Congressman says his mail ran '50 to 1' against mortgage rescue

Rep. Kevin McCarthy (R-Bakersfield), pictured, tells the L.A. Times that his constituent mail on the Barney Frank mortgage rescue plan was running "50 to 1: 'Don't bail these people out.' "  McCarthy voted against the bill.

Other interesting tidbits from Richard Simon's piece on latimes.com about how the House vote unfolded today on the mortgage rescue bill:

--One California Republican,  Rep. Gary G. Miller of Diamond Bar, voted for the bill. Otherwise, the vote in the California delegation split along party lines, with Democrats supporting the bill and Republicans siding with the White House in opposition.
--Miller said Frank "helped win his support by adding a provision that would permanently raise the maximum mortgage the Federal Housing Administration can back to $729,750 from $362,790." (Aside: Did anyone ever believe that increase would be temporary?)
--Three Californians skipped the vote: "Reps. John Campbell (R-Irvine), Laura Richardson (D-Long Beach) and House Speaker Nancy Pelosi (D-San Francisco) did not vote. By tradition, the speaker seldom does."

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo: kevinmccarthy.house.gov

Comments

[formerlahomeowner]

Diligent and prudent savers are being punished. Initially, by very low interest rates and now by this proposed bailout. No wonder the US and the dollar are in decline. These type of legislations make me sick.

[Laker]

Peter,
Our senators and congress man can even get 10000 to 1 mail against the bailout, they will still support and vote for it...They know that we the voters will not punish them...
It is not only renters that are upset and disgusted here. There are also all the responsible home owners, that bought with down payment, or simply live within their means, don't use the House as ATM, and now see that they were all fools and should have used the ATM because government will help pay the bills.

Also Peter, Can you please tell us why do we need FHA to secure loans up to $729,750? When the median price is somewhere in the $430,000-450,000 ???
Why don't they raise the limit to $7,000,000 (million) Yes, maybe that would help get cheap loans and prevent the house prices decline. I start to believe that the government and Fed should help guarantee loans for every Joe and Jane to buy a house in Beverly hills.

On another note, i do not understand how FHA with 3% down today is any different from Country wide at the heydays of 2005 that gave loans with 0 down???
Under any normal economics, government should support prudent and responsible behavior such as buying a house if you can afford it. If you don't have 15-20% down, you can NOT afford the house.

[LA-renter]

I for one generally support Frank's bill... or as it's described by the media. Though, I'm skeptical about the real impact of this intervention.

But I cannot fathom why limits on government-backed mortgages should be raised. Who can afford such loan amounts? Why is the government involved in this market?

The vindictive no-government-bailouts crowd on this blog is beyond tiring. The perceived benefits to loan-owners, I believe, are exaggerated.

Compared to Paulson's --and thus Bush's-- efforts, the intent of Frank's bill is more admirable. It seems to me that Paulson/Bush want to shackle loan-owner's to absurd mortgages that cannot and should not be paid. Whereas, Frank wants the lenders to share the burden, minimize dislocation and hasten a rational market.

[lefty]

hey mr. viles, by the response to the drug-house article it's time for "Weed Land"! try it ok? lol i mean the blog not the weed! something else it's time for: your new house in unrivaled metro L.A.!! don't wait, we're at or near the bottom for nicer areas! i may not have time to post after this so just do it! good luck all and enjoy the sunshine!

[John in Montana]

Thank you California Rep. Kevin McCarthy for listening to your constituents, and doing the right thing. The government should not be using tax payer money to bailout those that were irresponsible with their money. If the government bails out these people, what sort of message does that send to the rest of us? How many people who are current with their mortgages will default in order to receive government help?
Why did Reps. John Campbell (R-Irvine) and Laura Richardson (D-Long Beach) skip the vote? No courage to stand up for their convictions, or too lazy to participate?

[gary]

fine, no bailout, but no bailout fro everybody. and I dont beleive his emails are 50 to 1 for no bailout. first of all he is a republican and they cant tell the truth to save their lives and next no bailouts means, no helping banks which no republican can help themselves from doing.

[Spencer]

There are people who bought homes and lived up to their promise to pay it.

ANY sort of bail out is unfair to those people. For the most part, the people who "would be" bailed out by this plan are people who SHOULD NOT HAVE BEEN BUYING HOUSES IN THE FIRST PLACE.

I have been waiting for years, wondering how certain people in my neighborhood are affording these houses. I know what they did for a living and it didn't make sense that they could be in a $600,000 house. NOW I see how they got in there. There should be no bailout.

[smi2le]

A vote for this bill was a vote against affordable housing. I am a Democrat and I hope Bush vetoes this bill.

[Michael Snyder]

Remember when many of us took time to write to our "representatives" in Congress? I actually sent three separate letters to Senator Boxer, all generating the same form letter as a reply. Not surprising, but she's so busted. The entire text of the third letter from salutation to signature said, " bla-bla-bla" for two paragraphs. So much for representation.

[Melvin Too]

I'm all for the bailout if the government can promise to rescue me in 5 years too. I am currently buying an 800k house with 10% down and 5 year I/O ammortized over 30. As long as they are adjusting homeowners loan balance today, they should be willing to adjust mine in 5 years if I'm under water. Its a win-win situaton.

[Anthrodiva]

After eight years hating the chimp, my OWN party has succeeded in driving me into his arms...Imagine what this is doing to others.

[bigunit]

Simon's article makes reference to Miller being a land developer, so his breaking ranks with other Republicans should come as no surprise. Interesting that he voted for mortgage relief despite his constituents 50 to 1 communications against such relief. Good luck in your next election Gary.

I think the bugger is going to be in the details, since homeowners hoping to take advantage of the program must be able to document their income & pay high mortgage insurance premiums. Don't get me wrong, the provision makes sense, but it immediately excludes a significant portion of those families threatened by impending foreclosure.

Rest assured, we still haven't hit rock bottom here in LA -LA Land.

[Lou]

I don't think I've ever remembered an issue where the politicians and mainstream media did not represent at all the views of the people. I am not saying that everyone is anti-bailout but recent polls have shown that 50% of the people are, but no one seems to be representing them. Thank God for the blogesphere.

[WhyNot]

Just because you can't make a 15-20% downpayment doesn't mean you can't afford the house - I am about to graduate from law school, so I don't have the cash for a down payment - but I do have a job that will pay be 160,000/year to start (with bonuses and annual raises) why shouldn't a bank be able to give me a 0% down loan?

[arroyogrande]

"permanently raise the maximum mortgage the Federal Housing Administration can back to $729,750"

Median home price in LA County in March 2008 was $450,000. That means that half of the single family residences sold in March 2008 were below that price, and half were above.

So why do we "need" Fannie and Freddie backing loans higher than that amount in LA County? Even in The OC, the median was only $570,000.

In other words, why stop at $729,750? Why not much much more?

- arroyogrande

[Anonymous]

WhyNot --

The answer is manifold but at least starts with (1) you might lose your job, (2) you might have a health crisis, and (3) your house might lose value. The studies have consistently shown that homeowner equity is the single most determinative factor in whether a borrower repays the debt, not FICO scores, not income, not anything else. If a lender has to foreclose, the expenses in doing so are at least 20% of the value of the house, and that's why the lender should demand a large downpayment. If you had the cash, would you make such a loan with no down payment cushion? Of course not. No one who isn't likely to be bailed out by the government would ever make such a loan. This sense of entitlement borrowers feel for almost free money from lenders is astonishing.

[Laker]

WhyNot,
If you have an income of $160,000 and you just started, who knows if you are good at what you do? Maybe you will lose the job? Not that I'm saying that, but it is possible.
In a normal place, you would rent a place, live little under your means and save money for the down. With such income, you could easily save $50,000-80,000 in 1-2 years. Then you will go and buy your dream house WITH the down payment and ALSO show 1-2 years of track history of working and paychecks!

[RZ]

WhyNot: You're right that with a $160K/year job, you could certainly afford to buy a house. But getting a house with 0% down would be the equivalent of renting and getting a nice tax break on it each year. So either that tax break should be extended to all renters too, or there should be a required minimum of at least 5% down.

[lj]

you should know there were many cases of "bait and switch" that happened NOT to the poor or unsophisticated. even graduate school educated "clients" of etrade, had their hearts set on a house after a long search, only to be presented at the last minute, papers for an adjustable mortgage, while the notary stood waiting for them to sign. they had a lot invested in emotion and time and hopes dashed over these types of tactics. Some obviously bought the story "don't worry you can refinance later". Give relief to single purchasers/inhabitants who were not speculators.

[peteviles]

lefty wrote, " i may not have time to post after this so just do it! good luck all and enjoy the sunshine!"

Lefty -- I hope you're really not leaving us. We need a few optimists around here. E-mail me if you'd like at peter.viles@latimes.com.

Pete

[Ace]

Laker 'Also Peter, Can you please tell us why do we need FHA to secure loans up to $729,750? When the median price is somewhere in the $430,000-450,000 ???'

