Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Monday, March 26, 2007

Let The Heartrending Tales Begin...

I saw a headline on Yahoo news this afternoon about families losing their homes in the sub-prime crash

It's the old story of people with 4 bedroom houses living on Ramen with no furniture. Back in the day the idea of buying a large house that one can't afford to "live" in would seem insane. Not in todays news where stories of that sort are common.

Here's the living room, still covered in the worn blue shag Angela Sneary always intended to replace with the sheen of hardwood. And downstairs, through a curtain of plastic beads, is the basement where husband Tim was going to knock out a wall and put in a foosball table.

Step this way and the Snearys point out the places where they never could find the cash to hang a ceiling fan, install a hot tub, replace the siding ... a long list of abandoned ambitions that seem almost too big to squeeze into the modest four-bedroom tri-level.

Owning a home is all about finding humor in unfinished projects. But in the house set back from a bend at 11030 Eudora Circle, the Snearys never had the luxury.

They ran out of money first. Then, they ran out of time. Soon, they'll almost certainly be out of a home.

The story continues with the usual Fb'er explanations,

The experience of families like the Snearys show how the squeeze created by questionable lending can quickly be compounded by family economic crises, a lack of planning and knowledge, and the rapid shifts in a real estate market that once seemed unstoppable.

"You were set up to fail," one real estate agent told them.

It's a sobering thought for anybody who shares the American dream. After all, it hits so close to home.

But then the story departs from the purely business details, and wanders into TMI territory:

Tim first met Angela when he was just 5. She was hours old.

Their fathers were best friends, "two old hippies who partied together." On an afternoon 33 years ago, they celebrated Angela's arrival. Tim stared at the tiny infant a nurse held up to the maternity ward window and waved.

Sixteen years later, Angela's dad died. Tim, just out of the Navy, went to pay his respects. He offered his arms to Angela - and never let go.

Enter the Villian:

The couple set out to look at homes in Thornton, a fast-expanding, mostly working-class suburb 20 minutes outside Denver.

They loved the second house the agent showed them, tucked in a 1970s subdivision with streets curled around each other like a ball of yarn. It was painted glowing pink with a big shade tree out front. The kitchen drawer-pulls were shaped like tiny forks and spoons. It had spacious bedrooms for all three kids, plenty of space for three dogs and six cats.

Tim "walked in here and said this is perfect," Angela recalls.

It cost $204,000. "We thought we were getting a deal," Tim says.

The agent said he'd find them a mortgage, no money down. The Snearys say they never thought to shop around.

More than two years and 100-plus homes later, agent Kent Widmar says he has no memory of the couple or the deal. But he knows his customers - and subprime loans are the only loans most can get.

"I kind of work the bottom of the market, the tough deals, the people that can't get credit anywhere," Widmar says. "You're dealing with people where nobody else (other lenders) is even going to talk to them ... It's not like you have a whole lot of choices."

The Snearys say they expected to borrow at a fixed rate of 6.5 percent. That would put monthly payments at about $1,290, a little more than rent.

But at the closing in August, all the numbers were higher. The Snearys were offered two loans, both from a Texas subprime lender, Sebring Capital Partners. The first, for 90 percent of the purchase price, was at 8.31 percent, set to adjust after two years. The second, for the remainder, was at 13.69 percent.

The house would cost $1,623.80 a month to start - and it was almost certain to rise.

Looking back, Tim wishes they'd asked more questions or considered walking out. But everything was in boxes, and they'd given notice. So they eyed each other nervously, and agreed to work more hours. Then, they signed the papers.

The story goes on in excruciating and heartbreaking detail, and I don't mean that callously. It is a sad story. I come from Blue-collar people. I know how hard it can be. These stories are painful and one would have to be made of granite to read them and not feel something. There are also a lot of them.

I'm sure we are going to be innundated with these stories all through this year, and most likely it will seep into Election year and campaign promises. All of these stories are going to be tied to the idea of a "Bailout". A Bailout that all the rest of us will be paying for many years hence .

There are a lot of people out there that could tell similar stories that have nothing to do with careless borrowing, but more to do with death, serious illness, acts of crazy nature, jobs being shipped overseas, corrupt corporate practices, or renegging on pensions and benefits. No one has mentioned a Bailout of any sorts for them. There it's "tough luck buddy, dog-eat-dog, pull yourself up by the bootstraps", etc, etc, etc. Get Over It.

I was talking to Athena on the phone the other day, both of us preparing our torches and pitchforks for protest and i was wondering how other people besides those who blog on housing might feel about this when i saw this item on a political blog that belongs to John Aravosis with this headline

Why should I feel bad that you gambled on a mortgage and lost?
by John Aravosis (DC) ยท 3/26/2007 07:02:00 PM ET

I can deal with someone who was cheated by their mortgage broker, banker, or whomever. Someone who was literally lied to about how much their mortgage was going to cost them now, in two years, in five years, in ten years. But what I can't deal with are all of these heart-tugging news broadcast and Joe and Suzie who simply wanted the American dream for their children, so they risked their entire family's livelihood on a gamble that they could sell a house they couldn't afford before the "real" mortgage rate kicked in. Sorry, Charlie, but those people knew what they were doing. They gambled. They lost. I had the same choice they did, and I said "no," things were simply too expensive. So now they get a bail out and I get nothing because they wanted money for nothing? I don't think so. Again, if they were affirmatively lied to, then they deserve redress. But if they were idiots willing to risk it all for some easy money, then we do them no favors by bailing them out.

