In my part of Southern California, a lot of folks living in more expensive neighborhoods are facing plunging real estate values by playing scared turtle: They’re pulling their heads in and peeking out only to see when it’s over. They reckon they can cover their mortgage costs for however long it takes for the market to recover, and they’ve got no place else they’d rather be.
The same is not true everywhere, however:
The orders came while Navy Lt. Adam Diaz was winding down a one-year stint in Baghdad: Report to the Navy Annex in Arlington for a new assignment in April. — Given the military lifestyle, the prospect of a move came as no surprise to Diaz, 31, who has spent his adult life in the Navy. The shock came when he spoke with his wife, Stephanie Diaz, about the value of the Jacksonville, Fla., home they bought in June 2006, near the height of the housing bubble. — “Hey, by the way,” she recalls telling him. “The house has been valued for about 50 grand less than when we bought it.”
Upside down on $50k of equity before having to move for a new set of orders is a significant hit for a Navy O-3. Renting the house will probably cost him $300-$400 a month in uncovered cost. Walking away from the mortgage – as many other people in such situations will do – will make a seven year mark on his credit rating, but a potentially permanent mark on his security clearance.
Hope may be on the horizon for the Diaz’s, and countless others like them:
Under (a new congressional) provision, the government will cover 95 percent of a loss if a service member is forced to sell. The government can also choose to acquire the title of a home by paying off the balance of a service member’s mortgage or paying the owner up to 90 percent of the home’s previous value. No dollar ceiling has been set.
Not everyone is covered, however:
(One) couple bought a $438,000 condominium in a new low-rise complex in Arlington in the summer of 2007. They used a no-money-down loan, with interest-only payments for the first five years. They anticipated moving in a few years, and thus saw no point in paying down the balance, said Messer, who spoke on the condition that she be identified by her maiden name so as not to affect her husband’s career.
The problem now is that they cannot sell the home for the value of the mortgage, nor can they find a renter. Messer’s husband has orders to relocate to Texas in April. She fears they will face foreclosure or bankruptcy…
Because they bought their home in 2007, the couple would not be helped by the provisions in the stimulus measure.
Congressional sponsors of the new legislation twighlighted the provisions of the new legislation for houses bought before 2006. Because by then, everyone should have realized that an unpredented free-fall in housing prices and a banking crisis would combine to wreck the economy.
Right?
I’m trapped with a house that may or may not have lost value, but can’t be sold because the Tampa market is so boned up. I would have a hard time getting what I put into it. I rent it, at a slight loss each month. Do I wish I had sold it before the market bunged up? Yes. Do I cry about it? Hell no.
Uncle Sam paid me a fat tax-free allowance that covered my mortgage and then some. That tax-free allowance got me equally fat write-offs come tax time (leave aside the argument of whether mortgage interest deductions are good policy, I got mine). Add that up with some CZTE, which that good LT got BTW, and I actually qualified for the EITC. Didn’t take it, but that’s how favorable the balance sheet was.
So each month I gain a full month’s equity in the house for a few hundred bucks, and I still get the tax write-off, even though I don’t get the generous allowance for that mortgage (I’m in Europe, getting a fatter allowance for rent). Ow, hurt me more.
The plan does no good for anyone, it’s just another grab from someone else’s wallet (Snake’s? B2′s?) to put money into someone else’s. Screw it.
I generally oppose housing bailouts, but I’m willing to make an exception for servicemen. No one should be forced into bankruptcy, with all the attendant troubles both civilian and military, because he chose to serve his country. If you read the story in detail, Lt. Diaz did absolutely nothing wrong: he paid a reasonable price for the house, he has been paying down the amount of the mortgage, and he got sucker-punched by the housing crash. Were he a civilian he could stay in the house despite being underwater on the mortgage. But he’s not a civilian, he’s military, and he’s been ordered to move. Not his fault, shouldn’t be his loss. I thus agree with the proposal to help Lt. Diaz and other servicemen and -women in a similar position. If this bothers you, consider it a perk of military service, and who could possibly deserve it more?
Well, I agree with it within limits.
The second case listed in the article demonstrates those limits. A half-million-dollar condo on an Army enlisted man’s salary? They got a no-money-down, interest-only loan and never intended to pay down the principal? Might I gently suggest that this fellow …. well, might not be among the brightest of bulbs? And thus might not quite be intellectually qualified to be a member of our Armed Forces?