Laker, I think you have lived in LA for too long! In like 45 out of 50 states, the FHA amount is probably more than twice the median price for that state*. Why should CA be any different? If the FHA amount is the same as the median, only half of the home buyers could qualify.

*full disclosure, I didn't look that up... maybe someone will prove me wrong.

[sheila]

Why don't any of Peter's notes about this bill include the fact that there is a $7,500 tax credit (bailout) for first-time homebuyers included? Why are we only getting the negative part of the story from LA Land??

The "taxpayers" get their money back (and probably more) when the house sells, because homeowners have to kick Uncle Sam part of the proceeds (like the municipal programs). Borrowers must live in their houses (no flippers) and have to buy a lot of Mortgage Insurance. This is not a bailout as much as a refi with sensible terms and several layers of safety net under it.

The hysteria keeps getting in the way of the truth around here. Prices are already dropping. This will only help a narrow slice of borrowers who could actually afford their house if they had a normal fixed mortgage and were able to ride out the next few years while the market readjusts.

It will not deprive you of your god-given right to a super cheap house in an amazing neighborhood in a very competitive part of the world - because that right does not exist.

Many responsible, deserving people got caught in the first total credit meltdown since the Depression, and had every reason to trust that they could refi their ARMs just like responsible borrowers have been doing for 20 years. When Alan Greenspan is breezily advocating that fully-qualified borrowers take ARMs, then they do, then there is an unprecedented credit freeze, how is that speculation, irresponsibility or greed? it's closer to a natural disaster because the small slice of borrowers Frank's bill will help CAN AFFORD THEIR HOME IF THEY CAN JUST GET A DECENT FIXED MORTGAGE like the rest of us have. and they have to share the wealth with taxpayers when they sell.

People who can't afford their house will not be bailed out!! Speculators, flippers, big builders and lenders will not be bailed out!! First time homebuyers WILL BE BAILED OUT with a $7,500 tax credit, which i could easily resent since i didn't get that enormous handout from all of you when i bought, but i don't resent it because i am capable of seeing the larger picture. Read beyond the headlines and soundbytes before knee-jerk reactions. If you just look at the business section of this very paper, it is all spelled out:

http://www.latimes.com/business/la-fi-housing9-
2008may09,0,5859108.story?page=2

[Milla]

20% down just isn't realistic in expensive markets like LA. it would lock out the entire middle class from homeownership, especially families with children. i'm not saying 0% is acceptable, but 5% seems fair for LA.

and you can lose your job as a renter or owner -- no difference. you'd still have to hit the pavement and find a new job to make ends meet. it's the same as saying one should never marry if 50% of marriages end in divorce. foreclosure rates are much lower than that. the bank takes a chance on you; you take a chance on homeownership. no guarantees anywhere.

[jb]

Maxine Waters has a phone # you can call and tell the person there your displeasure with her 15B bailout. i am with others here - my democratic party has foresaken me and I am going to the dark side (vader mask noises) - gonna vote republican for the first time in 20 years of voting.

Congresswoman Maxine Waters
10124 South Broadway
Suite 1
Los Angeles, CA 90003
Phone: (323) 757-8900

[Darnell Goldberg]

Milla -- your solution to the large downpayment problem is "reduce the required percentage".

My solution is "let home prices fall until the average middle class person can afford to put down 20%"

I know, it sounds crazy, doesn't it?

[Milla]

Darnell -- the only thing that's crazy is thinking that one size can fit all across RE markets. Homes in LA, NY, SF will always be more pricey than homes in Arkansas.

[sheila]

to be clear, the $7,500 tax credit is for YOU GUYS - THE NEXT CROP OF FIRST TIME HOMEBUYERS, not retroactive for the people who were first time homebuyers and got stuck. Why aren't you guys in favor of this?

[E]

$7500 tax credit!

Whooo Hoooo!

I can save more by using Redfin.

*After* the ARM resets that is.

[Julia]

What makes me angry about this bill are the write downs. It just rewards people for overspending and does nothing to prevent this problem from occurring again.

I bought my house in 2004 with 20% down, I did it buy saving and living within my means. I bought a starter home, and am building up equity. Even in this down market, if I wanted to move up to a nicer house, I have more than enough equity to put 20% down.

My neighbor's house in foreclosure. For the past 10 years, all this guy did was refinance. He even bragged about knowing a loan broker who could get him a 600K loan on a house barely worth 500K (and this was in 2006). This guy makes good money, and if he'd been responsible, he'd own his home outright. Instead, he had to have shiny new cars, boats, do all this home remodeling, etc. Well, he was out of work for 3 months because of the WGA strike, and now his home's in foreclosure. Personally, I think it serves him right.

The idea that the government could reward such frivolous spending by writing down loans in infuriating. These idiots caused this mess, let them suffer, not the tax payers.

[jb]

Milla,
5% is "fair" based on what? to who? Fine, you lend them the money with 5% down.

When they walk away when the house loses 20% of its value, do not ask the taxpayers to rescue you. The borrowers have to have some skin in the game, this is what got us into this mess (along with a ton of fraud).

[Laker]

Milla,
You are so wrong with your 5% down payment...
20% should be the standard, and only small amount of people need to have option to pay less than that. For example, super high credit score, very high and fully documented income and assets.
For everybody else, there should be minimum 20% down.
Even in your priceless LA, 20% is needed. If you think families with children don't have the money, then they need to rent and save.
They will collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment. Hopefully all the bad congress bailouts will be flushed in Bushes toilet veto, and price would be allowed to fall back to what the market will support.

sheila, the $7,500 bailout to first timers is a joke. Why?
1st it props up value for no reasons, and people that bought prior to it, would be unjustly screwed.
Then, if you buy a house in North Carolina for $100,000 then $7500 is a nice 7.5% of interest free 15 year loan....
However, if you buy in LA a house for $800,000 than that huge $7500 is barely 0.9% and will not even cover your first bill of property taxes....If you do such a thing, it should be proportional so that the buyer in LA will get $60,000 of free money to buy the $800,000 house.....i want to see this happens...Where is all this money coming from??? The fed's printers???

[arroyogrande]

"The idea that the government could reward such frivolous spending"

That's what the government *wants* to do. It was "frivolous spending" that gave us the "Goldilocks economy" (ie not too hot, not too cold) of the past few years. Sure, it was a fake economy built on a negative savings rate and easy credit, but many many people (including the federal government) think that they can trick American consumers into repeating the process (buying things they cannot afford)...and thereby bring Goldilocks back.

- arroyogrande

[arroyogrande]

"Many responsible, deserving people got caught in the first total credit meltdown since the Depression, and had every reason to trust that they could refi their ARMs just like responsible borrowers have been doing for 20 years"

For the past 20 years, people have used ARMs when interest rates were HIGH, so that the likelihood of a rate adjustment would favor a LOWER rate when the interest rate crisis was over. Remember 13% interest rates?

This differs from the current crop of ARM users, who used ARMs EVEN THOUGH FIXED RATES WERE AT HISTORIC LOWS! Getting an ARM when fixed rate loans were at historic lows means that you are GAMBLING; taking a risk that, even though rates are at historic lows, they will stay there! What kind of thinking is that?

If you want the payment guarantee that a fixed rate loan has, you GET A FIXED RATE LOAN. Otherwise, you get a lower rate on the ARM, but YOU take the interest rate risk...not the banks. Not a good idea when rates were (and still largely are) at historic lows.

Saying that they "had every reason to trust that they could refi their ARM" is like saying "heads, the homebuyer wins, tails, the bank looses". Some buyers thought they were *so* smart, hopping from ARM teaser rate to ARM teaser rate, all the while pretending that it wasn't a game of Russian roulette.

- arroyogrande

[Cal]

The size of the down payment should be determined by the strength of the borrower and the risk premium the lender is getting on the money. The biggest mistakes of the boom was not evaluating the strength of the borrower (no underwriting), not judging the value of the collateral (inflated appraisals) and not getting enough reward for the risk being taken (low interest rate).

It used to be called the 5 C's of lending, Character, Collateral, Capacity, Conditions, Capital in evaluating making a loan.

Character, how you deal with your obligations. It isn't just credit score but credit history as well.

Collateral, the value of what you are lending against. You need to know what you have as a backstop in case things go bad.

Capacity, how much available cash does a person have, how much do they make, how much are their monthly obligations, etc.

Capital, how much of a down payment is the borrower making, what assets do they have.

Conditions, the current lending enviroment and availability of money.

If a borrower is rock solid in every category but down payment.. well down payment could be reduced and require insurance or up the interest rate a bit. That would be smart lending. What is dumb lending was what happened during the boom where they threw out everything and thought they could model everything off of FICO (which can be easily gamed) and collateral value (which they clearly don't have a handle on).

