The New Middle Class

I agree.

But if I want a house in Malibu for 3.4 million - and you say you'll loan me the money with an affordable repayment rate I might rethink my morals.

Jumping on a good opportunity and expecting something because you feel you are entitled to it are two very different things.

You could always pay on principle....

You pay less in interest and your loan doesn't go the full 30 years. One extra payment per year reduces the loan by 8 years, IIRC.

Win/Win.

We are one of those couples who fell into the "interest only" trap, AND to make matters worse they allowed us to pay our down payment by way of a 2nd mortgage. We were SO stupid!! We just simply didn't understand what we were getting ourselves into. But, in our own defense, we completely trusted our mortgage broker; we had used her in the past and found her services to be exemplary. We had even counted her amongst our friends. It just never crossed our minds that she would steer us in a questionable direction! Isn't hindsight always 20/20...

Fortunately so far, we've been able to keep up with the payments. At the time the loan was written, our mortgage broker ASSURED us-100% certain, that we would be able to refinance, at the end of the 5-year fixed, before the ARM kicked in. She said our credit was "Sterling." We moved into our new (used) home in 2004. You do the math.

It's just so frustrating. We did as we were told, we followed the rules. We aren't like "Lisa & John" in the article. We don't have "toys", we don't take expensive vacations! We drive 10+ year old cars. All that we were trying to do was save gas, by moving closer to where our children attended school, rather than the 60 miles/day RT it would have been.

We've been hit with a lot of unexpected medical bills. I lost my job & medical issues currently don't allow me to look for anything outside the home. Fortunately my spouse not only kept their job, but has even received a promotion and 2 significant pay increases. And yet it still just seems like the harder we swim, the harder it is the keep our heads above water, as the economy continues to tank, and the cost of living is quickly pricing itself right out of the reach of the so called "Middle Class". Our credit isn't so "Sterling" anymore...

I'd love to blame it on Bush &/or Obama, or maybe even the greedy exec's on Wall Street. But, no matter what, I have to take on some of the responsibility myself. I know that for certain.

When and IF I ever purchase property again, I will certainly be very well educated BEFORE I walk into that office! Also, I will certainly take the advice offered by WILDWONDERFUL: BUYER BEWARE!

One question...

If your credit was so great why did you have to go with an interest only ARM instead of a traditional fixed-rate 30 year?

When you do happen to buy property again, remember.... FIXED RATE ONLY. If you can't afford a fixed rate 30 year mortgage (with a good [~15%+] down payment) you can't afford to buy it.

Rhep-I think it was because we had exactly $0.00 for a down-payment, but to be honest I'm not really sure. It's possible I'm recalling it wrong and the sterling credit was when we worked with her the 1st time. You are absolutely right! We had no business buying this house. But My spouse HAD to have vaulted ceilings...

He has a serious problem with the idea of saving. It drives me completely CRAZY! Everytime he starts developing a nest-egg through his employeers retirement plan, he borrows against it. We are in our mid 40's and I've already accepted the fact that all of my retirement hopes and dreams are out the window, and I will be working until I die. Our savings has somewhere around $50 bucks in it right now, and I guarantee that's because you are required to maintain a minimum balance to keep the account open. (Credit Union policy)

He's recently had a change of heart, and has changed his attitude about spending and saving, so maybe there's hope. But I still think I'll be working until I die...

Here's a thought. Lets place the blame where it ultimately belongs - on people with no fiscal restraint and no sense of responsibility.

The moral of the story is this: Don't buy what you can't afford.

Here is a thought - "You were a mortgage broker in the middle of the mortgage mess" and you were "in a great position to see exactly what happened and why"

No one forced you to give those financial delinquents money. Don't brokers have any sort of ethics or rules of conduct? Or do you push paper through as fast as possible to collect fees?

You are right to point a finger at those people who bought what they couldn't afford - but you should notice 3 of those fingers pointing back at yourself for giving for watching this happen and doing nothing because you just wanted those fees for processing.

Blaming the banks is easy. How about blaming the school system for not teaching budgeting? How about blaming the Federal Reserve for lax regulation that allowed this to happen?

How about taking some of that for yourself.

an der lahn

First of all, YOU pointing fingers is ridiculous cos you don't have a @!$%#ing clue what brokers DO. First of all, we do NOT lend money. We ONLY place business with lenders PER THEIR OWN GUIDELINES. Secondly, I NEVER once in 16 years wrote an adjustable rate loan. I NEVER did anything illegal or immoral.

