No wonder the real estate market crash

[Hortical]

This man mek $23,000/year and get a $375,000 mortgage.



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Faces of Lawrence's foreclosure crisis
Mario DeJesus (right) bought this three-family Victorian in the spring of 2005, taking two mortgages to cover the $375,000 purchase price. DeJesus, however, earns about $23,000 a year and soon had trouble affording his mortgage.

[MdmeX]

Madness, Madness in all it's glory $23,000 salary vs. $375,000 mtge. Karl what's your take on this? Even if that salary was net - it was a disaster waiting to happen.

[Gamma]

who give him di mortgage?!!! HOW could they give him a mortgage? what would the monthly payment be like considering even a 10% downpayment?

[MdmeX]

Here's the full article

As foreclosures widen, a neighborhood erodes

Crisis tests many in north Lawrence

By Robert Gavin, Globe Staff | October 7, 2007
LAWRENCE — Mario DeJesus struggled under crushing mortgage payments for two years. Now, about to lose his home to foreclosure, he has no money left to move his family into an apartment.
Altagracia Portorreal sleeps uneasily since teenagers broke into the vacant home next door, abandoned by a neighbor who couldn’t keep up with the mortgage. Bienvenido Chalas is cutting the hours of employees who clean carpets and refinish floors as foreclosures drag down the housing market that supports his business.
DeJesus, Portorreal, and Chalas are three faces of the foreclosure crisis sweeping the north side of Lawrence, a crisis that is uprooting families, destabilizing neighborhoods and shaking a local economy only beginning to recover from the real estate crash of the 1990s, when so many abandoned buildings burned that Lawrence became known as New England’s ‘‘arson capital.’’
‘‘I thought nothing could be as bad as the ’90s,’’ said Mary Marra, executive director of Bread & Roses Housing, a nonprofit developer of affordable housing. ‘‘But I’m beginning to question that.’’
What’s happening here in this poor section of one of the state’s poorest cities shows the consequences of the frenzied, indiscriminate, and sometimes predatory lending that accompanied the recent housing boom. Lawrence’s north side is one of many communities, often poor and minority, that were flooded in the late stages of the boom with subprime mortgages, typically high cost adjustable rate loans for borrowers with credit problems.
Many succumbed to the lure of easy money, and bought homes beyond their modest incomes. Now, pick any street in the 2 miles between DeJesus’s and Portorreal’s homes, and chances are you’ll find homeowners in foreclosure, or desperately trying to sell before it’s too late.
At Ebenezer Christian Church, Pastor Victor Jarvis said, church members approach him and whisper, ‘‘I’m losing my house. Please pray for me so I’m able to sell it.’’
Caught in downward spiral
Lawrence’s north side stretches between two hills, Tower, to the west, and Prospect, to the east. It descends from either side to the Spicket River, becoming poorer and more crowded as it loses elevation. For generations, Lawrence’s immigrant workers climbed the socioeconomic ladder by moving up these hills.
The section, the 01841 zip code, encompasses 3 square miles of tightly packed two- and three-family homes. One in four people live in poverty in the section, and median family income, just under $30,000 a year, is half the state’s. Over less than two years, according to The Warren Group, a Boston real estate data firm, lenders launched nearly 600 foreclosures, roughly one for every 10 owner-occupied homes in the neighborhood. Dozens of buildings, some with boarded doors and windows, stand vacant.
The impact is felt beyond distressed homeowners and their families. Many of these properties are two- and three-family homes with tenants who often must move once the owner loses the building to foreclosure.
Each week at housing court in Lawrence, at least two or three cases involve tenants being evicted by lenders, who, after completing a foreclosure, don’t want to act as landlords, according to Neighborhood Legal Services, which provides legal advice at the court sessions. Among them: Antonio Damiron, his wife, Santa Guerrero, and their 2-year-old son, Michael.
‘‘My head is spinning,’’ said Damiron, 45, who is being evicted from the two-bedroom apartment on Trenton Street where his family has lived for about two years. ‘‘Where am I going to go with a wife and kid? I could end up in a shelter. It’s just unreal.’’
At the Lawrence Housing Authority, requests for housing are up by at least 10 percent because of foreclosures, said Deputy Director Efrain Rolon. Once a day, on average, someone comes in and tells employees: ‘‘The bank is taking my house. I can’t refinance. I can’t sell. I need housing.’’
There is little Rolon can do. Waiting lists are so long that they are closed to new applicants. Emergency assistance is possible, he explained, but not until people are actually homeless. ‘‘Who wants to hear that?’’ Rolon said.
Ana Luna is executive director of Arlington Community Trabajando, a north Lawrence neighborhood group. She shook her head as she recently drove past empty homes, slapped with tags that indicate lenders, unable to sell foreclosed properties, have sealed them up and shut off utilities. ‘‘Winterized,’’ the tags say.
‘‘You think of all the people who need a place to live, and these buildings are just sitting there,’’ she said. ‘‘It makes me want to cry.’’
In the shadow of vacancies
Altagracia Portorreal remembers her next-door neighbor sobbing at the front door. After a year of working 12-hour days to pay her mortgage, the neighbor was giving up. She sent the keys to the bank, packed up, and abandoned the three-decker on Walnut Street.
Soon after, a group of teenagers broke into the vacant home and smoked marijuana, said Portorreal, a divorced mother of an 8-year-old. Other neighbors, she said, have spotted drug users and prostitutes breaking into vacant properties in the neighborhood.
