Monday, March 19, 2007
Oy......
Well, It's been a while since I posted, so where do I begin? The most pressing concern is money, or rather my handing of it, and I have started to write down all my spending again. My social life is officially shot, but more on that later. I have saved money in the past by going this route, and the need is greater than ever.
Why the need? To properly tell this tale I must backtrack a bit. I went to Miami in July of last year to attend the housing expo. As chronicled in this space, I had a blast AND felt like home owership was not only a possibility, but almost inevitable. The lender who encouraged me the most was a rep from........................ New Century! (Pause for bleak chuckle). Essentially, I could get financing for my home, either with Karl or by myself, despite my credit.
Such is no longer the case. In the realm of reversal of fortunes, this is the proverbial 180', and at break neck speeds. New Century is nearing an irreversible bankruptcy, and sub-prime borrowers are defaulting at an alarming rate. The reasons are legion, but the root causes are two: people were lent more than they could repay, and interest rates have jumped considerably higher than what these borrowers were paying. Adjustable rate mortgages, often with an initial rate so low as to add debt to the loan as it was repaid (negative amortization) are starting to adjust upward. The meant that someone who was paying 1000 a month could now be paying 2500 a month, all while home values have dropped. Although this example is extreme, it is not isolated. Moreover, the notion that one could refinance the note, a selling point for those who were reluctant to take on such a loan, was misleading. (I'm being kind). They could refinance, but the loan came with repayment penalties often steep enough to prevent the borrow from getting the new loan. If you have no money in the bank, and no more equity in the home from which to borrow, where would you get the 10K needed to satisfy the penalty clause? As such, people are losing their homes.
When ever people lose their collective shirts, politicians (generally, but not exclusively, Democrats), will be there looking to score points. Certainly mortgage lenders acted irresponsibly, quite possibly unethically. Getting the government involved generally doesn't help, however. As the bad news spreads, there will be some changes to the sub-prime lending industry; the free market will insure this.
The bad news and negative effects of the mortgages given will not be limited to those with bad credit. Those with good credit did not automatically display good judgement. This cohort also overextended themselves with exotic mortgages and adjustable rates. They too will lose their homes and ruin their credit. The truly amusing part is the bloodletting has just started. The ARM's will begin their initial adjustments all the way until 2010. The Fed may lower the prime rate, but this will not match the artificially low rates at the start of the loan.
All of this ties in to my malaise, but why? After all, for those looking for a home, this is actually good news. Not only will more homes become available (as banks will not hold on to houses in foreclosure); the pool of potential buyers will shrink. Less demand and more supply equals lower prices, so I should be happy, right?
Well, not so fast. Westchester County, where the average home price is $650,000, had an affordable home expo. I went only to find out I cannot afford a home. Thanks, guys - seriously. If I thought I was depressed before; well, let's call Crisis Intervention and get it over with. Please hurry, I feel the need to strip naked and play in traffic while humming "Ode to Joy." Essentially, my credit is not strong enough at the moment to qualify for full financing. In fact, my credit is probably not strong enough to get financing, period. I exaggerate, but only slightly. I have no desire to separate fact from fiction at the moment, as housing prices haven't lowered that much. Actually, the free fall my bud Scott is predicting is 1 1/2 away at least, when the foreclosure rate for those with good credit will be in full swing. This also means the window of opportunity for buying a home is closed for the moment, and the immediate future. It also means I have some lead time. Buy low and sell high is the collective mantra, and I can apply it here. This ties into my opening: I have to make radical changes to my spending and how I manage both my money and my debt. Managing my debt may even be more important than my spending. I ran a few numbers and if managed properly, I can reduce my monthly expenses by 865 bucks. That is not an insignificant amount. Some changes to my lifestyle are required to make this happen, but they were needed for continued professional growth anyway.
With this I have work to do. I'm going back to school, and must complete the paperwork needed to both gain entry to the school and pay for my studies. Luckily, I know someone who does this for a living. Oh, wait, that's yours truly, how convenient. Also, I'm writing down every penny I spend and what I purchased. This is depressing work, but needed nonetheless. This also means so excess spending, so back and forth to Yorktown is out. Since almost all the people I hang with are up there, I'll be a little isolated for the moment. I also was considering trip to Europe, but that is probably out as well. Let's face it; if Yorktown is out, how in the name of God's good green Earth can Europe be in? I'll still need to go to and from the Poconos, as I'm seeing my dad over the weekend. More, as always, in the proverbial later.
