# My Personal Credit Crisis...



## theasxgorilla (17 May 2009)

Hmmm, I bet this one gets a lot of first looks... shame on you... _schadenfreude_!

Not MY personal credit crisis, this guys! 

http://www.nytimes.com/2009/05/17/magazine/17foreclosure-t.html?_r=1

How does someone who writes about economics for a living get so badly reamed by the system???


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## nomore4s (17 May 2009)

Interesting article ASX, amazing someone doing what he does could get sucked in so badly.

Also amazing that he hasn't made a payment for 8 months and hasn't heard anything from the bank, there must be alot of people defaulting, no wonder the banks are losing so much money.


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## investorpaul (17 May 2009)

My first thought is what an idiot.

Not only did he say at the start of the article that his take home ay after child support is $2,700 and that he could not really afford to buy a property, but he is an economics writer who you would hope has a better understanding on this issue than average joe.

Then he went and took out a loan even though his partner didnt have a job and he never if would be hard to service his mortgage.

WOW is the only word that sums up the article and his actions


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## jono1887 (18 May 2009)

I guess they dont all practice what the preach... theory will only get you so far in the real world...


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## jono1887 (18 May 2009)

Or the guy's just a plain idiot!! :


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## nomore4s (18 May 2009)

What it probably highlights more than anything is the fact people will borrow to the hilt without any thought about the consequences no matter how educated they are. If the bank is willing to lend it most people are willing to take it.

Is it any wonder the world economy is in the state it is in now, we've been living beyond our means with leverage upon leverage and now the time has come to pay it back and the piggy bank is empty.


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## Prospector (18 May 2009)

I was about to offer commiserations ASX!


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## Mr J (18 May 2009)

jono1887 said:


> Or the guy's just a plain idiot!! :




It's easy to state someone is an idiot and not appreciate human nature. It's harsh to say he's an idiot, because most people - many of them reasonably intelligent - were also caught in the situation. Their actions were simply foolish. He admits that he was swept up in it all and didn't think it through. He realises he was a fool.


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## dhukka (18 May 2009)

investorpaul said:


> My first thought is what an idiot.
> 
> Not only did he say at the start of the article that his take home ay after child support is $2,700 and that he could not really afford to buy a property, but he is an economics writer who you would hope has a better understanding on this issue than average joe.
> 
> ...




My first thought as well, this is not a case of "should have known better" he DID know better and still went ahead with it.


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## lusk (18 May 2009)

Yes the guy was a fool but WTF with the alimony payments talk about getting reamed.




> The only problem was money. Having separated from my wife of 21 years, who had physical custody of our sons, *I was handing over $4,000 a month in alimony and child-support payments.* That left me with take-home pay of $2,777, barely enough to make ends meet in a one-bedroom rental apartment.


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## MR. (18 May 2009)

theasxgorilla said:


> How does someone who writes about economics for a living get so badly reamed by the system???




The house will be worth more in 5 years and Patty will get a job! Guess just one thing leads to another. He may have had other opinions which he wrote about in the paper but who said his opinions there were going to be correct. Doesn't everyone doubt their own opinions at times? guess not.......

This issue stood out to me with regards to JPMorgan Chase:


> It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.




Published: May 14, 2009


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## investorpaul (18 May 2009)

> This issue stood out to me with regards to JPMorgan Chase:
> Quote:
> It seemed to be so flooded with defaulting borrowers that it didn’t have time to foreclose on my house. Eight months after my last payment to the bank, I am still waiting for the ax to fall.




It makes you wonder how many people are yet to foreclose on the property.

I cant see this guy catching up on his repayments and it is only a matter of time until he forecloses. If he hasnt had his call returned for months how many others are out there like him? and more importantly how is the bank viewing his debt? have they written it down or do they think everything is still a ok because they havnt actually spoken to the guy yet.


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## MR. (18 May 2009)

Was my thinking as well....  Is the bank purposely not contacting clients? Are the banks staff really too over run?

What is the bank to do if they did contact these clients? 
Will not make anything better!


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## Absolutely (18 May 2009)

As someone who pays child support and currently toying with being able to afford a house on my own (I have no partner - well not one I am prepared to move in with), what I don't get from this is why his new wife was also not receiving child support from her own ex. Basically that would leave him back where he should of been in the first place.

I understand the crushing blow to ones personal esteem the child support hit causes (thankfully I avoided alimony and maintenance). You work hard all your life to build up a career and a reasonable salary and then on pay day you have to give half of it to your ex. Suddenly you can't even afford to rent a two bedroom flat, let alone buy a house. And you say to yourself, I SHOULD be able to afford this house, I am a professional, I work hard, I earn a good salary - but I can't now afford an average house in an average suburb. If I can't even afford a house like this what the hell am I doing all this for?

I wont fall in to the trap he has fallen in to, but I understand the emotion behind what may have driven it. Not that I am against child support either. But there are times when I feel like packing it all in, and that wont do anyone any good.


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## theasxgorilla (18 May 2009)

MR. said:


> The house will be worth more in 5 years and Patty will get a job!