‘‘These empty houses worry me a lot,’’ said Portorreal, 42, who bought her home, half of a duplex, four years ago. ‘‘This area had really been progressing, and it worries me a lot.’’
Lawrence police say they, too, worry about foreclosed homes. So far this year, thieves have broken into a dozen vacant properties, stripping them of thousands of dollars in copper and other valuable metals. Police Chief John Romero said his department is tracking published foreclosure and auction notices to keep a close eye on these properties.
But the thieves use the same notices to pick their targets.
It all brings back bad memories for Cristina Tavares, who lives about two blocks from Portorreal. Tavares and her husband, Hector, bought their home in 1990, when the neighborhood was ravaged by foreclosures from the last real estate bust. Each morning, Cristina Tavares recalled, she swept up needles and condoms from the sidewalk in front of her home, a neatly kept duplex. ‘‘The worst nightmare you can imagine,’’ she said.
Back then, buildings burned in suspicious fires so often — at least 120 in 1992 alone — that Lawrence was dubbed the ‘‘arson capital’’ of New England. Vacant lots of rubble and weeds spread for blocks. Property values plunged by half.
‘‘We got used to the idea hearing fire alarms all the time and seeing smoke billowing,’’ said Len Raymond, a longtime Tower Hill resident, former city planner, and cofounder of two Lawrence community groups. ‘‘The smell of smoke just hung in the air.’’
Only in recent years did these neighborhoods begin to rebound. Nonprofit developers, such as Bread & Roses Housing, reclaimed vacant lots for affordable homes. For-profit developers followed with market-rate housing.
Meanwhile, an estimated $1 billion in subprime mortgages flooded this one section of Lawrence from 2003 to 2006, according to First American LoanPerformance, a San Francisco firm that collects mortgage data. The amount of subprime loans nearly quadrupled during the peak of the housing market in 2005, to an estimated $300 million from less than $80 million in 2002.
As a result, homeownership increased, to 36 percent citywide in 2006 from 32 percent in 2000, according to Census figures. The median price of a three-family home nearly doubled to $350,000 in 2005 from $159,000 in 2001 in north Lawrence, according to Warren Group. Median family income, however, remained flat in Lawrence at about $30,000.
‘‘It was so exciting for the city to see people buying homes and investing, and neighborhoods becoming economically stable,’’ said Andrea Ryan, housing manager in Lawrence’s Community Development Department. ‘‘Now we know it wasn’t all real.’’
‘‘For Sale’’ signs now sprout everywhere, often several to a street. Properties frequently are being sold for less than what the delinquent homeowner owes on the mortgage, a so-called short sale. Bob Ciccarelli, a real estate broker, said he has 19 listings in Lawrence. Eighteen are short sales. One of these properties, bought last year for more than $300,000, is now listed at $180,000.
‘‘Even decreasing the prices,’’ Ciccarelli said, ‘‘they’re still not selling.’’
The loss of wealth is rippling through the economy. Nazario Esquea, the owner of Naztel Communications, a downtown cellphone store, said he used to order phones, accessories, and other merchandise at least once a week to keep up with shoppers. He glanced at an inventory sheet. The last time he placed an order: three weeks earlier.
‘‘A lot of people were refinancing,’’ he said. ‘‘Now that part of the economy is gone.’’
Two years ago, Bienvenido Chalas, owner of Joel’s Cleaning Services, said he and his three employees worked 12 hours a day and well into evening to keep up with floor refinishing and carpet cleaning jobs for new homeowners or those who refinanced. Today, they typically finish at 3 p.m. —if they work at all.
‘‘People don’t want to spend money on their house,’’ Chalas said through an interpreter. ‘‘They don’t know if they’re going to lose it.’’
‘Now it’s a bad dream’
Mario DeJesus had long dreamed of owning a home, and two mortgages covering the $375,000 purchase of a three-family Victorian on Tower Hill let him live it. DeJesus, however, earns about $23,000 a year. It didn’t take long for the math to catch up with him.
DeJesus, 46, bought the home in the spring of 2005. He figured rental income from two apartments would cover all but $400 of the $2,600-a-month mortgage, an amount he could cover with his monthly take-home pay of about $1,500.
But tenants proved hard to find, and the third floor remained vacant most of the time. The other apartment rented for $1,000 a month, meaning rental income was less than half of what he planned.
DeJesus soon was late on his payments, scrambling to find money. He drove a cab when he could, to supplement his earnings as a delivery truck driver for the Eagle-Tribune newspaper. His wife, Ruth, picked up a paper route. By the spring of 2006, however, DeJesus knew it wouldn’t work. He put the home up for sale.
By then, though, DeJesus was caught in housing’s downward spiral. Sales stalled and prices slid as other distressed borrowers flooded the market with homes. Sinking home values made it impossible to refinance into lower cost loans. Foreclosures followed, putting more homes on the market and more pressure on prices.
Only one prospective buyer looked DeJesus’s home over the next year, even as he slashed the listing price, which is now $85,000 less than he paid. Meanwhile, his mortgage had an adjustable rate that reset to a higher level, increasing his payments to $3,200 a month. He couldn’t refinance and he couldn’t sell. And he couldn’t pay the mortgage.
DeJesus will lose his home to foreclosure at the end of this month. The sheriff ’s letter came last week. With three children at home, he needs at least a three-bedroom apartment. He’s not sure where he’ll find the money for moving expenses.
‘‘In the beginning it was a dream for us, and now it’s a bad dream,’’ he said. ‘‘I lost the house.’’
Robert Gavin can be reached at rgavin@globe.com.

