The Blame Game Begins and Buyers are Front and Center

So I'm back from vacation. What did I miss? Oh, more sad stories about housing-crazed dolts losing their Bay Area POSs to foreclosure.

This sad sap (Jeff Hahn) is leaving the Bay Area for Los Angeles because he is on the brink of losing his house to foreclosure. I'm sorry, but if you pay a stupid price for a house, believe all that realtor/agent crap about 'housing always goes up', 'it's never a better time to buy', 'we're immune/special', listen to what your self-proclaimed-RE-genius friends/family say, etc. you deserve to lose your house as far as I am concerned. Just because someone is willing to lend you the money for a ludicrously priced house doesn't mean it is actually a good idea to pay that insane price. No sympathy from me. Sorry all you Jeff Hahns of the world, but you and people like you are the problem. If it weren't for dopes falling for the RE industry's self-serving hype and paying stupid prices for houses, this housing bubble would never have left the runway. The buck starts with the buyer.

To many people in the affluent Bay Area, losing a home to foreclosure sounds like a Depression-era relic or a Rust Belt phenomenon. But in recent months, the Bay Area has proven to be home to numerous victims of the subprime loan debacle.

Just like elsewhere in the country, people here with tarnished credit or limited funds bought houses that proved to be beyond their means.

Jeff Hahn bought the house, a nicely laid-out decade-old four-bedroom Colonial in a neighborhood of classic two-story homes, three years ago for $495,000. Later that year, he met Vanessa, they fell in love and started a family.

'When I first bought the house, everything was too good to be true,’ Jeff recalled. ‘No money down, instantly gaining $10,000 in equity. Written in very small print was that the loan will adjust in two years. Everybody I talked to said it would only be a (minimal) increase.’

Instead his two loans, initially totaling $2,200 a month, hit $3,700 last September. Several loans fell through for various technicalities. By the time a new loan finally came through in March, not only had the subprime mess caused banks to tighten their lending standards, but the home’s value had dipped.

Jeff had borrowed against the home’s equity to pay off some bills…start his business (and) to cover closing costs for the new $570,000 loan. The 40-year fixed-rate loan, at an interest rate of 10.5 percent, carries monthly payments of $5,000.

Why did Hahn accept a loan with higher monthly payments? ‘I was using credit cards to subsidize the payments’ on the existing mortgage, he said. ‘I was about to miss a payment. My lender said, ‘Take the loan, because it will save your credit, that’s the first issue. Then you can sell the house.’

The Hahns have not made any payments on the loan since it was funded in March. ‘Honestly, I gave up once (monthly payments) hit $5,000,’ Jeff Hahn said.

The Hahns put their house on the market, only to discover that real estate prices were spiraling downward in their area. Their house, which had been appraised for $630,000 in January, was now worth less. They started out listing it at $575,000, and now have dropped the price to $555,000.

So far, the Hahns haven’t received any offers. ‘My neighbor is selling his house for $505,000,’ Hahn said. ‘My Realtor wants me to drop my price another 100 grand.’

Jeff Hahn said he is bitter about his experience with home ownership.

Sorry Jeff, but like the lottery, housing prices of late have been nothing more than a graduated tax on stupidity.

Here's an article that puts the blame squarely on the shoulders of all the stupid buyers out there (emphasis mine):

Wells Fargo Bank has become the latest of the big name banks to join the ranks of born-again mortgage lenders, folks who’ve seen the light, embraced the truth and vowed to go forth and sin no more.

The sin, of course, is the wink and a nod lending that put people in homes who should have stayed in apartments or who put people in too much home for the income of the family.

Mortgage lenders have to take on the sober banker image of an earlier time. And borrowers have got to stop believing that just because they want something, they deserve it. Oh, and they might actually read the fine print.

An interest-only loan, more than 40 percent of the new paper being written in this county at one point, really means you’re only renting the money, not buying the house. Take one of those loans today and it means you’re really stupid.

And BusinessWeek hits the nail on the head (unfortunately, only in the last paragraph -- sigh):

But don't expect the lenders to castigate homeowners for taking on too much risk. "It's tremendously un-PC to say this, but this entire circle of blame starts with individual borrowers who wanted more for less, wanted it big, and wanted it now," says Mason. "They got greedy."

Well, there it is, bloggers like me who aren't afraid to place the blame where it belongs are "un-PC". Yeah, well:

"All truth passes through three stages. First, it is ridiculed. Second, it is violently opposed. Third, it is accepted as being self-evident."

-- Arthur Schopenhauer (German philosopher [1788 - 1860])

And since I am on the subject of quotes, how about some of my favorite investment quotes (not that I think houses should be treated as investments (far from it), but I know I am in the minority on this point) the truth of which we are being reminded more and more each passing day:

"Those who had been riding the upward wave decide now is the time to get out. Those who thought the increase would be forever find their illusion destroyed abruptly, and they, also, respond to the newly revealed reality by selling or trying to sell. And thus the rule, supported by the experience of centuries: the speculative episode always ends not with a whimper but with a bang."

-- John Kenneth Galbraith

"The scariest phrase in investing? 'It’s different this time'. Scarier still is when people start acting on that conceit."

-- Justin Lahart

"You can lose a lot of money by selling too late. So can you make a lot by selling too early. A simple investment formula, based on effluents and body fluids: Be a seller when money is coming out the wazoo; be a buyer when blood is running in the street."

-- The Daily Reckoning

"To make money, you have to be greedy when everyone else is fearful and fearful when everyone else is greedy."

-- Warren Buffett

"When everyone thinks the same thing, no one is thinking."

-- Old traders' adage

"What you see depends on what you have seen."

-- Bill Bonner