I personally believe that if you are going allow low down payments the lenders really need to have a low front end ratio (how much in total the borrower will be paying towards housing). The reason for this is because buying a house for many is an incredibly emotional decision. And quite simply large financial decisions do not go well, once the emotions fade the bank is in a very risky position so they should make sure they have limited their exposure. Putting large sums of your own money on the line has a way of sobering people up quickly and if for someone reason it didn't it would still protect the banks interest.

[Cal]

The size of the down payment should be determined by the strength of the borrower and the risk premium the lender is getting on the money. The biggest mistakes of the boom was not evaluating the strength of the borrower (no underwriting), not judging the value of the collateral (inflated appraisals) and not getting enough reward for the risk being taken (low interest rate).

It used to be called the 5 C's of lending, Character, Collateral, Capacity, Conditions, Capital in evaluating making a loan.

Character, how you deal with your obligations. It isn't just credit score but credit history as well.

Collateral, the value of what you are lending against. You need to know what you have as a backstop in case things go bad.

Capacity, how much available cash does a person have, how much do they make, how much are their monthly obligations, etc.

Capital, how much of a down payment is the borrower making, what assets do they have.

Conditions, the current lending enviroment and availability of money.

If a borrower is rock solid in every category but down payment.. well down payment could be reduced and require insurance or up the interest rate a bit. That would be smart lending. What is dumb lending was what happened during the boom where they threw out everything and thought they could model everything off of FICO (which can be easily gamed) and collateral value (which they clearly don't have a handle on).

I personally believe that if you are going allow low down payments the lenders really need to have a low front end ratio (how much in total the borrower will be paying towards housing). The reason for this is because buying a house for many is an incredibly emotional decision. And quite simply large financial decisions do not go well, once the emotions fade the bank is in a very risky position so they should make sure they have limited their exposure. Putting large sums of your own money on the line has a way of sobering people up quickly and if for someone reason it didn't it would still protect the banks interest.

[Digitalian]

"Just because you can't make a 15-20% downpayment doesn't mean you can't afford the house - I am about to graduate from law school, so I don't have the cash for a down payment - but I do have a job that will pay be 160,000/year to start (with bonuses and annual raises) why shouldn't a bank be able to give me a 0% down loan?" ~WhyNot |

LOL. Throw another one on the endless pile of knuckleheads with law degrees that plague this country. The fact that someone can on the one hand have so little common sense and understanding of basic financial matters and on the other hand be entrusted with legal matters that potentially affect the lives of others is appalling and one more reason for people to view those in the legal profession with skepticism and contempt.

[Milla]

Laker: i'm talking about middle-class first-timers, not the folks who can afford that $800K house. it'd be nice if middle-class folks can "collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment," but when that range encompasses one's yearly salary and there is another mouth to feed, saving such a down payment in a few years just ain't gonna happen, no matter how frugally one lives. renter or owner, LA is still a pricey place to live.

sure, the borrower should meet some stringent guidelines and be a good credit risk, and folks who are trading up should have that 20% down from the equity of their last house, but to say that all of LA's first-timers should cough up 20% would make ownership available only to an exclusive few. that's why 5% makes more sense.

[Cal]

The more down you require the cheaper housing becomes. So the effort of bringing housing to lower income people you then make it more expensive making it harder for lower income people to afford. Then the government starts to subsidize housing because it become unaffordable.... which makes it more unaffordable! Requiring a solid down payment ensures stable homeownership. People sacrificing to save won't take lightly the sacrifice they made to get into a home.

[E]

Milla said

"but when that range encompasses one's yearly salary and there is another mouth to feed, saving such a down payment in a few years just ain't gonna happen, no matter how frugally one lives"

well...they should save more. they shouldn't have popped out that snot nosed kid that they felt "entitled" to just like a 5% down loan.

People who think like that shouldn't breed.

[shockg]

to be clear, the $7,500 tax credit is for YOU GUYS - THE NEXT CROP OF FIRST TIME HOMEBUYERS, not retroactive for the people who were first time homebuyers and got stuck. Why aren't you guys in favor of this?

Posted by: sheila | May 09, 2008 at 05:39 PM

Sheila, its very simple. Many here own or have owned before. Very few of the posters are first-time buyers.

[shockg]

"It will not deprive you of your god-given right to a super cheap house in an amazing neighborhood in a very competitive part of the world - because that right does not exist. "

Well said Shiela

[Milla]

if you consider your average starter home in LA county to be $500K, then 5% down is $25K -- quite a substantial sum for the working-class folk, enough to get some "skin in the game" as y'all say. and when weighed against one's credit score, employment history and those super Cs, a stable homeowner can be born.

[Red]

Laker- Let me first say that I am someone who bought that small starter home with a 30 year fixed and drove an old Honda when everyone else was using their homes as an ATM, so, by and large, I agree with everything you're saying, HOWEVER....when you said: "If you think families with children don't have the money, then they need to rent and save. They will collect some $50,000-100,000 in couple of years and be able to apply it as 20% down payment" ....What world were you living in??? Have said this before...sorry for the repeat...but, Ivy League education, followed by law school and 25 years with excellent job in Finance....ZERO debt....that includes NO credit card debt, and no car debt....Honda's paid off loooong ago. Wife had a lucrative career as an Art Director in LA before we had our children. We wanted her to stay home with the kids, but the truth was that daycare in Thousand Oaks was more than she would have been making at her job after taxes!

We are SAVERS and saved every penny. STILL...with rents what they are in LA???? Who are you kidding that a FAMILY with KIDS can save $100K in a *couple of years* for a 20% down??? Our first house was $300K in 2000. That would have meant a $60k down payment, which we NEVER could have saved AFTER TAXES in a *couple of years*, and we had been married and saving for over 10 years when we bought our house! After extremely high rents in SF and LA for 1 bedroom apt.'s, and other bills forget it! ...and we didn't have children until late 30's and then it became even harder to save. We put down 15K and lived WAY within our means, refinancing ONLY to get a lower rate. Thank God it wasn't more, because that tiny 50 year old house just about wiped us out with repairs and *surprises* those first few years (despite a thorough inspection process)!
Always paid mortgage on time and have excellent credit.

And that house in North Carolina that you're talking about?? Well we sold at the top of the market and moved to NC last year, and houses here are more like $400k not $100k!! And don't believe what they tell you....the cost of living is EASILY just as expensive as CA. In fact, I have found most things like getting my hair cut and food, to be MORE expensive. The ONLY difference is that you get a lot more house for your money....but you also don't make as much here as in CA. For people who aren't coming from the N East or West with a boat load of equity, it's very expensive.

For the record...I am a left wing Democrat, but was one of the *responsible people* and I am disgusted that now my tax dollars are going to bail these people out. While I was changing the oil in my own 12 year old Honda, my neighbor was driving the SUV and taking trips to Hawaii. Now that the bank won't finance their living above their means...I get to??? No thanks!

[Red]

When we sold our house in CA and moved to NC last year, we bought just about cash. We wanted a TINY loan so we could keep more of a *cushion* in our savings in case of emergency...

Even with an excellent credit history and score, and a 99% down payment on our house, we couldn't get a loan to save our lives...and this was BEFORE the credit melt down.

We were told, LITERALLY - I'm not making this up - that they wouldn't give us a loan because we (quote) "DIDN'T HAVE ENOUGH DEBT" !!!!!!! We had about 6 banks and major lending institutions tell us that they would ONLY give us our loan if we (QUOTE AGAIN>) "Went out and bought 2 NEW CARS"!!!!

I was HORRIFIED and told them that we'd worked VERY hard not to have no debt and weren't we a much HIGHER RISK if we had two car loans to pay off as well?? Didn't the fact that we didn't have any debt make us a safe bet?? You KNOW we'll be able to come up with the monthly payment! NOPE.

The bottom line...Corporate America, the Banks and our Government WANT YOU TO BE IN DEBT! The deeper the better!! You will have no leverage, you will be chained to their system and you will be POWERLESS.

We were able to say *screw you*, we won't do it, but how many people can do that??

Now, as a saver...my savings acct. has dropped to a .70% interest rate....thanks...punish the savers and reward the people who live above their means.

[shockg]

Milla, I agree that 20% is too high for pricier areas like SoCA. 5% might be too low and expose the lender to too much risk. 10% is more reasonable. $50K is alot of money but the road to home ownership is long process. If you start saving at 25, after 5 years or so it's possible to save $50K. That would put you in your first home at 30 which is a reasonable age.

[jb]

Great Milla - you make the loan. As long as the banks take the risk I dont care if it is 0%. But I sure as hell dont want to have to rescue them when prices drop and they claim to be "too big to fail". The banks had army of highly paid risk assessment professionals and floundered. Politicians take note, we are watching, this will be your last job if you back a bailout.

Milla - go ahead and verify (we already know it), you work in real estate.

[Bartletto de Carmel]

20% down was a rule of thumb for lenders but somewhaere along the way this changed - perhaps enforcing good practice by making it mandatoey is the only answer - yes, government telling the market that they can't ruin the economy in the name of yet another short lived golden egg.

