That seems to be the theme of this article. Read it and decide for yourself.

http://money.cnn.com/2010/01/20/real_est....

Bah, you're not rich if you can't pay cash.

-Uwe-

Having a six figure income doesn't make you rich. If you have to work or borrow money, you're not rich, you are just a more comfortable wage slave.

My brother-in-law is a 38 year old Orthopaedic surgeon. His wife is a Nurse Anesthetist(look it up they all make 6 figures). They have been making good money since 2002 or so and are responsible with money(no late or missed payments). They have paid on their mortgage since buying their house in 2002, multiple credit cards and car loans in good standing, etc. They want to put an addition on their house and borrow about $150K. NO bank will loan them the money. They have been trying for almost a year with no luck.

If the banks aren't loaning to people like this what are the chances of somebody making $40K buying a $400K house? If this continues housing prices will crash another 50% or more from here.

Sorry, but if your a sub specialist doctor and a nurse anesthetist you make a darn good living and should be able to pay cash for their 150k home addition. They must have too much debt and that is the big problem we have no one wants to save for anything anymore. Got to have all now.

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They have paid on their mortgage since buying their house in 2002, multiple credit cards and car loans in good standing

You are not making sense here. Anyone making good money shouldn't have ANY CC bills or car loans, excepting using a CC for convience and basically paying it off every month. Especially, if they bought in 2002 and hence didn't totally over pay for the house.

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If the banks aren't loaning to people like this what are the chances of somebody making $40K buying a $400K house?

I sure as hell hope the chances are less than zero b/c that's FUBAR @ 10x income and I don't care if rates are 0%. There is no justification on either end for someone making 40k to be buying a house anywhere even remotely close to 400k, unless they something like $280k to put down.

Frag needs to hang around TF a bit more.

I know it's outrageous to say someone making $40K will buy a $400K house. My point is that is exactly what happened all across the country for millions of people for many years. It is unsustainable now that banks have stopped lending. Asset prices are going to continue to drop for a long time unless there is massive additional QE in the pipeline.

And yes, I know they should just be able to pay cash for their addition. My point here is very few people actually SAVE money, even when their income puts them into the top 10%. The more you make, the more you spend. It's the American way. People spend based on how much they can borrow, not what they earn. Very soon there will be catastrophic results.

Equity lending- especially in a secondary position has tightened much more than purchase loans. There is no purpose for taking excessive risk on a home that is already owned- it does not to sustain the market.

Purchases on the other hand, are a necessary evil to sustain price levels. All the talk about FHA reform is just talk, there has been substantial tightening of underwriting guidelines, specifically debt to income ratios. If debt to income ratios were to be reduced across the board without a corresponding decrease to interest rates, prices would be substantially affected. Its not the $40k earners that are buying $400k houses, but the proportion of income to sales price is significantly out of whack. High end buyers are simply turning to FHA loans.

The other TF's are right, your brother-in-law should be paying off debt rather than doing a $150k home addition.

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There is no purpose for taking excessive risk on a home that is already owned- it does not to sustain the market.

Unless the doc's are gonna do the work themselves, it IS job creation.

The only way you can create jobs, is you have to be able to pay the workers.

This unemployment situation is CAUSED by the banks.

NO money => no jobs => NO money => no jobs, etc...

We are in an infinite loop, and until the money becomes available there will be no jobs.

The docs SHOULD NOT pay off their debt, they should stockpile their money just like the banks/govt is doing...if it were worthwhile to pay off debt, EVERYBODY would be doing it. DUMPING their debt is a different issue.

cash is king.

Tsk, .Gov doesn't care about creating jobs- .Gov cares about sustaining prices. If .Gov cared about jobs, they wouldn't allow TARP recipients to out source jobs. They also wouldn't shut down small to mid-sized lenders (compliments of HUD).

The excessive debt to income ratio risk taken on by FHA is to sustain home prices or to keep mortgages from imploding, not to stimulate the economy. Equity loans do not serve either of those purposes. The only way to kick start the economy is to allow prices and cost of living to correct so that wages bear a reasonable proportion to prices. Because of the disparity between our wages and the wages of other countries, our wages cannot grow- hence, the credit bubble was utilized to create growth. At this time, it seems maintaining asset value is more important than jobs.

But if prices correct, destruction of asset value would eliminate wealth and crash our financial system and economy. If prices don't correct, the economy will continue to deteriorate into a depression. Either way we are screwed. Unless America is able to produce enough value to compete in a world market, our way of life will have to change.

I disagree that the docs should take on excessive debt, but I do agree that they should stock pile sufficient cash before extinguishing debt. In the interim, they should refrain from taking on more debt. The plan of stocking piling cash and pyramiding debt requires the borrowers to ultimately BK their debt to come out ahead. BK is a failed financial model.

