A great article on Yahoo today about a subdivision just outside of Phoenix and how it's getting clobbered with foreclosures...

Boom, bust in area beset by foreclosures - Yahoo! News

Denny Hatch also had a wonderful article on the growing mortgage/foreclosure problem back in the end of August:
Peter Lynch’s Almighty Crayon : Denny Hatch : Business Common Sense

Quite frankly the whole thing amazes me to some extent but to another it doesn't.

Yeah, lenders really did a wonderful marketing job at selling these adjustable rate mortgages. I'm mean just terrific! Consumers bought these hook, line and sinker all over the U.S.-- Miami, Phoenix, LA, San Francisco

Do the lenders deserve a certain amount of blame? Yeah they probably do but to me it all comes down to the folks that signed up for these things. Obviously from reading the articles it's clear that many thought the housing marketing would never stop increasing 10% or more per year. But little did they realize that much of the housing boom was do to speculators and other folks that thought the same thing. Everyone was just buying, buying, buying without ever giving a thought that perhaps, just perhaps housing prices may not go up for a long enough period to throw a monkey in the wrench.

And then you have those funky mortgages where people just paid interest for a couple years before that big old principal payment was due. From outward appearances a lot of these folks buying those $250,000 to $500,000 homes weren't folks making $100,000+ a year either. But just regular folks trying to carve out a piece of the "American Dream" AND make a few bucks on the side.

I guess the urge to "Get rich quick" (and easy) is still as strong today as it ever has been-- to the point that many would risk their family's future.

Just like the article says it use to be your home was your "rock" in life. I could never, ever fathom taking the financial risk that many folks have in these once hot housing markets. I'm not bothered in the least bit that the real estate around here only has increased a point or two per year over the last couple decades. You can still get a decent house for less than $100,000.

That's why I don't buy the argument that these people just wanted to "buy a house." If that were the case they could have found far more affordable housing elsewhere in the U.S.

It's a fascinating news story that represents many of the "get rich quick" boom and bust cycles that have radiated throughout our history-- just look at the whole high-tech stock thing of the late 90's. Or the Californian gold rush or the oil boom in western Pennsylvania in the 1870's & 1880's. You see a lot of the same mindsets throughout all those periods-- the most deadly being that no one thought it could ever end.

hello,
The real sick and twisted part of this mess. I wish i had the link. But i read a month ago. That the people who lose their homes. Then get the debt forgiven by the banks. Have the value of the forgiven debt considered income by the IRS . SO the get socked with 30,40 50 ..100 thousand dollar tax bills. Then they get stuck fighting the system.

State and federal governments .changed the rules to pressure lenders to lend to more people . The boom sent lots of money into coffers . Through income and property taxes. It wasn't just the lending institutions.

You can't blame people for getting trapped int the speculation game . Every finanical planning book for a while. Even now talks about investing in real estate or owning your own home ,as an investment.

I never got interested in real estate investing. Something about having to go 200k in debt to get 500 buck a month in residual income. Did not appeal to me.

Ken

You posted a lot of good info there Ken.

However I do blame (to a certain extent) the people that were "trapped" in the speculation game.

Ken, if it sounds too good to be true---

Hello,
When i say trapped . I mean the people who would have rather rented . How should have stayed renting . But every where they turned they where told they should own their own home . To keep the boom going these people where baited into buying homes they could not afford. They didn't have th education to understand what they where signing.

There where millions of people who weren't trying to get rich quick. They where just doing what society told them. Getting slaughtered in the process.

Now there where a lot of people who bought two three or four homes. They couldn't afford . Trying to get wealthy the easy way . The took the risk and got nailed . To bad so sad .

So many of the financial and business books . Told people investing in real estate was the way . The boom went on a long while.This bust may last a while too. Then banks just had to write off. Pretty much all their profits for the last decade or so maybe longer. They willbe afraidto lendlike that again for a good 15 or 20 years.

Many of the people losing their homes are losing it because the payment went up and extra 200 or 300 dollars. Some went up a lot more. honestly in a time when the average job last two to three years. How smart is it to sign a 30 year mortgage ?

Ken

Boy Ken... While I agree with you that there is pressure to own your own home but I think that gives the people that signed those mortgages way too much of an excuse to do what they did.

