Rich Deadbeats

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I know that was your intention, but it certainly seems like the author of the piece (and the FOX piece) were making it about class warfare.

One additional thought is that jumbo mortgages have higher interest rates then conforming mortgages. The lenders are willing to take on the extra risk for the higher interest rates. As always, buyer beware.

 

Looking at the housing values used, these results really shouldn't be surprising at all, but they also don't say what you necessarily think they'd say. When the owner of a reasonably priced property reaches a point at which he can't afford to make payments, he is usually going to be able to sell it. If the owner had equity prior to the downturn, he may even be able to sell it at a loss and still leave the closing table with some cash from the deal. Million+ dollar houses take a lot longer to sell, and in a downturn, their values decline much more rapidly than less expensive single family homes. Selling at the depressed market value could cost the owner hundreds of thousands of dollars, so it isn't usually going to be a reasonable option. Worse, as hard as it is to quickly move a million dollar house when the economy as going well, it gets even harder during an economic downturn. Any time the owner of a million dollar house needs to sell and sell quickly, he's in a whole heap of trouble. It takes a lot longer to sell a million dollar home than it takes to sell a cheaper single family unit, even when your asking price is well below fair market value. This probably goes a long way towards explaining the higher rate of foreclosure and surrender amongst those who should at least auspiciously be most able to pay.

 

The graph proves my point: That they were almost the same historically. But as you point out, Aldeth, that is only looking at the overall price of the home, and not looking at income level. Foreclosure rates were below 5 percent in both instances in 2005:

http://www.nytimes.com/imagepages/2010/07/09/business/09rich_graphic.html?ref=economy

For that I give you this:

http://www.nuwireinvestor.com/articles/foreclosure-rates-not-determined-by-income-52213.aspx

Look at this:

http://www.cutimes.com/Issues/2008/...t-a-Factor-In-Subprime-Mortgage-Defaults.aspx

 

I actually thought the article made sense. Typically, a person with a seven figure home has more than one. There is not the same sense of "home" as opposed to simply being an investment. Investments are disposed of when they no long become profitable. Hence, the law allows the poor investment to be turned over to the bank without any real repercussions.

 

@Chandos

I looked at your links and I couldn't find out what type of loans they say are the most likely to go in to default. If I had to guess I would say interest only and adjustable rate are the likely culprits.

As you know, I'm not a big fan of government regulations and rules, but one thing I could get behind would be the requirement that mortgages be at a fixed rate with monthly principal payments with a defined payoff date (without a balloon). It would make mortgages harder to qualify for and people may have to buy cheaper houses than they want to, but I think the benefits far outweigh the negatives of this type of financing.

 

Snook,
happy you see it that way. It would be a common sense regulation IMO, and accidentally about what the law is in Germany.

Yes, people are individually responsible, but - responsible schmesponsible - people often just don't act that way.

For example football (the real thing) needs a referee. The reason is that when two teams are out to get a price, they will act like a bunch of jerks on testosterone and steroids pursuing their self interest and nothing else if nobody's watching them, and people will be harmed.

The realm of finance isn't any different. Without rules and referees that punish irresponsible and harmful conduct you will have rapacious behaviour, by lenders and loan takers alike. One would suppose America had enough of that.

 

OK, but then why are we talking about million dollar homes at all?

This is what I meant when I said, "it is reasonable to assume that people with mortgages in excess of $1,000,000 probably have other investments beyond their house". To put it frankly, when someone loses a property worth it excess of a million dollars, they are losing a house. When someone loses a property worth $200,000 they are losing their home. IMO, that's not a subtle nor semantic distinction. Looking at it that way, the person losing the $200,000 home is losing a lot more than the person losing the million dollar house. The latter can just live somewhere else.

 

What does that say about risk? Sounds to me like you are really saying this from the FOX piece, only wording it a little differently:

But I could be wrong. Personally, I don't see this as an issue of class warfare, but how companies manage risk, and how they do business. The notion of "honoring contracts" has become a legal issue, more than a matter of "personal honor," and that is a basic social problem.

And yes, the rich may be more "ruthless" but they are protecting their investments the same way that any businessman would in a poor investment environment [the housing market]. And certainly it makes even less sense to blame the poor for the housing crisis.

