Monday, July 9, 2007

* Who Pays?



When buying a condo these day's, you have to look out for a lot of big and little things. Some are obvious, some, not so.

Take past due utility bills for example. Here are a couple of stealth condo conversions that took place on Lunt Avenue last year. The owner/developer bum-rushed about 50 new condo units, where 50 renters once resided.

They weren't selling so well on the open market. One property, 1415 West Lunt, had to put the units up for auction. Maybe unpaid bills were piling up in the mailbox and they needed a quick infusion of cash?

The question of the day. Who will get stuck paying for the unconscionable developers old gas bill? Will the new owners have to band together and cover this cost? A unexpected cost this unscrupulous developer left behind. Or will the developer realize his/her mistake and pay the deadbeat gas bill?

43 comments:

Triz said...

Did you hear that the Blockbuster on Lunt/Clark is closing. They have a "new" location just north of Touhy and Western. (Existing location).

Wonder what will go up on Clark.

Fire Ron Guenther said...

Craig, long-time reader of your blog. I risked my life and rode my bike through the Hell Hole early Saturday morning. I even saw the infamous Soo Liquors, but I was disappointed because it was closed. Burglar bars!

The North Coast said...

Craig, you can expect many more properties that were developed in the past few years of real estate lunacy to go to auction. Look around you at all the rehabs coming on the market in RP alone. You see two or three people buying right away, and the rest of the units languishing. How neat to be one of three new owners in an association owned mostly by the developer.

You can expect many more buyers to be in trouble not only on their loans but by being stuck with the previous ownership's old bills AND with really serious building problems such as structural deficiencies, ILLEGAL CONVERSIONS, and multiple code violations, as the bear market in housing deepens and the mortgage problems begin to cascade.

This late bout of real estate mania has done incredible damage that will cascade down through the years. In addition to being deep underwater on a property that was way overpriced to begin with, most people around here, as well as in other 'hot' metro areas, used "creative" ARM loans that are now adjusting upwards at just the time their properties are losing value from the ludicrous high prices of 2003-2005. If there are also grave deficiencies in the structure, these people won't have the dough to correct them.

The city has really fallen down on the job of protecting buyers from really flawed construction, as well as from fraudulent sales, in the past few years. One development of $1MM condos in Bucktown had to be vacated because it was in danger of collapse. Other people report unsafe new porches, walls caving in, and other egregious code violations on recently constructed or rehabbed properties.

Worse, many buyers didn't even do the minimum to protect themselves. In addition to signing on loans they had to damn well know they couldn't afford, they were so hot to buy that numerous people waived inspection, which is the dumbest, most suicidal thing a person can do. They did this very frequently with new construction and new rehabs, and now are having a hard time obtaining relief because they signed away so many of their rights to begin with.

Everybody was very stupid during this period, but they will get smart now, especially the lenders. No more buying a $180K place with 5% down by someone who makes $40K a year. No more getting a fraudulent appraisal for $175K for a place worth barely $120K so you can get the cash out and go trade stocks with it or buy a $75K car.

Mark Fletcher said...

My wife and I had a look at the 1415 W Lunt properties before they went up for auction. They were a joke. They were that small that in one unit, you couldnt open the kitchen door to the hallway because the fridge blocked the door.

Its important to note that in this current market, one side-effect is that these unscrupulous developers are going to feel the burn even more, if unsold units go to auction.

Whereas before they could get away with sub-par construction because demand was high, if you're having to sell at auction, its a clear sign that you're wanting to cut your losses and run. Hopefully this will scare off such developers in the longterm. Heck maybe even bankrupt a few.

I can see this downturn continuing for the next year or two, but it will pick up in the long term, and prices will start to rise again. That is inevitable. But the days when you could buy a property and flip it a short time later are gone for now.

We've bought a place in Rogers Park, I honestly believe that in the long term prices will rise. We'll be here for five years at least.

Mark Fletcher said...

North Coast:

I agree with you on getting an inspector to look at the property before you close. We did that with our condo, and we made sure at closing that it was agreed upon that the developer would resolve all the issues on our punchlist, within a year.

Now that its in writing, the developer has to kow-tow, else we sic the legal attack dogs on him.

The North Coast said...