WTF do you think I should have done? These people FIT THE GUIDELINES. Whether or not I personally believed they could afford their mortgages, the lenders said they COULD. THEY believed they could.

Your attitude is not only ignorant but insulting. You don't know @!$%# about me or my morals or my principles. Usually it is those who know the LEAST who are the first to throw around blame.

FYI, NOT ONE of the loans I EVER brokered defaulted. So why don't you stick to what you know and stop with the uninformed rhetoric you've been told by those who don't know a damned bit more than you do.

FYI, NOT ONE of the loans I EVER brokered defaulted.

Secondly, I NEVER once in 16 years wrote an adjustable rate loan.

All of a sudden it doesn't sound like you were right in the "middle of the mess". You only process those people who took loans that they could afford and put them in fixed rate loans.

You must have seen all of that from a distance then, eh? Maybe your colleagues where the ones bringing "those people" to "those banks" and you just heard about it at lunch?

Your first post made it sound like you were another pig in the mud trough.

Your second post makes it sound like your a highly respectable mortgage broker that didn't write the first post.

an der lahn - again, you don't have a clue. I did almost exclusively Sub-prime loans. I just chose NOT to give them ARMs. I got a lot of them OUT of ARMs. And YES, I was in the "middle of the mess" That does NOT mean ARMS were the only answer.

And I AM a highly respectable mortgage broker. You can be respectable and still have everything I said in my first post be ABSOLUTELY TRUE

an der lahn - No one forced you to give those financial delinquents money. Don't brokers have any sort of ethics or rules of conduct? Or do you push paper through as fast as possible to collect fees?

The question is, who wouldn't give these financial delinquents money? The thing about MBS is that they provided a way for mortgage companies to lend money while immediately disposing ALL risk associated with that loan by pooling it with others and selling it. The prevailing wisdom at the time is that the ONLY risk associated with mortgage lending is prepayment risk, due to the idea that should someone default, the owner of the deed would still show a gain in the appreciation in the value of the house. However, due to the black swan problem of an exorbitant supply and waining demand, the bubble popped.

Placing blame on the lender is like blaming a sporting goods store that sells you a bear trap that you then step in. How dare these companies give people hundreds of thousands of dollars to buy a house. Might as well yell at your credit card company for sending you a bill every month.

peapod

Voted up the best analogy of this problem that I have seen on NV

Thanks

Although I'm going to assume that that is sarcasm, I'm takin it anyway!!

Nope, peapod. Robert is absolutely right (and not being sarcastic) It IS a great analogy

Amen girl

peapod

no sarcasm, I really like it

Ditto!

How dare these companies give people hundreds of thousands of dollars to buy a house.

So your argument is that the banks should have given them the money because they asked for it? Think about that. Talk about a sense of entitlement. They didn't have to prove they could repay - they didn't have a down payment.

If you are offering really big loans at unbelievable terms - just because your not going to hold the loan - how can you not take a portion of the blame. This is a con system and for some reason people are sympathizing with the people running the con.

If I go around selling old ladies really bad insurance scams that leave them homeless and me collecting their social security checks - I really doubt people are going to blame the little old ladies. --- If I come up with a plan to con grannies - then sell off these financial vessels I made to someone who doesn't understand what they are buying - well then I must be the moral standard.

The question is, who wouldn't give these financial delinquents money?

Not only did they start running the con - they started conning themselves eventually. Not only did they continue to offer loans to people that didn't need them - they started holding what they thought was "the good part" of that debt - while continuing to sell off the bad portion. In essence they thought they were running a double con.

One portion of the bank didn't understand what the other portion did - and they ended up shooting themselves in the foot - then attempting to grill that foot up for dinner.

But when the house of cards fell - yes the individual borrows were the root of the problem - but who in their right mind would give out loans like that over and over and over... then hold on to a portion of those loans? When the day came to count the money - no own knew who owned what.

If the banks would have stuck to their original plan - then it would have only been those suckers that bought the MBSs - turned out those suckers were the banks themselves.

With your theory - they should have lent that money then sold off the vessels that held the all the risk - they wouldn't have needed rescued. Banks were stupid, but thats ok - we like them and bailed them out.

And to top it off - this is the United States of America. There are methods were if you are unable to pay off your bills - you can get that debt wiped away - take a big hit to your credit history - and move on.

It is inherently risking to loan money in the US. People seem to have forgotten that. It is why there are so many start up companies - and so many failed attempts at success. Entrepreneurs often have to make 3 or 4 attempts at making something and failing before they succeed - so it is a good system for them.