Why the need? To properly tell this tale I must backtrack a bit. I went to Miami in July of last year to attend the housing expo. As chronicled in this space, I had a blast AND felt like home owership was not only a possibility, but almost inevitable. The lender who encouraged me the most was a rep from........................ New Century! (Pause for bleak chuckle). Essentially, I could get financing for my home, either with Karl or by myself, despite my credit.
Such is no longer the case. In the realm of reversal of fortunes, this is the proverbial 180', and at break neck speeds. New Century is nearing an irreversible bankruptcy, and sub-prime borrowers are defaulting at an alarming rate. The reasons are legion, but the root causes are two: people were lent more than they could repay, and interest rates have jumped considerably higher than what these borrowers were paying. Adjustable rate mortgages, often with an initial rate so low as to add debt to the loan as it was repaid (negative amortization) are starting to adjust upward. The meant that someone who was paying 1000 a month could now be paying 2500 a month, all while home values have dropped. Although this example is extreme, it is not isolated. Moreover, the notion that one could refinance the note, a selling point for those who were reluctant to take on such a loan, was misleading. (I'm being kind). They could refinance, but the loan came with repayment penalties often steep enough to prevent the borrow from getting the new loan. If you have no money in the bank, and no more equity in the home from which to borrow, where would you get the 10K needed to satisfy the penalty clause? As such, people are losing their homes.
When ever people lose their collective shirts, politicians (generally, but not exclusively, Democrats), will be there looking to score points. Certainly mortgage lenders acted irresponsibly, quite possibly unethically. Getting the government involved generally doesn't help, however. As the bad news spreads, there will be some changes to the sub-prime lending industry; the free market will insure this.
The bad news and negative effects of the mortgages given will not be limited to those with bad credit. Those with good credit did not automatically display good judgement. This cohort also overextended themselves with exotic mortgages and adjustable rates. They too will lose their homes and ruin their credit. The truly amusing part is the bloodletting has just started. The ARM's will begin their initial adjustments all the way until 2010. The Fed may lower the prime rate, but this will not match the artificially low rates at the start of the loan.
All of this ties in to my malaise, but why? After all, for those looking for a home, this is actually good news. Not only will more homes become available (as banks will not hold on to houses in foreclosure); the pool of potential buyers will shrink. Less demand and more supply equals lower prices, so I should be happy, right?
Well, not so fast. Westchester County, where the average home price is $650,000, had an affordable home expo. I went only to find out I cannot afford a home. Thanks, guys - seriously. If I thought I was depressed before; well, let's call Crisis Intervention and get it over with. Please hurry, I feel the need to strip naked and play in traffic while humming "Ode to Joy." Essentially, my credit is not strong enough at the moment to qualify for full financing. In fact, my credit is probably not strong enough to get financing, period. I exaggerate, but only slightly. I have no desire to separate fact from fiction at the moment, as housing prices haven't lowered that much. Actually, the free fall my bud Scott is predicting is 1 1/2 away at least, when the foreclosure rate for those with good credit will be in full swing. This also means the window of opportunity for buying a home is closed for the moment, and the immediate future. It also means I have some lead time. Buy low and sell high is the collective mantra, and I can apply it here. This ties into my opening: I have to make radical changes to my spending and how I manage both my money and my debt. Managing my debt may even be more important than my spending. I ran a few numbers and if managed properly, I can reduce my monthly expenses by 865 bucks. That is not an insignificant amount. Some changes to my lifestyle are required to make this happen, but they were needed for continued professional growth anyway.
With this I have work to do. I'm going back to school, and must complete the paperwork needed to both gain entry to the school and pay for my studies. Luckily, I know someone who does this for a living. Oh, wait, that's yours truly, how convenient. Also, I'm writing down every penny I spend and what I purchased. This is depressing work, but needed nonetheless. This also means so excess spending, so back and forth to Yorktown is out. Since almost all the people I hang with are up there, I'll be a little isolated for the moment. I also was considering trip to Europe, but that is probably out as well. Let's face it; if Yorktown is out, how in the name of God's good green Earth can Europe be in? I'll still need to go to and from the Poconos, as I'm seeing my dad over the weekend. More, as always, in the proverbial later.
