This is one of the better explanations I have heard for why the current frugality trend is here to stay... because the frugality trend IS normal, not the spending trends of recent years.
Your iPhone example is spurious because you don't need spreadsheets or calculators to pay off your mortgage. Like you don't need a computer to run a budget. Just take the extra cash in your checking account each month and send it to your bank along with your mortgage payment. You will need a HELOC as a backup if you run short, but that gets paid off before you send any extra money to the bank.
That's it. Sure, you can use spreadsheets to play what-if, or spend $3500 on MMA to play what-if. That $3500 will cost you over $16,000 in extra interest and 16 months on a 30-year, 6% mortgage.
I think we are not done yet with home value declines. Too many people are unemployed. The stock market has zoomed up but why? Let's see what the fall brings. I do think in a year from now we'll be in a better place.
125% doesn't cover the amount already lost by homeowners.
Actually ... the DIY nose job device -could- theoretically work ... that is ... IF ... you start wearing it every night while you sleep from around the age of 5 years old onward until you reach college age. Of course, you'd probably just end up with two permanent indentations in your nose as the clip doesn't cover the entire nose cartilage area. The ancient Mayans (or was it the Incans ... I'm a bit fuzzy?) used to strap their children into "head boards" which would over time give them that "fashionable" slanted forehead. Over time, the subtle pressure of the pressing board on young, growing bones and cartilage would slant the forehead into a "fashionable" 45 degree angle.
Actually ... the DIY nose job device -could- theoretically work ... that is ... IF ... you start wearing it every night while you sleep from around the age of 5 years old onward until you reach college age. Of course, you'd probably just end up with two permanent indentations in your nose as the clip doesn't cover the entire nose cartilage area. The ancient Mayans (or was it the Incans ... I'm a bit fuzzy?) used to strap their children into "head boards" which would over time give them that "fashionable" slanted forehead. Over time, the subtle pressure of the pressing board on young, growing bones and cartilage would slant the forehead into a "fashionable" 45 degree angle.
Great ideas! My 5-year-old is starting to understand toys = money, so I'm thinking being a weed bounty hunter is just the ticket! We are also big fans of the library and bowling. We also like nature hikes and picnics when it's not too hot.
For some reason I am thinking the two examples you cite would be excluded because of the loan amounts. I believe there was a cap on the maximum allowable well under the half a million threshhold. I'm thinking this because I remember thinking that California residents were pretty well and truly screwed since there was major property inflation out there and housing is and was incredibly expensive in their market.
Worse. Problem is, there's no there there. Our present economy is finished. When we emerge from this long, dark tunnel, American (assuming there is still an "American" state) society will be unrecognizable to its former, coddled inhabitants.
The Obama admin's attempts to prop up our housing "industry." and all our other whipped cream enterprises, is like trying to get a scarecrow to wave away the crows, unaided.
There is no going back to our predatory, rapacious ways. All we can really do is to watch our unraveling - on just about every level - and prepare for a new beginning. And, oh yes, don't forget to duck.
Please see Kunstler, Heinberg, Korten, Savinar, et al. for further elucidation.
In my opinion, your house and your stock picks should have one thing in common: They should both be considered long term investments. If the homeowner picked a home in a decent neighborhood and it has all the features they need, then there is no reason to believe that it's value won't increase by the extra 25% over the next 5 to 10 years. If the loan amount means payments higher than they can afford, they purchased too much house to begin with and borrowing more money you can not repay will not fix the problem. Selling your home, or your stocks, just because they are suddenly valued at much less than your purchase price is pretty much like admitting you made a bad choice to begin with and want to compound that error by not giving that asset a chance to recover. A refi on a home isn't going to make the payments much more favorable unless the new loan is at a better interest rate. My hope is that the new 125% loans slow foreclosures, but that is not too likely, except in a few cases where a new loan drops the total monthly payment. Let's all pray that we aren't encouraging another round of reckless borrowing.