[Laker]

Milla,
$25,000 is nothing. It is the price of honda civic....
If the house you buy cost $125,000, then i agree that $25,000 is a nice payment. However, when you want to buy a HALF million Dollars house....you better have $100,000 cash in the bank. If not, you have no business buying HALF MILLION DOLLARS house.
Why then most of buyers prior to 2001, where putting 20% on average??? even in LA....why?

[1st time buyer]

write your representative to put the pressure on to stop the madness - I just did - it takes 5 secs:

https://forms.house.gov/wyr/welcome.shtml

[Milla]

Lakes: $25K might be nothing to YOU, but you are someone who sold your house at peak. understand that $25K could be a boatload of money to a first-time homebuyer.

i know a couple saving for their first home. she's a school psychologist; he's a public defender. they make a modest living. they love their jobs. they pay their bills on time, some of which are student loans for his law school. they would be well into their forties by the time they saved that $100K for their first home. i'm talking about people like these, who are good credit risks.

i certainly didn't have 20% when i bought my home (though i did have a down payment), and i can assure you that my current attitude toward homeownership would not have been more "invested" had i had that 20%. i would venture to guess that creditworthiness is a greater indicator of a stable homeowner than down payment.

[1st time buyer]

write your representative - I just did - it takes 5 secs:

https://forms.house.gov/wyr/welcome.shtml

[Tony S.]

I agree with other posters who say that govt should stay out of this housing mess. The best thing to happen is for housing prices to drop. Why have inflated prices then cry about the need for affordable housing? Let the prices drop and then the American dream of affording a home will be available to everyone. Remember, one person's foreclosure is another person's dream home!

[Red]

But Laker....our 1,000 sq. foot 50 year old fixer upper on a tiny spec of land with tons of work left to do on it sold for $700k last year. It's dropped a lot, but it still hasn't gone below $500k. You are acting like a *half MILLION dollar home* is something really *extravagant* and that anyone spending that much is living in the lap of luxury. In fact, in California, they are living with a 50 year old kitchen and looking ahead to innumerable repair and remodel jobs that they will probably be doing themselves. Our house was a *starter* home for a VERY young couple....but what young couple could ever afford $700k for their first house?? Not my highly educated nieces and nephews, even with their excellent jobs.

[Red]

And look...I think we all have to agree here that *something* happened along the way to homeownership in America.

I know it is a complicated set of circumstances that occurred, but I am 40, and back when my parents bought a home in 1970 in San Diego, they DID save 20%, and they worked very hard to save that money. BUT, somehow, they were able to manage it without my Mother working...she stayed home with the kids, as did most women back then....and neither of my parents had a college education. My Dad worked for the electric company all my life. They lived below their means, but, so do we, and our life is no where near as comfortable in many, many ways. For instance, when we got sick, we went to the doctor, and when my brother ended up in the hospital, my parents didn't walk away from that with $5,000 worth of debt, like we did a few years back after an emergency - even with our very expensive PPO insurance.

So, to say that the average middle class American needs to go back to that standard is FINE and I'm all for it, BUT only if you can arrange it so, like my parents, they can *reasonably* do so.

Something was VERY different in this country when a couple with 2 kids and one blue collar income could SURVIVE **AND** SAVE for a home at the same time. The young people I see buying homes today are ONLY able to do it by either inheriting money from deceased relatives OR their parents are giving them the down. Add extremely high college student loans to be paid off to your monthly living expenses.... and it's all but hopeless. Then only the rich get richer and the poor get poorer. That just isn't *healthy* for a society, especially one that places SO much emphasis on owning the American dream.

Our Founding Fathers were the one's who placed this emphasis on home OWNERSHIP. I forget who said it, but one of them stated that if American's OWNED their homes, it would make for a STRONGER and healthier society overall because people would keep their own sidewalks clean and make sure their local schools were good....people would have a vested interest in their communities. I'm not sure we have that anymore. The blight and crime that these foreclosures are causing is not good for any of us.

I'm just saying, this is SO much bigger than just bailing people out (which I do NOT agree with), or even *tighter lending standards*, which will end up leaving all but the rich out of home ownership. there is a much bigger picture to be sorted out in order to regain some semblance of *balance*.

[silverfern]

(1) Glad to see that our representatives are at least noticing the mail is running AGAINST a bail out. Too bad they aren't voting based on what their majority of constituents are telling them. Maybe our letter writing has had some effect. I wrote mine here in NC.

(2) Milla: requiring at least a 10% down payment, preferably 20%, will keep prices down. It is the law of supply and demand extrapolated.

(3) Red: which part of NC are you living in? I'm from NC originally, lived in a LA for a few years, and then moved back to NC 18 months ago. I live in a more expensive town for NC, but overall, my costs are much less than when i lived in mid-Wilshire, and my quality of life is _much_ higher. According to below, based on the census, median income in NC is higher than in CA, but housing prices are far, far less.

See: Raleigh, NC: http://www.city-data.com/city/Raleigh-North-Carolina.html

Estimated median household income in 2005: $48,131 (it was $46,612 in 2000)
Raleigh $48,131
North Carolina: $40,729

Estimated median house/condo value in 2005: $177,200 (it was $156,000 in 2000)
Raleigh $177,200
North Carolina: $127,600

VS

Charlotte, NC:
Estimated median household income in 2005: $47,131 (it was $46,975 in 2000)
Charlotte $47,131
North Carolina: $40,729

Estimated median house/condo value in 2005: $159,900 (it was $134,300 in 2000)
Charlotte $159,900
North Carolina: $127,600

VS

Los Angeles: http://www.city-data.com/city/Los-Angeles-California.html
Estimated median household income in 2005: $42,667 (it was $36,687 in 2000)
Los Angeles $42,667
California: $53,629

Estimated median house/condo value in 2005: $513,800 (it was $221,600 in 2000)
Los Angeles $513,800
California: $477,700

As well, you can actually send your kids to public school, even in Durham, AND the state government still actually works. Insurance is lower, as are my food costs. Some costs are the same. Only wine (CA wine, that is) is higher. :-)

(Yes, I still read the L.A. Times b/c there are some things I miss, AND I read this blog b/c it has given me answers to questions I had about the RE market in LA when I lived there that never made sense to me. Like, the disparity between median housing price vs. median income.)

[Steven M.]

The Greenspan's Administration of the Federal Reserve did not do anybody any favors, by jacking up the Fed Funds or Discount Rates, not once but twice, which are tied to the prime lending rate, which is tied to ARM's. St. Greenspan has been considered the venerable "whiz-kid" of economics and has left the ripple effect for Ben Bernanke, who didn't see the light at the beginning, but because he felt the heat, started to drop the Fed Funds Rate, six months after becoming Chairman of the Federal Reserve.

Darnell's "20%" solution sounds great, but it is calls for more "rental slavery" in order to meet this criteria. That is the purpose of Personal Mortgage Insurance (PMI), which until recently was not tax deductible. Since the average price of homes isn't $50k, the risks to the trustee, as far as costs to foreclose are mitigated to cost of homes ($500k v a $50k home leaves more breathing room), the pace of supply and demand and the mortgage rates. I used to live in Los Angeles and never could make the wages to save the 20%, let alone be able to make the payments. I moved to northern Colorado, where I was able to put down 10% and leveraged part of my 401k to do it. Although there was a small recession after the dot.com bust, I was able to take the proceeds from my house and when I moved to Northern Virginia, where the average price of homes is about $700k, I was able to make a 15% down payment. Note: The new conforming rate is regional, not national. It would apply to cities such as LA, San Francisco, New York, DC Metropolitan area, where the homes can run in the millions. What you can buy for $400k in Los Angeles. It is a crackerbox built in 1938 and in need of massive improvements, with square footage equal to a modern two bedroom apartment. Hopefully, the crime rate is below average.

If I remained in Los Angeles, there is no doubt I would probably be taxed out of my savings and not be able to afford a home; whereas today, I live off a freshly manicured golf course and belong to the country club.

Since 1985, real wages have not expanded in Los Angeles for professionals. Those earning minimum wage have seen an increase from $2.00 an hour to over $5.00 and now seek "a living wage" which only adds to the employer's costs of doing business and causes additional costs to the customer or forces the layoff of a few, if not a closure of the business entity. Where you go and what you do obviously makes the difference.

FYI, the work I perform, the employers have left the state, shifted a majority of their operations, or have kept a minimal presence in California, due to the high cost of overhead to keep employees. Do I miss the Los Angeles I grew-up in? Yes. At the same time, I don't miss the taxes, homeless problems, traffic congestion and the issues with celebrities and the photographers that follow them around town.

[arroyogrande]

" they would be well into their forties by the time they saved that $100K for their first home."

And...so...what? We were well into our 30s when we bought our first house in LA...with 20% down. Before that we had a kid, with two on the way, and rented houses and apartments. What is so horrible about renting while you save for a down payment? It's not "putting your life on hold" as some of you say. "Real life" is spending time with friends and family...not feeling pressured to buy a house fresh out of high school or college so that you can look grown-up to your friends and family.

