Monday, March 26, 2007

Subprime Collapse Hits Close To Home

The collapse of the subprime mortgage market was all too predictable. All those low introductory teaser interest rates and short term adjustable rate mortgages were bound to blow up as soon as interest rates went up. And interest rates, at record lows, had nowhere to go but up. Suddenly, millions of new homeowners with low to modest incomes find their mortgage payments doubled--or more--while their incomes haven't exactly kept pace with those of CEO's and the hotshots who packaged all those shaky loans into securities.

For many immigrants, the subprime meltdown is a double whammy, because the income to pay the mortgages on their new homes came from jobs in the formerly booming housing construction industry. (See, e.g., Foreclosure Wave Bears Down On Immigrants.) Now they're losing those jobs or finding work more intermittent. And many used up what little savings they had to get into their new homes that are now about to be foreclosed on.

For the Curmudgeon, the crisis has hit close to home: our nanny, a legal immigrant from Panama (and now a U.S. citizen), who's taken care of our kids for 12 years, is one of the victims of the crisis. She's in better shape than many--she hasn't defaulted and may be able to sell her home at a slight profit. But she needs to sell it soon, because the mortgage payments have doubled and her husband is finding little construction work these days. Selling won't be that easy, either, because she's in a neighborhood of mostly Hispanic immigrants, all of whom are struggling with the same issues, meaning many other homes are also on the market in her area (Woodbridge, Virginia). (We won't let foreclosure happen to her, but we hope we won't have to offer a bailout either.)

As with the S&L crisis of the 1980's, the subprime meltdown will no doubt result in years of lawsuits and recriminations, while regulators--having stood by and watched as the barnyard emptied out--suddenly decide to take steps to put new locks on the gates (which will only deepen the housing crisis).

Perhaps we're to blame. We knew our nanny's loan was risky. But we didn't say anything. After all, it seemed the Washington area housing market could only go up forever (despite ample historical evidence to the contrary, having purchased our home in the downturn of 1991).

No doubt that will be the defense of the mortgage brokers, real estate agents, lenders and everyone else in the chain who profited mightily from the unrealistic housing boom: "who knew rates would go up so dramatically and that home values would suddenly decline?"

It's too bad, really. So where will our nanny go? She'll probably rent one of those townhomes or condos that suddenly no one can sell. And so goes the cycle.


nova_middle_man said...

Good blog overall not just this post

Quick question with all this

Who is ultimately responsbile for the situation?

The customers or the sellers?

Where does personal responsibility fall in?

Just to think about

Keep up the good work

Anonymous said...

'Perhaps we're to blame. We knew our nanny's loan was risky. But we didn't say anything.'

You bet you are part of the problem!!!
You should have said something...this is someone who looks after YOUR it is okay for her to watch your kids but not okay for you to give her advise...when someone looks after your kids for 12 years, she becomes a member of the family. A number of the people who are victims of this crash find themselves in the position that they are because they did not have the instruction and advise that they needed to make informed decisions...if it was your sister/brother who was about to take the loan that your nanny took and you knew it was risky - would you still say nothing. The fact that you can even boldly say you knew and did not say anything speaks volumes, she is good enough to look after your kids but not good enough to receive your advice. I would have swallowed it better if you had said something like 'we advised her not to take it but she did not listen'

Shame on you!!!

And to add insult to injury you write -

'We won't let foreclosure happen to her, but we hope we won't have to offer a bailout either.'

In other words let her just sell her home and get back to the business of watching our kids with no inconvenience whatsover to us

And worse

'It's too bad, really. So where will our nanny go? She'll probably rent one of those townhomes or condos that suddenly no one can sell. And so goes the cycle.'

And you get to keeps your home because you were instructed enough to make an informed decision which you did not care to share with your nanny

I hope you never have to know the feeling of losing one's home and the uncertainty that comes with it.

You make me sick!!!

Anonymous said...

To get an idea regarding part of the problem, look at these two things:

1. who was your nanny's agent

2. who was your nanny's lender

I have seen an extraordinary amount of predatory behavior in the guise of "taking care of your own." The most egregious examples I have seen of overpaying for a home (by 50 to 100K) and high-risk loans have been from hispanic agents and hispanic lenders "conning" fellow hispanics into very bad deals. The unfortunate purchasers think that "their own" are looking out for them, and really they are leading them down the primrose path. While this intra-racial con game is not always the case, it has been in the majority of cases I've seen.

I expect that there will be quite a few foreclosures in the Woodbridge area in the near future. (Except for those people who have subdivided their homes illegally - and I've seen a few of those!)

And watch carefully who snatches up these foreclosures and pre-foreclosures at rock bottom prices.

What is happening is a real shame.

(I am anon, but not the same as above!)

X Curmudgeon said...

Good to see all the comments. As to the first, the blame really gets spread all around. People have to take personal responsibility for a deal that looks too good to be true--e.g., no downpayment, no verification, lower mortgage payment for 12 months than renting and I can barely pay my credit cards; maybe that's a bit too good. Lenders certainly deserve most of the blame--after all, who wouldn't take easy money.

As to the second comment, we can take the criticism. However, we would say that our nanny is an adult, a quite responsible one who generally makes good decisions (or she wouldn't have been with us for 12 years). We don't make decisions for her.

We did help her with her downpayment, and her mortgage loan is not a ridiculous one: it required a downpayment and some documentation, and it is not a negative amortization creature.

The problem is that it adjusted at the same time her husband has little work. It would be difficult to qualify for a fixed rate refinance, but even if they could, they can't afford it unless he gets more work. But, they do have some equity and they can come out of this without financial ruin.

That said, of course having to sell their house is traumatic.

As to the third comment, yes, we agree, there have been some hispanic agents and brokers in the area who weren't doing their clients any favors. We're not sure yet if that's the case with our nanny, as her agent and broker appear to be trying to help her out before it is too late.

Unknown said...

Curmudgeon, I'm a writer at the NY Times writing a story on the subprime mess.
Could you email me about this post? I'm interested in writing about Woodbridge and would like to talk to you.
Nelson Schwartz

BUY WOW GOLD said...

Nice blog. I a also ardent player of WOW GOLD. I love this game. Nice posting about wow gold. Thanks