Schwarzenegger, Countrywide in mortgage deal

A day late, my apologies, but worth noting: "Four major sub-prime lenders promised to give a break to California homeowners who cannot afford escalating mortgage payments, under a plan announced Tuesday by the lenders and Gov. Arnold Schwarzenegger."

More, from SFGate.com: "Countrywide, GMAC, Litton and HomeEq - which collectively service more than one quarter of sub-prime loans to people with poor credit - agreed to maintain the initial, lower interest rate for some sub-prime borrowers whose rates are scheduled to jump significantly higher. To qualify, borrowers must occupy their homes, have made their payments on time and prove they cannot afford payments with the higher interest rate."

It's not clear how long the lenders will freeze rates under the plan, which Schwarzenegger says will save "tens of thousands of people from being added to the foreclosure lists."

Where did the idea come from? According to the governor's press office, "The agreement the Governor negotiated with lenders builds off a proposal put forward by Federal Deposit Insurance Corporation Chair Sheila Bair that encourages lending agencies to keep sub-prime mortgage borrowers at their initial interest rate if they are living in their home, making timely payments, but can't afford the loan "reset"--or jump to a higher rate."

Your thoughts? Comments? Email story tips to lalandblog@yahoo.com.
Photo Credit: AP
Hat tip: E&A, via email.

Comments

[INland Empire]

It will be interesting to see how long this grace period lasts. I also wonder if the buyers will hold up their end of the agreement or in a few months we will see some other "negative real estate news" about them hovering in default again.

[jaded]

"To qualify, borrowers must ... prove they cannot afford payments with the higher interest rate."

Duh, if they can prove that can't make payments with the higher rate, then they shouldn't have gotten the loan in the first place!!!

So now the RE free market has to be tampered with to accommodate these morons who couldn't see past the teaser rates. Brilliant, just typically tax-the-responsible brilliant.

[yourkillingmelarry]

If you are a hard working, fiscally responsible saver that currently resides in California and are waiting out the housing debacle, take the time now to prepare yourself for getting slapped in the face, knee'd in the gut, and kicked in the groin. Because that is what your local, state, and federal government are getting ready to do to you. Of course don't get too upset over this, we are past a point of no return in this housing slump so these initiatives will be limited in effect, but they are just enough to get under your skin and change the way you normally vote.

[jb]

This will serve to prop up home values artificially. It is directly punishing those who have been saving for a home and realized that taking a risky mortgage meant risking losing your home.

Arnold - I will happily support your measure when you will support me in obtaining a home I cannot afford.

[Aaron Kramer]

The truth is this plan will allow the lenders to keep no-performing loans off their books while simultaneously keeping keeping unwanted homes in hands of unqualified buyers. Homeowners who can't afford their lifestyle will become slaves to their homes because they are upside down on their loan. Instead of being foreclosed on they will be stuck in a lifetime of debt as home prices fall. Well at least the state and municipalities will be able to collect their tax revenue without any interruption. I'm sure if they can't they won't put a lien on these poor people. LOL. Wouldn't it be better to let foreclosures occur and penalize the lenders for their part stupidity?(The borrowers are penalized a by being shut out from the borrowing.) Well I guess if your goal is to maintain tax revenue and the solvency of mismanaged financial institutions at the detriment of the public this BOLD Option is palatable. this will not stop unaffordable,overpriced housing from falling it will only penalize the borrower a second time. Oh by the way, the firms that agree to this mass restructuring will have a difficult time raising funds in the capital market through securitization and increase the cost to access funds for those who have good credit. These firms will make the money they lost on this restructuring plan, think of how insurance companies raise premiums after natural disasters.

[Rob]

Looks good in print, not on paper. We have already concluded if they can’t pay now, they won’t be able to then. What's the purpose? Will they last till next November.......to be continued.....