Well, I’ve been paying a mortgage on a house I don’t live in at a town I’m not going to be assigned to again for about two years now, and the advertised price is now about 15 grand less than I bought it for in ’05. So maybe I’ll hold off a month or two more to see if this plays out and maybe take the big loss I’m going to get if I accept the one offer I had for fifty grand less (on a $150K house!)
So if it’s free money I’ll take it…and put it in the empty bucket that used to have my savings in that Roth index fund.
Before we bash those who bought on an interest only loan, with the idea to move in a few years (before the payments ballooned), remember this was the only way most folks could get their foot in the door. The “established” pattern (pushed by more than one realtor) was buy something small, pay for a few years while it climbed in value (’04-’06 things were climbing quickly), then sell it and use the gained equity to as a down payment for something bigger and unobtainable without any huge savings or a big paycheck. Climbing the property ladder that most of us making less than 6-figures had to do in SoCal (journalist and teacher pay sucks).
We bought a fixer-upper condo for way more than it was worth, learned a whole bunch of new carpentry, electrical and plumbing skills and were ready to sell when the market first started to nose over. We broke even, but worked our butts off to improve the place and stage it for sale. we sold in 6 weeks and are glad we didn’t buy then.
Yeah, some folks should have not bought, but that tax right-off is mighty nice when April comes around. This down turn is a necessary evil I suppose and my wife and I can actually afford a small house now. And house prices are finally low enough to get a VA loan this time. Four years ago, the loan limit was too low for even a 1-bedrm condo…
I wish some of you well meaning folks had been around back in the 70′s and 80′s when I bought and sold several homes as I bounced (ordered) from coast to coast chasing Navy jets…
Yep. During Jimmy Carter’s stagflation & 15% mortgage interest rates and through at least 3 recessions or more I bought and sold, sometimes at a loss because I had to…Nobody ever thought about making it easier….or free from risk.. If you didn’t have 20% down for a conventional good luck…
And when you sold, you were taxed on any profit and oh yeah, as a single officer, I didn’t get BAQ.
Why are we so willing to bail anyone and everyone out? When is it gonna stop?
Risk is what makes capitalism effective. Reducing risk for emotional reasons is just creeping socialism. People gotta live within their means. Getting out of this hole we’re in should hurt. Bankruptcy should have consequences just like getting a “Big Chicken Dinner” should. If it doesn’t all we’re doing is pushing it on the next generation.
Sorry but, “Let them eat rent”. Loud and clear?
b2
I’m with B2. Risk goes both ways. Renting looks pretty darn good these days. Heck, you can invest the savings in the stock market…..
I take it you’re a stand up comedian in training?
Stock market? Good one. Only if you’re retirement savings are safe….
What’s this retirement of which you speak? Those of us who’re in our 20s, 30s, even low-40s are going to get to pay the interest on the manifold-stimuli while our own kids and grandkids handle the principal.
Not to slam on the Boomers, but a few years ago I took a look at the number of our elders, and what was owed them, against our numbers and our ability to pay – and I wrote off ever having the privelige of retirement. I’m only surprised by how many people I talk to at work that are coming to a similar conclusion.
With the way we’ve been acting too, I can honestly say we’ve earned it.
Well, as one who is directly affected by this whole housing thing, I have a different opinion…
We bought our house here in SoCal back in May 2006 with what started out as an interest-only loan. We refinanced to get a conventional deal (and pay down some of the principal), but then the market crashed, and now our house is worth about $100k less than is was when we bought it. I have to say that this deal, if true, would be a real boon to us when we’re forced to sell in a few years once I receive orders (hopefully) to Ft Campbell in 2011.
I personally don’t want one dime of my tax dollars going to bailout a single mortgage in jeopardy of failure. Let the chips fall where they may to include my own mortgage if it were to be devalued to a point where I would qualify. It sets a bad precedent for lenders and borrowers across the board. For those that financed on an interest only loan or an ARM simply to afford your payments when the simple research would have shown you how overinflated property values were at the time, SHAME ON YOU! Did you really think property values would remain where they were? While i respect everyone’s right to own a home(assuming they can afford it), I dont feel its in our best interest collectively to subsidize poor lending decisions and poor borrowing decisions gone bad. Many of those that voted back in the day to create Fannie/Freddy and their terrible lending standards all in the interest of making a buck are the same people who are voting to back the bailouts. Do we really want to travel down the road to socialism, becauase that is the road we’re traveling down right now and its scary.
Well,
I have never owned a house, not any real property other than my car or truck. I have rented the house I live in for the past 17 years. To be honest, I seem to be missing something here.
Why should I end up paying three times the price for a house than it’s appraised value? By the time you finish 30 years of mortgage payments, yes indeed, you own the house, but you’ve paid close to $300,000 for a $100,000 house, that may or may not appreciate in value.