Businesses can walk away from their debts and people can too in this system. If you want a system where you can't walk away from your debts - no matter what - move to Europe. I hear that in Spain the bank will garnish your wages and repo your car and furniture until they get their money back. If that isn't enough - when you die your kids will inherit your debt.

Now that is a system where I would openly lend money to anyone that asks. Interest rates would be lower and people wouldn't ask for what they can't repay. Of course they'd also be scared to death to attempt to borrow any money to do something risky.

Most of the money loaned for sub-prime mortgages was NOT loaned by traditional banks. It was loaned by INVESTORS whose sole purpose for being in the mortgage business was to make big money. That takes big risk. ERGO, lots of people got money who would NOT have qualified at a bank. HSBC, Beneficial, Delta Funding, Ocwen Financial, etc, GMAC - those are just a very very very few of the big players in sub-prime lending. Wells Fargo was also a big player in sub-primes, but with much more stringent guidelines and guess what? THEY came out of it pretty much unscathed.

Why are so adamant about defending a willing participant in these actions?

I am totally agreeing with you that - yes there were a lot of people that borrowed money they shouldn't have and that they deserve to be blamed. Guess what - they didn't get bailed out.

The banks who were stupid enough to take on that risk did get bailed out - Wells Fargo being one of them (although I agree with you they were one of the better performers in the mess).

I know you really love to defend banks - but I can't understand why so won't just say they did something wrong and deserve some blame here. You don't get 25 Billion dollars in government money forced on you if your an innocent standby just watching the world collapse around you.

OK, lets try this again. First of all, Wells Fargo was FORCED to take bailout money by the Feds - who felt that if they did not take it then it would appear that the other banks were simply mis-managed (Who knew? /sarc) They also were the very first to pay it back.

My POINT here is that the banks who got the bailouts were certainly NOT the ones who caused the problems. Those guys are all gone! You want to see who caused the problem? Go here:

www.lenderimplode.com

Why am I defending banks? Because they did EXACTLY what the Federal Reserve Bank told them they could do. THAT is who regulates the banking industry.

I did use the word forced - and yes they probably did everything that they could within the law... but we didn't let the law finish running its course.

They (not being limited to Wells Fargo) only exist today because of Federal money. If we lived in any other nation in the world (except for maybe Germany, Japan or Ireland) - a lot of those banks would have been nationalized. Remember - they only exist today because they were too big to fail.

Free market economy failed - and Bear Sterns and Lehman Bros. would have only been the tip of the ice berg - but hey at least they played by the rules. If they were allowed to continue to play by the rules we would most likely have 10+ years to begin to think about a recovery.

A lot of individuals who made bad choices - well they do have a long fight uphill ahead of them - unlike the banks.

Actually you both are exactly correct. There should have been no bailouts, and it wasn't exactly the banks fault for needing the bailout. The problem was that many of these large banks had large positions in MBS, unfortunately, due to the mark-to-market rules, when Countrywide had to liquidate their assets in a fire sale this forced the rest of the banks to mark down the value of their secutities to mere pennies on the dollar for securities worth, conservatively 50-75 cents on the dollar. This dramatic and unfounded price decrease devalued their assets so low that the banks were considered insolvent by regulators (i.e. lehman bros.). (remember, it is not the intrinsic value of the assets that is recorded, but the market value)This is why we were given TARP. What TARP was INTENDED to do is purchase these securities at a price closer to their intrinsic value, allowing the banks to revalue their assets. Unfortunately, due to the misgivings of Bush and Obama's treasury secretaries who saw an opportunity to go around the revaluation of the securities, they instead decided to infuse the banks with capital through further bailouts(stock purchases), providing an ownership intrest by the government. Clever indeed.

So no, the banks shouldn't have been bailed out, and shouldn't have to have been bailed out. This was simply a firestorm of everything that can go wrong, going wrong at once. I will agree with an der that he is exactly correct in his last post minus wells fargo needing the bailout, their CEO fought extremely hard to not have to take the money and if memory serves me, was the first bank to repay the bailout. BTW, personally, I hate wells fargo and will never bank with them, for reasons totally unrelated.

Isn't that pathetic?

There was an article yesterday that I think made it to the vine, where they were talking about how much money it takes now to be considered "rich". I believe the consensus from the "rich" was that it now takes something like upwards of 8 Million to be considered "rich". Which to me is quite funny, after all didn't the president set his level during the campaign somewhere around the 250 THOUSAND dollar mark, when referring to those he considered "rich enough" to be able to be taxed more?