[Jax]

It's as though The Three Stooges were working for the government and coming up with these looney ideas. Most of these fools bought these homes because they thought they were going to get rich from an ever-appreciating asset...........and they could use as an ATM to fund their foolish spending habits. How many people do you think will stay in those homes (even at the teaser rates) now that they have lost value and are a continually depreciating liability that costs $$$$$ to maintain?

[Cal]

Servicers can't do anything not defined by their servicing agreements (since they don't usually own the loans). Loan modifications aren't usually allowed without the homeowners going into to default. But lets say the bondholders agree to allow mods without defaults if the homeowner proves hardship, the agreement is still "We will freeze the interest rates if the borrower hasnt missed a payment and if they contact us before reset saying they cant afford it". I bet that just doesnt happen that often.

http://www.newsweek.com/id/71535

Newsweek had an interesting case regarding a borrower who got a loan mod (due to job downgrade) but the servicer started including the escrow payments which they didnt before. The servicers are in a tough spot, they have to make up for lax underwriting after the loan is closed and reunderwrite and try to make it where it fits within their modification parameters and the borrower can (barely) afford it.

I think in many cases the reset is just accelerating the inevitable. But with the mortgage market becoming so illiquid every default is chasing money away, so even if mods wont solve the longterm problem (the borrower is most likely to lose the house anyways) it will buy people some time to deal with the issue.

[Tombstone Realty]

So, *now* they want to do income verification. Bit late in the process, don't you think?

[Paul Hiller]

This so called fix is just window dressing. Very, very few will qualify. Will re-fi’s qualify? I think not. They are referring to 2-28s that are resetting. Almost all were 80-20s, stated, and the borrowers were hoping for the miracle of appreciation to put off judgment day. The key statement is "proving" they can't afford the reset. 90% of the borrowers will not be able to prove they can afford the "pre-reset", much less the post reset payment. Once they really show income the lenders will be off the hook. After all, the application is full of misrepresentations. Shocking! This is good photo opportunity and nothing else.
Next crisis please.

[perks]

This only makes me regret NOT jumping into a suicide mortgage I knew I really couldn't afford and, instead, waiting until I could reasonably manage a good ol' 30-year fixed. Thanks, Arnie, for showing me what a fool I've been.

[MyLessThanPrimeBeef]

My Austrian on-the-brink-of-quitting-real-estate broker just called me up now to say 'I vill be back!'

[allsouledout]

Silly me ... I thought stupidity was only rewarded if you were a celebrity ...

[screwedagain]

I thought I was being fiscally responsible and prudent because I knew I couldn't afford a house unless I went with a adjustable rate, interest-only loan that would reset into a payment I ultimately wouldn't be able to afford.

I guess I was the idiot - there are no consequences for making bad decisions anymore. I will definitely not be teaching my children to be financially conservative the way I was taught, that's for sure. Saving money, working hard, delaying gratification - these aren't virtues anymore... they're liabilities.

[jdj]

Two issues:

1. What about IO loans and Option ARMs? Do these features of the loans get frozen as well? The interest rates are the least of the problem, it's when these people have to start paying principal or at least all the interest that they crumple.

2. This idea for freezing rates will never work. It will drive yields up on all future mortgage loans. What lender (or investor) will want to make an ARM in the future if they think that their yield can be frozen. They will demand a big spread up front.

[Trevor]

Wow, this blog really is completely populated by individuals who are dying to see the market collapse. It seems to me that if the lenders such as Countrywide feel it is in their best interest to give individuals the option to possibly hold onto their homes it is a win win situation for the homeowners and the lenders. The lenders continue to have their interest payments made and are not forced to lose money on a foreclosure. The home owner doesn't have his credit totally ruined and keeps his family in a home. Gee, what a terrible idea.
Land prices certainly could adjust downwards for the greater good but what people forget is that there is an extremely high cost of building and servicing a home in California. There also, believe it or not, is not an unlimited supply of land in the LA area. There are a hundreds of thousands headed this way in the next few years so if you're expecting long term prices to drop like like we're in Dogpatch Nebraska, you're dreaming.