Now, to my mind, renting gives me options. At the end of the lease, I can walk away free and clear and go somewhere else, if I choose to. I understand the argument that, when you reach retirement, you can sell the house and move into something smaller and have the rest of the equity in cash. Maybe.
But, rather than pay all that extra interest (which may add up to almost twice the cost of the house), why not rent, and put that extra money into a CD or stash it in cash? That way, when you choose to move, you’d have all that money instead of the bank having it.
I get having a home and being able to do what you want to with it, but that’s not always possible either. There’s a point where the added tax burden offsets any home improvements. There may also be easements, codes and other prohibitions that prevent you from doing what you want to with your property.
I enjoy the freedom of being able to pack up me and the kid and move where we choose to. I view the house as shelter, not investment, because I cannot understand the investment part. The bank wants me to buy a house so that they will make many thousands of dollars off of me. The real estate agent wants me to buy a house so that she will make thousands off of me in commissions. The state wants me to buy a house so that they will make thousands off of me in taxes. In the end, i pay Peter, Paul & Mary, and the house is still only worth half of what I have paid in total to everyone involved.
Better to rent the home and put the saved cash into my pocket. That way I’ll have it when needed.
respects,
Maj,
With all due respect that comment is part of the problem.
Somebody pays. I’ll tell you who. My kids AND yours. You obviously didn’t read the details of my post and how things were done in the past..easy to do, ignore it.
Major rant-ON:
I knew this was coming. How the hell do people making 100K a year with 2 working, qualify for a 500K house? I asked myself- they want the risk-it won’t affect me- I’m traditional. WRONG B2. It didn’t make sense in 2006 and doesn’t now. Goddammit, why should I have to pay for it? Why? Remember the Ant and the Grasshopper story? How many of you are grasshoppers? Well the grasshoppers have more votes than us ants in this here democracy so I reckon you’ll take my stores to get throught the winter. Is that it?
Any of you “conservatives” who tout values all the time out there and doing the right thing have a good answer?
Any analytical folks out there? See it in my perspective:
http://research.stlouisfed.org/fred2/fredgraph?chart_type=line&width=1000&height=600&preserve_ratio=true&s%5b1%5d%5bid%5d=AMBNS
b2
You nailed it ye old bad one.
In the end somebody pays for every folly. The question is who is going to pay for this one. I suspect all of us to some extent. We lived in one bubble after another the last couple of decades – all ended badly – remember S&L crisis of the 80s, Internet bubble of the 90s and now Mother of All Bubbles (MAB) that is where all our chickens come home to roost.
In order to get out of it there will be massive pain and resentment of those who basically ripped others off by taking he money and running while the gittin’ was good.
This notion that there can be no pain and that everybody and everything can be bailed out is just more folly added to the folly that got us here.
The tales of home equity lost and such are heart-wrenching – especially those about people forced to move because they serve their government. And I have nothing but feelings of anguish for the like of Maj. Harvey’s predicament since I feel like I kinda “know” him like a neighbor.
But in the end it is all going to suck a lot for a lot of people to restructure this economy into one based on production instead of consumption, thrift instead of debt, and long-term planning instead of instant gratification. That is if we can do it.
Remember the recession that Reagan faced in the early 80s. How, despite the hue and cry from all those who wanted the government to bail everyone out, we took the medicine and, under Paul Volker’s leadership of the FED, whipped inflation into shape. That was something I had been hearing about since Nixon’s days (Remember wage and price controls?) and FORD (Whip Inflation Now WIN) and Carter (I’d just as soon forget). We got out of it stronger because we took the damn medicine. To the extent we are now going down the path where it seems nobody wants to be a grown up and realize that sins have consequences, we are only delaying the inevitable “come to Jesus” moment needed to start getting on the right path again.
And don’t think I don’t care about those suffering – that is what requires such strong leadership to convince everyone to do it.
B2-
Yes, I did read your comments. And I understand that things pretty much sucked back in the 70s and 80s under Carter. So yes, you can rant all you want about rabid inflation rates and 20% down all you want – you’ve earned it. You’d have taken whatever bailout you qualified for and would’ve been happy about it.
However, if they’d offered some type of exception for servicemembers back then, I seriously doubt that you’d have refused to accept it simply to maintain your bragging rights about “how hard it was in MY day” thirty years in the future.
