Newsweek--The New Money Pit-- Defaulting on McMansions

[TexasLawyer]

The New Money Pit

It started with subprime mortgages. Now owners of McMansions are defaulting,
and the effects of the housing bust are beginning to ripple through the economy.


Foreclosure: A Lexington, S.C., deputy sherriff tapes a notice to a home (left);
a house in Anthem Hills, now owned by the bank (right)

By Daniel Gross
Newsweek

Sept. 10, 2007 issue - Walking through the gated community of Black Mountain Vista on a hill in Henderson, Nev., Thomas Blanchard offers a guided tour of real-estate woe. A row of stucco duplexes that recently sold for as much as $500,000 sit empty. "That's a repo," the real-estate agent says as he stands in front of 678 Solitude Point Avenue. Then he points to the adjacent houses, where yellow patches blot the spartan lawns and phone books lie on front porches, their covers bleached from weeks under the desert sun. "No. 680, repo; 684, repo. Those two at the end, repo."

Three years ago, this Las Vegas suburb was teeming with modern-day prospectors armed with low-interest mortgages, all hoping to strike it rich in real estate. Now, what started with the subprime-mortgage mess and subsequent credit crunch are turning communities like Black Mountain Vista into luxury ghost towns. Buyers who got in over their heads are being forced to abandon their homes, leaving behind empty McMansions on the California coast and see-through condominium towers on Miami Beach. Real estate is turning into a money pit, sapping the fortunes of home buyers, hedge-fund managers and house painters alike. The really bad news? This is only the beginning.

No sooner did the housing market peak last summer than pundits and home builders assured the public the bottom had been reached. But with each passing month, the shoes continue to drop. First, dozens of subprime lenders were forced to close their doors. Then in July the nation's largest mortgage lender, Countrywide Financial, reported that mortgages held by borrowers with better credit were starting to curdle.

Nearly 180,000 homes fell into foreclosure in July, up 93 percent from a year ago. Last week President George W. Bush offered a series of proposals designed to ward off a flood of foreclosures. Sales of new single-family homes were off 22.3 percent in June from a year earlier, and sales of existing homes—a much bigger market—were off 9 percent in July. The National Association of Realtors reports there's enough housing inventory for sale to last 9.6 months, more than double the 2005 level. The Case-Shiller index, which tracks national housing prices, fell 3.2 percent between June 2006 and June 2007. While that's a relatively small drop, "this is the largest sustained decline in year-over-year prices since 1991," says Yale economist Robert Shiller.

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http://www.msnbc.msn.com/id/20546324/site/newsweek/

[Blackhatjack]

1. What is going on is 'keeping a lid on the extent of the damage' so that the rich can reposition...

Mass infusions of billions of dollars into the economy, and rosy forecasts that the bottom has been hit, are all part of the plan to 'buy time' for hedge funds, institutions, and the ultra rich to reposition themselves before the coming massive fall.

When the truth is finally spoken, and people realize nothing is going to change it, we are in for a depression that will reach far and wide.

But take heart, Halliburton moved to Dubai, and CHeney moved ALL of his investments OUTSIDE the US. Thank goodness they will escape the coming pain the rest of us are destined to experience.

[midlife_mo_Jo]

2. Hmmmm...

The housing market will readjust with lower prices, which is not a bad thing.

Anyone who lived during the oil bust in Houston in the eighties can tell you that. My first home was a foreclosure that we couldn't have afforded otherwise. I'd say we were able to get into a house a good three or four years earlier because of the oil bust.

It's going to hurt a lot of people, but "some" of those people were just too greedy to begin with. And it's going to help a lot of people.

There is a silver lining in this cloud, at great cost to others, unfortunately.

[4_TN_TITANS]

5. It helped us...

I got a new much better paying job back at the first of the year and now we are in a modest 'used' house. The other day I found a copy of a contract from the previous owner where she had borrowed $300 at 95% interest from a payday lender. That said it all about why she had to give up her house...

[DS1]

3. I was driving around some areas scouting for photos the other day

and I couldn't believe how many of these beasties were for sale. I think there were more for sale than weren't.

On the other hand, very few people need a three car garage and 6 acre lot.

[LeftHander]

4. Bush's "yard sale" economy....

Our economy was driven into the ditch by rich frat boy antics from the GOP, Tax Cuts to the uber-rich and a war that has robbed the entire nation of hundreds of BILLIONS of dollars.

Now WalMart advertises that to offset gas prices and housing costs you NEED to shop at WalMart.

We are still selling a version of the American Dream that was pure TV fiction.

I saw some TV this weekend for the first time and was totally appalled at the level to which the commercials have stooped.

[Possumpoint]

6. Well

the problems in the mortgage market were a classic bubble created by an excessive amount of liquidity in the world markets. In other words, Congress and the Federal Regulators were asleep at the switch. They failed to do proper oversight on the mortgage market.

All that funny money being printed and issued by the Fed has to go somewhere. Money wants to be invested and grow. All the foreign recipients want the highest return on their money. The Mortgage industry keep creating more varied packages to lend money out and resell mortgages. No one wanted to tell them they were going too far or breaking any rules/laws. No one wanted to look at the credit worthiness of the borrows. Now the banks and hedge funds that bought the packages of mortgages can't determine the real worth and there fore can't sell them or borrow on them. This is causing a freeze up in the credit markets.

[fed-up]

7. banks/hedge funds begged for more loans and then lied about their credit rating...nt