[AJ]

Wonderful comments on this thread.
. I have been watching this blog for a while.
As the last post said... "there are no cosequences for bad decisions anymore". And a previous post mentioned that escrow had not been included in the payments.
These are all leading up to a very difficult time approaching. I commend the Governor for attempting to help but unforunately the situation is very complicated and will take some time to sort thru.

[upthecreek]

"Wow, this blog really is completely populated by individuals who are dying to see the market collapse"

Sorry Charlie.. This blog is full of people that understand the government is only trying to put off the inevitable These loans are toxic and nothing will change that , NOT EVEN ARNOLD and ANGELO....
GET REAL!!!!

[Brother Joe]

Lenders have no choice! They created this mess...they have to mend it...
Most bloggers are blaming the Borrower who was offered a "Defective Product"...

I see this more like a "Recall" on the Automotive Industry...Borrowers did not come up with the "Mickey-Mouse" loan products...

Lenders should have known better...Selling a faulty product will get you in trouble...If it wasn't for them, we would not have a "Meltdown"...

We need a "Stable Real Estate Market"....If you are looking for a low price...well...move to Midwest...Nobody owes you anything...

Prices in California will always be high...Our Population is not decreasing last time I check...

[Christopher]

I hope the house price goes back to 1999 as well as the rental. I already had a hard time paying the 2 bed room appartment since the house price increasing so crazy. Why does the governor not to tell the lenders to give free money to all the tenants for paying the rent? As the old says, this country is the most richest country in the world. Why now a day american people have to suffer paying the rent like me????????????????? No christmast and no thank giving. We are in africa ! ! !

[yourkillingmelarry]

"Land prices certainly could adjust downwards for the greater good but what people forget is that there is an extremely high cost of building and servicing a home in California. There also, believe it or not, is not an unlimited supply of land in the LA area. There are a hundreds of thousands headed this way in the next few years so if you're expecting long term prices to drop like like we're in Dogpatch Nebraska, you're dreaming."

You know all of those things were true when home prices were about half of what they are now only 6 to 7 years ago. What happened? did the population double, did everybody get a 75% to 100% raise, did everybody in LA win the Lotto? No! Prices were artificially inflated due to what is probably the largest credit bubble in history. The housing boom of the last 5 years was not real! Regarding the several hundred thousand people heading this way....wrong. S. California is experiencing a net out-migration as a result of this debacle. Population growth is coming from babies and non-monied immigrants. Prices will drop, they are dropping and will continue to drop for at least a few years.

[Stop the insanity]

"Wow, this blog really is completely populated by individuals who are dying to see the market collapse. It seems to me that if the lenders such as Countrywide feel it is in their best interest to give individuals the option to possibly hold onto their homes it is a win win situation for the homeowners and the lenders."

No, we don't want to see the market collapse. We want to see the market correct itself to a reasonable level. The housing prices are currently insane. They are not linked to market fundamentals, they are linked to all the easy funny money that was doled out. To let these people stay in their homes at the teaser rates completely punishes people who did the right thing and did not buy a house they knew they couldn't afford. Pricing hard-working and ethical people out of the market is not win, win.

Maybe its time to do a total recall for Arnold. It helped him get in, maybe its time to kick him out if he can't see how he is screwing all the people who are actually financially responsible.

[Tbone]

I don't understand the anger against the gov, the lenders and lendee's as it relates to this story. Are there taxpayer dollars being used? I only read Peter's main post, but I didn't see anything in there about state dollars being spent. This post only says that the lenders will freeze rates at the initial APR. What's wrong with that?

