Consider Stress-Testing Your Finances

[Skye]

The media will not play, but you can click on the title to read the article.

2008 was a Great Depression-like event. The entire US financial system nearly collapsed. Market securities, physical properties and companies valued in trillions of dollars were in a bubble. When the bubble popped, all of that had to be re-evaluated and re-priced.

Millions of homeowners were directly impacted to varying degrees. For a time, Denver, CO, was the foreclosure and bankruptcy capital of the nation. Several programs were initiated, at the federal, state and industry levels, in an effort to keep people in their homes.

This article is a detailed read, covering the topic of Zombie Mortgages; mortgages once thought to have been written-off or forgiven, but are very much still alive. Companies buying them are now seeking re-payment.

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[MAGS1]

The media will not play, but you can click on the title to read the article.

2008 was a Great Depression-like event. The entire US financial system nearly collapsed. Market securities, physical properties and companies valued in trillions of dollars were in a bubble. When the bubble popped, all of that had to be re-evaluated and re-priced.

Millions of homeowners were directly impacted to varying degrees. For a time, Denver, CO, was the foreclosure and bankruptcy capital of the nation. Several programs were initiated, at the federal, state and industry levels, in an effort to keep people in their homes.

This article is a detailed read, covering the topic of Zombie Mortgages; mortgages once thought to have been written-off or forgiven, but are very much still alive. Companies buying them are now seeking re-payment.

Thanks for sharing Skye. I was wondering when this might rear its head. I think what a lot of people that had loans (or portions of loans) forgiven didn’t know to follow up on was an actual paid in full notice from the bank. Just a verbal or even an email is not enough from a legal standpoint.

In the case of these second mortgages, the original Note and Mortgage/Deed of Trust (depending on your local/state requirements) marked Paid In Full is typically sent to the homeowner after the loan is paid off. Be that via standard payments or forgiveness. Without that, unfortunately the homeowner doesn’t have much to stand on.

Now, the companies that bought all these mortgages up and waited 10-15 years to go after people would be considered predatory to me. Again, typically when someone buys a Note (happens a lot with banks selling them to Freddie Mac or Fannie Mae), a notice is sent to the homeowner. That absolutely should’ve happened here. I’m not totally well versed on the residential side but I believe it is required in most states, if not on the federal level.

I’m not a fan of big government and them being involved in every single thing, but something like this absolutely needs better (not necessarily more) regulations behind it to avoid situations like those in the article. People should know if their 2nd mortgage was truly forgiven and if not, that it’s still there and was bought by a company that intends to collect on it.

There are a lot more disclosures and explanations of mortgages these days due to what happened in 2008 (and the years leading up to it) so people do understand what a second mortgage is, what an adjustable rate loan is, etc. Most people don’t take the time to read their loan documents and residential real estate attorneys are hit and miss as far as how good they are with that stuff. I’m in the business on the commercial side, so I’m familiar with loan documents and read mine thoroughly before signing. Unfortunately a lot of people don’t do that and trust that they’re being told everything they need to know. Which we all know doesn’t always happen.

 

[key01]

As an Architect in Chicago; birthplace of the skyscraper, I agree with your assessment and any of those scenarios has a greater chance of occurring than the completion of this tower. Even in a city like Chicago we have had a great number of start/stop towers leading to financial ruin of the developers. In Oklahoma City? Not happening.

 

[MAGS1]

Ok, so the article says no office space is planned. That’s good, office is still a struggling property type. My biggest question is how big is the demand for “luxury residences” and a high end hotel in downtown Oklahoma City? They obviously need the higher rents to make the project pencil. Luxury towers like that here in Chicago as well as other major markets take a long time to lease up, I can’t imagine how long it would take in a smaller market like OKC. Every market has a wealthy population, but do they all want to live in downtown high rise buildings? Not necessarily. Would be interesting to see if they’re able to fundraise for it as well. Returns on cost aren’t what they used to be, especially for that type of product.

We really need more affordable housing in this country. Tough to do with build costs these days, but I’d rather see municipalities invest in those types of projects instead of luxury high rise projects. And not just the current incentives where they give tax breaks for a percentage of affordable units in each project. We need true, low to middle income affordable housing. Harder to do these days but it is possible.

Thanks for posting, Skye. I’m in the commercial real estate industry and could go on and on but I’ll stop there. For now…

 

[Skye]

https://www.cnbc.com/2024/06/17/heres-why-car-payments-are-so-high-right-now.html

Some recent statistics on auto loan data (payment amounts, interest rate, those underwater). The numbers for some are horrible. High interest rates, losses rolled into new loans and never escaping the cycle of payments.

 

[Strokerswild]

https://www.cnbc.com/2024/06/17/heres-why-car-payments-are-so-high-right-now.html

Some recent statistics on auto loan data (payment amounts, interest rate, those underwater). The numbers for some are horrible. High interest rates, losses rolled into new loans and never escaping the cycle of payments.

Lunacy.

My rule of thumb has always been to put down enough on a vehicle so the note is around $500/month or less on a 60 month term. The payment amount is then never a hardship, and extra can be thrown against the principal each month so it's paid off inside the 3/36 warranty. I wrote the check for my new Jeep last year to maintain my current no-debt mantra though.