The government bailout to banks basically provided them with income, enough income to allow them to not need to lend money out anywhere near as much or take any kind of real risks. So, the bank bailout was the biggest scam this country has ever seen, facilitated by congress men and women who were bankrolled, by the banks. It resulted in the economy worstening, and of story. Don't believe the crap you hear about how if the some of the banks failed, it would have been much worse had we not bailed them out. BS. These kinds of banks would have either had layoffs (like all of the other sectors of the economy have done to deal with tougher economic times), or the failing banks would have been bought up by more fiscally responsible and financially sound banks. It would have made little to no difference to your average Joe.
Instead, what we have is irresponsible banks continuing to thrive on our tax dollars, just to continue to make ignorant decisions and contribute to this faultering economy.
Worse yet, not only are the banks now being far too tight with credit, they are also helping the housing market to continue to tank, because when they can't use your credit and debt to income ratio as an excuse to not give you a HELOC or 2nd mortgage, they lowball the appraisal - thus destroying the housing market further, spinning the downward spiral faster and faster.
So, for us responsible folks, who have paid our mortgage and all other debts as we should, there's no incentive for us anymore. Your credit rating is meaningless, your home value continues to tank, so you can't use the equity in your home, or even sell it because you now owe more than it is worth. So, it does only make sense to me to just stop paying your mortgage. Regardless of whether you get bailed out, what is the worst that can happen? You are evicted from your house? Doubtful, but even if you were, please, take it! It's worthless to me anyway! I'll just rent.
I'm in the middle of negotiating with my mortgage lender right now about giving me a pretty small HELOC. They have of course come back with the BS that my house doesn't appraise high enough to give me enough equity (since they also only are considering like 80% of the total value to calculate my equity). I'm going to tell them that it isn't wise for them to lowball an appraisal on an asset that they have a lein against. I'm also going to let them know that they either give me this small HELOC, or they have received my last mortgage payment. I have a feeling they might be willing to negotiate. I figure it's worth a try to see if they play ball. If they don't, I guess I don't need the HELOC anymore, because now I'll be able to save what I need in cash with the money I was using to pay the mortgage. Either way, I win!
Yes but what happens when you get sick? I realize this sounds great for when you are healthy (which I am too). But what happens when the unexpected happens? No one plans to get sick...no one plans to get cancer...no one plans to blow out a knee (as I did). So then what?
I think it's great you've found something that works, but I know for sure that the system is broken.
Another issue that nobody brought up is that these "appraisal management companies" don't seem to care about assigning appraisers who know the local markets.
I just had a contract where the appraiser is from another county, his office is over an hour away, and is someone I have never heard of. In some areas that is considered 'local enough' - but he isn't using good comparables from similar neighborhoods because he doesn't know the area. Instead he is using homes that are on more land, or 30 years older because the homes match the subject by his definition (in some way I can't figure out myself).
There are 50+ good appraisers working in this city, but because the mgmt co. pulled in someone unfamiliar with the area the appraisal came in low, and now we get to try cleaning up the mess.
Not good for the buyer, not good for the seller. Not good for the bank either.
I believe these cards being sent out to people is a good thing because you can't use it unless you activate it and add funds, and you can't spend over what you have deposited! So whats the problem? Why would they activate your card to get they're own money out? Basically they overcharge on a few minor things, like the 50 cent phone call to check your account but still not a bad deal for someone with credit problems and who likes to buy things online! I say good for them!
Guest, did you have a regular refinance through your lender or is it through the Making Home Affordable program? I'm interested to know. since you said you still have equity left I'm guessing you're not one of the people who need to refinance 125% ltv
Just closed my refinance today. Locked in a few weeks ago with a 4.375% rate for 15 years with 1.5 points. After the drop in value, we still had a small amount of equity. I think this will look better and better as each day passes.
Wow! Isn't this what got us into this mess in the first place? If these mortgages in trouble now are not allowed to fail now they will just fail in the future. Seems like a theme nowadays.
This is one of the better explanations I have heard for why the current frugality trend is here to stay... because the frugality trend IS normal, not the spending trends of recent years.
Excellent Phillip.
Your iPhone example is spurious because you don't need spreadsheets or calculators to pay off your mortgage. Like you don't need a computer to run a budget. Just take the extra cash in your checking account each month and send it to your bank along with your mortgage payment. You will need a HELOC as a backup if you run short, but that gets paid off before you send any extra money to the bank.