Yes, I’m aware that SOMEONE has to pay for every decision, but like wolfwalker said, I would be in favor of allowing military members this advantage for the reason Lex and others enumerated. Simply put, I don’t/won’t have the option of just staying put long enough to ride out the current depression the California housing market is in.
Ok, bad editing – take the last sentence from the 1st paragraph and mentally move it to the end of the 2nd – it’ll make more sense that way!
Before we bash those who bought on an interest only loan, with the idea to move in a few years (before the payments ballooned), remember this was the only way most folks could get their foot in the door.
I have no problem with subsidizing those in the service whom I am telling have to move. However, I have no sympathy for the above. I married in 1973. It was not until 1986 and two kids later that I bought my first house. I waited 13 years until I could afford to get my foot in the door. So I’m really not too worried about people who decided to cut corners.
B2, I’m a brick, please explain the FRED graph.
Maj,
Then we’ll NEVER crawl out of this hole and that little guy in the avatar will pay the consequences…I only brought up the past to show how far we’ve fallen. BTW, Carter was only president for 4 years during that period and all of it didn’t suck, not at all. You play the hand you’re dealt- we didn’t expect gimmees.
Capitalism sucks my friend when risk is realized. Aren’t you the least bit afraid about the consequences for our society both servicemen and everyone else?
Benefits and pay are awesome today as is the new GI bill. Better than ever, imo. Just how much do you think your service is worth? Our society is hardly based on the “Starship Trooper” model. Mind you I am not asking you this as a civilian but as a fellow warrior, retired, who certainly has sacrificed just like you. Service…It ain’t just a word.
b2
B2-
I truly understand where you’re coming from – really, I do.
However, renting (as AW1 Tim suggests) isn’t always an option. Base housing certainly doesn’t have enough available housing for all the families that request it – often, the waiting list is many months long, and even then the quarters (at least on Marine bases) are barely adequate – certainly not comparable to what one could get outside the gates using BAH.
Yes, I suppose that I could simply find a place to rent out in town, but the rates here in Sandy Eggo were (back in 2006) higher than the cost of owning a home and paying a monthly mortgage.
I’m not saying I necessarily agree with the wholesale subsidizing of every servicemember’s upside down housing situation, but I’m not going to complain about having *some* help when it comes time to pack up and execute PCS orders. If it were up to me, I would simply stay put and ride out the storm, but Uncle Sam says otherwise.
Zane,
It’s just a fed graph depicting dollars vs time (history) and the printing of money. Since the 40′s we haven’t been on a gold standard because we did away with that and because of our good calm record to that era (depression, WWII,etc.). However, notice that the printing of money takes off at the beginning of the Great Society and grows relative to our debt. Quite a slope eh?
Now just look at the last several months and it’s going higher still pegged north…To help people and for change and all that. Yowwwwsa!
Now, make your own decision on how to interpret the graph.
It’s dam scary to me. I ain’t the heavy in this bad situation. Don’t shoot the messenger!
b2
Maj,
I feel your pain. I do. In certain corporate venues and even federal service they’ll cover losses on moves during BRAC but so will the IRS in your case come tax time.
Find a good renter and refi the SD casa if you need to. Take base housing on the other end and take the renters loss on your taxes. Cover the losses in value in depreciation. Other than that you’ll just have to wait it out and prices come back. I’ve been around awhile and lived through the ’92 recession in SD with a house. It’s always come back, especially SD.
I’m just worried this time is that it will take longer for that to happen because Barry is trying to make us into Sweden overnight….
b2
B2/Maj: good effort keeping a heated discussion from boiling over. The whole bailout deal is obviously a sensitive issue that we will be dealing with for generations to come. Seems that we fail to learn from history. FDR tried to spend his way out of the depression and, in many educated opinions, prolonged the recovery in doing so. It took WWII to really pull us out of that mess.
My favorite evidence of blind greed was the “stated income” loan: armed with a good credit score and appropriate loan-to-value ratio you could obtain a mortgage without any proof of ability to repay the loan. Simply sign a statement listing your annual income and off you went. My alternate pick would have to be the appraisers who had the uncanny ability to value the subject property at just slightly more than the requested loan amount.
CEO compensation, stock market, investment scams… all adds up to greed plain and simple.
Well Steve, that’s one of the reasons I hang around these parts – ‘cuz most of us can disagree yet still behave in a gentlemanly (or ladylike, for you LexBabes) manner.
The key to any disagreement is understanding – really understanding – where the other party is coming from. Most people aren’t too skilled at this.
But my fellow Lexites (did I just coin a term?) tend to have a bit more class than those you’d find over at, say, HuffPo.
Thanks for the back ‘n forth, b2.