Would you buy a house from this Realtor?

Here's another incredible story of a couple about to lose their house, and the amazing part is that the woman is a Realtor and should know better.

A larger than life mortgage.

The analyst kicks in at about 2 min 45 seconds into the story, and basically lays into them.

The cliff notes version:

• Couple buys house in Livermore CA for $1.5M
• Couple elects to take a negative amortization ARM, and only pays $2800 a month
• Full mortgage payment is equal to 70% of their gross income
• Couple racks up an additional $100k in finance charges on $1M loan, which is added to principle
• Principle reaches 110% of original loan value and bank requires them to pay full monthly payment.
• Payment jumps to $8000 a month
• Couple freaks out, asks to renegotiate loan at 2% for 40 years!
• Bank offers 5.75% for 38 years, or a $6000 payment
• Couple still can't afford mortgage at a rate most would be thrilled with
  

Again this couple wants us to feel sorry for them, but in the video she admits freely that she didn't read the loan paperwork. I also believe they were speculating, as even if they refinance to a 38 year fixed loan (as the bank offers) they still can't afford the mortgage.

I'm scared to think of how many customers she offered "advice" when she obviously has no clue what she's doing herself.

The value of this house has now fallen about 30% to roughly $1M, so they're looking at foreclosure, but vow to "fight it". Right.

I swear, I couldn't make up stories this crazy. I'm just not that creative!

More (un)worthy subprime fallout victims

My wife pointed out another article on CNN about a couple that's been affected by the subprime fallout, Careers vanish after subprime 'free fall'.

"We're still both in shock that it could go from something so good to so bad so quick," said Kent, 59. "New Century in 60 days went from top of the heap to out of business."

The two didn't say exactly how much money they made at their last jobs but Kent admitted they each had six-figure incomes.

Today, they're trying to get by on his unemployment benefits of about $450 a week, which covers only about an eighth of the basic payments they owe every month."

"Their home equity line, mortgage, health and life insurance premiums alone cost about $10,000 a month. Still, they are trying to hang onto what they call their dream home with a view of the Pacific Ocean where they live with Mysti's 11-year old son.

Kent estimates the mountainside home in San Clemente, Calif., which they bought in 2005, is worth 20% less than it was a year ago. And in the current market, he said he's not sure he could sell it for even that amount.

"We've used up most of our reserves, cashed in her 401K," said Kent. "We're going Mach 1 into a wall. When we run into it, then we've got to decide what to do next."

Despite their financial problems, the Copes have worked hard to protect their credit rating, staying current on bills. And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example. But the couple also has learned that it didn't need everything it used to spend money on."

I lived in San Francisco and was laid off when the the dot-com bubble burst and felt the pain of going from a comfortable salary, to unemployment that doesn't even cover your rent so I know that frustration. I had to wait for my lease to expire to find a cheaper place to rent, but I was able to sell my car, found a free place to stay in exchange for work, and sponged off my girlfriend (now wife) for a few months while I enjoyed a relaxing summer looking for a new job.

But their cutbacks? "And they've made cutbacks: trading in Kent's Corvette for a Suburban and getting rid of the gardener, for example." They ditched the gardener? And sold the 'vette for a Suburban? That's economizing? How about selling the Vette and sharing a car? Or at least buy a corolla, or anything that gets more than 10 MPG.

I'm also amazed at the number of people who are cashing in their 401k's to prop up their extravagant lifestyles. I've already given up any expectations of seeing my social security in 30 years, but after bailing out the banks and the homeowners who overextended themselves, in another 20 years I'll be bailing out the homeowners who sucked their retirement dry in exchange for an ocean view and granite counter tops.

I need to stop reading the news, this is getting depressing.

The No Bailout Poster Child

CNN recently ran a story about the middle class getting pinched "From $70K to food bank, one family's struggle"

"When she was laid off in February, Patricia Guerrero was making $70,000 a year. Weeks later, with bills piling up and in need of food for her family, this middle-class mother did something she never thought she would do: She went to a food bank."

"Guerrero is estranged from her husband and raising her two young children. She's already burned through her savings to help make ends meet, and is drawing unemployment checks. She has had to take extreme measures to pay for her interest-only mortgage of $2,500 a month. In fact, her mother moved in with her to help pay the bills. Guerrero even applied for food stamps, but was denied."

On the surface it seems like a story of a middle class family falling through the cracks and getting pinched by the housing crash.

But dig deeper and you see that this was just another example of a family living way beyond its means, and finally getting caught.

According to this blog, "On the surface, this does seem like a true unfortunate soul. However, when you poke the story with a stick and say, 'boo', well, lets' just say Guerrero doesn't warrant much sympathy.

The 2,948 square foot house in question was purchased from her estranged husband's parents in August of 2002 for $202,000. By August of 2006, she and her husband refinanced this home a couple of times, finally winding up with $649,999 in debt loaded onto the house. That's close to 450k in cash out refi action in 4 years, 100k a year....and what was purchased with this so-called equity? If you watch the video that accompanies the story, Guerrero makes mention that she took off her Tiffany bracelet and left her Coach handbag in her car when she strolled into the food bank. In the photo, she is also surrounded by a sea of granite, so the 450k more than likely financed some pricey remodels as well Tiffany bracelets and Coach handbags.

Patricia Guerrero is not deserving of any sympathy because at 70k a year and being in the mortgage industry, she should have known she couldn't afford a 650k loan...even if the husband that bailed was making 70-80k himself. They may have used some 'liar loans' (stated income, no income verification, etc) to make the loan fly on paper, but in reality they bit off way more than they could afford. "

I'm sorry, but they really don't deserve to keep the house. They've basically already sold it, pulling $450k out if it, and for what? Looks like a nice kitchen remodel, a tiffany bracelet and at least one coach handbag.

This woman needs to stop looking for her bailout and figure out how to provide for the kids. It's obvious there were no savings, so maybe it's time to sell the house and find a cheap rental, or sell the bracelet and the coach bag, or god-forbid find a interim job to cover some of her expenses. I'm tired of people looking for a bailout. Own up that you made a bad decision and figure out how to get out of it. Cut your expenses, figure out how to get some income, and don't make the same mistakes again.

Tax Payers Against a Bailout

A reader sent this in:

"PDXOutsider,

I thought you should see this:

An online petition is available. Let you voices be known. No taxpayer funds to bailout the irresponsible.

http://www.petitiononline.com/mod_perl/signed.cgi?bailout

Thanks."

If you oppose a bailout for people who bought houses they couldn't afford, and for financial institutions that took on too much risk, please sign the petition.

The mortgage rate freeze is a bad idea

I'm sure I'm not the only one - outside of those who took out mortgages they couldn't afford - who thinks the rate freeze bailout is a bad idea. Ignoring all the potential legal issues with the plan, or the fact that it might be impossible to actually define who will be helped, this basically amounts to a bailout for those that made a poor decision.

I certainly didn't get any help 5 years ago when some of my internet stocks crashed. That's not nearly as heart-wrenching as watching little Johnny lose his house because his parents bought a house they couldn't afford with a mortgage that shouldn't have existed in the first place.

I hope the bailout gets tossed out in court. As painful as it might be for everybody, letting the market correct itself is the best way to go. If we don't get the bad loans off the books, we'll be in the same situation that Japan was in 20 years ago. And I'm sure nobody wants that.