NYT: “How a financial pro lost his house”

[AK]

Via MSN:

http://www.msnbc.msn.com/id/45221933/ns/business-us_business/

It’s mostly the same old option ARM / upside-down / short-sale story, except for this part …

Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market. A few months later I found myself working a phone at a Fidelity Investments call center.

[Coronita]

I’ve said this many times and I’ll say it again..

Most of these “financial advisors” are really not qualified to have that title…

[bearishgurl]

I haven’t read the writer’s book, but I’ve got a few observations about the writer’s story, the way he describes it here.

…There was this enormous window that looked right in on the kitchen table, and through it I could see my wife, Cori, and our four children eating dinner. It was dark outside, so they couldn’t see me, and I just stood there looking at them.

After a while, I pulled up a bucket and I sat on it, just watching my children eat. I found myself wishing that I could get back there, connected to the simple ordinary stuff of my family’s life. And as I sat and watched, filled with longing and guilt, two questions kept arising:
How did I get here?
And how am I going to get out of this?…

The writer has a family of six and he has to ask this question? Was his spouse employed? If not, why not?? (LV is one of the few cities one can make good money w/o a college education.)

…Like most financial stories, this one is personal. It starts with me getting into the financial services industry more or less by accident. I answered an ad in 1995 that I thought was for a job related to “security” (as in security guard) but was in fact related to “securities.” That’s how little I knew about the stock market. A few months later I found myself working a phone at a Fidelity Investments call center.

Things went well, and by 1999 I was a Merrill Lynch financial adviser and a certified financial planner. By then, we also owned a house in Salt Lake City. We’d bought it two years earlier, with a $25,000 down payment.

A few years later, an opportunity arose to form a partnership with a successful Merrill adviser in Las Vegas. The place was on our top 10 list of never-move-to cities because we had always associated it with the Strip. But Cori and I were looking for an opportunity to have an experience somewhere else, and we met some great people when we visited the city. I took the job, and we moved down there.

That was May 2003. Housing prices were already crazy, so we rented. But our neighborhood had zero character and lots of cookie-cutter houses. Within a few weeks, we were looking for a place to buy…

He is unclear here if they ever sold the SLC property or rented it out, but in any case, they didn’t have it to occupy when they moved into his in-laws SLC basement in ‘09 (see below).

…one day in September 2003 Cori spotted a for-sale-by-owner sign in a really nice neighborhood. We ended up buying the house and paid the asking price of $575,000. (When we tried to negotiate on price, the owners were amused; it just wasn’t that kind of market.)

We borrowed 100 percent of the purchase price. In fact, I was told I could borrow even more if I wanted…

Sounds like they bought the place because his spouse found it and liked it. From the photo provided it ALSO looks like a “cookie-cutter house.” Would he have done this if HE (instead of his spouse) picked out a more “conservative” property and financed it with a downpayment they could afford?

…As for our spending, we told each other that we’d catch up later, as my income and the value of our home continued to rise. As late as February 2006, a comparable home in our neighborhood sold for $998,000. We made the classic mistake of projecting recent trends — even extreme ones — into the future…

Why wouldn’t this “sophisticated” writer SELL in ’05/’06 if he saw his local market jump through the roof right before his eyes? (I don’t think I’d hire him to manage my investments.)

…It was my job to assist them (his clients), but I found it incredibly stressful. It didn’t help that we were in increasingly dire straits ourselves. My income fell about 20 percent because my take-home pay depended on the amount of money I managed. At the same time, our cost for health insurance and property taxes kept increasing, and the payment on our mortgage reset higher as well…

Why wouldn’t this “sophisticated” writer appeal the tax assessment on his property? And why did he begin working for himself in NV when he had six people to insure monthly?? This tells me the that even if his spouse worked, she had no benefits.

…By then, housing prices in Las Vegas were falling quickly, and the bank had cut off our home equity line of credit. We quickly got rid of a car and stopped taking trips. I moved into a smaller workspace and cut back on my administrative and marketing costs. Even so, we found ourselves using credit cards as emergency stopgaps.

Then, the sickness set in. The pain would start in my stomach, and then I’d spend six hours vomiting. It happened once, then three months later it happened again, then one month later it happened yet again. Eventually, it was happening every couple of weeks. The doctors couldn’t find a physical cause.

Right around that time, it became clear that we might need to get back to Utah, where 90 percent of my (still nervous) clients lived. We spent the summer of 2009 living in my in-laws’ basement in Salt Lake City, while I tried to stabilize my financial planning business. By that fall, I was convinced we had to move back permanently to save the business. But that meant we faced the question of what to do about the house.