Mark, I looked at 1415, too, and thuoght it was a sick joke. An ugly, squeezy 4+1 with tiny, boxy low-ceilinged rooms and a veneer of granite and stainless.

But there are many just as bad. I saw someone moving her pathetic belongings into 1200 W. Pratt, where STUDIO apts are being offered at $129 and a 550 sq ft 1 bed at $155K. There were two tiny little closets in the 2bed 2bath, that was 800sp ft inclusive of closets and furnace room.

I reached the total gag point when I looked at the tiniest one bed rehab I ever saw on Sherwyn. I could find NO place where I could even put my books or painting or clothes, and forget about my vacuum cleaner, step ladder, or Christmas stuff. I thought, how do you even LIVE in a place this small?

You know that housing is overpriced when the place you buy that costs you $1400 a month in payments, taxes, and main. is a STEEP COMEDOWN from the rental you have for $825 a month. Yet every place I looked at in my range was steeply inferior to the rental I'm living in. Why buy if in doing so you feel like you have come down in the world? There ought to be some joy to it.

I'm still renting, and waiting.

The North Coast said...
This comment has been removed by the author.
Mark Fletcher said...

I forget the exact address of the place, but its the rehabbed condos just west of the Heartland Cafe.

We had a look at the top floor unit. Beautiful unit, in our price range, high ceilings, massive master bedroom with walk-in closet. Close proximity to the Heartland Cafe, L and Metra stops. We wanted it!

Only problem was the floor has a slant. A very noticable slant. Like you could walk across the room and it was like walking uphill. No doubt a ball would roll down the room.

We approached the realtor, and made her an offer to buy the place at the *asking* price if they would fix the floor. No such luck. They would only accommodate us if we made a $20k downpayment. Of course we turned around and walked away.

That was in March. I dont know if the unit has sold yet.

Mark Fletcher said...

A lot of people are looking at the current market and expecting a crash. Like suddenly unit are going to be available at half the price etc etc.

When the market picks up, expect the prices to return to their 2006 prices fairly quickly. People who have bought (admittedly overpriced) condos will not sell at below cost, unless Rogers Park experiences a Hurricane Katrina style disaster or the Gangster Disciples suddenly get the taste to throw molotov cocktails thru peoples windows.

the.dub said...

North Coast-

I'd love to see where you are getting your "sky is falling" stats from. It may be reasonable to say that some people are over extending themselves in order to purchase homes, but to say that "many in Rogers Park" are doing so is silly! I have two properties in Roger's Park and made none of the follies you've mentioned while purchasing either.

Furthermore, the association at one property is going after the developer. This is AFTER we had an inspection saying everything was OK, it turns out the porch was NOT up to code at the time of selling, the roof ISNT in that great a condition as stated, the boiler MAY need repair, and the poor tuck pointing MAY have been intentionally hidden under a cheap covering of mortar. These are things that cannot, to my knowledge, be inspected without the developer's permission, assuming you are buying while they still own the property.

The lending institutions have NO responsibility to keep buyers from committing bone-headed mistakes outside of what the law dictates and what their bottom line can handle. Quit lamenting all of us so-called stupid people (which, like I said, I'm not one of but according to your blanket statements I am).

You sound like you may have gotten burnt by the very same situation you decry...

Mark Fletcher-

I applaud that you got these things in writing, but mourn the fact that it means very little. Our association's attorney is pretty sure he can stick the developer for the cost of porch repairs considering something illegal CLEARLY took place (it was his duty to make sure they were up to code before handing the building over). However, it is going to cost us potentially hundreds of thousands of dollars to stick him on such a "clear cut" charge. The other issues may leave us high and dry footing the bill.

My point is, if you consider how much trouble we'll have squeezing money from him due to major infractions, you can bet your punchlist is pretty small fries.

Mark Fletcher said...

ceedub,

Sorry to hear you are having problems with your developer - cant the association force the developer to pay legal costs as well?

Mark Fletcher said...

Legal action against unscrupulous developers is not something thats unique to Rogers Park.

A friend of mine who lives in Wicker Park bought a property with "secured parking". It turns out it was a garage, but without the front door! They took legal action against the developer and the developer put a door on the garage. It didnt cost them hundreds of thousands of dollars though.

Mark Fletcher said...