Income != Net worth

http://www.cbsnews.com/stories/2011/03/15/business/main20043280.shtml

Are you talking about that article?

That's the one.

Sorry but if you have at least a million dollars, in EITHER income or assets you are considered a Millionaire.

For my entire life(51 yrs so far) being a millionaire has always been considered "rich".

I just did a new mortgage for two retired teachers (both just 51 years old). They were "millionaries". Poor, poor teachers.

Perhaps they were savvy investors? Especially if they took advantage of the crisis a few years ago. Many millionaires were created after the great depression.

Or they are smart with their money. Google the "Parking attendant millionaire".

The guy never made more than 30K a year - but he is a millionaire.

peapod

Perhaps they were savvy investors?

Can you explain to me WHY it is "good" for an individual to make a "killing" on the market and folks will just say they are "savvy investors", yet when it's a huge financial firm that does the same thing folks act like that is "evil"?

I disagree with the premise of your question. I don't believe that people are mad at firms for making money, but for not invsting it in the community. Imagine this scenario, the government loans you a ton of money, interest free, to shore up your capital and entice you to invest in companies, provide capital, do the things that banks do. Yet the bank takes that money and then reinvests it in treasuries so that the American people are paying interest to banks on the money that they gave to the banks. The bank is then earning a larger spread than investing would provide while not taking on any risk. Wouldn't you think the same American people would be a little upset? The problem is, do you blame the bank for taking advantage of an obvious situation given by the government or do you get mad at the politicians for being utterly foolish with our money? Obviously people choose to be mad at both. Can't really say I blame them.

This does not preclude people from investing in GS at 79 dollars and smilling when it is trading at $155. Never got a thank you from my brother on that tip :/

The bank is then earning a larger spread than investing would provide while not taking on any risk.

And doing THAT doesn't fit the definition of being a "savvy investor"?

Sorry but if you have at least a million dollars, in EITHER income or assets you are considered a Millionaire.

Well duh, but being a millioniare doesn't mean you are rich... Especially if it's only a million.

For my entire life(51 yrs so far) being a millionaire has always been considered "rich".

lol By who?

The guy never made more than 30K a year - but he is a millionaire.

If you don't have at least a million before you retire, you are doing it wrong.

Never got a thank you from my brother on that tip

Or picking up a truckload of Ford when it was just over a buck.....

Kaz, you have to read what I wrote. Not what you think I wrote. Yes, it is the very definition. If you have an opportunity like that, go for it! Hell, I know I would. This does not resolve you from public scrutiny. Had TARP been enacted as it was intended the moral hazard would never have presented itself. What I said was that I understand the frustration with banks by the American public, but a bank's ultimate responsibility is beholden to the owners, not to the public. As you are seeming to drag this out of me, PERSONALLY, I lay blame squarely on two specific treasury secretaries and the politicians overseeing them.

While I have the ability to understand why people are mad at the people they are mad at, I do not have the ability to steer their anger at the more culpable parties.

Rhep - Or picking up a truckload of Ford when it was just over a buck.....

Yes Rhep, my future father in-law got that one out of me!

When stocks are that cheap and fundamentals are that strong, its hard NOT to pick winners. There was a long stretch of time where many companies had larger cash positions than market value. Here's a tip, if a company can buy itself on the market with it's own cash, it's time to buy the stock!

if a company can buy itself on the market with it's own cash, it's time to buy the stock!

Most def.

peapod

This does not resolve you from public scrutiny.

See the "problem" that I have with this "public scrutiny" is the dishonest nature of it.

Folks wish to act like it is these huge corporations that are to "blame" for where this country finds itself, all the while IGNORING the fact that the "owners" of these big corporations are their families, friends, and neighbors.

When their "investments" in these huge corporations were making them money, NO ONE had anything bad to say about them. Now that things crashed and they lost money on their "investments" it is suddenly these huge faceless corporations that are to blame.

It dishonest and to me rather disgusting.

Just like with the housing mess, when folks were "flipping" houses and making money on them, no one saw anything wrong with the unsustainable inflation of the property market. I saw the housing crash coming, and got out from under my mortgage prior to the crash.

HOW in the world people actually thought that a 200 to 300% return on a home in under 5 years was sustainable is beyond me.

Now just for the record, I OPPOSED the whole "bailout" mess from the beginning. If the corporation was so mismanaged that it was going to go belly up due to a change in the stock market, well that wasn't a viable business to begin with.