By then, we owed over $200,000 more than our original loan balance…

Was the writer’s (stress-related?) “mystery ailment,” due to the fact that he was responsible for a family of six (in the manner they had recently become “accustomed to”) all by himself? Their decision move back to UT sounds purely “voluntary.” It’s only a 368-mile (all interstate) drive between LV and SLC – abt 6 hrs. (I’ve driven it at least 75 times.) There’s also “cheap” Southwest Airlines, lol.

…Somehow, even in that horrid market, we sold the home for $531,000. That was in late August 2010. In exchange, the lender released us from both our first and second mortgages. Today, Zillow estimates the home’s value at $505,000…

Purchase Price 9/03 = $575K (100% financed)
Sold Price 8/10 = $531K
Payoff Amt 8/10 = $503,489
Excess = $27,511
5% RE Commission = $26,550
Balance left for other closing costs: $961

It’s almost a wash. Had they never “cashed out,” I feel they could have hung on or sold at break-even in 2010.

It’s a moot point, but I wouldn’t count on Zillow being very accurate as it doesn’t allow margins for improvements made on a particular property.

Again, in comparison to a short sale we just discussed ad nauseum here:

http://piggington.com/buying_again_2_years_after_short_sale_questions_for_you_pros

This story is just another “borderline case”, IMHO. Again, I feel this family could have hung on, refied it to a lower rate in ’04, ’09 or ’10 (the last two yrs, they may have had to put a small amt down to obtain an 80% LTV mtg) and never taken cash out. The writer states they had “perfect” credit before they “strategically defaulted.”

Instead, this family spent their home equity on (probable) exorbitant “cash out” refi costs plus whatever else they did with the approx $200K+ (plus the months they “squatted) of their equity they extracted .

This family is just one of many thousands who contributed to the now 80%+ distress rate of LV residential properties. Now their credit is shot and this writer is supposed to be setting an example for his clients, lol!

I’m sure his book spells out the lessons he’s learned but I just don’t feel too sorry for this individual. He made his own bed. Piggs, you can call me judgmental if you wish but I just feel that, at “first blush,” all these homeowner “sob stories” seem designed to elicit public sympathy, but when you actually take the trouble to look into the facts, it often reveals that yet another opportunistic family was using the home they and their children were living in for an ATM machine to enable them to live way beyond their means.

Thanks for posting another “strategic short-seller” story here for me to chomp on, AK! I continue to maintain that a very large percentage of them should not be approved. Instead, the opportunistic “strategic defaulter” should get the foreclosure ding on his credit, without further ado (as it was BEFORE 2003).

edit: this writer claims he and his spouse decided to “leave all his clients behind” and move their family to LV because they “wanted a different experience.”

If they “wanted a different experience,” they should have dumped the kids in grandma’s basement and flew to LV for $112 RT and stayed at the Sands!! (Uh, the “Venetian” now, sorry, lol…)

Bad, bad move on his part…

[bearishgurl]

[quote=flu]I’ve said this many times and I’ll say it again..

Most of these “financial advisors” are really not qualified to have that title…[/quote]

Competely agree, flu. Not sure if this field is even “regulated”…

[bearishgurl]

Here’s another link as to the Richards’ details:

http://www.nytimes.com/interactive/2011/11/09/your-money/20111109_CARL.html?ref=business

They appear to be young and all their children are under the age of 12. The wife claims they had a lot of good memories in the house. A b-day party photo is shown (to elicit sympathy?)

The link addresses the fact that they sold $200K short, but does NOT address what they did with the money. The Richards are “philosophical” in the end and state that they don’t blame the “mean banks.”

Why should they? They got $200K of “free money” and the debt “pardoned.”

I feel if he makes $$ off his book explaining how “dumb” they were, he should have had to use it to pay off their “short,” (or in the least, their income taxes stemming from the short).

Alas, our lofty GOV now has it set up where they won’t have to.

This is fundamentally where I have a problem with short sales.

[sdrealtor]

I think its a very good article. He’s not looking for sympathy, he’s just telling his story. It shows less sophisticated distressed homeowners that they are not alone. That people of all education and income levels fell prey to the same thing. Its a story about risk taking and herd mentalities which are endemic in our society. Its not about fingerpointing anymore. Its about cleaning up the mess and we still have much work ahead of us.