To truly obtain financial security, the docs need to spend less than they make, and work on becoming debt free (which includes paying off their home). The docs are not managing their money if they have to borrow to do a home addition and are already carrying a large amount of debt. If anything drastic happens in their world, they are susceptible to losing everything. E-lines and home improvement loans are available for low risk borrowers. If they can't get an equity loan or cash out refinance, there are either issues with their DTI, credit risk, or equity position.

Depending on where the docs are located, illegals would be just as likely to get the jobs as American citizens. Our neighbors are doing improvements to their home, and only one of the guys speaks english.

People truly do need to conserve their resources, and make sacrifices in order not to be debt slaves. Spending money and levering up into a financial crises is a sure fire recipe for disaster.

"Tsk, .Gov doesn't care about creating jobs- .Gov cares about sustaining prices."

the truth is ugly.

this is a result of the top down approach to stimulus... if we heal the banks.. they'll loan money and increase credit access again and re-start the economy.

that obviously won't work and is a serious error in policy.

wow Do_the_math...thank you. Very good post. I am humbled.

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My brother-in-law is a 38 year old Orthopaedic surgeon. His wife is a Nurse Anesthetist(look it up they all make 6 figures). They have been making good money since 2002 or so and are responsible with money(no late or missed payments). They have paid on their mortgage since buying their house in 2002, multiple credit cards and car loans in good standing, etc. They want to put an addition on their house and borrow about $150K. NO bank will loan them the money. They have been trying for almost a year with no luck.

They've tried unsuccessfully to borrow more money for almost a year. And this hasn't been a wakeup call to them that they are not a good credit risk?
It's great that they've got a lot of income but you haven't told us what their debt level is. The devil's in the details.
You said that they've been paying on their house since they bought it in 2002. How much did they put down? Is there already a second mortgage in place? How much equity is there in the house - independent appraisal, not homeowner estimate.

It sounds like they've been living the typical American lifestyle - for every dollar you earn, spend two. I might be wrong, but when you mention two people earning six figures and still have car loans in their late 30s, big red flags go up.

Friend of mine says this is true. Big money folks wanted to put up 8 figures to park some oil in tankers and do what GS does/did. No dice. Even with 120% collateral they simply would not loan any money for the project. No credit.

Another instance of an international deal unwinding, malfeasance and all that crap. Counter party wanted to be paid. IN GOLD.

Yep, bad juju.

Thanks for sharing Ben.

gold, huh?

Ben wrote..

Friend of mine says this is true. Big money folks wanted to put up 8 figures to park some oil in tankers and do what GS does/did. No dice. Even with 120% collateral they simply would not loan any money for the project. No credit.

Not loaning money for the purpose of speculating on commodities? Sounds like A Good Thing to me. How is this a productive investment?

Sitting on some oil might have made some sense at under $50, but at $75, not so much. $75 seems like a fair price; high enough to keep drilling, not so high that it has major negative effects on the world's economy.

-Uwe-

anecdotal to local market. we were looking at a cheap, and i mean CHEAP fixer upper rental house. i figured there is no way we could get screwed on this even if housing values dropped another 50%. i would be doing the work myself.

anyway, best the local bank could do was 7% on a 5 year ARM with 20% of total loan down (that includes the amount to buy it, fix it and pay back taxes and closing costs).

i said no thanks. our credit score is 800 plus and we have the cash flow and savings to cover some rough patches. they loan officer also lied his ass off to me in the initial meeting saying he could get me 6% on a 10 or 15 year fixed with only 20% down on principle only. pulled the ol' bait and switch when it came time to actually put the numbers in writing. with our credit score and experience managing rentals, if we can't get a loan on good terms, i don't see how anybody could get a loan.

if mean, if you want to pay cash anyway, who needs the banks??? **** that.

i felt slimey after the whole deal. guess they banks can just keep these ****box houses on their books until they figure out they have to let those of us with good credit have a shot at them with some decent numbers to support the deal.

I called Wells Fargo to get the payoff on my Home Equity Loan
and the guy practically begged me to let them knock 2 percent off
the interest rate and keep it with them....he finally said what can
we do to keep you loan? I said you can't I'm getting out of debt

Rrman -- get with the program --


“If you paid your mortgage off, it means you probably did not manage your funds efficiently over the years,” said David Lereah, chief economist of the National Association of Realtors and author of “Are You Missing the Real Estate Boom?” “It’s as if you had 500,000 dollar bills stuffed in your mattress.”

He called it “very unsophisticated.”

Anthony Hsieh, chief executive of LendingTree Loans, an Internet-based mortgage company, used a more disparaging term. “If you own your own home free and clear, people will often refer to you as a fool. All that money sitting there, doing nothing.”

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" i don't see how anybody could get a loan. "

Someone in my family (a well-off person) was asked, last minute, to provide a copy of his CPA's certification, among a million other deal-breaker type moves.

I dont see any problems with people in good standing getting loans. Maybe the 150,000 addition adds 50,000 to the appraised value