[Trevor]

"You know all of those things were true when home prices were about half of what they are now only 6 to 7 years ago. What happened? did the population double, did everybody get a 75% to 100% raise, did everybody in LA win the Lotto? No! Prices were artificially inflated due to what is probably the largest credit bubble in history. The housing boom of the last 5 years was not real! Regarding the several hundred thousand people heading this way....wrong. S. California is experiencing a net out-migration as a result of this debacle. Population growth is coming from babies and non-monied immigrants. Prices will drop, they are dropping and will continue to drop for at least a few years."

It strikes me that land in just about every part of the world saw the same ramp up in values that California did. I know that in Canada prices have at least doubled. Same for Europe and there isn't this panicked sell-off for some reason. Doubling of an investment in six or seven years is not an unheard of rate of return. If you put money into a investment at 10 percent you will double it in about 6 years. After everyone recognized what a scam the stock market can be they moved into real estate. I hate to get political here but I really think the drop in prices in the US is a vote of non-confidence in the current president and his policies. 2008 will bring improved confidence in the future and land will stabilize. Just you watch.

If you're trying to tell me that population growth in California is only fueled by poor immigrants I'll have to take your word on that but usable land in LA is getting scarce and people love the climate, especially aging boomers with creaky bones. And what are borrowing rates sitting at again?

[MyLessThanpPrimeBeef]

They said the same things about Roman real estate too, especially those on the slope of Palantine Hill, when the prices went crazy and stayed there...for a while - great Mediterranean weather, compared with, say, that of Trier in Upper Rhine or Londinium, best entertainment in the whole empire at the Coliseum, far more interesting than our own puny Hollywood, and eveyone wanted to be there in Rome, not just the poor arthritic Gauls, Celts or Goths, but also rich tin mine owners from Spain, grain tycoons from North Africa and sexy queens from the Land of Phaoahs.

There were millions in Rome and as powerful as the Roman Republic and later the Roman Empire, they weren't in the business of making more land either.

So, what happened?

Some son of a Sun worshipper decided to move the capital, took all the senators with him and there went the real estate.

And a good lesson for us Angelenos lest we become too cocky.

[yourkillingmelarry]

Trevor,

You have correctly pointed out that RE bubble is Global. Here is an excerpt from a 2005 article in The Economist, a very prestigious rag in the UK.

"NEVER before have real house prices risen so fast, for so long, in so many countries. Property markets have been frothing from America, Britain and Australia to France, Spain and China. Rising property prices helped to prop up the world economy after the stockmarket bubble burst in 2000. What if the housing boom now turns to bust?

According to estimates by The Economist, the total value of residential property in developed economies rose by more than $30 trillion over the past five years, to over $70 trillion, an increase equivalent to 100% of those countries' combined GDPs. Not only does this dwarf any previous house-price boom, it is larger than the global stockmarket bubble in the late 1990s (an increase over five years of 80% of GDP) or America's stockmarket bubble in the late 1920s (55% of GDP). In other words, it looks like the biggest bubble in history."

http://www.markzwick.com/real_estate/_upload/
57355.html

This is a must read. The US bubble just happened to pop first. Here is an article from the UK today.

"Housing slump fears rise as new mortgages fall
Declining buyer and seller confidence has reduced new mortgage approvals by 16 per cent during October"

http://business.timesonline.co.uk/tol/
business/industry_sectors/construction_and_property/
article2929358.ece

Also

"Europe Suspends Mortgage Bond Trading Between Banks (Update3)
By Esteban Duarte and Steve Rothwell

Nov. 21 (Bloomberg) -- European banks agreed to suspend trading in the $2.8 trillion market for mortgage debt known as covered bonds to halt a slump that has closed the region's main source of financing for home lenders."

http://www.bloomberg.com/apps/
news?pid=20601087&sid=aLzGEmrjr0fA&refer=
home----------

Can you begin to see the scale of this? You cannot throw the issue of affordability out the window. Housing is not slumping for political reasons, it's slumping because people can't get loans at these prices. Not to compare the two but Japan's lack of available land is far far worse than California's. They are just now recovering from their property bubble from the 1980's.

