Save My Lexus
November 26th, 2007 by 
reality
From todays’s WSJ, “Citigroup Feels Heat To Modify Mortgages; Nonprofit Groups Press For Subprime Relief; Deciding Who Gets Help”:
In Granada Hills, Calif., Natalie Brandon is fighting to keep the three-bedroom ranch house she bought in 1985 for $105,000. Mrs. Brandon, 51, does medical billing for doctors; her husband is a dispatcher for a local gas utility. Last year, she got a $625,500 mortgage from Argent, now owned by Citigroup. Her 7.99% interest rate isn’t set to rise until next June, but she already is behind on payments.Over the past five years, she has refinanced her home five times, each time taking out cash and paying prepayment penalties. Last year, all she had to do to refinance was state that she and her husband earned a combined $100,000. She says she used the proceeds to pay off $30,000 owed on her white Lexus.
This year, she says, their income fell after she suffered a short-term disability. Mrs. Brandon figures if she sold her home today, she wouldn’t get more than $450,000 — what a nearby home sold for in foreclosure.
Another sympathetic figure. She has borrowed (and spent) something like $550,000 assuming she put 20% down into a conventional mortgage in 1985. And now she wants a free ride. Literally.
Here’s another example, from the Irvine Housing Blog.
The asking price of $1,249,000 does not look like a rollback, but if the property actually sells at this price, the lender on the HELOC (Washington Mutual) will lose over $300,000.These owners will probably just walk away. I doubt they have any assets. They never put any money into the deal, they pulled out $333,000 in cash, and they got to live in Turtle Ridge for 3 years. Not a bad deal — for them.
Karma will not leave these people alone though. They have become accustomed to a lifestyle far beyond their means. Their house was providing them with $111,000 a year in tax-free income. When they get forced out, their credit will be ruined, and they will have to go from living the life of the nouveau riche to being a destitute renter. We can only hope this transition is painful and the memory of what they lost lingers for years.
These people likely drank the kool aid and actually believed this kind of lifestyle could be sustained. That level of ignorance makes it hard to have much sympathy for them. However, when you see the excess of this lifestyle, you can’t help but wonder if it was worth it.
If you knew prices were going to collapse, and the lifestyle was not sustainable (like many on this board did,) would you have done it anyway? When you see the lives led by people like today’s owners, it is not difficult to see why so many chose that life.
Coincidentally, both of these borrowers chose to supplement their incomes by borrowing about $110,000 each year. To net the same amount, they probably would have had to earn an additional $180,000 or so each year. They borrowed this money without any reasonable expectation of repaying it, or even being able to pay the full amount of interest from their incomes. True Ponzi borrowers.
Posted in Debt, Income & Consumption, Rogues and Rascals | 
November 26th, 2007 at 4:03 pm
You know, you didn’t hear people complain when they were cashing thier checks from selling houses, taking the money and blowing it on rediculous things to lavish themselves with. I know several people here in Scottsdale, AZ who make a decent living at around 80k. Last year these people were getting bi-weekly massages.. spending 1800 on a Friday night dinner… Buying new Mercedes and BMWs and spending 1000s on plasma tvs. A 24 year old I work with took a 2 week African safari with his 22 yr old wife! Only to come back and put his name down to have an exotic car built 2 years from now. I have nothing against people enjoying the benefits of thier labors, but your soooooo right in this story. Noone else but the person who signed on the line should be held responsible.. There should be no bailout. People shouldn’t be able to take advantage of the system to.. in essence boost thier own personal cash spending account, and then to turn around and blame someone else. It’s really the exact same thing as if these people had just spent all that money on credit. Credit generated by the ballooning value of thier home, Just because the credit was secured by an inflated asset which has now deflated, the credit is still due. There are plenty of people who didn’t refinance and kept things sane. These people shouldn’t end up getting the shaft because the people who spent the money get bailed out.
Had Mrs. Brandon in the story above not been so damn greedy and took out a load of $400,000 against the value of her home to enrich herself with Lexues and the latter, she wouldn’t be in this situation… Time to pay the piper Mrs. Brandon… sorry
November 26th, 2007 at 6:55 pm
NPR just covered a guy in Seattle who bought five million dollars worth of houses. He grew pot in them. He got the loans despite not having a (legal) job.
