk by having a lot of borrowed money that I was responsible for.
At least not in my given situation.
I think that way too many people started trying that who didn't know what they were doing and now stuck with houses that they don't know what to do with.
A family friend who works in commercial real estate was made a very keen observation not to long ago.
He referenced the story of John Rockefeller before the stock market crash "...that when the man shining his shoes was giving him stock tips, he knew it was time to get out of the stock market." He then tied that into a conversation he had with a bartender at Chili's.
He said that when the bartender started talking about taking out a 2nd morgage to buy a house to flip, then he knew we were going to be in trouble soon.
April 25th, 2008, 11:30 pm Reply with Quote: Report this post
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I've thought about flipping homes, and I think I'd be really good at it if I found contractors to do a good job, unfortunately I'd probably end up firing all of them, and doing it myself, and then realize as I have with the bathroom...
Crap takes much longer, and more money then you ever imagine.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon April 26th, 2008, 10:04 am Reply with Quote: Report this post
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This is just unimaginable.
Holy freaking crap.
I don't know which is worst, the collections company that sued for $68.00 or the woman who payed rent for 12 years on a house she didn't own.
Can you imagine losing your home over a $68 dental bill?
That's what happened to one Utah woman.
Sonya Capri Ramos says her Salt Lake City home was sold out from under her in 1996 to pay a collections agency seeking payment for dental work performed on one of Ramos's daughters.
And despite the fact that she had made three years of payments on a $51,000 mortgage, the title changed hands for just $1,550 at a sheriff's auction.
But the story doesn't end there: Ramos, 41, said she didn't find out that her home no longer belonged to her until two years after the sale.
To date, she hasn't moved out.
Instead, she said she continues to make mortgage payments on the home and is fighting what has become a decade-long legal battle to reclaim ownership.
Most recently, a state appeals court ruled against Ramos.
She and her lawyer, she said, are preparing to appeal to the state's supreme court.
"It's a big mess," Ramos said.
It Began With Cavities
Ramos said she bought her three-bedroom home with her then-husband Roger Bangerter in 1993.
The couple used a $51,000 loan from Salt Lake City under the city's first-time home buyer program.
Two years later, she took her second-oldest daughter, Bailee Bangerter, to the dentist for cavity treatments on the girl's baby teeth.
Ramos said she paid for part of the treatment, but not all of it -- a $68 bill remained.
Ramos said she had "all intentions" to pay the bill, but didn't.
"I wish I would have borrowed money to pay it at the time," she said wistfully.
A collections agency, North American Recovery, eventually sued her for payment of the bill, which by 1996 had escalated to more than $950, a result, Ramos said, of legal fees and other costs associated with collecting payment on the original bill.
But Ramos said she was never notified of the lawsuit and therefore didn't contest it.
A Legal Loss
With no legal defense, a judge ruled in favor of North American Recovery and ordered the local sheriff's department to sell off Ramos's property to satisfy the debt.
According to a 10-page published decision by the Utah Court of Appeals, the judge ordered the sheriff "to collect the judgment, with costs, interest and fees, and to sell enough of defendant's non-exempt real property to satisfy" the amount due.
Keith Meade, a Utah lawyer who focuses on real estate matters, said that this type of judgment typically allows some leeway for just a portion of the defendant's property to be sold off to satisfy the debt owed, which in this case was far smaller than the value of the home.
But because the real estate at stake was Ramos's home, which by law is considered "indivisible," the title to the entire property was sold at auction.
Ramos's home was sold in 1996 to Jarmaccc Properties, a Utah company, for $1,550, according to the court documents.
Under the terms of such a sale, a property's buyer -- in this case, Jarmaccc -- buys the title to the home and the right to take over the mortgage payments.
But Jarmaccc never did that because Ramos, who said she was never given notice of the sale, said she continued making the monthly mortgage payments herself.
"I continued to pay my mortgage," she said.
"I didn't know the house was sold."
She was effectively paying off the note on a home she no longer owned.