Ceedub -

The sky might not be falling, but admittedly right now it really is a buyers market.

Case in point - the new condo development on Diversey and Wolcott (near our old apartment). 40 "upscale" condos with private elevators, parking, in a good neighborhood to boot.

The condos were finally finished 1st Qtr 2007. So far only three out of the 40 have sold! Theyre so desperate to sell them that at one point they had a "Buy a condo, get a free car" promotion.

Craig Gernhardt said...

If anyone's looking I got a huge 2 bedroom condo with parking in Ravenwood.

4431 North Greenview to be exact.

$375,000

And before Toto drives by and runs off at the pooper, no I'm not selling my RP condo and moving there.

Mark Fletcher said...

Shameless plug Craig.

I'll take if off your hands with a variable rate mortgage for $200k.

The North Coast said...

ceedub, seen the foreclosure stats lately?

This month will be a mad month, for another $800 BILLION dollars worth of adjustable mortgages will be resetting, and a large number of the mortgagees involved will not be able to meet the higher payment.

Most of the loans I was offered in 2004 were adjustable loans. One was relatively conservative with a 5 year period to the first reset, a 2% yearly cap on interest rate adjustment, and reset once a year. The owner rejected my lowball offer so I did not get this loan. Other people offered loans for higher amounts of money, with terms that anybody could see amounted to suicide. "But you can get it refinanced!! You KNOW this place will be worth 20% more in two years!!" Really, I asked. Do you guarantee that?

Right now, this housing market looks like a "stage 4" stock, using Weinstien's terminology. It's gone the first leg down, and looks like it could drop further. In the "last sales" section of the Chicago Trib, I saw a Last Sale at 4848 N Sheridan Road, for $141K. That is a brand-new 8 story bldg with all the bells and whistles and a begining ask price of $199K.

So I'll at least wait for the dust to settle on this wave of adjustable resets. They don't have to be "liar loans" at 10X the income of some moron who bought thinking he could flip in a month, to be hellish for the mortgagee. One cretin is this area posted on Forum49 to brag about the $300K condo he bought on his $65K income- a set up for financial disaster. Plus he bought more no money down to 'flip'. Haven't heard from this guy lateley. Many people with incomes exceeding $100K a year, or even much more, went in deeply over their heads on loans with "teaser" rates of 1.25% or 2%, because they wanted a house for $800K instead of the $300K they could reasonably afford using conservative underwriting standards. They are gettig backended with tens of thousands of dollars in deferred interest. Will they be able to pay it? Many won't.

The size of the "bezzle" that is the housing bubble of the past 5 years is just becoming evident, and my belief is that there is more downside left.

the.dub said...

Mark-

It sounds like your buddy got lucky with the garage. If we win the case we can get the developer to pay. It is a long term strategy: they tell us to expect up to 2 more years for this all to settle.

I purchased in mid-2005 and may have missed many of the horror stories you are both recounting. My second purchase was a single-family home which I believe was a great deal.

North Shore-

It sounds like you've done your homework, but those stats still aren't unique to Rogers Park, are they?

Craig Gernhardt said...

I never take advertising on this site Mark. For gosh sakes, cut me some slack on this one.

It's been on the market for 9 months now, the best offer was $350,000. I'm ready to try a different realtor.

I can hold out on the monthly mortgage and assessments, (which are low, $212 a month) for about six more months before I'll go down.

Shameless plug again. Photos and personal tours available.

ortis said...

Craig,
Don't worry, People's Gas requires a name and SS# to open an account, even if you are an evil developer. They know who to go after, they are just an inept bureaucracy, so it takes them awhile. Most of the cost will unltimately be paid by every People's Gas customer. The beast must be fed. Just like the City and County governments. Daley's beast and all the trees and flowers in it have to be fed and watered by a growing number of condo conversions. Quick math. RP 12 flat tax bill before condos - $16,000. RP 2 br condo tax bill - $1,800 (and that's conservative) x 12 = $21,600. Hizzoner just increased the County's revenue by 35% without raising taxes. And he didn't even really have to do it himself. The developers and their aldermanic friends, even Joe Moore, a not-friend, did it for him. Herein lies the beauty of the free market system, Craig. Consumer's pay 60-100% more for housing, and almost everyone profits. Who will feed the beast and water the flowers when it stops? I can't tell you right now. On the bright side, condo sales are actually only down about 10% from last year. There's just too much supply. Let's hope tax payers buy them all.