Alas, hope is _not_ a strategy.


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## Struzball (18 May 2009)

Very interesting that the 'solution' to his debt problems was to get more debt.

Seems a bit like what the Obama's and Rudd's are being advised to do.  I wonder what happens when you have to forclose on a country?

I'm shocked that the day he realised he was broke and couldn't afford house repayments he didn't just sell the house for a 10% gain.  I suppose there was alot of emotion tied up in needing to own the house.


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## awg (18 May 2009)

What I dont understand, is why the USA system has non-recourse loans.

I dont know how they can fix their banking system, under these conditions.

That is probably one reason why the banks are not rushing to foreclose.

Another would be staff cuts.

Yet another is they probably dont want to crystalize their losses right now

It seems to me, that if you have substantial negative equity, the only possible course of action at the present time would be to rent.

How can US RE values improve, if such conditions exist?

I am not fully sure what happens when a non-recourse loan defaults, I presume it is a huge black mark on yr credit record.

I suppose many recent Oz home loans are effectively non-recourse anyway, because the owners have no equity, assets or cash to pay up if they default, and have no choice but to declare bankruptcy, if their income is disrupted.


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## Trevor_S (18 May 2009)

theasxgorilla said:


> How does someone who writes about economics for a living get so badly reamed by the system???




http://online.wsj.com/article/SB123093987596650197.html?mod=todays_us_nonsub_weekendjournal



> Intelligent people have long been ruined by frauds. Psychologist Stephen Greenspan, who specializes in gullibility, explores why investors continue to be swindled -- and how he came to lose part of his savings to Bernard Madoff.


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## theasxgorilla (18 May 2009)

awg said:


> What I dont understand, is why the USA system has non-recourse loans.




Also, I don't understand why all the beat-up articles keep referring to "interest-only" loans as exotic and infer that they're somehow responsible for this nastiness.  

I'm not wedded to only doing things one way but have only ever had interest-only loans.  That would be "fixed" interest-only loans.  Knowing the monthly cost to hold the asset for the duration of the project is more important to me than paying it off.  I can improve the asset and my LVR improves.  Let me see, I can pay down part of a loan that costs me 2.5% annually for the next 3 years, or I can use the capital to improve a property that could earn me 100% cash-on-cash return, if done well in the right market... what to do?

Fixed interest-only is risky if the fees for breaking the loan exceed your equity, then you gotta cough up the difference if you want to get out of the deal.  Have a plan to avoid this and you probably will!

This guy didn't lose his job, he lived way beyond his means.  And I'll bet that is the root cause in 99% of these circumstances.


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## BradK (18 May 2009)

Great story ASX - thanks for sharing. 

Great story - I take it the guy is still waiting for the ax to fall? Hopefully, he will sell a few books to get back in front. 

And yes... $4000 in alimony and child support 

Brad


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## vincent191 (18 May 2009)

Who is the bigger idiot, the guy who took out the loan or the bank who gave him the loan???

The answer is neither of them. The biggest idiot is the ones who went and bought the toxic loan from the bank.


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## jono1887 (18 May 2009)

Struzball said:


> Seems a bit like what the Obama's and Rudd's are being advised to do.  I wonder what happens when you have to forclose on a country?




Hahaha.... i can just picture the debt collectors coming raiding the country


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## theasxgorilla (19 May 2009)

vincent191 said:


> The answer is neither of them. The biggest idiot is the ones who went and bought the toxic loan from the bank.




I think the answer is that it depends on what you paid and what you got for that price.  My guess is the Fed Reserve is laughing all the way to the Federal Reserve Bank on this one.


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## basilio (22 May 2009)

Incredible story. Basic point (imho) is just how crazy the whole financial system was in constructing  these quite ridiculous loans.  This multiplied by a million represents the reason why our financial system is now insolvent and we are going to get it in the neck.

The core message seems to be that the banks were trying to make their profits on the fees associated with establishing the loan.  They were then going to flick the loan on and let the next party worry about actually getting the repayments.


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## Largesse (22 May 2009)

I feel like alot of people are hating the game rather than hating the player.
Securitisation shouldn't be a naughty word.
It is actually an incredibly useful tool in creating a more efficient marketplace.

People need to hate the greed-mongers that created and then flogged the dirty product, not the actual dirty product.

If ya get me.....


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## Jack Payback (23 May 2009)

I think this story highlights the idea that financial decisions should be made using logic and not emotions.

A share trader or investor, does not make a trade or investment based on the emotion that it felt good, they base it on analysis. Any other transaction should be the same. 

Studies show it is human nature to spend 10% more than we earn, no matter how much we earn. People overspend because it makes them feel better when they buy something they desire - hence the term "retail therapy".

This guy made it quite clear he was thinking emotionally only. We are emotional creatures by nature, so it is hard to avoid falling in to this trap. Some people can do it quite easily however.

It looks like his professional expertise was finance on a macro scale, not on a micro scale, which would have helped him, but the logic behind the two are the same. Don't spend more than you earn, easy to say, but very hard to do!


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