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Old 02-26-2009, 07:38 AM   #15
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Who caused this problem?
To me the answer is quite simple. The banks caused the problem.

The man-on-the-street can not be blamed as he, often, was following the advice of his friendly banker - who, after all, is supposedly an expert in matters financial. I remember being offered a loan by one of Sweden's biggest banks (and, at the time state owned to more than 50%) to buy shares. How sick is that - a bank offering to lend money to gamble with?

Politicians could be attributed a portion of the blame but, to be honest, this bubble started in the US and popped in the US. Americans have always prided themselves as independent thinkers, not prepared to be steered by Washington and yet when things go keel over truck the politicians are strung up.

No, politicians are not the cause, simply the scapegoats in this case.

Aye // Stephen
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Old 02-26-2009, 08:01 AM   #16
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To me the answer is quite simple. The banks caused the problem.

The man-on-the-street can not be blamed as he, often, was following the advice of his friendly banker - who, after all, is supposedly an expert in matters financial. I remember being offered a loan by one of Sweden's biggest banks (and, at the time state owned to more than 50%) to buy shares. How sick is that - a bank offering to lend money to gamble with?

Politicians could be attributed a portion of the blame but, to be honest, this bubble started in the US and popped in the US. Americans have always prided themselves as independent thinkers, not prepared to be steered by Washington and yet when things go keel over truck the politicians are strung up.

No, politicians are not the cause, simply the scapegoats in this case.

Aye // Stephen


You made me laugh with your post! So true about all those independent thinkers blaming the government!

If they're so independent...they shouldn't be blaming the banks either though.

Stephen, you don't live here in the USA--have you ever? There is such pressure to buy a house it is incredible. Further, our method of getting loans is not to go to the bank but instead to a loan "broker" who shops the loan package around to various banks. The banks are often unaware of the little mis-truths that were put on the application when the buyer and broker get together (with the real estate agent too...) to make sure they can get that loan and into the house. Its a shady business in many cases and especially for first time home buyers or folks with low income or bad credit.

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Old 02-26-2009, 02:15 PM   #17
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Redbopeep, sorry. I did'nt mean to accuse you of lying but it did come out that way.

I just haven't heard this and find it hard to believe. While it would be really ridiculous to allow someone 3 years to get their act straight, the discount that banks are taking right now on forclosures may justify it. I've purchase 10 homes in the Portage, Michigan market in the last 6 months with each one going for less than half it's appraised value. In one deal, the morgage on the property was for $265k and I got it for $47. The real value was probably $150k. It would have made a world of sense to not foreclose on this property but - what the heck.
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Old 02-26-2009, 02:24 PM   #18
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The leadership of our country work to push things in the direction that the people who elected them want; there is a see-saw of regulation and de-regulation going on all the time. It is a delicate balancing act that all politicians and the regulators must deal with--enough regulation but not too much. America prides itself on having a market driven economy and sufficient regulation but not too much. There's nothing mentally challenged about our leadership. They have a difficult job and do their best to do the will of the people. If we, the people, don't like what is going on, we have a responsibility to tell our elected officials what it is that we DO want. Write your representatives at local, state, and national levels and the President if you don't like the way things are going. Believe it or not, it does make a difference.
A fair number do the will of the people who pay them, not the will of the population. Campaign contributions, lobbiests, and the promise of a high paying job upon leaving office plays more into the decission then concensus. Ego, corruption, and greed has been a cornerstone of Washington for too long. Most in office are institutionallized to it and can't get off the merry-go-round.

This is of course "In My Humble Opinion" - which isn't worth much
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Old 02-26-2009, 02:54 PM   #19
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Stephen, you don't live here in the USA--have you ever? There is such pressure to buy a house it is incredible. Further, our method of getting loans is not to go to the bank but instead to a loan "broker" who shops the loan package around to various banks.
Have I ever been to the US? Yep. I lived in Pasadena TX for two years in, dare I say it, rented accommodation.