There are comments from his readers that follow that post, extremely interesting reading.


At 3/26/2007 09:34:00 PM , Anonymous tom stone said...

I had coffee with a bankruptcy atorney today,she told me she didn't understand why all the news was about subprimes going bad.she said she has had only one client with a subprime mortgage.all the others were Alt-a.She's Busy,and expecting to get a lot busier soon.A realtor i know who is honest,competent,and a specialist in short sales says there are no far as a bailout...lessee...we,as a society,are being asked to put our grandkids more in debt to bail out a bunch of gamblers who want to welsh on their bets.mmmmmmmmm,NO!!!oh,do remind Athena that she still owes me a cup of coffee.

At 3/26/2007 10:59:00 PM , Blogger sf jack said...

"she said she has had only one client with a subprime mortgage.all the others were Alt-a."


And perhaps to the surprise of many who are just now beginning to pay attention, I think this theme has a real chance of becoming THE story here in the SF Bay Area.

As with the dotcom implosion, there are lots of gamblers around here, even if they are not aware of it.

At 3/26/2007 11:22:00 PM , Blogger moonvalley said...

we're going to have to have a Sonoma coffee meet one of these days.

At 3/27/2007 06:39:00 AM , Anonymous tom stone said...

MV,you are on.And jack,it will be a hell of a show over the next few months,sort of like a slasher movie thats starts with soothing music,then the theme becomes july it will be splatters and screams.The credit squeeze will just get tighter.a credit squeeze does not necessarily require higher rates,just requiring the ability to demonstrate an income,or shudder,the ability to repay what you borrow makes it harder for many to "qualify".we will also see a few of our local loan brokerages such as Investors trust,or cal-bay go away.they are thinly capitalized,and with the prevalence of fraud will inevitably be hit with doesn't take many$500k buybacks on unsalable properties to cause distress.

At 3/27/2007 09:24:00 AM , Anonymous marin_explorer said...

"You were set up to fail," one real estate agent told them.

Of course, realtors played no part, nor were the naive/smug homebuyers who thought the market would carry their indiscretion. Guess what FB-YOU pay for your mistakes.

At 3/27/2007 04:28:00 PM , Blogger Dr Housing Bubble said...

"I kind of work the bottom of the market, the tough deals, the people that can't get credit anywhere," Widmar says. "You're dealing with people where nobody else (other lenders) is even going to talk to them ... It's not like you have a whole lot of choices."

I kind of work the bottom? Suddenly historical ratios mean something in the game. Otherwise you have folks like the above selling Jaguars to folks on Toyota budgets.

Tom, I agree with your assessment and rather resent the fact that this debt load will be tossed onto future generations. If anything, that is why I am vehemently opposed to any bailout. If this is a go, can you imagine the Alt-A buyers we'll need to bail out as well? No thanks.

While reading the article I thought to myself, even I don't have a hot tub. But I guess we all should have refi'd and financed our instant gratification.

At 3/28/2007 08:06:00 AM , Blogger Lisa said...

Re: the couple with no hardwood floors, no foosball table, etc. Debtor Nation Deluxe. The sense of entitlement is mind blowing.

I agree, if a borrower can prove dishonesty, fraud, etc. on the part of the mortgage broker, absolutely, those folks should have some legal recourse.

But I know a couple who purchased 2 years ago, IO, 5% down, unsteady employment history, and the wife didn't even know how much their property taxes would be. They bought because they were tired of everyone else making a killing on RE. These are the no way bailouts. These folks should learn their lesson and take responsibility for their actions.

At 3/28/2007 10:38:00 AM , Anonymous Anonymous said...

So now the groundwork for the Big Bailout begins; can you hear the sounds of violins?

And in 2009, Comrade Hillary will start throwing handful after handful of Bailout money as She rides booted and spurred from the White House past all the Poor Exploited Lumpenproletariat who Lost So Much to those Evil Lenders and Realtors (sound of violins again) -- "SOAK THE RICH! SOAK THE RICH! SOAK THE RICH!"

At 3/28/2007 03:59:00 PM , Anonymous Anonymous said...

Hey anon 10:38, so do you normally just go around spamming blogs you don't like? You did the same to the marin blog.

At 3/28/2007 04:22:00 PM , Blogger Athena said...

MV, I come from plenty of blue collar stock as well. In fact it shows on both of us. We were raised by people who worked very hard for every penny, and who knew that being enslaved to debt was no way to live. The fact that we retained our common sense when the greedy and the stupid went nuts and started running the asylum speaks to the values passed down from hard working people.

You don't buy what you can't afford.

Ain't no free lunch.

You want something? Work hard for it and pay for it yourself.

That is the way of life for those who don't use magical thinking to get through life.

While the stories are hard to hear and sad because they are happening to real people that we all can identify with on some level... they were completely predictable and avoidable.

None of these people are where they are by accident. They never intended to fail, but they entered a game with high risk.

When all is said and done, I think people will have far fewer mortgage broker and realtwhore friends.

Anyone who went into the profession during the crazy years will be regarded as the new scum of the earth.


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