Startup tip to save $15,000 a year: Just stop paying your mortgage(signonsandiego.com)
signonsandiego.com
Startup tip to save $15,000 a year: Just stop paying your mortgage
http://www.signonsandiego.com/uniontrib/20081010/news_lz1e10schiff.html
27 comments
Apparently the heavy sarcasm in this article is not evident to everyone.
That's not an accurate representation of the author's opinion. If you've ever seen Peter Schiff on television, he actually talks like this in real life. In 2006 or earlier, he predicted that a progressive collapse of the housing market would happen, causing houses to lose 90% of their value over the next ten years, as well credit crunches, defaults, foreclosures, banks not trusting each other, and more. He was laughed at at the time, but he's been right, and now the media treats him more seriously in interviews than they did before, when they thought he was just trying to be different than everyone else for attention.
From watching some interviews on YouTube, he also believes we never recovered from the dot com crash, and the easy financing and securities that helped increase the dow jones industrial average just masked the recession following 2001 and slowed down the recovery and rebalancing process. He thinks a bailout again slows down and only delays the obviousness of a recession and the recovery process. It is conceivable, then, that in this article he's relatively serious that people should start considering why there is a need for a bailout (just because the bill was passed in haste doesn't mean that there's no more time to talk about it) and that if the government passes such breaks, why should one not take advantage of them, if that's what it takes to make the government consider the repercussions of the bailout, and saves the person money? As he says, politicians don't think about things realistically but just pleasing the voter and appearing quick and decisive.
He also says that money did not disappear into thin air, but went to the homeowners who sold their home for a large price to those who are "stuck" with them now. He also says that people who bought the houses often did it because they could actually save money by living in a house over paying rental. This is proven by the fact that a lot of borrowers who have been defaulting never intended to live in that house for more than two or three years. They did not have to put down a deposit. They wanted to have a house for a cheaper price than it was to rent (with the introductory rates for the first few years often being low). And if the house was now worth more than they paid for it, even better! They could then sell it after those three years. According to Peter, a lot of people who bought houses they could not afford and that are going into foreclosure now, were not dumb at all, but very smart.
According to Peter, as a person who needs to live somewhere, you needed a good credit history, three references, a job, and a good income to rent an apartment, all of which was verified, but you could get a no-money down, low-interest rate mortgage without any verification of your credentials at all, and often for less than what it cost to rent, and you could potentially rent out a part of the house to bring the cost down even further, and on top of that, either sell it for $30,000 profit three years later or just walk away from it, having paid what it cost you to rent. The second option is what "will" end up happening (he said this in 2006), and having correctly predicted this, he cannot believe the idea of bailouts for anybody.
It is the banks who took on the risks and should therefore have to live with it. The lenders invented loans that did not require the verification of income or credit history. According to Peter, this is not the government's problem or the people's problem.
This may have sounded satirical or sarcastic to the editor who published this article, but I believe Peter did not intend for it to be so.
From watching some interviews on YouTube, he also believes we never recovered from the dot com crash, and the easy financing and securities that helped increase the dow jones industrial average just masked the recession following 2001 and slowed down the recovery and rebalancing process. He thinks a bailout again slows down and only delays the obviousness of a recession and the recovery process. It is conceivable, then, that in this article he's relatively serious that people should start considering why there is a need for a bailout (just because the bill was passed in haste doesn't mean that there's no more time to talk about it) and that if the government passes such breaks, why should one not take advantage of them, if that's what it takes to make the government consider the repercussions of the bailout, and saves the person money? As he says, politicians don't think about things realistically but just pleasing the voter and appearing quick and decisive.