The North Coast said...

No, ceedub, this is a nationwide fiasco, that seems to be affecting all markets.

Let's just hope it doesn't affect the whole economy. Already Lowe's and Home Depot and other outfits that supplied all the improvements and accesories are being hit.

A recent auction in Atlanta saw new houses in upper-middle-tier subdivisions being sold for half what they sold for 3 years ago. Sometimes a THIRD what they sold for.

So, could a vntge condo in RP, that sold for $42K in 1998, $127K in 2003, and $160K in 2005, be vulnerable to a steep retrenchment? I saw such a place. I looked at it at $127K, which it sold close to, then saw the very same unit for sale on a 1998 multilist sheet, at a condo class I took, for $42K. I thought YAW!!!!! I am giving this person a 250% profit in 5 years!!!

And when the market continued to ratchet northwards at an insane pace, I just backed away, keeping my eyes peeled for "fixer upper" bargains.

Now I might score one. But now I'm afraid that the minute I sign on the line, the prices will take another precipitous drop. I have the luck of the schlmozzle when it comes to this stuff, so I'm being very careful.

Mark Fletcher said...

North Coast -

Your always going to score a great deal at an auction - but I imagine that more property is sold through traditional channels than through auctions.

Auctions typically happen when there is a foreclosure or when the developer wants to cut there losses and run.

The volume of property going through auctions is still small compared to that sold through traditional channels.

The economy is still relatively buoyant. Manufacturing appears to be carrying the fallout resulting from the slowing housing market. The dollar is still at a long time low against the pound, euro etc, thus aiding exports.

Inflation and the job market are still in a good position. There may be a correction in the economy, but it wont be as bad as the fallout from the dotcom bubble or 9/11.

The problems facing the housing market in Chicago can be attributed more to oversupply than property being overpriced. Once this excess supply has been worked out, prices will start to rise again.

I think it would be nieve to think that prices will return to their early 90's values.

rogerspark60645 said...

I'll take a tour...:-)

ortis said...

I have to disagree, Mark. Auctions are usually a scam to drum up interest in properties that failed to sell through normal marketing. Unless you see the words "without reserve", the Seller can nix the deal even if you are the winning bidder. Most auctions only feature a few properties "sold without reserve". Most well located properties go for a premium at auctions. and Craig, 9 months is a long time, maybe you should have an online auction.

anonymous said...

Sorry to interrupt....Ceedub, there's a local math tutor profiled on Rogers park .com.

Jocelyn said...

Ravenswood? Who wants to move to Ravenswood? :o)

Mark Fletcher said...

Ortis -

Auctions arent free; even if it is a scam, you still have to pay a fee to list the property.

If you're losing hand over foot on a property that hasnt sold for over a year, does it make sense to piss away more money listing on auctions when you have no intention of selling?

1415 did sell in the end. I dont believe its on auction any longer, unless its been listed again.

IMHO I'd just flatten it and get some guaranteed income out of it for a few years as a car park before selling it onto a developer to throw up some condos on it, if it were possible.

the.dub said...

Paradise-

Thanks for keeping an eye out for me :)

I've decided I have enough ooks, motivation and PhD mathmeticians at work to ask to fly this one solo.

The North Coast said...

Mark, I believe it will be much worse than the fallout from the dot.com bubble. That blowup was limited in scope and affected the larger stock market only briefly, in the summer of 2002.

This bubble affected many more people and practically all home buyers. Remember, most people don't invest in individual stocks, and if they are in relatively conservative large-cap funds through their 401K plan, they were not hurt badly. Really, the people most affected were stock speculators and wealthy hedgefund investors, and remember that the margin laws cap the craziness somewhat.

Housing is another thing. Never in the history of the US have so many economically marginal and even flatly unqualified people been sucked into assuming so many oversized loans that were way beyond their means to buy so much overpriced property, especially junk houses in outer suburbs. Worse, never has the market been so disproportionately comprised of speculators- people who were buying only to rent out or "flip". In Miami (an extreme case, I'll admit) there are 25,000 luxury condos on the market in a place where people bought perhaps 5600 units a year at the top of the market, and 25000 more coming on line. The market was outsized, the loans were outsized and the amount of leverege was insane. Never has there been less of a relationship between the houseloan issued and the borrower's income.