Incidentally, I have moved around a lot so I tend to have a different take on issues which people living in the same country or even continent all their lives often do not have or, perhaps, appreciate.

You are right - blaming the banks puts it in a European perspective. I made an error (don't worry, I will blame the politicians for it). I should have written "banks or other financial institutions".

The one really good thing to come out of all this, as far as I am concerned, is that my brother-in-law, who was an accountant for the Hong Kong and Shanghai Bank and was always trying to persuade me to make "investments" against my will has now been proven utterly and totally wrong. On the other hand - he still has his fat pension and spends his days driving his BMW to the golf course whilst I, only two years younger, face working for another 10 years before I can hope for any financed leisure time.

Aye // Stephen
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Old 02-26-2009, 03:29 PM   #20
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Who caused this problem? The people living beyond their means or the fools willing to loan them more money. Or was it the mentally challenged leaders of our country who removed all oversight of banks and promoted serious greed for all.
I believe all of the above. The part that I'm still trying to understand, is why did the government allow this to happen? We all saw this train coming back in 2002 - 2003 when they started loaning NegAm, and Stated Income on $500K homes to field workers here in California.

The government knew this was happening for nearly 6 years. They watched and waited...but why???

One possibility that has been tossed around is that it helped pay for the war. I'm interested in hearing anybody's guess or insight.
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Old 02-26-2009, 03:55 PM   #21
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A fair number do the will of the people who pay them, not the will of the population. Campaign contributions, lobbiests, and the promise of a high paying job upon leaving office plays more into the decission then concensus. Ego, corruption, and greed has been a cornerstone of Washington for too long. Most in office are institutionallized to it and can't get off the merry-go-round.

This is of course "In My Humble Opinion" - which isn't worth much
It is easy to complain about the politics of Washinton. But for every grain of truth about lobby groups and greed/ego on the part of politicians there are 1000 truths that both the politicians and the federal employees in Washington (non elected, regular people who work in the regulatory agencies) are doing what they believe to be in the best interest of the USA, not their own best interests. This I truly believe--I have seen it.

It is easy to conjure up images of corruption and greed--those pat images are quite nice for one to point fingers at and state "this is the problem! ah, ha!" However, nothing is ever that simple. Further, as long as one is pointing fingers and blaming, one isn't engaged in being part of the solution--of solving the problem but rather one is simply engaged in pushing blame as far away from oneself as possible. Every non-engaged and self-centered American is part of the problem we have right now.

This is truly a crisis that people at the highest levels of government and business are grappling with but I believe this crisis started in a truly grass-roots way--every home owner wanna-be that fudged the numbers to get the home, every friend and family member that supported this behaviour and pushed for too many folks to buy more and more real estated as investments...every mortgage broker that suggested it and assisted them..every real estate agent who pushed and manipulated to get the sales through and every appraiser who worked the numbers really hard to come up with higher comps...Yes, every bank that trusted the due dilligance work of the broker or bank they bought the loans from...and every investor who pushed their banks to provide the highest return on investment...and every retiree who insisted that their retirement fund provide the most return for their investment...and on...and...on...and...on

Unfortunately, we cannot just point at bank executives since it is their JOB to maximize profits and share holder equity. Their "greed" is really simply the greed of all the shareholders and investors represented by their bank. They're doing what they are supposed to do. At every level of this problem, people have done nothing but express their own self interest in maximizing their own gain from the situation of rising real estate values and new credit vehicles.

I would suggest that you, and others, who are unhappy with what is going on right now, engage in being part of the solution--and that means learn all you can about the underlying issues in America that allowed this bubble to take place. And, if you decide that you don't like what the leadership of our country is doing about the aftermath of the real estate bubble--then, engage and become part of the solution.