 

Perhaps, although I wasn't thinking exactly along those lines. For the average American who only owns a single home, it's more than just an investment. People tend to use the terms "house" and "home" interchangably, but in this particular context the differences are stark. A house is a concrete object, and everyone can pretty much agree on what is or what is not a house. A home, on the other hand, is more of an abstract concept. A "home" means something different for every individual (except possibly siblings growing up under the same roof).

Of course, I refer to the place I currently live as home, but I also sometimes refer to the place my parents still live as home. My wife does the same thing with her parents' house. But I never refer to her parents' house as home, nor does she refer to my parents' house as home.

A home, at it's most basic, is just the place where you and your family live. However, it is much more than that, which is what differentiates a house from a home. Many of one's fondest memories are from what happens in your home. It's where your kids grow up, or where you grew up. We have emotional attachments and investments to our homes. And I cannot help but think that such an emotional investment goes deeper than the monetary investment we make in initially acquiring that loan.

For someone who owns multiple houses, there can never be more than one or two of them that is their "home". The others are just investements, or a place to go to vacation for a week or two per year. It's easier to walk away, because they are rich, and to them, "it's only money". It's easier to look at a house as just an investment when that it is all that it is.

 

Btw, I completely agree with you, Snook. But loan brokers gain an extra bonus from the lending companies to sell those crappy loans to borrowers. I have heard that it's about $1500.00 per contract. That's an ironic part, that those have been the most defaulted on. Talk about managing risk....

 

Chandos, to your earlier posts, what on earth? Where did that come from? I start wondering whether statistics are presented accurately (a common question on these boards), and you bite my head off, quote me out of context, and accuse me of making an absolute claim?

With your provided graphs, while it's still not conclusive, it looks like my doubts were well founded, as well. It looks like under-$1M and over-$1M were roughly equivalent prior to the downturn (surprisingly, with the rich less likely to default on investment properties), with a rapid uptick once the recession started. Just to be clear, in case you misunderstood something, I was wondering if their statistics represented a historical trend (as they seemed to present it) or a new one.

I was surprised to see, however, that the new trend extended to primary homes as well as secondary or investment properties. That would seem to suggest that the wealthy are more likely to take risks, even with the things that are important, and that would have to be a historical trend.

 

Because you used the Twain [or whoever] quote, which is known to be an accusation that those who use statistics are attempting to mislead the reader. You also used the term "playing," which again goes to motive rather than just if they are accurate or valid. That's different than just "doubting" if the statistics are valid. But I appreciate your back-tracking on the issue.

You never said they were "the same," did you? This is what you said:

There is nothing "well-founded" in that statement and you know it, so I can only draw only one conclusion regarding your attempts at trying to play CYA.

Nevertheless, your attempt at deflections had nothing to do with the topic, did they?

 

I also wondered if that were the case, as other posters have already pointed out to you. Don't mistake me, if the statistics are misleading, I'm fairly certain it's intentional, on the part of the article writer if not the researchers.

Neither did I say they weren't the same prior to the recession. I never said anything at all about what they were like before the recession, just that it may not match what they were like durring it. And yes, that statement does seem well-founded now, though you'll notice it was my general doubts I called well-founded, not that specific alternative possibility.

Really? You base an entire thread off of one set of statistics and when the validity of the statistics and their real meaning are called into question you think it's off-topic? Specifically, you started the thread with:

You blamed the housing collapse as much on the rich as on the poor with underwater mortgages. Not only did your statistics not differentiate between 'poor' and 'moderate', or even 'very upper middle class' (sorry, but a $900K house is pretty rich by my standards), but it didn't even differentiate by time to show a general trend. Yes, I think it was on-topic.

 

Yes, and they were wrong as well. Aldeth, made an interesting point that someone who owns a million dollar home may not be rich. But again, it depends on one's defintion of "rich." This was a widely reported story, so unfortunately for you, there are multiple authors. If you bothered to look at the links, research, or the amount of authors and news outlets, I have to take it that you believe this is some kind of conspiracy against the rich? Can you explain this "conspiracy" in a rational manner?

No sorry, there is nothing in that comment that refutes the point of the article. The article had nothing to do with the historical numbers at all, THAT is something that you cooked up. You tried to alter the topic and failed.

You are just babbling here. I blamed people with bad credit for the housing collapse. Why would you say that? Here's what I said:

And this:

That also answers your comment about my access sentence to the topic.