Worse, people who bought their homes a long time ago, for extremely low prices, and who were loaded with equity, were pursuaded to hock their hundreds of thousands of dollars in house equity for cars, boats, vacations, electronic gizmos, whatever. THAT was never done in the past- you never, ever put your house on the line for a car or boat or such.

Remember, these are people's homes we are talking about, not $12000 worth of stock they were prepared to take a hit on. Yet many people are out these homes already.

I go back to a time when you borrowed from a local bank and your loan was NEVER more than 2.5X your income and you had to have 15% down minum. Now, you dont have to be that strict, but the lending standards are tightening up drastically already. Three subprime mortgage co's have collapsed, and outfits like Countrywide (biggest lender in the country) and HSBC have taken massive hits.

Now there is talk that the banks might be endangered, AGAIN.

Mark Fletcher said...

North Coast -

Indeed, the situation would be as gloomy as your predict but for the following reasons:

1) The majority of mortgage holders are not sub-prime.
2) The housing situation that you describe is not the same everywhere. Miami != Chicago.
3) The Federal Reserve was setup to prevent the banks from going bust.
4) Not everyone who has a sub-prime mortgage is defaulting.

Expect the situation to get bad if the job market begins to go south, but so far this is not the case.

SouthEvanstonian said...

Housing -- my, my, such a loaded topic.

It's easy to criticize those who over-reach and buy homes beyond their means. On a certain level, though, I understand that. I bought at a price that was comfortable for me, and ended up with a really great unit in a not-so-nice part of town. Around Chicago, it seems like you have to pay a heck of a lot of money in order to get away from the problems that hound "affordable" areas.

To tell the truth, if I had to do it over again I would have been happy to spend $50,000 or $100,000 more to get away from the gangs. Hindsight being 20/20, all I can do now is try to improve the area that I found myself in.

Craig Gernhardt said...

South Evanstonian said...> "To tell the truth, if I had to do it over again I would have been happy to spend $50,000 or $100,000 more to get away from the gangs. Hindsight being 20/20, all I can do now is try to improve the area that I found myself in."

I couldn't have said it better myself. We sure have a lot in common.

Philip McGregor Rogers said...

yeah i dont agree with the above sentiments at all.

i would always buy in the underdog neigborhood, every single time,
there are more interesting people there as well.

gangs will disappear from the northside,
ive seen it happen in many other neigborhoods just like RP or south evanston.
Time is catching up,
real estate was nuts,
but look at the longview,
gentrification has been going on since the sixties. with no end in sight.

SouthEvanstonian said...

Jeffo said: "gentrification has been going on since the sixties. with no end in sight."

I figure that as long as we have decent leadership in the areas of concern (hint, hint), it is inevitable that gentrification will trickle up from the swanky areas of Chicago, and down from privileged areas of Evanston. It will fill in eventually; the only question is when.

Craig said: "We sure have a lot in common."

We certainly do! We should hang out and drink beer sometime.

Pamela said...

North coast: your facts are wrong re the stock market crash and the real estate downturn. Individual investors like my mom (and myself for that matter) collectively lost over $1 trillion in the dot-com/tech crash. The NASDAQ fell by 75%! A lot of those fallen stocks were in retirement porfolios, pensions, and almost all 401(k)s. Good grief, the S&P lost 25%. And the NASDAQ still hasn't regained its losses.

Conversely, the number of subprime mortgages written pales in comparison. Further, unless you are an investor in one of the crappy CDOs (and most regular folk investors are not), the foreclosure of someone down the street won't move the needle much on your life except in that lending criteria will tighten. Few lending institutions that wrote the loans will feel the pain (and those have mostly been shaken out already though future underwriting revenues will obviously be down). The poor hedge funds invested in those CDOs are, however, feeling the pain but since when do we care that a bunch of rich people may lose money? Bloomberg reports that estimated losses in the CDO market will likely come in the $125-$250 billion range. A lot of money but a far cry from the $1 trillion stock market investors lost in '01.