Kaz, you are preaching to the choir. There is a great book you may be interested in called "Irrational Exuberance". It was written right before the .com crash in 2000 and then the author updated it right before the housing market crash. If people openned their eyes instead of blindly following the prevailing wisdom we may have staved off these bubbles. But placing blame in the aftermath does nothing because there are too many to blame and hindsight is,of course, 20-20, start with the housing contractors for creating too much supply? the people that got loans on property that was artificially overvalued? mortgage brokers for providing loans? banks for owning those loans? markets for creating default swaps underwritten by those loans? rating agencies that only factored in prepayment risk when valueing these securities? All of these are the normal course of business, I see nothing inherently wrong with any of these actions. I find fault only with our government who lied to the American people about how TARP was going to be performed. Then blindly gave the banks extra money that could be allowed to be loaned back to America for interest.

It seems to me we are completely in agreement so I am confused by your questions.

It seems to me we are completely in agreement so I am confused by your questions.

It does seem that way doesn't it?

I think what got me off the mark was this comment you made:

I don't believe that people are mad at firms for making money, but for not invsting it in the community.

That was NEVER going to happen, and those who expected it to probably still believe in Santa Claus.

My whole thing is we have folks running around acting like it is the fault of companies that the stock market/housing market crashed.

The entire crash was driven by the "people"(and the government), NOT by business. They operated under the rules they were given to operate under.

Did they find every "loophole" they possibly could? Of course they did, just like anyone else does in life.

Did they take advantage of the "bailout" and the "giveaways" offered by the government? Of course they did, who wouldn't? I think the actual "anger" over that is that the "common" folks FINALLY opened their eyes and realized what was going on, and THEN got angry they THEY weren't getting anything out of the huge give away.

See the thing I would guess that REALLY pisses me off about a lot of the "attitudes" surrounding the whole financial meltdown, is that everyone is trying to "blame" either a selective few or some nameless business entity, when we ALL own a piece of it.

Without the greed that has infested this country from the bottom to the top, none of the financial moves and businesses practices, and federal legislation that led up to this would have been allowed. BUT almost everyone in this country thought that they could twist these things around to their advantage and therefore get a bigger piece of the pie for themselves, and as long as it was working that way(which it did for quite a few years) no one had any complaints about it.

Well here is the end result of that, the "poor" are STILL poor, the "middle-class" has lost some ground(not really because they are STILL in the middle) but are still middle-class, the "rich" are still rich and a FEW individuals have increased their fortunes.

But(and getting back to the topic of the article) NOTHING has really changed in the dynamic of the (financial) class structure of this country, other than the debt our grandkids will owe increasing, and possibly the mentality being shown by SOME folks.

Let me clarify one thing, by investing in the community, I mean by making loans to business to grow, loans to people with good credit for a house/car/etc. There was a lengthy period of time that banks refused to lend to even viable debtors because it was more lucrative and carried no risk to lend the money back to the treasury. Frustration at this I can understand while disagreeing with it as mis-guided. Other than that I would be in agreement with most of what you say, I may mean all but tbh your comment was too long for my attention span.

I may mean all but tbh your comment was too long for my attention span.

LOL!!!!

I DO tend to ramble sometimes, even when talking face to face.

My current ex told me that it drove her nuts the way I would "circle around and around" the point I was trying to make instead of just spitting it out.

There was a lengthy period of time that banks refused to lend to even viable debtors because it was more lucrative and carried no risk to lend the money back to the treasury

Not that I like defending them(banks) because IMO they are blood-suckers, BUT during that time they were ALSO forced by the government to build their cash reserves to pass that "worthiness test"(or whatever it was called) to allow them to pay the loans back and get out from under government control.

It is the result of societal sense of entitlement.

Exactly!!!!

My family was the last ones on our block to get a color TV(bought USED), yet my parents considered themselves to be solidly "middle-class".

When they could afford a second vehicle(bought used for cash) they felt they were "moving on up".

I grew up sharing a 10' X 10" bedroom with my 2 brothers, and we felt that we were doing good.

kazutam

Sounds to me like you were doing good, because family is everything and it sounds like you had a great family

Robert

it sounds like you had a great family

LOL

Try being a "middle child" in a family of 6 kids.

On top of that I was the only one with a birthday in the summer months, have you ever had your parents give you a birthday card 2 weeks late and have to apologise for forgetting your birthday?

Just being whiney, you are right I DO have a great family(even if I can't stand some of them........LOL).

kazutam

I know what you mean #3 out of 8 here and though I love them all, hat does not mean I enjoy spending a lot of quality time with them (reunions, weddings and funerals are about the only time all of us get together)

Take care