"i would venture to guess that creditworthiness is a greater indicator of a stable homeowner than down payment. "

I can't believe you are saying that. Using "credit worthiness" of the borrowers (specifically through FICO scores) is what got us into this mess in the first place. It didn't matter that people put 0% down, or even got cash back at closing...if you had a good FICO score, you got the loan. That doesn't seem to have worked out too well, now has it? Record number of foreclosures, when we (even now) have low unemployment? When has that ever happened?

Now you can argue that 5% is "enough" of a down payment, but look at it from the bank's perspective. Even in a FLAT market, the transaction costs of foreclosing and re-selling a home are going to run you 7%-10% (including agent fees, etc.). Therefore, in a FLAT market, the MINIMUM down payment a bank should be requiring is 10%...just to make sure that they get back 100% of the money that they lent! In a down market, they should require an even larger down payment. Even if house prices only go down 10% in the next two years (5% a year), the bank would need 20% down to make sure that they get their money back in case of foreclosure. That is *especially* true in high cost markets like LA, as they would stand to loose more money due to larger mortgages.

So you see, 10%, 20%, even 25% down payments aren't only logical in todays housing environment, they are essential to a bank's or investor's financial health.

- arroyogrande

[Milla]

arroyo: times have changed. it's as simple as that. once upon a time when Red's parents were buying a house, it could happen on just one middle-class salary that was supporting a whole family, wifey at home. then you and your wife bought with (i'm guessing) two salaries and a bunch of kids in tow in your thirties.

in today's world, neither of those things could happen for middle-class folks in LA. to save that 20%, people of my generation would have to forsake children, save like hell with rent, food and gas prices rising before we could maybe, possibly buy in our forties. that's why lower down payments make sense -- for the right people.

sure, everyone wants cheap housing -- and hey, look around, it's happening. prices are falling to affordable levels again. now how about cheap education? let's make college affordable again so kids don't have to take out $100K+ loans to get the degree they need to compete in the big leagues, then spend the rest of their lives paying those loans back, which takes its toll on your down payment fund. but by your reasoning, maybe they shouldn't go to college unless they have the money for it. so no money for school, forget about a car, no chance at owning a home either. sounds like the land of opportunity!

look, it'd be great to go back to a time when milk was just a nickel, but we're in a credit-driven world now where everything is expensive.

i might not have been born in Hancock Park with a silver spoon in my mouth, trust fund in my name and stick up my arse, but i've worked hard to get my credit right so i could have the opportunity to get a home loan, a car loan and the student loans that put me through graduate school. do i wish i had the cash to pay for all these things outright? of course! but i didn't win the jackpot of being born to rich parents.

doesn't mean i don't save or that i put down nothing for my house. but with life in LA being what it is -- student loans, car loans, gas, food all taking a chunk out of my salary as a single person with no dependents, investing in a home now, one i plan to live in for many years, was smarter financially than saving the 20% while renting for the next ten years.

[E]

What Arroyogrande said *2.

Also...if an attorney and a psychologist (I don't care if they are in the public sector as that too, is a choice.) can't save 100k before their mid 40's...they spend too much.

20% should be standard IMO, and if you are buying something in the 750K+ range then 1/3 down should be required.

Don't like it?

Rent.

[Red]

Arroyogrande....I don't know where you were renting, but from 1996 - 2000, we rented a VERY small and old home 5 miles from our jobs in Hollywood....and it still took me a whole HOUR to drive to work every morning...and it cost us $2,000 a month...which was MORE than what our mortgage cost when we bought our home. That was nothing compared to our neighbors who were paying $3,000+ because our landlord was older and I don't think realized how much she could have rented it out for. Though after we moved out, she rented it out for $4,000!!! $2k a month for rent after taxes, plus electric, gas, food, insurances, student loans, and we did NOT even have car payments....who can save after that? My nieces, who worked at CBS were paying about $800 EACH to live with 5 other people in a house in LA, and I used to worry that they'd get raped when they came home at night...it wasn't such a safe area. 45, married with kids....most people are not going to live with 5 other college aged kids to try to save for a down payment.

Personally, I hated owning a home. I loved renting. I didn't have to repair the roof or the electric or worry that the next big earthquake was going to wipe us out, as it had many friends who lost their homes in the Northridge quake. It was a very wise financial decision for us, but mentally and emotionally, it knocked the wind out of us for years. There is always *something* with a house...whether it is the pipes needing to be snaked or touch up painting to be done. It never ended.

[Steve M.]

arroyogrande- You answered your own question. It is based upon the "investors." If an investor is willing to risk money in a high-risk scenario, then the prevailing interest rate should also be higher. I remember when seniors saw the decline of the 20% CD rate that they were getting fat and rich off of CD's. Their lifestyle imploded when the rates dropped to 5%.

The S&L's came along with repurchase agreements, which were not federaly insured and only saw the 9-15% offered, but blinded by greed, they were also deaf to the fact that this was the nothing more than commercial paper. I bought some, but also knew when to get out. Did we hear whining from this group when the S&L's went bankrupt? You bet. All of a sudden, there was a "selective memory" moment. It's a classic case of risk vs. return.

Because of the tax implications, sometimes it is easier to by a home with 5% down and use the refund money to help pay down the mortage expenses. A taxpayer may pay less, after taxes, for a residence that is building equity, than throwing it down a rat-hole, known as rent.

PMI was created to avoid this mess and even if one was saddled with PMI, the person required greater than 30% equity before it could be discontinued.

Agent fees can be non-existent, since this is sold as-is at a foreclosure auction, leaving taxes and transfer fees to be paid. There is a savings of 7%. Also, more people are opting to perform a sale by owner and have an attorney perform the paperwork and handle the fees, for $5-15k, instead of paying RE Agents a ton of cash for what may amount to a small amount of work, in a healthy economic climate. Note: Some Realtors do perform miracles and are worth every cent.

We don't have "low unemployment." In fact the unemployment rate in California is higher than the national average. There is massive under-employment and again wages have not expanded as fast as prices.

For the record, I was over 40 before I purchased my first house and I had to move from LA to make it happen. I didn't have a spouse, let alone one that worked and could help save for a house. My parents were in their mid-to late-twenties when they bought their first house in 1960.

FYI- I am against the bailout, too! The "profit-sharing" of the sale of the home goes against my principles.

As a former Member of the House of Representatives pointed out, via one of his constituents (Horatio Bunce):

Congress has no right to give charity. Individual members may give as much of their own money as they please, but they have no right to touch a dollar of the public money for that purpose.

Let Congress get this message from the Late, Great, Col. David Crockett.

Also, the Japanese Central Bank has barely moved their rate over the past fifteen years and it is still below 1%. Look towards St. Greenspan and the Federal Reserve for this mess that has happened with his "measured pace" and "irrational exuberance" statements. He suckered at least two US Presidents and an unknown amount of legislative branch with his baloney!

[Red]

Silverfern....Yes....I completely agree with you about all of the *data* on median incomes, etc... I researched and saw those exact same figures, and the disparity is shocking on paper, but we have found the reality a little bit different. I track EVERYTHING on Quicken in our house, so I am keeping track and can compare to prices in CA from the previous year.

First of all, we moved to Raleigh. We live in the older, established high end area of North Raleigh. It is beautiful, but I could write a book on this experience.

As far as the schools are concerned, we're going to have to disagree on that one. They *BUS* the kids here...which means the kids from the really *bad* areas are shipped into our schools and the kids from the *good* areas are shipped into the bad areas. In fact...there is SO much growth here that they are *re-assigning* the elementary school kids every single year near us. For those of you not from NC, *re-assigning* means that the kids are moved to different schools every single year. I think it's criminal to do that to young kids. New schools, new friends, new everything. Like picking up and moving your family every year.

For those of you wondering what I mean by *good* and *bad* areas...My neighbor teaches 2nd grade here at a *good* school and comes home crying because the 2nd GRADERS are flipping her off in class and telling her to F-off everyday. Furthermore....a close friend who teaches 3rd GRADE in the *good* area of Cary had several of her students THROW CHAIRS AT HER in class because they got mad at her, as did another woman I know who taught Kindergarten for 17 years here and finally retired because of it.

So, I happen to strongly disagree about the schools being *fine* for kids, but I know everyone has a different idea of what's *ok* for them and I am not going to pass any judgement here. Screaming the F word in the 2nd grade at a teacher and throwing chairs is NOT ok in our book. We came from Thousand Oaks, where I still wasn't happy with the public schools, but there were no kids throwing chairs at the teachers or 2nd graders flipping the teachers the bird in class.

The COLLEGES here are however, OUTSTANDING, but our neighbor, whose daughter goes to UNC (Chapel Hill...the equivalent of UCLA or the UC program in CA) pays the same as my brother did to send his daughter to UCSB recently.

As for costs....