It's not like those principal payments were hidden. They knew up front that within "x months" they would be responsible for a monthly mortgage that would be hundreds of dollars greater than what they were paying over the first couple years. I think they stuck their head in the sand and felt supremely confident that their home would continue to increase in value at an obscene rate and they could refinance. In Essence the whole scheme was built around the idea of getting rich quick.

That's not the fault of text-books or real estate agents or the mortgage lenders-- even though all of them did have a hand in it. It was ultimately the responsibility of those that signed the papers. To me it's no different than serial killers saying they did it because they were bed wetters and their daddy's didn't tell them they loved them.

Hi ,
I am just sympathetic . They rolled the dice and lost . Bye bye home . back to renting .

A large number of the people loosing their homes . Refinanced to pay off their credit cards . This happened after the bankruptcy law changes in 05 . They where in default on their mortgages before the rates went up. I don't have that much sympathy for them .

Gah ..sometime i think i read way to much :P

Ken

Michael,
Normally I will agree with you on most topics, but think about who these mortgage companies were targeting... "subprime"

First of all, most of these live in areas that have outrageous prices on real estate (examples you give...Miami, Phoenix, LA, San Francisco).

My 240K home in Houston is worth over three million in San Fran... I know, my Sister-In-Law live there and knows Real Estate.

There's know way I could own a home In San Fran with similar qualities (4 bedroom, 3 1/2 bath, detached three car garage).

Put yourself in their shoes for a minute.

You work at a minimum wage job. Your wife cleans office buildings in the evening and your oldest son pays you rent or helps with the weekly grocery bill.

This is if you "don't share" your apartment with another family.

You are trying to live the American dream of owning property, but for years, there is no relief in sight...

Until one day...

You find out that some mortgage companies are doing special deals for people in your target market.

Yes! It is possible for you to own your own home after all...

Also consider that most of these people have very little education and I'm willing to bet that they don't even know how to read, let alone a legal document created by attorney's.

Although I'm a die-hard Capitalist, I put a lot of the blame on mortgage companies.

I also blame the bleeding heart folks in congress that helped make this happen.

Let me ask you...

When you see someone get screwed by identity theft, do you blame the person getting screwed or the credit card company that didn't put safeguards in place that would stop identity theft.

To me, there are similarities...

Credit card companies will give you a card as long as you have a social security number and an address... this should be made illegal. There needs to be more stringent tests to verify you are who you say you are.

Problem is, most CC companies don't care as long as they get you signed up... Much like the mortgage problem right now, it's all about money.

Both industries knew/knows that one day the piper would come a calling.

I don't believe these victims are necessarily the the same crowd as the "get rick quick" folks.

Many of these folks are hard-working people that can't afford insurance, that can't afford to put away for retirement, they barely can afford to get a doctor when their sick...

They want to leave something for their children when they die (and they can't do it while living in an apartment).

I really feel some sense of pity for these folks. They aren't educated, they have a hard time understanding simple, common-sense stuff.

Walk in their shoes for a few days and you'll understand.

Like I said, I am about as anti-liberal, as capitalistic as you can get, but I do see how these folks were screwed (probably by listening to awesome copywriters and marketers)... ok, folks, put down the burning stakes... just kidding here.

Well I'm one of those evil conservative Republicans . I'm all about owning your decision and not getting bailed out of your own stupidity.

And as I was reading your post Stephen I thought I was reading a document by Nancy Pilosi... but I read it all the way through and I can actually feel what your saying but I still don't think our government needs to bail people out.

Stephen,

Granted there are people that weren't as educated who committed to these mortgages.

But re-read the yahoo piece... Boom, bust in area beset by foreclosures - Yahoo! News

Those don't sound like uneducated people to me.

"Identity Theft" being similar to signing your name on one of these mortgages? Wow.

They sound like people that knew what was going on and were unrealistic in their beliefs of what the housing market was going to do in the future.

I think overall there were far less people uneducated people getting these mortgages than there were people that put their common sense on the back burner in lieu of the chance to get a fantastic house at an amazing (initial) cost and their Pollyanna belief that the housing values would continue to skyrocket.

And still people had to come up with a few thousand to get into these homes so it's not like the folks that signed these mortgages were somehow special and needed to be in a group home.