He also says that money did not disappear into thin air, but went to the homeowners who sold their home for a large price to those who are "stuck" with them now. He also says that people who bought the houses often did it because they could actually save money by living in a house over paying rental. This is proven by the fact that a lot of borrowers who have been defaulting never intended to live in that house for more than two or three years. They did not have to put down a deposit. They wanted to have a house for a cheaper price than it was to rent (with the introductory rates for the first few years often being low). And if the house was now worth more than they paid for it, even better! They could then sell it after those three years. According to Peter, a lot of people who bought houses they could not afford and that are going into foreclosure now, were not dumb at all, but very smart.
According to Peter, as a person who needs to live somewhere, you needed a good credit history, three references, a job, and a good income to rent an apartment, all of which was verified, but you could get a no-money down, low-interest rate mortgage without any verification of your credentials at all, and often for less than what it cost to rent, and you could potentially rent out a part of the house to bring the cost down even further, and on top of that, either sell it for $30,000 profit three years later or just walk away from it, having paid what it cost you to rent. The second option is what "will" end up happening (he said this in 2006), and having correctly predicted this, he cannot believe the idea of bailouts for anybody.
It is the banks who took on the risks and should therefore have to live with it. The lenders invented loans that did not require the verification of income or credit history. According to Peter, this is not the government's problem or the people's problem.
This may have sounded satirical or sarcastic to the editor who published this article, but I believe Peter did not intend for it to be so.
Oh the whole, I would agree with some of his premises, but if his conclusion is actually that houses will lose 90% of their value, he hasn't been right, and he won't be. We definitely saw some crazy over-inflated housing prices, and we're now seeing a correction in many markets, but we're not going to see $400k houses dropping to $40k nationwide. Not even close.
According to the reversion to the mean theory, we'll likely see prices drop below the long-term trendline and then climb back up to it. But dropping to 10% of their peak? Perhaps in one or two markets, but even then, I seriously doubt it.
According to the reversion to the mean theory, we'll likely see prices drop below the long-term trendline and then climb back up to it. But dropping to 10% of their peak? Perhaps in one or two markets, but even then, I seriously doubt it.
We definitely saw some crazy over-inflated housing prices, and we're now seeing a correction in many markets, but we're not going to see $400k houses dropping to $40k nationwide. Not even close.
You might be surprised by what you see if deflation comes into the equation. Even without, it's not unreasonable to expect a 50 to 80% decline peak-to-trough, given that (1) houses were 50-200% overvalued to start (good morning, Silicon Valley), (2) the economy is in recession, and (3) far-out suburbs/exurbs are likely to revert to ghost towns and ghettos as gas prices inexorably swing up. A decline of 90% is definitely in order for upper-tier Manhattan properties, although in that case we're talking about a haircut from $40 million to $4 million. So, while I think he's optimistic (from my point of view, heh) about the housing crash, I don't find him to be unreasonable.
You might be surprised by what you see if deflation comes into the equation. Even without, it's not unreasonable to expect a 50 to 80% decline peak-to-trough, given that (1) houses were 50-200% overvalued to start (good morning, Silicon Valley), (2) the economy is in recession, and (3) far-out suburbs/exurbs are likely to revert to ghost towns and ghettos as gas prices inexorably swing up. A decline of 90% is definitely in order for upper-tier Manhattan properties, although in that case we're talking about a haircut from $40 million to $4 million. So, while I think he's optimistic (from my point of view, heh) about the housing crash, I don't find him to be unreasonable.
> 1) houses were 50-200% overvalued to start (good morning, Silicon Valley),
How does overvalued by >100% work? If a house was "overvalued" at $1M, will it really become worth -$1M?
I'll "buy" as many of those -$1M houses as I can find. Heck, I'll even take -$100k houses.
How does overvalued by >100% work? If a house was "overvalued" at $1M, will it really become worth -$1M?
I'll "buy" as many of those -$1M houses as I can find. Heck, I'll even take -$100k houses.
A house worth $1m in 2006, but bought for $3m would therefore be 200% overvalued in 2006. A drop to $300,000 a few years from now in today's dollars (factoring inflation, smarter consumers, banks loaning money only at very high interest rates to reduce their risk of losing money to inflation and being in trouble again, tougher lending standards) would then be a drop of 90% from $3m, or 70% from the "real" price.