We sent our kids to a private elementary school in Westlake Village (not exactly a cheap area).....the private elementary school HERE is 3 X MORE EXPENSIVE than our school in CA!!! Instead of about $5k for 2 kids next year, it's going to cost us almost $15K. Instead of a $75 registration fee, it's cost us $400 PER CHILD....or $800 just to register! That is INSANE to me, but again, the public schools here with their re-assignments every year is unacceptable to us.

I have found food to be PROHIBITIVELY expensive. EVERYTHING at Trader Joe's is at least a dollar more per item. Though I accept that food prices are going up everywhere, but I noticed this price difference immediately. Also, the food, especially the produce, rots overnight. It makes me nuts! Everyone I talk to has the same complaint. I think most of our food is grown in CA, so by the time it's shipped here...and with the cost of gas...it's older and costs more. We make almost daily trips to the market to return rotting produce that we purchased the previous day.

My haircut is more expensive, our insurance on our 13 year old Honda with perfect driving records is about $50 less a year. You have to pay registration fee which was the same as in CA, but there is additionally a car *TAX* that is like a property tax that cost us more.

They also made me remove the LIGHT tint on my windows at a cost of about $200 before they would allow me to register!! But if you have an SUV, you can spray paint your windows black. Now my kids bake in the back of our car.

Gas is about $3.89 here. My electric bill is about $250 a month, and our water bill was about $150, despite the fact that we are in a severe drought and forbidden to water outdoors (so my lawn was dying until recent rains!). Even getting my car washed was outrageous compared to CA. (We're not allowed to wash it ourselves because of the drought restrictions so you HAVE TO take it to a car wash)

OH! And in CA, I had a gardener....and he wasn't Hispanic for those of you who would use the cheap labor argument....My gardener in CA came every single Friday and did a beautiful job. He charged me $70 per MONTH. In Raleigh everyone mows their own lawns because gardeners charge close to $300 a month. NO, that was NOT a typo. I like to mow my lawn, but it's hell with the mosquitos, which are, I swear, the State BIRD here.

It cost my neighbor almost $20K to have her house painted last year (bigger houses...bigger costs to upkeep!!). It's also about $1,000 per tree to have those taken down and trust me...we have THOUSANDS of trees here...there are hundreds in my yard! Trimming them is a CA mortgage payment!!

What else...clothes, eating out, etc... is the same. I mean, prices at Michael's crafts, renting movies, Macy's or the Cheesecake Factory are the same as in CA, the accountant was MORE expensive this year. The photographer to take portraits of my kids is MORE than the guy in CA. The florist here wanted $100 to make a *nosegay* bouquet with 5 roses for my daughter's Communion last month. We made one ourselves for $8.

The doctors charge the same, our medical insurance (BC/BS PPO - Kaiser doesn't exist here) is the same and when we went to emergency with our daughter when she broke her wrist, we got the same line that *not all the Doctors and technicians here take your BC/BS PPO, so you will probably get hit with a big bill*.

And to have my kids birthday party at the local dinosaur museum is going to be $20 per kid...or $250. Since their birthdays are in August and the mosquitos will quite eat you ALIVE here in the summer, we can't have those big outdoor summer backyard parties at our home we had in CA.

My biggest complaint is that Raleigh, though very beautiful, isn't really a *city* and outside of Target and Walmart, there isn't much to actually DO here. Oh, people will give you lists and lists, but no matter what they say, it doesn't compare to LA or SF.

Finally....I learned when we moved here that though Raleigh has a VERY highly educated population....more PhD's than anywhere in the nation I've heard (because of the Research Triangle, which is much like the Silicon Valley of the East Coast)....they also have the most PH.D's working at Home Depot than anywhere in the nation too....since almost everyone is transferred here by some big tech company, and they bring along highly educated SPOUSES who weren't transferred and can't find jobs themselves...

Honest to God, if I had a dime for every PH.D I have met with insane experience and credentials...who is unemployed and begging for a job at Starbucks, and not getting those jobs, because it's a pretty small place.... there are 4 of them on my street alone and they've all lived and worked here for 20+ years. Thank God their wives have work, but they have all been looking for work for 2-3 YEARS now. I run into people like this ALL THE TIME here. There is no *tourist* industry in Raleigh like there is in CA, so there really aren't those kinds of *service* jobs here.

Again...you are 100% right about the HOUSING....you can get a 4,000 sq. ft brick Colonial that would take your breath away, with dormer windows and magnificent solid wood moldings throughout on 1/2 acre of lush wooded land. You can't even find homes like this in CA. And that is what wooed us here in the first place...along with the seemingly *lower* overall cost of living.

We do NOT have a mortgage here, BUT, our taxes and insurance alone come to over half of what our total mortgage was in CA, and the school tuition is like a mortgage payment all on it's own, so it's been 6 of one here 1/2 dozen there for us.

I don't know...as I said, I track EVERYTHING on QUICKEN in my house, and I have found our bills here to be at least the same if not higher...barring the amount of square footage you can get for a whole lot less....

Furthermore....again, Ivy league education, law school, 20+ years in finance and jobs here offered about 1/4 of what I was paid in CA. Why we left is a long story. Company closed division there and was hired here, but that is another story, and not a pretty one.

Financially, we averted the CA market crash by the skin of our teeth, and somehow, landed in one of the only markets that grew this year...and we are VERY grateful for that!....but other than that, it's been a wash, if not a loss for us.

Sorry for the long post. More than you ever wanted to know about moving to NC!

[Red]

Arroyogrande....I met a *former* mortgage broker recently who is currently working at Home Depot due to job loss....he said he was making $200k a year and his wife was making over $300k a year before the meltdown.

He told me, bluntly, that though he did not participate in this (I don't know, that's just what he claimed) he did personally witness fellow brokers LITERALLY *Cutting and Pasting* OTHER PEOPLE'S *GOOD* CREDIT NUMBERS into *BAD* credit applications every single day at the height of this scandal.

I don't know what regulations would be required that don't already exist to cover this, but he made it VERY clear that there was a LOT of FRAUD going on right there in the open. So, I disagree that a good credit score isn't a good indicator of *character* in a borrower.....IF the loan application hasn't been tampered with, fudged and lied on before being submitted.

[Red]

Silverfern...oh, btw...YES, NC as a STATE is run beautifully. The roads are impeccably well cared for and I believe it is one of the only states in the nation that is financially solvent. People here are also not obsessed with *status* in the same way that I encountered in CA. They are very down to earth and no one cares if you're impressed by the car they drive or not.

I don't know anyone, however, that owns a house worth under $400k, and I don't consider us a *wealthy* bunch. Raleigh is FILLED with *Yankee's* though...so I think most of us ARE *middle class* Americans who happened to have a lot of equity from places like CA or NY, DC, CT, etc... and to us, $400k was downright cheap for a house!

[Laker]

Milla: "...Lakes: $25K might be nothing to YOU, but you are someone who sold your house at peak. understand that $25K could be a boatload of money to a first-time homebuyer...."

Milla, I was able to save 20% for down before i bought my first house. It was a mutual sacrifice of me and my wife. We lived less than our means. We saved, ate at home, only on some weekends went to restaurants....that is how we saved it...
You guys forget that just 7-8 years ago, you only needed $40,000 down to be 20% for $200,000 median.house. Price here went crazy, are still crazy, and it is very hard for you and even for me to comprehend that houses can still get down to earth and that it $200,000 median house. You can not have inflation of prices without inflation of wages to compensate and make it sustainable. We indeed had inflation of house prices, but there was no inflation in wages. There was however, inflation of mortgage free money available to buy a house. Now, if you take that away, there is no support for these inflated priced...period.

[In a trailer down by the river]

liars, cheats, and crooks. Proud to be American.

[Mr Pasadena]

A higher jumbo loan limit is not going to help. People seems to think that a $700K+ mortgage is normal. Don't forget you still have to pay it back. How many people can really afford such a loan without help from parents or have been saving for most of their lives? Very few. My wife and I make over $150K a year and we certainly cannot afford this kind of loan. So permanently raising the cap only causes problem for FHA.

[cariqunyil]

I agree 100% with arroyogrande. What Milla fails to realize is that even though it is difficult to save for these down payments, the fact that *so many* people lack the abilty or discipline to do so makes them a much higher risk. It is why the economy is tanking right now.

Many people do not know how to spend wisely, live conservatively, and save money. They simply cannot do it, and feel angry when asked to make any concessions against a lifestyle they feel they deserve.

Most people I know (probably 80%) live beyond their means. Personally, I see people who are far more willing to pay for cosmetic surgery, nice clothes, fancy electronics than they are willing to pay for medical care or savings/investment accounts. Many people are a paycheck, an illness, or other adverse event away from bankruptcy. . Why Milla thinks that loaning to people like this is a good idea astounds me! Sure, they will be able to make a payment while things are going good in their lives, but they should not get a taxpayer bailout because they chose to sttttrrrretccchhh beyond a comfortable financial cusion for everything they "own".