[yourkillingmelarry]

MyLessThanpPrimeBeef,

Bravo!

[Randy Adams]

MyLess, that entry sweeps all the awards.

Trevor, I don't know where you are writing from but very small houses on my small street went from a low of $240K in 1995 to a high of $1M in 2006. That is a not a normal appreciation by any standards and is not supported by any economic or demographic developments in the area. It is a bubble. I have personally witnessed two previous Los Angeles real estate bubbles. They are not an anomaly; they are a regular and nearly predicable pattern.

Something very similar occurred in my hometown of Fresno, California. The weather there is mediocre at best, unemployment is chronically high and yet housing went up three and four-fold in the same time frame. This was an unusual event because Fresno's property does not have a boom and bust record, presumably because of the ready availability of additional building space and the relatively anemic economy. But they too are now faced with a bubble, probably largely fueled by retired transplants from the Los Angeles and San Francisco Bay areas, taking advantage of their opportunity to cash out of the booms in their local areas but still desirous of staying within California.

I am not aware of many of the international housing markets, but the collapse of the Spanish Mediterranean real estate bubble is famous and occurred only recently. Because I like the city, I have watched the real estate market in Brisbane, Australia for 2 or 3 years. The prices used to be high-ish in the popular inner city areas (New Farm, Spring Hill, Tenerife, Hamilton) but still usefully less than the nominal prices in Los Angeles and there were still actual prices listed. Two years on and NOW the properties are only sold at frenzied auctions with no prices listed at all. This is another bubble waiting to burst, probably when the global economic ripples from the U.S. recession reach the shores of Australia. Water is scarce in Oz but land most certainly is not and the population influx is carefully controlled.

I think we will find that "globalization" has created an international real estate bubble. The credit crisis in the U.S. is already costing UK, European, Japanese and Australian banks big sums of money. How will this impact the cost of money in their own markets? Either we all have a huge inflationary spiral or a bubble deflates.

[MyLessThanPrimeBeef]

Youarekillingmelarry, the United Shoppers of America, aka U.S.A., is not in the best position to rescue UK and France, much less the world this time.

[yourkillingmelarry]

Here the links to my previous post as a tinyurl

The Economist article

http://tinyurl.com/ynwr4e

The Times Online article (UK Mortgages)

http://tinyurl.com/ysgku6

The Bloomberg article (Europe Mortgages)

http://tinyurl.com/22gbgm

[Ann]

Check this out.

Nothing new in the Gubenator's supposed 'agreemnet'. In fact the named lenders say there was no speical 'deal' cut.

http://www.modbee.com/local/story/131542.html

And for this poster who says "Prices in California will always be high...Our Population is not decreasing last time I check... Posted by: Brother Joe |"

CA popuation 2000 33,871,648 Median income $47,493
CA population 2006 35,594,342 Median income $56,645

Increase over 6 years 1,722,694 $9152
That is a 5% over 6 years 19.27% NOT INFLATION ADJUSTED
$56135 needed in 2006 to = 2000

This means that the population has increased by .833% a year, and that income over 6 years has only increased .9% or less than .15% a year.

Ergo, the demand of an increasing population did NOT cause by price increased 100 or 200% or more over that time. Nor did increasing income drive up by 12, 20, or 30% a year.

There should have rice increases in line with inflation of about 3.2% a year. Add in the .15% (less than 1%) for the annual increase in income plus the .15% (less than 1%) for the population increase and the grand total is 6.21% a year over 6 years.

That means a house at $100,000 in 2000 would, at most, be about 37% more in 2006 or $137,000 - $140,0000 if, and ONLY IF, there had been no increase in the supply of housing at all. Since more houses, condos etc were built that there was an increase in population, the increased supply easily absorbed the increase in demand so out that goes, Now the adjusted price from 2000-2006 is basically the rate of inflation so that $100000 house should have been $119,000 - 120,000 in 2006 - NOT a jump to $350,000 or whatever ridiculous number they were selling for.