That's it. Sure, you can use spreadsheets to play what-if, or spend $3500 on MMA to play what-if. That $3500 will cost you over $16,000 in extra interest and 16 months on a 30-year, 6% mortgage.
I think we are not done yet with home value declines. Too many people are unemployed. The stock market has zoomed up but why? Let's see what the fall brings. I do think in a year from now we'll be in a better place.
125% doesn't cover the amount already lost by homeowners.
Hi!
It's a very useful post. Can I translate it in French and use it on my blog (with of course a link to this page)?
Have you guys seen Bagelheads?
Actually ... the DIY nose job device -could- theoretically work ... that is ... IF ... you start wearing it every night while you sleep from around the age of 5 years old onward until you reach college age. Of course, you'd probably just end up with two permanent indentations in your nose as the clip doesn't cover the entire nose cartilage area. The ancient Mayans (or was it the Incans ... I'm a bit fuzzy?) used to strap their children into "head boards" which would over time give them that "fashionable" slanted forehead. Over time, the subtle pressure of the pressing board on young, growing bones and cartilage would slant the forehead into a "fashionable" 45 degree angle.
Hmmm ... sounds more like child abuse ...
Actually ... the DIY nose job device -could- theoretically work ... that is ... IF ... you start wearing it every night while you sleep from around the age of 5 years old onward until you reach college age. Of course, you'd probably just end up with two permanent indentations in your nose as the clip doesn't cover the entire nose cartilage area. The ancient Mayans (or was it the Incans ... I'm a bit fuzzy?) used to strap their children into "head boards" which would over time give them that "fashionable" slanted forehead. Over time, the subtle pressure of the pressing board on young, growing bones and cartilage would slant the forehead into a "fashionable" 45 degree angle.
Hmmm ... sounds more like child abuse ...
Great ideas! My 5-year-old is starting to understand toys = money, so I'm thinking being a weed bounty hunter is just the ticket! We are also big fans of the library and bowling. We also like nature hikes and picnics when it's not too hot.
For some reason I am thinking the two examples you cite would be excluded because of the loan amounts. I believe there was a cap on the maximum allowable well under the half a million threshhold. I'm thinking this because I remember thinking that California residents were pretty well and truly screwed since there was major property inflation out there and housing is and was incredibly expensive in their market.
Worse. Problem is, there's no there there. Our present economy is finished. When we emerge from this long, dark tunnel, American (assuming there is still an "American" state) society will be unrecognizable to its former, coddled inhabitants.
The Obama admin's attempts to prop up our housing "industry." and all our other whipped cream enterprises, is like trying to get a scarecrow to wave away the crows, unaided.
There is no going back to our predatory, rapacious ways. All we can really do is to watch our unraveling - on just about every level - and prepare for a new beginning. And, oh yes, don't forget to duck.
Please see Kunstler, Heinberg, Korten, Savinar, et al. for further elucidation.
Great site!
In my opinion, your house and your stock picks should have one thing in common: They should both be considered long term investments. If the homeowner picked a home in a decent neighborhood and it has all the features they need, then there is no reason to believe that it's value won't increase by the extra 25% over the next 5 to 10 years. If the loan amount means payments higher than they can afford, they purchased too much house to begin with and borrowing more money you can not repay will not fix the problem. Selling your home, or your stocks, just because they are suddenly valued at much less than your purchase price is pretty much like admitting you made a bad choice to begin with and want to compound that error by not giving that asset a chance to recover. A refi on a home isn't going to make the payments much more favorable unless the new loan is at a better interest rate. My hope is that the new 125% loans slow foreclosures, but that is not too likely, except in a few cases where a new loan drops the total monthly payment. Let's all pray that we aren't encouraging another round of reckless borrowing.
Thanks for sharing such great post, according to me we keep the credit cards as an added facility, but sometimes it cost us too much for making payments of the credit card bills. For more details on credit card debt refer http://www.prime-targeting.com/bad-credit-credit-cards-credit-cards-debt...
Many of the programs are more of the same as is this one. I would think it is time to change the tune and go down a different road.
A good source of volunteer work in Africa is Volunteer 4 Africa
For people interested in visiting/volunteering in Central or South America have a look at Volunteer Latin America
Here's the long and short of things...