Next time, please be accurate. It makes little sense for you to complain about others not using data correctly.

Someone said: "Remember what (I think) P. T. Barnum said, "There's lies, there's damn lies, and then there are statistics".

You seem to have them all covered.

My adivce, try to read the posts more carefully and take a closer look at the data. I know you won't admit much here, since you are in too deep. But at least you might be able to come to some understanding, at least for yourself, about the housing crisis.

 

I've taken a look at several of the articles on this topic. They seem to be almost verbatim copies of each other. It seems the new trend in news writing is to skirt the edge of plagiarism.

Your first sentence in this thread openly questioned the 'Fox and Friends' story. To support that conclusion, you cited the news article and it's statistics. Perfectly legitimate. I looked at the statistics, realized they were far from conclusive, and questioned them.

This is true, and I apologize for characterizing your post. I went by the first sentence rather than any clarifying sentences further on. Nonetheless, you did draw conclusions from the article and it's statistics, and I still question those. Question, mind you, not condemn.

 

Yes, and the point I was refuting by FOX? That people make the mistake of tying income and default rates together. The article refutes the notion that you can judge the risk of default based on income. So how do companies manage risk, which is what the researchers who compiled the statistics do for lenders? It's an interesting problem, because the conclusions seem to point to the type of loan in many instances. This is the conclusion of an entirely different study and article:

That alone pretty much refutes FOX's point that the "poor" are bad lending risks. Now, NOG, if you desire to take this in a different direction and discuss the causes of the meltdown, that is fine with me as well. I won't object to looking at the larger picture. Because the article and my topic is only a piece of the larger picture. My piece is that people "generally" make the mistake of assuming that lending risk is tied to income or class. That clearly is not the case.

Fair enough. And thank you for the gracious explaination.

 

I am curious, though. If you didn't want to talk about the meltdown at all, why make a clear reference to it in the very first sentance? Was it just an example of the claim you were refuting?

 

Exactly. I was using it as an example to show how some people were claiming that lending risk and income level were connected.

 

Well, common sense tells me that the poor are a lending risk if you lend them an amount that they will never feasibly be able to repay. That's not a reflection on the morality of the poor, it's a mathematical reality. If you lend a million bucks to a guy who has a yearly income of $20,000, odds are you're not going to see your million bucks again before he dies.

In a very oversimplified sense, I think that's a good way to describe the financial crisis -- lenders lent money to people who would physically never be able to pay it back. In that instance, I would say that both sides were foolish, sure, and then the lenders who sold those debts moved from foolish to fraudulent. The borrowers were victims of overly optimistic thinking and (very likely) a line of snake oil BS. But if you lend people a reasonable amount (and actuary types at the bank have all sorts of cool math tools to determine the physical possibility of repayment) then I don't think that poor people are any more or less likely to default on their loans than anyone else.

The thing is, those with money can take a bad hit to their credit and yet have the resources to keep going without as many repercussions. The truly poor, once they take a hit, don't have the monetary reserves to rebuild or even stay afloat, and they end up in penury, sometimes even on the street.

 

From post #5:

This is from a different study:

http://www.cutimes.com/Issues/2008/...t-a-Factor-In-Subprime-Mortgage-Defaults.aspx

That would include putting people into loans they could not afford to pay back, and also, loans with "teaser" rates that increased after the first few years. Part of this is that loan brokers got paid hefty commisions for putting borrowers into crappy loans with adjustable rates. As a salesman these are a dream come true, because I know from experience that most customers hear what they want to hear when I'm selling them a product. Bad salesmen take advantage of that everyday.

It's probably less important for a Canadian to understand the economic meltdown, because Canada has a completely different system, which largely protected Canada from the bad effects of the meltdown. But Americans should really understand what has happened and is still happening because it is pretty much the end of our former way of life (for now). Things will gradually change from here, but it will be decades before the country truly recovers, by that time we will be an economically second rate country -- surpassed by both China (for sure) and more than likely the EU, (if it can pull its act togehter).

Add to the economic meltdown, the shirking of the US government (since it is running out of money), a crumbling infrastructure, two ruinous wars and political movements that have almost paralyzed the government. I'm teaching my kids to speak German -- just in case (but Chinese would be better).