[Gamma]

here's the answer:

"What’s happening here in this poor section of one of the state’s poorest cities shows the consequences of the frenzied, indiscriminate, and sometimes predatory lending that accompanied the recent housing boom"

[MdmeX]

yep, sorry fi these people. Lord knows this man tried.

[Me]

People getting paid on commission, so they do anything to make the person qualify for the mortgage and they will simply say they are helping to make the dream of homeownership a reality.

[Bricktop]

People getting paid on commission, so they do anything to make the person qualify for the mortgage and they will simply say they are helping to make the dream of homeownership a reality.

It's so easy to pass the blame. You as the consumer have a responsibility to know what you can afford. Dem eye bigger dan dem stomach.

[Me]

Not passing blame.

Yes consumers carry some of the blame, but in many cases the person marketing the particular product to the individual is more educated about the business and can therefore sell a strong story. This person is telling the individual most of the time about mortgage financing solutions that will give them a low payment.

Then they are telling the person about the tax advantage and how in the worst case scenario they can flip the property just like that. By time they finish putting their presentation together the consumer is convinced that the mortgage is appropriate for them.

[Karl]

Madness, Madness in all it's glory $23,000 salary vs. $375,000 mtge. Karl what's your take on this? Even if that salary was net - it was a disaster waiting to happen.

Should not have happened!

There is another side to that: It was "iffy" loans that kept the market on the boil and that had many persons making fortunes. Squeeky clean loans could not have had the market in residential real estate see so much activity and such fantastic appreciations in values...and, thus poured billions into the hands of consumers...thus keeping consumer confidence and roaring markets - and economic activity bouyant across the USA.

The rapid uptick in equity appreciation encouraged the mortgage bank (They...more than the retail banks...pushed the 'exotic loans'...such as 100% - 103%...and Option Arms, MTA loans, etc.) as it was seen by those who created the demand for such products that buying and holding for short period...and paying 'small service rates' on these loans maximized profits if sales were realised at new rapid appreciated prices. The problem came about when many of those with these loans had the values go south. They had planned to hold the properties not longer than 2 years and to off-load at substantial profits.