The government bailout to banks basically provided them with income, enough income to allow them to not need to lend money out anywhere near as much or take any kind of real risks. So, the bank bailout was the biggest scam this country has ever seen, facilitated by congress men and women who were bankrolled, by the banks. It resulted in the economy worstening, and of story. Don't believe the crap you hear about how if the some of the banks failed, it would have been much worse had we not bailed them out. BS. These kinds of banks would have either had layoffs (like all of the other sectors of the economy have done to deal with tougher economic times), or the failing banks would have been bought up by more fiscally responsible and financially sound banks. It would have made little to no difference to your average Joe.
Instead, what we have is irresponsible banks continuing to thrive on our tax dollars, just to continue to make ignorant decisions and contribute to this faultering economy.
Worse yet, not only are the banks now being far too tight with credit, they are also helping the housing market to continue to tank, because when they can't use your credit and debt to income ratio as an excuse to not give you a HELOC or 2nd mortgage, they lowball the appraisal - thus destroying the housing market further, spinning the downward spiral faster and faster.
So, for us responsible folks, who have paid our mortgage and all other debts as we should, there's no incentive for us anymore. Your credit rating is meaningless, your home value continues to tank, so you can't use the equity in your home, or even sell it because you now owe more than it is worth. So, it does only make sense to me to just stop paying your mortgage. Regardless of whether you get bailed out, what is the worst that can happen? You are evicted from your house? Doubtful, but even if you were, please, take it! It's worthless to me anyway! I'll just rent.
I'm in the middle of negotiating with my mortgage lender right now about giving me a pretty small HELOC. They have of course come back with the BS that my house doesn't appraise high enough to give me enough equity (since they also only are considering like 80% of the total value to calculate my equity). I'm going to tell them that it isn't wise for them to lowball an appraisal on an asset that they have a lein against. I'm also going to let them know that they either give me this small HELOC, or they have received my last mortgage payment. I have a feeling they might be willing to negotiate. I figure it's worth a try to see if they play ball. If they don't, I guess I don't need the HELOC anymore, because now I'll be able to save what I need in cash with the money I was using to pay the mortgage. Either way, I win!
Thanks for reading. Power to the people! :)
Yes but what happens when you get sick? I realize this sounds great for when you are healthy (which I am too). But what happens when the unexpected happens? No one plans to get sick...no one plans to get cancer...no one plans to blow out a knee (as I did). So then what?
I think it's great you've found something that works, but I know for sure that the system is broken.
Nope bum idea does not work, just tried it.
I actually got it wrong! It's from not-sweet to sweet. My fault!
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Kathleen.. I wrote about that in my original article in the third paragraph.
Another issue that nobody brought up is that these "appraisal management companies" don't seem to care about assigning appraisers who know the local markets.
I just had a contract where the appraiser is from another county, his office is over an hour away, and is someone I have never heard of. In some areas that is considered 'local enough' - but he isn't using good comparables from similar neighborhoods because he doesn't know the area. Instead he is using homes that are on more land, or 30 years older because the homes match the subject by his definition (in some way I can't figure out myself).
There are 50+ good appraisers working in this city, but because the mgmt co. pulled in someone unfamiliar with the area the appraisal came in low, and now we get to try cleaning up the mess.
Not good for the buyer, not good for the seller. Not good for the bank either.
I believe these cards being sent out to people is a good thing because you can't use it unless you activate it and add funds, and you can't spend over what you have deposited! So whats the problem? Why would they activate your card to get they're own money out? Basically they overcharge on a few minor things, like the 50 cent phone call to check your account but still not a bad deal for someone with credit problems and who likes to buy things online! I say good for them!
Guest, did you have a regular refinance through your lender or is it through the Making Home Affordable program? I'm interested to know. since you said you still have equity left I'm guessing you're not one of the people who need to refinance 125% ltv
Just closed my refinance today. Locked in a few weeks ago with a 4.375% rate for 15 years with 1.5 points. After the drop in value, we still had a small amount of equity. I think this will look better and better as each day passes.
Wow! Isn't this what got us into this mess in the first place? If these mortgages in trouble now are not allowed to fail now they will just fail in the future. Seems like a theme nowadays.