It sounds as if you are currently having benefit from the real estate crash and thus your own objectivity regarding bailouts, etc, is likely a bit compromised. Just as I benefited from the boom and "got out" in 2006--I'm not anxious to support others at this point either. We all have our positions and our objectivity is frequently anything BUT objective

PS for Stephen--this problem seems to have simultaneously cropped up world-wide. Americans were especially gullable in the real estate bubble because of our cultural preoccupation with everyone owning real estate though. Real estate bubbles in Spain, Eastern Europe, the UK, they all have nothing to do with America--this bubble has truly been multi-national, global in scope and in root. The wealth of nations literally chases the best ROE and real estate was where it landed for a few years...preceded by internet technology and followed by commodities...who knows next where the international money will push a bubble--I suspect in "green" and energy technologies.
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Old 02-26-2009, 04:06 PM   #22
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I believe all of the above. The part that I'm still trying to understand, is why did the government allow this to happen? We all saw this train coming back in 2002 - 2003 when they started loaning NegAm, and Stated Income on $500K homes to field workers here in California.

The government knew this was happening for nearly 6 years. They watched and waited...but why???

One possibility that has been tossed around is that it helped pay for the war. I'm interested in hearing anybody's guess or insight.
The government manipulation of the interest rates following the dot.com bust and 9/11 to advert recession in 2001-2003 really helped but I do believe the bubble stems from multinational money chasing the best ROE. When the fed decided to slow down the overheating economy by raising interest rates (2005 onwards...) that started the dominoe effect of bringing down the house of cards built on the whole "asset backed" lending which allowed for stated income loans.

Convoluted mess that public policy analysts and MBA students will spend many happy years studying.
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Old 02-26-2009, 04:40 PM   #23
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Real estate bubbles in Spain, Eastern Europe, the UK, they all have nothing to do with America--this bubble has truly been multi-national, global in scope and in root. The wealth of nations literally chases the best ROE and real estate was where it landed for a few years...preceded by internet technology and followed by commodities...who knows next where the international money will push a bubble--I suspect in "green" and energy technologies.
The real estate issues in Europe have a number of different root problems. In Spain, where I have now lived for little more than a half a year, the buble was caused by over-building and a lot of non-Spanish residents buying holiday property. When they can no longer keep up the payments the holiday property is the first to be sold but they are usually in areas where there is no or little industry. After all, you would not want your holiday property to be next to a shipyard.

In other areas, like Vigo, prices have dropped but not by very much. However, property in Spain has, and still is, way overvalued. I can buy a house in or around Vigo for €200,000. The same house, half an hour's drive away in northern Portugal would go for about €120,000. Guess who is thinking about buying a cottage in Portugal?

The UK is in the situation today that I expect Spain (aside from the holiday housing market) will be in in a year or two. Unfortunately I own a property in the UK which has depreciated by about 15% over the last year. On the other hand, the tenants still have the same contract with me so I am making more interest on the capital. It is just that I have lost a good bit of the capital along the way.

Eastern Europe is a funny area. Prices there are still low compared with the rest of Europe unless you are looking for a property in Moscow where costs are not on this planet. But yes, eastern Europe went up and some of it has fallen quite hard. Latvia is one country which springs to mind. Not only are prices falling in real terms but the currency, the Lat, is also taking a beating.

All in all it is a funny business. The cost of property in most areas of Europe has not reflected the development costs. Developers have made big bucks buying up land, building and then selling again. Now they are screaming for help.

My take on all this is that when things were blooming and companies made silly money they did not want to see their profits going in high taxes but now, when things have gone south, they are screaming after public funds. In my book it does not work that way. When things are going well you may spend your money but you also save some for a rainy day. Now the rainy day is here they want someone else to give them the umbrella.

Aye // Stephen
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Old 02-26-2009, 07:34 PM   #24
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I'll add my 2 cents worth also.

2 years ago I purchased the house accross the street from me for $28500, it was a foreclosure. Going through the title I saw that a bank had lent the neighbors $80000 just 2 years before. This place was in a shambles, the back bedroom was bare drywall without even any paint. I ahd to put $14000 into it doing most of the labor myself just to get it livable. Shortly after giving the mortgage the original bank sold it to another bank for the balance due. I asked my realtor friend what kind of idiot would look at that house and give a $80000 mortgage on it. She said that's the problem they were just driving by, if that, and writting loans to anyone.

