When Your Ride Costs More Than Your Crib

What's a F'ed Borrower to do? That seems to be the situation that's happening in the state of Michigan where residents are now finding that it costs more to drive around than it does to stay at home, and they haven't even figured in the cost of gas vs heating oil.

Even though Detroit never suffered from the huge RE run-ups that the rest of the country did, it spared them the pain, as the city has lost more than 50% of its' population in the last 30 years.
With bidding stalled on some of the least desirable residences in Detroit's collapsing housing market, even the fast-talking auctioneer was feeling the stress.

"Folks, the ground underneath the house goes with it. You do know that, right?" he offered.

After selling house after house in the Motor City for less than the $29,000 it costs to buy the average new car, the auctioneer tried a new line: "The lumber in the house is worth more than that!"

As Detroit reels from job losses in the U.S. auto industry, the depressed city has emerged as a boomtown in one area: foreclosed property.

It also stands as a case study in the economic pain from a housing bust as analysts consider whether a developing crisis in mortgages to high-risk borrowers will trigger a slowdown in the broader U.S. economy.

The rising cost of mortgage financing for Detroit borrowers with weak credit has added to the downdraft from a slumping local economy to send home values plunging faster than many investors anticipated a few months ago.

At a weekend sale of about 300 Detroit-area houses by Texas-based auction firm Hudson & Marshall, the mood was marked more by fear than greed.

Wow! When Fear trumps Greed, that's news any day.

Now Detroit is a long ways away from our little Valley here, but we're all impacted by the same economy . The same boom or loss in jobs sends rippples right over the Rockies and no one is immune. One can blame the RE disaster in MoTown on job loss, the collapse of the American automotive industry, but one very telling statement was this:

But investors, including some from out of state, proved far more cautious at Sunday's auction.

In the most spirited bidding of the day, a sprawling, four-bedroom mansion from Detroit's boom days with an ornate stone entrance fetched just $135,000.

Dave Webb, principal at Hudson & Marshall, said Michigan had become a "heavy volume" market for his auction firm in recent years, although bigger-money deals were waiting in California, a market he said was ready for the first such auctions of repossessed property in years.

"These people that are buying have got to look at holding on for five to seven years," he said. "The key is holding power."

So this guy is looking forward to coming west to Cali? We're getting ready for an all you can eat RE smorgey here. Detroit is just an appetizer. A veritible garnish on the investment plate.



Now, as to what's happening in the Spy Vs Spy world of subprime lenders, get ready for another implosion. Remember all those Ameriquestads back in the good ol' days of say 5 minutes ago? Ameriquest, one of the biggest subprime lenders and arch-rival of New Century just got a great big Ka-Pow right in the snoot.


The parent of Ameriquest Mortgage Co., once the biggest provider of home loans to Americans with checkered credit, fired a large number of its workers Thursday and closed six operations centers around the country in a bid to survive the shakeout in sub-prime lending.

Two years ago, Orange-based Ameriquest was at the top of the game — sponsoring the Rolling Stones on tour and the halftime show at Super Bowl XXXIX. Its founder, Los Angeles billionaire Roland Arnall, was a major political donor who was later named U.S. ambassador to the Netherlands.

Does this mean the guy has to come home from Amsterdam? Since they're closing loan centers, they're going to be tightening the old belt buckle personnelwise.

Ameriquest Vice Chairman Adam Bass declined to say how many employees were dismissed, saying only that it was a "significant number" of the company's 6,000 employees. At its peak, the privately held company employed 15,000 people across the country.

"It was a tough day," Bass said. "Our employees are really good people."

The company told workers not to talk to outsiders. One supervisor, who asked not to be named because he was not authorized to speak, said 3,000 people would get pink slips, with more layoffs to come. The supervisor also said salaries of remaining employees had been frozen and bonuses cut in half.

And finally, just to show that "the world is a circle" and we all land someplace on the Great Housing Mandala, It seems that people caught with soap scum from the bubble all over their mitts, here in Sonoma (and Cali in general) aren't buying the cars they normally would have. Who pays the price for that? The folks in Detroit.

California and Florida alone - usually the No. 1 and No. 2 automotive markets in the United States - are experiencing such weak housing markets that they are largely responsible for that decline, as well as the nation's overall 2.4 percent decrease in auto sales, said Art Spinella, president of CNW Marketing Research in Bandon, Ore.

"The housing market and especially home values are behind much of the auto industry's stumbling," Spinella said.

And if one didn't understand it before,
Edward Leamer, a professor of management, economics and statistics and the director of the Anderson Forecast at UCLA, said there are many parallels between the housing and automotive markets and their current suffering.

Low interest rates set by the Federal Reserve in recent years encouraged aggressive lending practices in both industries to entice consumers to make purchases sooner than they should have, he said.

That environment also allowed more leniencies for customers with risky credit profiles.

But now homes aren't appreciating enough to cover the risk for some of those customers, and auto owners are often underwater on their loans.

Consequently, there aren't as many buyers for homes or autos these days.

I'll make it even easier, after all The Lion King said it best.
Some say eat or be eaten
Some say live and let live
But all are agreed as they join the stampede
You should never take more than you give
(more song)

Some of us fall by the wayside
And some of us soar to the stars
And some of us sail through our troubles
And some have to live with the scars