With Google News, I thought I’d never read any newspaper again. But to my surprise, in the last several months I’ve enjoyed WSJ on my morning commute. Part of the surprise is that I could stay awake to read.
My favorite has been the quirky bottom-first-page story, and this one from last Saturday is the best that I can remember (which means within the last couple of days), as it’s the best illustration of the financial crisis that I can remember (in a slightly longer timeframe).
You should really read the whole thing, and then see all the pictures. Just amazing and freaking unbelievable, but that’s exactly how we got into this mess.
These numbers really say it all:
- The “house” has 576 sq ft (about the same size as our living room plus den) with 2BR/1BA.
- The owner, Ms. Halterman, said that at one point there were 23 people living there, ~25 sq ft/person, on par with a sweat shop dorm.
- She bought the house with $3,500 40 years ago.
- “She receives about $3,000 a month from welfare programs, food stamps and disability payments related to a back injury.”
- She owed $36,605 on a home-equity loan in 2006, and got a $75,500 credit line. Then in 2007 Integrity gave her a $103,000 30-year ARM starting at 9.25%.
- How much money everybody in the food chain made:
- Appraiser: $350. The appraisal is $132,000.
- Integrity: $6,153 at closing, then $3,090 when it transferred the mortgage to Wells Fargo.
- Wells Fargo sold it to HSBC, and S&P rated the MBS (probably CDO) AAA. The article didn’t say how much these guys made, but you can be sure they got bonuses many times of $11,090.33, the amount that Ms. Halterman got at closing.
- After foreclosure, the house was sold at $18,000 to the wealthy next door neighbor so they can tear it down. That’s 17.5% of the mortgage.
- “After expenses, investors in the mortgage-backed security will probably divide up no more than $15,000 in proceeds.”
According to a CPI calculator, $3,500 in 1967 = $21,727.46 in 2007. Using the inflation adjusted number, $103,000 (4.74 times) makes annual growth at about 4%. According to http://mysite.verizon.net/vodkajim/housingbubble/, nominal US median house price went from ~$20k in 1967 to ~$225k in 2007, and inflation adjusted price from ~120k, a mere 1.5% per year (1.83 times). So the “little shack on the desert” is really the highest flying bubble of all.
I agree with one of the comments that we should applaud Ms. Halterman. Sure, she has plenty of her own problems with drug, alcohol, trash, etc. But she managed to feed many people and raise numerous children, some foster. (Though it’s a different issue how they will live their lives, as her own son is now in prison.) We cannot expect someone like her to use Quicken to track her cashflow and some online “how much mortgage can you afford” calculator.
I also heard a story on NPR the other day about an immigrant single mom with 3 kids in Brooklyn. She earns minimum wage, and yet got a half million mortgage on a relatively large house. Monthly payment is a few thousand, and she only paid a couple of months.
The last paragraph in the piece is a real gem:
A few weeks ago, Mr. Arce (the new owner) asked Mike Summers, a city code-enforcement officer, whether a permit was required to raze the blue house.
“Yes,” Mr. Summers replied, “but all you need is the big, bad wolf to come out and huff and puff.”