Archive for the 'Housing Bubble' Category

Date: December 13th, 2007, Filed under Housing Bubble

This article is going to infuriate quite a few people I know. I’m not a fan of the HELOC, or what some call the Home ATM. A HELOC, or the Home Equity Line Of Credit, allows you to take a loan out against the equity you’ve built in your home. HELOCs have been very popular even without equity built through paying down a loan, just due to the Federal-Reserve created inflationary pressures that have caused housing prices to rise — giving people more equity in a home than they actually earned by paying their mortgages. Of course, many of these equity values are now falling, leaving some people with mortgages and secondary loans (HELOCs) that are valued over the current value of the home.

First of all, I do believe the HELOC can be useful for a few things: investing in a new business, paying down high interest debt permanently, and emergencies (health or other). HELOCs are terrible ideas for those who want to use the money to buy a new car, take a vacation, or spend on frivolous and unnecessary consumer goods. Let’s look at why that is.

Read this entire article at the housing bubble site

Comments: 2

Date: December 13th, 2007, Filed under Housing Bubble

A reader, Jen, posted a comment on a previous posted titled Housing Prices always go up — not really. Her insightful comment was as follows:

Very sound advice, but according to your rules, only about two percent of the country can afford to live in Southern California. In Sherman Oaks, where I live, the average income is about $62,000; the average price of a home is over $500,000. Since apartments in the area rent for about $2,500 a month for a 1100sqft 2-bedroom, it’s hard not to see the appeal of paying about $3,500 in a mortgage for a home the same size. Of course, that mortgage is about 75-85 percent of a family’s income. In order to “afford” even a tiny house or studio apartment in most SoCal neighborhoods, one would have to be bringing home about $200,000 per year.

Read the rest of this article at the housing bubble site.

Comments: none

Date: December 9th, 2007, Filed under Housing Bubble

I can’t seem to wrap my head around any possible situation that can save many of the top tier banks in the U.S. and the rest of the world. There’s a problem that the Old Media is still ignoring, a problem that has the possibility to effect cash flow and the middle class more than the so-called “credit crunch” that we’re facing today. This problem is the absolute illiquidity of the big banks due to the pending litigation and fallout from the mortgage frying pan many have played with over the past few years.

As some of the regular readers know, the mortgage industry was a big game with big profits. The banks would happily loan money to people who had no credibility in their ability to pay that loan back. Because the banks thought that “housing prices always go up,” they felt they could loan money out to anyone, even the credit score poor, and if they had to foreclose, they’d make money on the foreclosure since “property values always go up.”

Read the rest of this article at the housing bubble site.

Comments: none

Date: December 7th, 2007, Filed under Housing Bubble

There’s talk of the Federal Congress working for a law that would remove the tax burden from the short sale of a home when the owner can’t make the mortgage, and can’t sell it for the remainder of the mortgage. What is happening now is the option of the mortgage lender to “gift” the difference between the mortgage value and the sale price of the home, with the lender optionally giving the borrower a 1099 for that price difference. If you have US$200,000 remaining on a loan, and the home short sells for US$150,000, the lender is gifting you US$50,000, and issuing you a 1099 since the gift is considered income.

If the bill passes, the lender will be unable to give you that 1099, which would supposedly “help” the short seller by not having the tax burden from such a big gift. While I am vehemently against the IRS and the Federal Income Tax at every level, this new proposal creates a loophole that I believe many wealthy people will use.

Read the rest of this article at the housing bubble site.

Comments: 2

Date: October 5th, 2007, Filed under Housing Bubble

Fresh news this morning as the FDIC reports on another bank, the third one in this credit bubble crash, going under. Miami Valley Bank, in Ohio, is now in receivership with close to US$90 million in deposits. According to the Reuters report, the bank has deposits totaling over US$14 million that don’t qualify for FDIC insurance due to being over the US$100,000 cap on deposit insurance per depositor. This is a lot of money for people left holding the bag, who become “creditors” instead of depositors. If you’ve ever had a borrower declare bankruptcy on a loan you’re holding, you know how much you usually end up with: zero.

Read the rest of this article at the housing bubble blog.

Comments: none

Date: October 1st, 2007, Filed under Housing Bubble

A regular reader of this site asks an important question:

When you say a mortgage payment shouldn’t exceed 28% of gross salary, and when Dave Ramsey says it shouldn’t exceed 25% to 33% of net pay, do you (and he?) mean a mortgage payment of:

P & I: Principal and interest?

or:

PITI: Principal, Interest, Tax, and Insurance?

Read my entire answer at the housing bubble blog.

Comments: 1