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I would suspect that Mr. "low-earner" was feeling great when he bought. His reasoning probably went something like this - I am going to have 2 or 3 tenants help me to meet the monthly payment over the first 2 or so years. There will be improved earnings of both mine and my family. ...and, if that does not occur - no problem, I'll sell at a new appreciated value...making a profit on my outlay...and, then consider 'then options'. Friends, relatives, most of the country were drunk with thought that 'there would be no end to the rapid increase in values'. Yeah man, many were saying, "forward to zillions"!

Most persons that thought like Mr. "low-earner" were into - No power on earth could stop them from plunging in. If they ran into a mortgage loan officer who they thought was too pessimistic - i.e. warning them of the possibilities...it would be 'kis-teet' and on to a 'smiley-smiley'. Wah di adda ediat jus grudgeful an nuh waan mi fi mek hit! Tenk yuh missa new mortgage man/woman
...until di market crash...then I never knew, I am just a poor man who wanted to live the American dream fooled by a wiked tief-in mortgage man/woman.

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...and, those who made it - "turn" "flip" the properties and arrived at a 'good place' - perhaps, bought the last house cash from proceeds made during the 'run'...or is sitting pretty with cash in the bank or both house and cash...you never hear from those persons during times of a market downturn...for them "it" worked.

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...2010 or later for the market to rebound! Cautiously at first! The FHA loans will make a remarkable comeback...but, eventually the 'run' will also return.

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...if you have the wherewithal during the period now to 2010 to purchase and ride out the downturn - you shall find many bargins. There is money to be made by those with money...access to money to 'ride' through this period! Use...the all too uncommon...commonsense!

[Karl]

Not passing blame.

Yes consumers carry some of the blame, but in many cases the person marketing the particular product to the individual is more educated about the business and can therefore sell a strong story. This person is telling the individual most of the time about mortgage financing solutions that will give them a low payment.

Then they are telling the person about the tax advantage and how in the worst case scenario they can flip the property just like that. By time they finish putting their presentation together the consumer is convinced that the mortgage is appropriate for them.

Big mistake here!
When the person comes to the mortgage person 'the die is already cast'. Most often they have found the home...or has an eye on the home/property they would like to buy...discussed it with family and friends and has a pretty good idea of what it is they want to do. They are usually facing the mortgage lender or broker asking 'the how'. They are long past the thought of not buying!

Often the question is; do I have them secure the mortgage or send them away - to get that mortgage form another person. There is often no selling -- It is a simple: You can get the loan if you take this product or that product, which one best fits your need. Implicit in such a statement is; if neither does LEAVE! ...do not compromise YOURSELF!

The idea that the person seeking the mortgage does not know what it is he/she is getting into is another sweet sounding political story. Makes good news copy and sounds fine to some voters.

[MdmeX]

Most persons that thought like Mr. "low-earner" were into - No power on earth could stop them from plunging in. If they ran into a mortgage loan officer who they thought was too pessimistic - i.e. warning them of the possibilities...it would be 'kis-teet' and on to a 'smiley-smiley'. Wah di adda ediat jus grudgeful an nuh waan mi fi mek hit! Tenk yuh missa new mortgage man/woman
...until di market crash...then I never knew, I am just a poor man who wanted to live the American dream fooled by a wiked tief-in mortgage man/woman.

Karl - you hit the nail on the head. Often times I try to caution some of my associates, but all they take from the discussion is that me nuh want them fi have. So I learn to leave well alone.

[Me]

Big mistake here!
When the person comes to the mortgage person 'the die is already cast'. Most often they have found the home...or has an eye on the home/property they would like to buy...discussed it with family and friends and has a pretty good idea of what it is they want to do. They are usually facing the mortgage lender or broker asking 'the how'. They are long past the thought of not buying!

The idea that the person seeking the mortgage does not know what it is he/she is getting into is another sweet sounding political story. Makes good news copy and sounds fine to some voters.

During the housing frenzy, the sub prime market in particular were being sold the story of Negative Amortizing, ARMs, IOs and so on. Their neighbour tell them how easy it is to get , so them go talk to the companies and the companies say sure I can provide you with one, knowing that the person could not afford the mortgage. Knowing full well that even though they can afford the 1st year, their income will not increase enough to afford it at the reset.

Mortgage companies were pooling resources and going into low income communities and preaching how homeownership is affordable to ALL and how they are closing the mortgage gap. During that time they well and knew that they would simply pool the loans into an MBS and pass on the risk to the MBS inverstors who were not doing their due diligence at the time.

[Gamma]

blame late night tv..."i got rich and you can too"....

[Gamma]

WOW....!!!!