My girlfriend bought a house, also a foreclosure, last year. When the mortgage broker originally wrote up the loan the payments were $900/ month. She couldn't afford it so she was going to back out.

The broker (these people are lower than dirt) "refigured" the payments and got them down to $800/ month.

Well she's just got her year end statement and lo and behold there is a shortfall in her escrow account (that's the part of the mortgage that the bank uses to pay the taxes and insurance). So now her payments will be $960/ per month for 22 months then drop to $900/ month. She was trying to be responsible but these brokers are only concerned with getting their commission, they don't care what happens afterwards.
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Old 02-26-2009, 09:03 PM   #25
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Sammy,

Yes, I agree the brokers are a bit slimy--as are the real estate agents. However, why didn't your girlfriend track down the difference between the $900 loan and the $800 loan payment before signing? It is, after all, the buyers responsiblity to know what she is getting into. Many borrowers tell brokers to push payments off so they are lower in the first year or so--the buyer is assuming that they will get a small cost of living raise or something will change in the next year--last resort they may have to give up their daily $4.00 coffee at Starbucks

What the broker did in messing around with the escrow amount was actually a fairly standard move, something I've heard of before as people HATE giving the bank that escrow for tax and insurance up front anyway--and he may have told your girlfriend how he'd close the gap and most certainly here in the USA that information is on the scads of paperwork signed on closing day. When closing on a loan, one can always ask the title company or real estate lawyer at closing to explain the fine print--its all there or its not legal. Taking a calculator along and adding up the numbers makes good sense, too.

A loan with escrow indicates a higher risk than lenders want to take--that means your girlfriend didn't put down much of a downpayment? Common practice is that escrow is required unless 20% downpayment is made but yet typically folks try to only put down 5%-10% here in the USA. Low downpayment loans are also one of the things that help drive up real estate values--when someone only has to put down 5% or even nothing, then the goal became that of getting into a property and flipping it quickly for a profit. And doing that again and again. Speculation begets bubbles.
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Old 03-02-2009, 01:38 PM   #26
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Unfortunately the girlfriend isn't an accountant, banker, lawyer or real estate expert. She is a personal care aide in a nursing home. People drop off their elderly or infirm relatives and trust her to act in their family members best interest and provide them with the proper care they expect and deserve, something she has been doing admirably for 25 years at the same institution. When she goes to the car mechanic, insurance agent, doctor, lawyer, accountant, ect she expects the same treatment, that they will act in her best interest. What part of "I can't afford a $900 a month mortgage" the broker didn't understand is beyond her. She could have read the fine print all day but would not have understood it, and as for the lawyer all you really get is a legal assistant who is over scheduled and just wants to get the closing over with so he can move on to the next. The lawyer and mortgage broker share the same building and receptionist. She is very careful with her money. tighter than bark on a tree actually. She has never owned a credit card and took out her first car loan, for a used vehicle, 4 years ago. Most of her clothes she buys at AMVETS, a used clothing store that I believe supports disabled American veterans.

You are right that in todays business climate it is "buyer beware" now more than ever and the consumer is ultimately responsible. It is just a shame that the broker didn't explain how they had gotten the rate down and that she didn't think to ask. Anyways she is a survivor and will make ends meet somehow. I just wanted to point out that not all the people feeling the effects of this situation went into it with a haphazard attitude. A lot of it is due to greed on the part of unscrupulous brokers and such. Reminds me of the old adage of boat brokers "if you can't sell the boat, sell the dream".
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Old 03-02-2009, 02:06 PM   #27
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Begins to make some sense why she didn't figure it out and all. Unfortunately, she will just have to make do until her own finances catch up with the $900/mo payment. That's the rub with real estate purchase--most folks are truly stretched when they first get into a place since most folks do buy the most they can afford. Hopefully she'll get a raise or something will pull up so that she's in a better state shortly.

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