I've also read a similar post by a blogger who bought a house seven years ago, before the housing bubble, and now his house is worth much less than what he paid for it even seven years ago. His argument is, shouldn't he get bailed out, too?
EDIT: here's the post, titled similarly to Peter's article: http://www.wisebread.com/should-we-all-just-stop-paying-the-...
I've also read a similar post by a blogger who bought a house seven years ago, before the housing bubble, and now his house is worth much less than what he paid for it even seven years ago. His argument is, shouldn't he get bailed out, too?
EDIT: here's the post, titled similarly to Peter's article: http://www.wisebread.com/should-we-all-just-stop-paying-the-...
That was a great post.
My shitbag insurance company denied me on several necessary medical services, leaving me with serious (but fortunately, payable) medical bills.
Apparently you get bailed out of these sorts of things if you fuck up, but not if others fuck up for you.
My shitbag insurance company denied me on several necessary medical services, leaving me with serious (but fortunately, payable) medical bills.
Apparently you get bailed out of these sorts of things if you fuck up, but not if others fuck up for you.
"He also says that money did not disappear into thin air, but went to the homeowners who sold their home for a large price to those who are "stuck" with them now"
Exactly, this money isn't evaporating. For all of those people who bought overpriced homes is a person who sold an overpriced home and pocketed a large profit.
Exactly, this money isn't evaporating. For all of those people who bought overpriced homes is a person who sold an overpriced home and pocketed a large profit.
And/or a realtor taking a heavy chunk of the sale value...
And a mortgage broker taking a hefty fee.
He also mentions that part of the reason the housing bubble helped mask/stop a recovery from the 2001 crash was because unemployment in many sectors went back down, but that was due to a huge economy of realtors, banks, and brokers coming out of nowhere. Thinking back, I have to agree--I used to see 3 real estate or realtor ads on every page in some of the local papers, but not any more. It makes sense that realtors made a lot of money, and so did newspapers, so a lot of jobs were created for that short period of time (more realtors, and more journalists, who of course reported about the great benefits of owning real estate.)
Tomorrow in the San Diego Union Tribune: How to get a credit card in someone else's name.
Stop paying my mortgage? Uh...you first.
And only $15k/year? This guy doesn't have my mortgage! Try $27600/year!
And only $15k/year? This guy doesn't have my mortgage! Try $27600/year!
I would guess $15k/year is around what you would pay for a mortage on a $200k, which is about the median price of a house in the US. Also, that's before taxes and insurance.
Actually, I made that number up. :) I roughly multiplied 1,200 x 12 in my head and rounded up. My point was to make it just high enough to be an entrepreneur's greatest savings per month, above a car payment, utilities, insurance, etc, to get the point across. It also sounded about right.
Hah, I'm really good at overanalyzing.
Agreed, I could pay a $15K/year mortgage in my sleep.
You can start with mine :)
I would imagine that since your mortgage is secured debt, if you defaulted on it, while they might not be able to take your house, they could take some of your other assets. Namely, your start up.
It depends on where you live, among other things. In some states creditors can garnish your wages. Other places they can't, but they can come after your bank accounts.
I'm not sure about coming after your startup. It seems unlikely to me, but I'm the wrong guy to ask.
I'm not sure about coming after your startup. It seems unlikely to me, but I'm the wrong guy to ask.
As the article states, only applicable if you have no equity in your house and you have no other assets. Hopefully no one here was silly enough to buy a house under those circumstances.
While it looks silly now to buy a house with no equity (nothing down), it didn't seem so silly a few years ago. If you bought during the boom there was a good chance you would have a lot of equity in a couple years...
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Not sure this is such a great idea...
While I agree, I can't say for sure it isn't.
You have to make sure that you're not defaulting on anything in your capacity as a startup, i.e. office space.