It would help if automakers would build more affordable vehicles also. The average new vehicle price these days is simply out of reach for many.

 

[Skye]

An article highlighting a topic we're all to familiar with: home insurance rates.

https://www.cnbc.com/2024/07/02/florida-california-insurance-crisis-spreading-your-state-next.html

This report mentions something I'm hearing more and more of: insurance agents and brokers using Google Earth and other tools, to study property-specific risks, as part of the application or renewal process. Trees (fire, falling on house) for example.

For those of you living in flood planes and costal areas, there are surveys highlighting those risks.

Unfortunately, those maps and surveys might not be very accurate.

https://www.theguardian.com/environment/2022/sep/04/fema-flood-maps-climate-change-georgia-floods

If living in, moving to or considering building near water (river, coastal), or heavily urbanized (see water run-off and reservoir strategies) city, intensely studying the topic would be worthwhile.

 

[S550HPP]

Unlimited multigeneration full recourse credit is the answer. Has been used elsewhere with great outcomes.

 

[klink]

Job gains, wage growth and the national unemployment rate have garnered a lot of attention since Friday. One statistic I've been studying the last several weeks: credit card defaults and delinquencies. On the one hand, several top-line, cited numbers give one the impression the economy is doing well. Yet most people think things suck; and the increase in delinquencies and defaults across all age and income groups support that.

"Unemployment is the lowest it's often ever been!" Agreed. But IMO, the quality of those jobs is not the same as the previous generation. Many more people are employed in jobs with lower wages, fewer or no benefits. Times past, minimum wage type jobs were often filled by college age people and younger. Now, many adults of all ages fill these positions to.

"The stock market has been going up!" True. The last five years, the SP500 index has nearly doubled. Roughly 50% of citizens are invested in the general stock market, almost all of that associated with retirement accounts. While the participation is appreciated, measuring where the wealth is tells a different story. Close to 90% of the dollar worth of the stock market is owned by the top 10% of the wealthiest people in the country. You and your neighbor have seen gains, but not near the scale of others.

"Inflation is coming down!" Also true. Inflation has been coming down. But with at least two caveats. One, those increases in prices are still baked into what we pay at checkout. While the rate of increases has subsided, prices are still well-above where they were a few years ago. Second, while the headline number has returned to a more historic rate, it isn't the same for every product category. For example, housing and insurance have seen substantial increases. I can stop eating Big Macs and get something else. But I have to live somewhere. Most of us cannot afford to be without insurance.

"Wages are increasing faster than inflation!" Correct. But wages have not increased near as much or as fast to cover those corresponding increases in inflation. For most of us, our overall purchasing power remains underwater.

Reviewing charts from the previous fives years, IMO, it's these two diametrically-opposed factors, increasing inflation with corresponding lower wages, that have led to the conditions we have now: people using credit cards more, in some instances, tapping their retirement accounts sooner, while defaulting in greater numbers. Things do suck.

For at least the last year, fiscal policy (GOV spending) and monetary policy (FED and interest rates) have been opposite of one another. We've continued spending via huge GOV programs, while increasing interest rates. If we cut rates while continuing to spend, will that re-ignite inflation? If we reign in GOV spending, how will that slow an already slowing economy? And what of those who need their wages increased the most? If an actual recession occurs, won't increasing fiscal stimulus (GOV programs, tax cuts or both) while lowering interest rates start the process all over again?

While I'm not confident in providing answers to those questions, I'm comfortable in saying that, those individuals at the lower end of each distribution will summarily take one step down, to the next lower level in the economic spectrum. The race to the bottom. It's something I look forward to being wrong about.

It seems as though we’re in the proverbial inflection point with the economy. Everybody at some point runs into their credit limits and it’s game set match. Both at a macro and micro level, I think this is happening and we are in for a world of hurt.

 

[sk47]

But increasing delinquencies while things are going about as good as they can, IMO, is saying the course is about to change. If things were truly going well, I'd posit people would be paying that debt off.

Hello; I figure you are including credit card debt which if carried over a year can balloon to over 20% interest (if memory serves). So, if we assume the folks are aware of that ruinous interest rate and were doing well, then paying that debt off would be a thing to do.
Making assumptions is risky at best. Afraid I have known too many people who do not seem to understand the debt pits credit cards can create. Two were family members. Both got in too deep and to the point the minimum payments could not be met.

One last personal observation. For a few years now, two or three, I hear often that the current inflation is because of "greedy corporations". A question is did corporations suddenly become greedy a bit over three years ago and were not greedy in years prior? I do not think so.

 

[S550HPP]

One look at the financials of corps over last ten years shows many have increased their profits substantially through shrinkflation, substitution and price increases attributed to supply chain issues since 2020.

Stupidly they thought it would last now we see people like me refuse to buy and their profits are collapsing to losses that take 3-5 years to turn around at best if making cars, for example.

Is it only greedflation when don't own their stock and good business when do own it?

Fact is few people, even with degrees, can calculate a percentage of a number. It's a joke. Even less can figure out true credit cost even with Google calculators...they deserve to be bankrupt.

Many loan applications are also fraudulent with income rarely verified against tax or bank records, and calls to employers.

I look forward to distress and just this past week quadrupled my material bet made two weeks prior on Uvix knowing we are about to blow out.

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