The other thing you completely miss is that real estate in Chicago, and particularly in RP, was flatlined for over 10 years prior to the big increases of recent years. A 200% increase from one year to the next may sound big but isn't terribly impressive when one considers that that property barely appreciated 1% annually for the prior 10 years.

Is housing in a downturn? Yes. Will there be some depreciation? Yes. How much? Only time will tell. But even if real estate depreciates by 50% (which would practically be unheard of unless you are predicting a Great Depression sort of scenario), it won't matter to most unless they NEED to sell, irrespective of whether their mortgage was fixed or an ARM. Most folks will find a way to pay the bank (except for those who should never have gotten a loan in the first place), and they'll refinance to a fixed loan. Folks will get used to less real estate appreciation, just like they did in the '80s (and after the S&L crisis). And maybe they'll be reminded that one should almost always go with the lowest fixed rate mortgage. You can always refinance if rates drop. Getting an ARM is like playing the lottery.

Another thing: most of the condo market (which is not dissimilar to the starter home market) has always been highly sensitive to inventory and interest rates. This is not a new scenario. We've been down this road before. We lived through it.

Toto said...

Craig, sometime's it's not even worthwhile to comment on your assine complaints.

Toto poop!
oOoOoOo
OoOoOoO

Natas said...

Craigie poo poo, isn't the bill a problem for the DEVELOPER and not YOU????

signs go up like that all the time, and People's gas knows who to go after, DUH, or everyone would try to get over on them , including...............YOU!!!!!!

You know, a doggie owner forgot to pick up after their dog infront of 1345 W. Lunt.

Right down the street from you.

QUICK go get your camera and take a picture of it, blog about that crap too.

Jeez, you're worse than an old silver haired granny with fake teeth and $%*$'s down to her knees.

Craig Gernhardt said...

Thanks for tuning in Natas. I've got a few more unscrupulous developer stories in the works. These have ties to that slimeball Joe Moore. I'm sure you'll enjoy.

The North Coast said...

Pamela, I've been in the financial markets for 20 years, and I'm here to tell you that the damage done comes nowhere near that which is being done by the housing hysteria.

25% of the S&P is not a big deal, and as you see, it has recovered. Now, the NASDAQ loss was very serious, and we had many clients who refused to place stop losses and lost 80% of rather large portfolios.

What they did NOT lose were their homes, their credit ratings, and maybe more from being in the hole from cash-out refi's. Believe me when I tell you that the housing runup and the rout that is following are affecting many, many more people than the NASDAQ collapse ever could. Most people out here were never in the NASDAQ.

We have a home ownership rate of 70% in this country mainly because of the ease of financing, or, more correctly, the ease with which the borrower can get in way over his head.

Now, if you are a person who bought for the right reason and got a conservative fixed loan within your means to pay, you will have no problem. You can sit it out.

However, the hysteria of the past 5 years was driven by the ARM loans, a good half of which were A. made to people who did not qualify for a fixed loan for the same amount because the payments would be too high and B. made for obscene multiples of the borrowers' incomes. Personally known to me alone are 5 people who took loans for 5X their income to buy places they otherwise couldn't have approached, and GUESS WHAT- they can't afford them now that they have reset.

Worse, many people, including well-set middle class people who had accumulated massive equity over decades of ownership, took out "cash out" loans to buy crap like $60K cars, vacations, expensive and superflous home renos, every damn thing you can think of.

I couldn't believe the things a mortgage broker friend of mine was writing, and for what kind of people. This guy runs a successful operation, in that he's and agent not an originator. $230K for people who make $55K a year, with 2.5% "teaser" rates and massive balloons at reset, no money down. Hundreds of loans just like this. When those loans reset and the borrower gets that "balloon" call, where is he going to get the dough? Especially if the place is worth $30K less than when he bought it. PEOPLE ARE NOT GETTING REFINANCED! They can't- because the loan would be for more than the place is worth and/or the payments way over the person's power to pay.

You can't really compare losing your retirment savings in the stock market, ugly as that is, to losing your home and your credit rating and being deep in the hole or forced into bankruptcy. The stock market investors forced into BK by margin calls are usually the wildest speculators, not the general public. The housing market includes mostly "ordinary folks", a huge no. of whom have no significant savings, stacks of car loans and card debt, and moderate incomes. No comparison.