When will we see lenders/lendees doing the perp walk on TV for committing fraud?
Didn’t banks lobby for stricter bankruptcy laws after getting loan origination standards relaxed?
Am I stupid for living within my means and saving money only to lose it to taxes, inflation, and mortgage defaults?
Schadenfreude, don’t fail me now!
November 27th, 2007 at 2:21 am
Perhaps when we read of stories like these we get worked up - but then that’s only applying our value to them. It’s so hard to become your brother(sister)’s keeper in society. I think the only we can do is do the best we can for ourselves, try to vote for the right person, and if possible, have lots of cash and chips onhand during these wealth reduction cycles aka defaltionary asset cycles. THen, we buy appreciable assets (not depreciable asstes like cras and boats - or White LExuses) at the bottom what no one else wants nor can afford.
Then we wait.
Then we sell it to the next fool at the market top.
repeat for as many wealth cycles you have in your life.
Become a very rich man….!
I don;t conisder myself rich at all. I own a 5 year Buick Century that has only 73,000 kms on it and it purrs like a new tomcat. Okay, I have to spend some small money here and there to maintain it. We mostly don;t eat out but when we do, we go onthe cheap as we live in an emerging market country….
My wife thinks very similarly and I am absolutely blessed wiht someone who undertsands the need to live WELL below our means.
BTW, John Marks Templeton is my hero and I wish I can live a life as successful as his as a person, philanthropist and investor. When building his wealth, he and his wife made a sacrifice to save and invest 50% of their income. I try to keep that in mind…..
(After some scary fits, my portfoliio is up 50% in total since Aug 2006).
And instead of buying that white Bentley, we bought a golf villa on a golf course several years ago. And of course, had we stupidly bot a car (more like a boat on wheels), we’d have a 50% depreciation in invetsment by now - even on a Bentley. Well, golf villas have a way of being a treat on weekends, and it is likely to “be an excellent hedge on inflation.” We still chump on hamburgers now and then when we eat out - no $100 sumptuous steak dinners for us….
I still drive the Buick and see if I can pass it to my son 15 years from now!!! (it’d be an antique clunker, but then hey, he’s got the earn the money to buy whatever he wants….)
I seriously believe that the rich become richer - not because they are bad people who try to stamp on the masses. It’s because the rich, especially “Old money,” not the new flashy types, have always learned compund interest, money safety, investing in appreciable assets, and being frugal. People who live this way, cannot help having more money at the end of their game. the challenge is being able to pass that knowledge to our children - instead of just money which they will piss away duringt heir lifetimes - if they did not learn the lesson of wealth building.
THe Chinese have a painful saying, “Fu Bu Guo San Dai,” This means, “Wealth does not last throough three generations.” It is so true.
My greatest regret? I wish I knew then (at 10 years old) what I know now. I’d be living in Lyford Cay driving a second hand Rolls bought at a very good price like Mr. T.
But then, hey, if I live to 92, and if I can realize a 20% ROI every year, I might just make it….. (not likely - but then, if I make it, I’ll write a book fer sure….). My other challenge would be teach my children what I have known and hope that they become even more “frugal” than I (and of course, like Shylock, love counting their money whether in dollars, shekels, or just concrete every day….).
People who have money who live wisely will likely continue to do well. People who live unwisely, no matter how much money they have, will suffer setbacks one day.
I’m only glad that someone up there gave me a kick in the head, and set me right on the road to “frugality,” and I am forever indebted to the guy upstairs….
November 27th, 2007 at 5:06 am
Very philosophical and very sound. And certainly some of these folks are the innocent fools that they claim to be. But many are not, they are cynically taking advantage of what they see as opportunities. It is OK to be upset about this behavior, because their conduct not only hurts innocent people who are trying to do the right thing, it strikes at the foundations of our civilization. Civilized society can only function if most people behave morally most of the time. The housing bubble has encouraged fraudulent and irresponsible behavior to the extent of a general moral breakdown. Publicly holding at least a few of the bad actors responsible is necessary to help prevent the breakdown.