And for various reasons, she has continued to make payments in the 12 years since, allowing Jarmaccc the chance to eventually keep the home for just the $1,550 it paid at the sheriff's auction.
Ramos estimated that she has paid more than $50,000 toward the principal loan plus interest, the bulk of which came after that 1996 sheriff's sale.
A Shocking Realization
Ramos said she didn't even learn about the sale until 1998, when Salt Lake City denied her application for a loan to do renovations on her home.
"They told me, 'You don't even own the house,'" she said.
"I was dumbfounded that somebody else had the title."
But according to the court documents, a deputy sheriff signed a 1996 certificate stating that there was "due and legal notice" that the property would be sold.
Kurt Johnson, the president of the North American Collection Agency Regulatory Association and a senior investigator with the Minnesota Department of Commerce, said it was highly unusual for a collections agency to recover payments through the sale of a home that isn't facing foreclosure.
"Typically, they just put liens on the property," he said.
"I've never heard of it in my 20 years in Minnesota, and I've never heard of it in any other state."
North American Recovery's president, David Saxton, did not return several phone calls from ABC News.
Lt.
Kendra Herlin of the Salt Lake County Sheriff's Office said that the office generally notifies someone of a sheriff's sale either in person or by posting a notice on the property itself.
Herlin said it was "highly unlikely" that someone would not receive notification that their home was being put up for sale.
Meade, who stressed that he has no firsthand knowledge of the specifics in Ramos's case, said he found it difficult to believe that a person in Ramos's position would never receive any notification.
"The thing that's strange in my mind is her claim that she didn't know this was occurring.
I find that hard to imagine, given what has to happen," he said.
But Ramos said that's what happened to her.
She said the sheriff's office used an inaccurate legal description of the house and that that kept her from learning of the sale.
"The law is simply unjust when your home can be sold to satisfy such a small debt, when other property exists that could also be sold to satisfy the debt," said Ryan James, of Haskins & Associates, the Salt Lake City firm currently representing Ramos, in an e-mail to ABC News.
No Refuge in Bankruptcy
According to the appeals court decision, Jarmaccc Properties served Ramos, then Sonya Bangerter, with a notice instructing her to move out of her home in May 1998.
Ramos said she never received that notice either.
That same year, Ramos said that on the advice of a previous attorney, she filed for bankruptcy in an effort to reclaim her property.
On that lawyer's suggestion, Ramos said she structured a bankruptcy settlement that would allow her to regain the title to the house after she paid to Jarmaccc the $1,550 the company paid to buy the property.
But Ramos said that after she paid the company, it still would not relinquish ownership of the home.
Ralph Petty of Jarmaccc Properties did not return several calls to his office.
In 2004, Ramos went to court again and attempted to put her name back on the home title.
The court ruled in her favor, but Jarmaccc appealed.
The Utah Court of Appeals ruled this month that Ramos could not dispute Jarmaccc's title claim because the statute of limitations had expired.
Ramos said she will appeal to the state's supreme court in hopes of winning the house back once and for all.
If she does not regain ownership, it is unclear whether Ramos would have any legal claim to the tens of thousands of dollars spent on mortgage payments while the home was owned by Jarmaccc.
Such cases are rare, but Utah lawyer Meade noted that while a person in Ramos's situation may have been making mortgage payments, the holder of the home's title could argue that it also permitted her to live rent-free, further muddying any claim she might have.
A Silver Lining?
In the meantime, Ramos, who divorced her first husband in 1999, continues to live in the house with her two youngest children and her second husband.
She has continued making mortgage payments and says she only has about $9,000 remaining to pay off the initial loan from the city.
For the last year, Ramos has been working as a home loan officer after taking part in a training program and earning a mortgage lender agent's license from the state.
"I love it because I honestly feel like I have helped a lot of people," she said.
But Ramos said that her newfound avocation isn't the silver lining to her housing nightmare.
"The silver lining," she said, "will be if I get the house." People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon May 22nd, 2008, 5:57 pm Reply with Quote: Report this post
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It's the worst out there since the waning days of Bush the Elder.