The previous generation (ie those before the baby boomers) did not live beyond its means. We live a MUCH better lifestyle when it comes to material things than they did, but it is because of DEBT. Interestingly, despite having much less in material wealth, they were much happier than many of us are today.

[arroyogrande]

"I disagree that a good credit score isn't a good indicator of *character* in a borrower.....IF the loan application hasn't been tampered with, fudged and lied on before being submitted."

The problem is that, if you are relying on a credit score, you are relying on a single, sometimes fudgeable, point of failure. However, requiring a bigger down payment is "money in hand" so to speak. It's much harder to fudge, and it leaves you an out should you have to foreclose. As a bank or an investor, would you rather lend to people with higher FICO scores, or people putting more money down?

"times have changed. it's as simple as that."

Ah, I remember that thinking...back during the dot-com boom. "Times have changed, we don't need revenue, we have 'eyeballs'/market share/whatever". Milla, times haven't changed. Financing was around way back 5 years ago, when 20% down was the norm, and it was as important then as it is now. However, any fool with a decent FICO score, 0% down, and a "stated income" was competing with me and my down payment for a house. *That* is what doubled and trippled housing prices up in so little time. Sure, 20% down on a $550,000 house may seem like an impossible number, but what about 20% of $350,000? $250,000? That's where median price is headed. When prices get back in line for what people can afford, without relying on teaser rates, stated incomes, no money down, cash back at closing, negative amortization/pay-option ARMs, *then* people will be able to save 10%, 15%, 20% down payments.

"look, it'd be great to go back to a time when milk was just a nickel, but we're in a credit-driven world now where everything is expensive."

Yes, just like dot-com stock. I remember how that went as well. We might as well add tulips to the "I know it's expensive, but that 's just how much they are worth" talk.

"investing in a home now, one i plan to live in for many years, was smarter financially than saving the 20%"

Smarter for you...maybe. Smarter for the banks, and doing the same for your neighbors...well, maybe not so much.

Or are you of the opinion that requiring higer down payments, or charging higher (prohibitive) rates for low down payments are the financial industry's way of just being a bunch of big meanies?

Whining that people "shouldn't have to" put down 20% makes no sense. If people can't afford the down payment, less people will be able to buy, resulting in less sales (aka lower demand), which will cause house prices to fall even more...until enough people *can* afford the down payment.

- arroyogrande

[gone2pot]

from gary:

"first of all he is a republican and they cant tell the truth to save their lives"

Yeah Gary, I'll bet he hasn't even gone to Bosnia to get shot at by snipers either, nor sat in a church pew for twenty years but never heard a word the preacher said until the preacher spoke last month at the National Press Club. Lyin Republicans.

[silverfern]

So, the relevance for the rest of the folks on this list is, is it actually cheaper to live somewhere else in the US if you were to leave Los Angeles?

Red: I admit the reassigning issue for schools in Raleigh is, to put it lightly, a major pain in the rear. But the point is that you **can** send your kids to public schools, whereas I would not (if I had children) send them to LAUSD. (Note**: yes, I am primarily caucasion, but I do not say that for racial reasons, but purely and simply the low quality of the L.A. public school system.) Yes, NC has problems in the rural areas, but the systems in the Triangle are good.

It comes down to whether or not you are willing to put up with the reassigning. If not, then they go to private school. B/c private schools are less common here, yes, they do cost more than in CA. At least you have the choice between public and private, which is more than I can say about the public school system in most locations in Los Angeles. Sorry to hear kids are throwing chairs, etc., but then the principal needs to be establishing some authority and exerting some discipline. That is a problem that can happen **anywhere**. Yes, there is busing, and that is both a practical matter and one that was required decades ago to enforce de-segregation, both racial and socio-economic (which means Black-White and poor-White not poor-White).

I also tracked my expenses both in L.A. and when I first arrived here (the first year). I actually found my grocery bills here (in Chapel Hill) to be 1/3 less than in Los Angeles, and that is shopping at roughly the same places (TJ's, Whole Foods, and Harris Teeter (which is == to Ralph's in Los Angeles). My eating out bills are less. I can spend 1/3 to 1/5 less dining out, including a chain like CPK. In other words, I spend $20 on dinner w/tip for myself, rather than $30 at an "average" restaurant. Hair cuts, slightly less here. Car registration, et al, roughly the same costs annually. My car insurance for the same vehicle and number of miles driven annually, is less than half the cost in L.A.

Keep in mind, though, that I was not living in an L.A. suburb, but in L.A. proper. That means I am comparing urban L.A. costs to suburban NC. If you lived in TO, then your costs in the 'burbs may have been less than mine were in L.A. proper.

As for job opportunities, et al, and wages. It may just depend on what field you are in. I found my wages in CA to be similar to what I can make in NC for the same work. But the difference is that I can both afford to save for and buy a house in NC on those wages, which I could not do in CA.

If you live in a $400k house...to some degree, you are choosing to live in a certain social stratus for Raleigh. I know the area to which you are referring, and, yes, it is the pricier side. But that same house in CA would be...3x what it cost you here? Plus all the ensuing taxes, etc? You can buy a similar size house elsewhere in the 'burbs for less, but you are paying for the location. In other words, in L.A. you don't have a choice about paying >$400k for a decent house; in NC, and in the Triangle, you do.

As for produce...yes, by the time it gets shipped here from CA it is not as fresh. It is my complaint, also. But, that is an unrealistic complaint, b/c we are in NC, not CA and one day away from the SJ Valley. If you want fresh produce, check out the NC State Farmer's Market during the summer to early fall. It is off of Lake Wheeler Rd. I have to admit, I miss really fresh avocados and fresh lemons the size of grapefruit that I picked from my friend's backyard tree!

No, there aren't as many things to do here for entertainment, esp. if one is above a certain age. But that would be true of any medium-sized city. And, to be honest, it is not like the folks on this list go trucking it down to Downtown L.A. for their entertainment! (As has been discussed....) Except for the rare occasion or for those who live there...I think most people head out to some parts of K-town/mid-Wilshire on to parts West. My friends here keep telling me there are things to do here, but it is more "local good" than, "this is the next big thing" good, so I don't go out as much (and, yes, they get offended). :-) Restaurants here are good, but not great.

So, it is a mixed bag in terms of what happens if you move out of L.A. Yes, mosquitos should be the state bird. And, yes, you do have to end up doing your own lawn maintenance and car washing. OTOH, I thought it strange when I moved to CA that folks didn't do that themselves...b/c for some reason, that kind of labor was so cheap.

I'm sorry to hear that some highly educated people can't find jobs, but, let's be honest, did they look into that before they moved here? For **both** spouses? If one spouse's employer made promises about employing the spouse that were not followed up on, then shame on them, but if a couple moved here for one job w/out fully exploring the realistic options for the other spouse...well, they have to blame themselves. No, you don't have the same job opps, but then again, this is not a large urban metro area, either. And it is unrealistic to expect the Triangle area to have that kind of parity with the L.A. Metro area.

Things I like about living here: I can go hiking on local trails and not encounter crowds; less air pollution; less time waiting in line in stores and restaurants and in my car getting "some where", so time saved; lower expenses overall compared to L.A. proper; less stress; slower pace; less crime; less disparity between rich and poor; strong middle class; good roads; good schools; and, higher quality of life overall.

Thing I miss about L.A.: people who know how to drive on a freeway/in traffic; a fresh variety of produce; multi-cultural/multi-ethnic mix of people; great restaurants; great live entertainment; the beach; and, living in the place that creates/discovers the "next best thing" for music/movies/other entertainment.

Things I don't miss: crime, air pollution, general pollution, crowds, a state gov't that is no longer functioning, traffic, waiting in lines, median housing/rent that is astronomically high compared to median income, even for a city, being taxed simply to walk the earth, and, feeling like I'm being screwed all the time. ;-p

As I said earlier, I read this blog b/c it answered a lot of questions I had about the RE market in L.A. that I never understood when I lived there...and naively thought people were putting at least 10% down on a $550k house! :-)

[Milla]

arroyo: along with home prices skyrocketing in the past five years, consider the increases in college tuition, cars, gas, food prices. that's what has CHANGED. that's why saving for your 20% down is harder than ever. not because people my age are spending their money on cosmetic surgery. we have more ever-increasing expenses than prior generations had. now everyone has a BA; one needs to get an advanced degree to compete professionally. that's money. state of public schools in LAUSD? that's more money for private school. need a car in LA to get to work? more money. don't forget insurance, gas, rising health care costs, energy expenses, the price of eggs doubling. try all that on a starter salary that's only rising at the "pace of inflation," when everything around you has doubled, sometimes tripled in price. want to bring homes down to affordable levels? awesome. how about the rest? once that's CHANGED, you will see your 20% down.

[Red]

"Whining that people "shouldn't have to" put down 20% makes no sense. If people can't afford the down payment, less people will be able to buy, resulting in less sales (aka lower demand), which will cause house prices to fall even more...until enough people *can* afford the down payment."