[Susan]

> S. California is experiencing a net out-migration as a result of this debacle.

Source? According to SCAG, 6 million more people are projected to be added to the population of Southern California within the next 20 years-- many of whom will be born here and want to stay. A LOT of people would have to leave to balance that out, and I'm sure not seeing it!

http://www.scag.ca.gov/factsheets/

[Trevor]

This is great, an actual discussion about the fundamental value of things rather than the usual...Man, I wish I'd bought seven years ago, maybe we can convince everyone the sky is falling.

This is just a personal observation but I've never seen a populance so in tune with world trends before. So you think maybe we'll eventually run short of oil?... next month it's $100 dollars a barrel. Maybe the dollar will drop in a few years, two months later the Canadian dollar is 1.10. Wow maybe the North West passage will open in fifty years...Even the ice caps are listening. It used to be that we would all stick our heads in the sand and just assume we could let our grandkids worry about it. Now it seems everyone and everything gravitates wildly to any presumed movement.

Why did land values go up so quickly? I guess because everyone's priorities changed. We've been investing in illusions for so long and at the same time becoming so protective of our own private world that I think we realized our most valued resource was a bit of earth to call our own. Not much different from those poor peasants who clung their vegetable patch not so many years ago. Without a place to call home, you're never truly at peace in this world.

Speaking of peace in this world, if I can be allowed one last personal aside. An electic vehicle getting a hundred and fifty miles to the gallon would go a long way.

[Ann]

Source? According to SCAG, 6 million more people are projected to be added to the population of Southern California within the next 20 years-- many of whom will be born here and want to stay. A LOT of people would have to leave to balance that out, and I'm sure not seeing it!

http://www.scag.ca.gov/factsheets/

Posted by: Susan

Uh huh...... based on the past 6 years it was .(point) 83% a year.

Your happy guess of 6 million in 20 year would be 300,000 a year or .(point) 87% a year. All they are doing is using the growth rate of the past few years. Since there are 2.69 people per median household, that is only 111,524 households a year. There are 58 counties in CA so that would mean 1,922 new housing units every year er county - not 4000 in one developement with 50 develoements in a county.

That is less about the world population growth rate of 1.1% a year based upon breeding.

What CA has had is a net outward migration of middle income and upper middle income households. That is dangerous as it is on track to have predominately poor and lower income households and rich households. The housing prices have reached the point that emloyers are having trouble attracting emloyees whose incomes will not allow them to be in the top 17.66% as is necessary to purchase a home. Even the rents are problematic when a 1 bedroom apartment is going for $1500 -1800 or 2000. Employers can not raise wages to be competitive for emloyees without having to raise the cost of their goods which will then make them uncompetitive with their competitors who are located outside CA and who do not have to deal with the high housing costs which in turn necessitate higher wages.

Median income is $56,645 with 50% having more and 50% having less.

What is worrisome is that 4,031,631 households or 33.17% of all households have incomes between $15,000 and $50,000. Middle class (speaking economically) is from $45,316 to $67,994. Upper middle income is from $67,994 to roughly $90632. Upper income starts at that $90,632 and goes from there. An income of $100,000 would just barely buy a $345,000 house with 10% down. Those with an income of $100,000 and up are only 2,994,716 or 24.6% of the population. To purchase a house that is the median price in the lowest 25th percentile of homes in LA would mean spending around $425,000 (think that is about right from the data) which means an income of at least $123,100 with 10% down. That is, at most, 2,146,379 households or 17.66% of all households -and that is in the economic class considered the 'rich' as they are in the to 1/5th of income groups. .