Now, I don't know about you, but where I work, the standard raise ever since I've been on board has been 2% to 3%.
My wife gets a standard .5% raise every year, whether she needs it or not.
I've been falling behind in my purchasing power ever since my last real bump in my earnings, back in 2000.
Now, we're looking down the barrel of a big old can of "stagflation."
No wonder the current government has an approval rating of about 12%.
July 16th, 2008, 9:35 am Reply with Quote: Report this post
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I'm lucky to make 1% every 6 months...
I miss the days of Verizon and my annual "Cost of living" increase.
How anyone can survive on what I make alone is really unbelievable, let alone someone on minimum wage.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon July 16th, 2008, 10:28 am Reply with Quote: Report this post
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It could be worse.
In Zimbabwe inflation is running at 2,200,000% (at least) That's a 4% decline in purchasing power every minute
The organized fossils ..
And their localities also, may be understood by all, even the most illiterate.
William Smith, Strata.
1816 July 16th, 2008, 11:41 am Reply with Quote: Report this post
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I saw that.... Most millionares in the world I bet.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon July 16th, 2008, 12:02 pm Reply with Quote: Report this post
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What will be interesting will be all of the high-end homes for sale in the next couple of years.
High-earners who can currently afford their homes are going to have a bit more trouble when their federal income rate jumps from current 35 to at least 46% (5% from ending of Bush tax reductions, 6% from FUTA over 100k, and probably more from corporate tax raise) - assuming an Obama presidency.
Add on the 7.5% NC state tax and you'll have well over 50% of income going to these taxes, not including property taxes on the home and cars.
I predict a great many foreclosures in Irving Park and similar communities as high earners like lawyers and doctors who are not "trust fund" rich hit the new reality.
Even with McCain, the raise would more likely be just the 5% from the Bush tax reductions expiring.
July 20th, 2008, 12:41 am Reply with Quote: Report this post
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According to some scholars who study televangelism, the rising popularity of the "prosperity gospel" may have had a significant impact on the severity of the subprime boom and subsequent crash.
The mechanism: televangelists get on TV and preach that God will "bless" any poor schmoe who donates money to them by providing a means for them to enjoy wealth they could never expect to get through worldly channels.
To give "substance" to their promises, they provide stories of people who sent them money and immediately received some windfall that could "only have come from God." Viewers living hopeless, desperate lives of poverty -- and there are quite a few of them -- believe this is their path to the "good life" and send their pittances to the preachers, and then go to the bank expecting a "miracle." Which the banks, anxious to set up their subprime mortgages, provide, only cursorily checking into these new victims' credit histories.
Stories of "miracle enrichments" are sent to the televangelists, and the cycle continues unchecked by humility, critical thinking or financial common sense.
Interesting theory...
October 3rd, 2008, 1:30 pm Reply with Quote: Report this post
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Pretty screwed up religion, huh?
Ignore List: Nfidel;
Pitbullferlucifer;
C. Alice
Ephesians 2:8-9 For by grace are ye saved through faith;
And that not of yourselves: it is the gift of God: Not of works, lest any man should boast.
"Why am I such a stupid atheist?" - C.
Alice October 3rd, 2008, 1:38 pm Reply with Quote: Report this post
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I believe it. It's America's mental illness.
People make mistakes in life through believing too much, but they have a damned dull time if they believe too little.
-Lost Horizon October 3rd, 2008, 1:38 pm Reply with Quote: Report this post
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Quote: : I believe it.
It's America's mental illness.
It's actually carried out by false teachers and false prophets.
Ignore List: Nfidel;
Pitbullferlucifer;
C. Alice
Ephesians 2:8-9 For by grace are ye saved through faith;
And that not of yourselves: it is the gift of God: Not of works, lest any man should boast.
"Why am I such a stupid atheist?" - C.
Alice October 3rd, 2008, 1:48 pm Reply with Quote: Report this post
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