Keep in mind that $500 BILLION worth of ARM's will reset in the coming months, and $700 billion more will in 2008. Nearly a trillion dollars worth of mostly dicey paper set to reset, and a good portion of these folks WON'T be able to make the higher payment or refinance, resulting in floods of REOs hitting the market. This neighborhood won't be the worst off but we won't escape unscathed, either.

I don't expect a 50% retrenchment in values, but I expect 30%, back to year 2002 levels.

DorothyParker007 said...

http://www.actha.org/

ACTHA is a statewide organization, which focuses primarily on providing education and information to board members and unit owners.

The North Coast said...

ACTHA is a valuable organization, and I believe ALL home and condo buyers ought to take the city home and condo buyers' classes whether they intend to participate in the city loan and CPAN programs, or not. I don't, but I learned many valuable things in the condo class that are helpful in avoiding nasty financial traps.

We need more public education on home loans and their traps and pitfalls. I am aghast that so many relatively well-educated middle-class people would fall into the 2% teaser-rate ARM trap, and then be surprised at what happens at reset time. If people of reasonable education and intelligence can't handle this stuff, what happens to millions of people who have no education or financial literacy?

Pamela said...

Subprime lending allowed many people to benefit and increase their wealth. Some will get shaken out and some will come out winners. It's a net gain because the losers (of home and/or credit) didn't have much to lose to begin with.

Those who took ARMs and bought more house than they could afford once rates rose and/or took on took much debt will figure it out. Some may lose but I'll bet a month's pay it's small in the long run. Banks are motivated to do work outs, not take possession of undervalued real estate.

As for your 20 years in the business -- I trump you. I've been publishing finance books for over 20 years by the best and smartest minds in the business and I used to work for the Mortgage Bankers association prior to that. I'll stack the knowledge of my authors against your anecdotal prognostications any day. No matter how you do the math $1 trillion beats $250 billion. You may not think that losing boatloads of your retirement is a big deal but tell that to folks like my mom who need that money to live. They lost and they're never getting it back. The 30-something yo who loses their condo is not having fun but they have a lifetime to get back on track.

The sky is not falling.

The North Coast said...

Pamela, your mom should have gone after the brokers who recommended high-risk NASDAQ stocks to an elderly retired lady, and I hope she did. She should never, ever, ever have been involved in individual stocks, especially NASDAQ stocks, or even most mutual funds.

These risky issues should never, ever have been in people's retirment accounts, not ever. It's a given you do not spend money you can't afford to lose on these types of stocks. Many brokers have had to pay massive fines, and restitution to the customers, for recommending such "investments" to people like your mother. I would never permit one of our brokers to recommend such a stock to anyone on a retirement income. Arbitrations are very expensiv3e- it will cost you, the broker, a minum of $5000K to defend yourself for even a minor complaint. That is why my firm does only unsolicited business, and why I haven't practiced as a broker for 10 years and want out of the business altogether. The "rewards" aren't worth the risk and liability, even if it WERE fun to sell things to people you know damn well they'd be better off without. Most stock investors would be better off putting their money in a passbook savings account.

Trouble is, much more than a trillion in wealth that never really existed but is owed all the same, was lost by buyers who overpaid for very marginal property and assumed loans much larger than they could hope to pay back. Most of these people are distinctly not Yuppies in Condos. They are people with low or lower-middle-class incomes who have families and who will suffer greatly as a result of their unwise borrowing.

We stand to lose about a trillion more, and the losses will cascade and devalue everyone's property. But the property values of 2003-2005 were largely hallucinatory, anyway.

It's too bad and so sad: these borrowers ARE responsible for what they did to themselves. You must be a functional adult when you go out to buy a property and get a mortgage, you must do your due dili and make sure of what you are signing on for. People did not do this, and you couldn't pursuade them to.

The North Coast said...

To Pamela, I reiterate, your mother sounds as though she is entitled to some remedy for her losses. I have no way to know when your mother made these investments, but it might not be too late. However, there is a time limit of sorts, and the sooner you act, the better.

Brokers and advisors have a very well-defined fiduciary responsibility toward their customers, especially people who would lose their lifestyles from the losses and/or are unsophisticated. A retired person who has little or no financial knowlege is much different than some wealthy 40-year-old buccaneer.

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