The only choices for the other 82.34% are to

(a) rent at a price which they can pay based upon income which means rents have to reflect the ability to pay which means landlords canonly buy property at a rice which will allowthe rents to cover costs and leave a profit:

or

(b) leave the state, if their skills and emloyment prospects are not likely to one day put them in the top 17.66% of income (the rich). Since most people in the middle class and upper middle class aspire to someday own a home that means that either their income increases a LOT or they leave the state. Thats it. (except for inheriting their parents' home bought 20 or 30 years ago and being able to keep it and not have to sell it to settle the estate or split the value with siblings.)

The economic concept of 'demand' is not just about how many people there are who might want something. It MUST include the concept of the ability to purchase the item. "Demand' is more correctly stated as the number of potential urchasers with the ability to pay the price who want the item.

Unless and until either (a) incomes increase or (b) prices decrease, the poulation could double and they still CAN NOT pay the prices which do not reflect income. If they do not have the income to ay prices unrelated to income then they either do without housing in CA by leaving the state or crowd more people into the available housing to cover the cost. There are no other options with respect to the price of housing.

[yourkillingmelarry]

Here is a San Diego UT Article that primarily focuses on San Diego but addresses domestic out migration in S. Cal.

http://tinyurl.com/2o8x8q

According to the Census Bureau these were the domestic migration losses for 2005-06;

Los Angeles -183,063
Orange County -46,199
San Diego -42,034

The IE is showing population growth but not enough to offset the net of LA, OC and SD out migration. The following is a quote about SD from the article which is very reflective of LA

"Immigrants and births are now the sole contributors to the region's population growth. That's a departure from the late 1980s when the county's population surged 80,000 a year."

Babies and poor immigrants aren't going to buy houses in LA. Recruiters are having major problems getting people into the sate and more college grads are leaving the state than staying. Which makes perfect sense when home prices have been artificially pushed beyond most people's means.

[Teresa]

Yourkillingmelarry:

I am an adult college student at Temple University in Philadelphia. Plenty of California companies come to campus, trying to recruit soon-to-be grads. Because this is a four-season area, lots of those grads show great interest in moving to California...UNTIL they see how much housing costs there. Then they decide that shoveling snow for maybe 6 days a year isn't so bad after all.

And I'm talking grads being offered what would, in other parts of the country, be considered excellent incomes...$50k, $75k. Out here, you can own a nice home and support a family on that. In L.A., you can cram into a little apartment.

Ann is right in that California is on track to be comprised of nothing but millionaires and the people who cut their lawns.

[Confused]

Trevor, do you really think the frenzied collapse of the housing market is related to the current pres and his policies? Please explain. I either spent the last hour being mystified due to my ignorance or you are a moron.

[Dabu]

The relationship between the material value (cost/availability/real demand of land, cost of structure, cost of local taxes and services) of homes and their inflated values is more extreme the more you get away from dense areas it seems ironically.

I live in the high desert, and like the commenter in Fresno mentions, there is a worse justification for prices in these areas. In my area, one can easily buy property, build a mansion and get hook-ups, within blocks of where you want to be, for half the price of what the real estate market is offering and appraising existing modest-sized homes at. Current sales here only have appeal to those have recently landed good jobs and have an immediate need to move in, but even that is going down the tubes.

The same alternative of buying land nearby (if that is even an option) and building on it does not get the same level of savings in the big cities. I have had many job offers in SoCal, but I would be trading a home for an apartment.

[C]

I see there are a lot of so called responsible people out there that commented on this issue. I start off by saying I am among the responsible but, I seemed to be one of the few that realize the sub prime borrower was a very important element to how much equity and money a lot of people made. Nobody was complaining when everyone was doubling and tripling their investments!! In comparison there are so many great credit borrowers out there. The market is full of credit risk borrowers and what we were all taught growing up is that the majority rules!! In closing, don't turn your backs on sub prime borrowers. A lot of us made a great living on the backs of these people and if they weren't around, a lot of people would have gone by the wayside a long time ago. Just a thought!! Take Care