....agree with you there arroyogrande. That is exactly what needs to happen. Because, honestly, my nieces that just graduated from UCLA and UCSB with honors and are working at one of the big networks in LA, are making, just out of college, the exact same amount of money I made at my first job just out of college....18 years ago!! Salaries obviously aren't keeping up with the cost of housing or anything else for that matter....so how do they move forward with their lives or *supporting the economy* without any more money than I made and with prices SO much higher without drowning in debt?? I literally worked my way through an Ivy League college education. My parents were divorced and I got zero help, including no financial aid because both parents owned property. Tell me....what 18 year old kid today could do that?? So they are starting out with overwhelming amounts of debt.

And yes...we can *blame* all of those Americans who live on credit and WAY beyond their means...and as one of the folks who live way *below* my means, I have to agree with that statement by *cariqunyil*, BUT, please don't forget that we live in a society where 75% !!!! of our economy is dependent on *consumer spending*!!! That is INSANE to me.

So we have two things happening here...first of all, we've let our Corporations advertise to our kids and our society in general for decades, convincing them that they *NEED* whatever it is they are selling...and we've created an economy that is almost completely DEPENDENT on people BUYING constantly. If they don't, we all panic and our economy suffers. Then we criticize because people are going into debt. They've been marketed to since birth and our entire economy depends on everyone BUYING. If salaries, etc... aren't keeping up, then people are going to have to borrow (like it or not) to keep our economy going.

Look at what they are doing now...the Fed is lowering interest rates (punishing *savers* like us) and rewarding the borrowers...because they need to keep people spending!! Home purchases create a whole cycle of spending in our economy...from remodel spending to furniture....more and more debt.

It's a big vicious circle.

[LAReader]

How bizzare that a politician actually LISTENED to his constituents. I know that MY reps DID NOT, and DO NOT LISTEN in my area.

Senators
• Dianne Feinstein (D)
• Barbara Boxer (D)

Representatives*
• Brad Sherman (D-27)
• Howard Berman (D-28)

They all need to be voted OUT of office. Especially Feinstein and Boxer.

And I'm NOT a republican, just someone who has never written these people as much in my life. It is always the same standard response. They don't "get it" that we just want lower prices for houses, not some bailout or aka "wellfare for the rich".

[Milla]

Laker: what's most important here is that you and shockg actually agree on something by both disagreeing with me. did you see his first comment on this thread?that's more astounding than the whole housing boom and bust, if you ask me. maybe this could be the inroad to peace? baby steps.

[red]

Silverfern....you and I agree on just about everything pro and con about NC.

I did live and work in LA proper, so I know about the differences in living in TO vs. LA and agree. And, you're right about the schools...Thousand Oaks schools are, I believe, rated in the top 3% in the nation? Swear I read that back when we lived there. There actually weren't many private school options in TO, but the public schools were a very safe option there. I think they are just gouging here because they have more people that want their kids in than space for them.

The job situation is a complicated story, but yes, it absolutely has to do with what field you are in. Raleigh is VERY tech, science, engineering centered. We work in Financial Services (financial advisor) and as a designer/ art director in Animation (non-existent here). Moved here because I was hired by a huge financial firm here and my company in CA had closed our division. Moved all the way here, told to buy a house and get the kids in school, given a start date, etc... last June. Then 2 days before my official start date in Sept. they *emailed* to say "Thanks, but we decided to go with someone else". Couldn't find another job here to save my life and met hundreds of other people in my same situation. Actually found a great job and am now living 3,000 miles away from my family to work...back in California. Waiting for the market to completely bottom out so we can move home.

ALL of the reasons you mentioned are the same valid reasons we left CA and moved here, however, we can't live somewhere where we have no connections and can't work.

As for the OTHER folks not being able to find work...yes...most of them were transferred here because of a spouses job....and assumed they'd also be able to find good work, given they are also highly educated and experienced, and in the fastest growing economy in the country...but found they were shut out because if you weren't moved here by a company with a job, good luck getting in. I've just heard this story hundreds of times over the past year and experienced it first hand.

And you can't even apply for a job in person any longer. EVERYTHING is done ONLINE, so there is no face to face contact. It was horrible. You can't even apply for a grocery store job in person...it's all via computer. A friend who works at one company here...a big tech company - receives over 500 resumes A DAY! 500!!

About the house...we calculated that if our brick colonial house in NC sold PER SQUARE FOOT for the same amount that our 1,000 sq. ft. 50 year old tiny ranch house in CA sold for, it would have been $2.3 MILLION dollars. So, again...yes, as far as the housing...there is no comparison.

We bought where we did in Raleigh because we got a good *feeling* from this neighborhood....older, established. The house is actually way too big for us, but the smaller homes were in places we didn't feel comfortable. We figured we were settling in for the next 30 years and would have an extra bedroom for family when they visited and holidays, and our growing kids, etc.... We were also living out of an Extended Stay hotel room for a LONG time, and there were hardly ANY homes for sale in this area (homes in our neighborhood rarely come on the market), so we just couldn't keep waiting. In fact, 6 months after we bought this home, there still weren't any new options on the market for us.

I have to admit, we find the restaurants prohibitively expensive...took the kids for bagels and chocolate milk the other day and it cost us $16!! We also find the food here barely BARELY edible...but please keep in mind we came from San Francisco originally....home to more 5 star restaurants than anywhere...so we are saving a ton in not eating out simply because we can't find food we think is worth it.

We actually DID go into LA all the time. Wife worked in the entertainment industry and we went to all kinds of very cool art openings and music or movie premier type activities...even with the kids. Obviously, this kind of thing doesn't exist here, and you said it perfectly..."local good" vs. "next best thing good" ! LOL I swear I haven't *offended* anyone yet, but I did say to my wife recently "Why is everything we go to here so lame??" And she laughed and said she thinks it's just that in LA the whole place is filled with creative types of some sort, and Raleigh is not exactly a *creative* center, and they are doing the best they can, and you can't compare the creative efforts of people who do set design and costume design and score the music for the global film industry with people who work at IBM (almost EVERYONE on our block here is an "IBM'er"!!) She also went to college in LA, so we were very connected, and there is virtually no art community here for her - not the same as LA.

However...when we got here, she said "Wow...we forgot to do *X* before we left...." and I said "We didn't forget...we couldn't AFFORD it!!" OR....sometimes, the traffic was SOOOO bad - like a 3 hour drive to get to Santa Barbabra for the day (which should only have been about 40 minutes from us), so we just didn't go because of the traffic.

The one thing we do love is that we can take the kids to the Durham Bulls baseball games at that beautiful field for about $20 + a few dollars for peanuts and hot dogs. Only the rich can afford to take their kids to a baseball game in CA....or "Sorry we don't have any money saved for your college fund honey....we decided to take you to the ball games instead".

I have to say, I agree with you 1000% on your list of *things you miss" and "things you like". I couldn't have said it any better.

I have realized there is no perfect place. We may end up having to move back because that is where our work is, but I know there will be all of those things you mention that we will be giving up, like finding a parking place easily, no traffic and the magnificent solid wood 6" crown, chair and base moldings, or the dormer windows in the kids playroom that alone is larger than our last house for less than $400k. Taxes in Wake County just went up though...they did reassessments..and things did not go down here.

[Dave]

Punishing savers to reward corruption. It's exchanging good for bad, values for vice, hobbits for orks.

[melissa]

These people should not be bailed out...they shoudln't have spent beyond their means.

Milla - your last post hit the nail on the head. I was trying to say the same thing. My nieces, out of UC colleges with honors in the past few years, working at CBS, are making the same amount of money I made out of college - 18 YEARS AGO. And I didn't have some fancy job back then...just a *living wage* at a very small company. Yet, as you point out...ALL of your costs to survive are higher.

Maybe its a sense of *entitlement* these days...I think there is a whole mind set about what one is entitled to, and what one deserves vs. working for something...I was seeing a lot of people who don't believe they should have to live in a small fixer and fully expect to move into the Architectural Digest home. I know who they are talking about. I lived around a LOT of Mom's who would tell my wife it "wasn't their job" to clean the house...and expected housekeepers and nannies so they could go to the gym and out to get their nails done and *NEEDED* to drive $75K SUV's. These were people on a $70k a year salary living in CA with kids, who were trying to live like the rich and famous and BELIEVED they were ENTITLED to that.

So you know what they did? They put it all on plastic and then refinanced and *rolled* all of that high living into their mortgage payments...and now - SURPRISE - they owe more than they own on their homes and they want my tax dollars to cover their bad decisions.

And THOSE are the people Arroyo is talking about.

I think what perhaps you don't realize is that YOU are in the MINORITY, as are, I believe, most of the people who post at this sight. Really, we're all preaching to the choir, because my feeling is that most of the people here are equally as responsible. And while everyone else was living above their means, we were paying on our fixed loans and spending our weekends at Home Depot doing our own repairs to save money.

For instance...my niece's parents (who are 50 now) were able to save 20% and buy a house