[patientrenter]

[quote=bearishgurl]….The Richards are “philosophical” in the end and state that they don’t blame the “mean banks.”

Why should they? They got $200K of “free money” and the debt “pardoned.”….[/quote]

I find myself agreeing with your posts, bearishgirl. I was raised to keep my promises, and not to make any that I couldn’t keep. I am not perfect at following that moral code, but I try very, very hard, even if it means personal sacrifice. We live in a world where that level of effort is unusual. I suppose the upside is that we can enjoy supporting all the freeloaders 🙂

[bearishgurl]

[quote=sdrealtor]I think its a very good article. He’s not looking for sympathy, he’s just telling his story. It shows less sophisticated distressed homeowners that they are not alone. That people of all education and income levels fell prey to the same thing. Its a story about risk taking and herd mentalities which are endemic in our society. Its not about fingerpointing anymore. Its about cleaning up the mess and we still have much work ahead of us.[/quote]

It IS a good article and I understand all this. I’d like to see the mess cleaned up, too. And I think short-sale is a fair option for those who fell prey to the “herd mentality” and purchased at the height of the “bubble” (2004 thru 2006) and never took cash out.

However, I feel SS should not be approved for those “strategic defaulters” and others who took “cash out,” ESP >$100K! It’s a “slap in the face” to those “pre-bubble” homeowners who kept their heads down and elected not to join the party.

Not only do I feel these people could have afforded the home and would have been able to keep it or sell it at break-even and thereby keep their “perfect” credit intact had they not taken “cash out,” I feel they got off way too easy (150 pt+ “ding” to their FICO score??) and don’t even have to pay income taxes on their “phantom $200K+ income.” It’s sickening to the rest of us.

I also think that a lot of young couples today buy properties where their back-end ratios are under 38% or so (lender approved) but that they probably can’t realistically afford. This purchase decision is (reluctantly?) agreed upon to please only ONE of the parties (often the non-working spouse) but ends up being a financial disaster for the entire family. I don’t think young spouses who choose not to work these days can afford to be too picky about houses and/or areas unless the working spouse is making bank (=>$200K annually) AND they have saved at least 20% down OR either or both of them have access to substantial and continuing passive income (trust funds, dividends, royalties, inheritances, etc).

Prior to this “millenium bubble,” one didn’t see young couples with children take out HUGE mortgages en masse like we see today. By and large, they bought what they could afford.

I have TWO friends that have owned rental homes in LV for many years (’70’s, ’80’s). And NO, they haven’t taken “cash out” but are DEVASTATED as to how the current RE sales market there has affected their own values. This young one-income couple with 4 young children to feed, clothe and care for is a shining representative of all those “homeowners” (using that term loosely here) who were able “work the system” for their own financial benefit and thus were part of the problem of why the LV market tanked into a depression in recent years.

Based upon this writer’s story, I believe that if SS had not been an option for them, they would have just hung in there, rented it out, or, as a last resort, let the property go into foreclosure. They didn’t really need to move. Since he was self-employed, he could easily figure out a way to claim a “hardship” on paper. In other words, they decided to default solely to get a SS approval.

Again, THIS is the fundamental problem that I have with a “cash-out” strategic-defaulter short sale.

[eavesdropper]

[quote=bearishgurl][quote=flu]I’ve said this many times and I’ll say it again..

Most of these “financial advisors” are really not qualified to have that title…[/quote]

Competely agree, flu. Not sure if this field is even “regulated”…[/quote]

There are far too many individuals that advertise themselves as “financial planners” or “advisors” who aren’t, in any way, remotely qualified to be identifying themselves as such.

I’ve read many variations on this story in the last few years (in fact, I first came to Piggs as a result of the infamous Steve & Lisa Daniels Murietta-luxury-home-with-pizza-oven debacle a few years back). But this is the first time that reading such a story caused me to become physically ill.

Yeah, this guy made mistakes. Lots of people did. It’s not a crime. However, during this entire period, he represented himself as a financial expert, and accepted money for his services as such, and that would appear to be fraud. Definitely criminal.

But there were lots of people doing that, too. And I have to admit that I subscribe to the “caveat emptor” point of view. But what really chaps my hide is that this useless piece of shit is not only trying to justify his actions – he doesn’t truly accept responsibility for any of part of his experience – but he’s feeling real good about the idea of doing it to the tune of $24.95 per hardcover tearstained copy. What a dick!!

He doesn’t appear to grasp the gravity of the situation. Here he was, taking money from people in exchange for “expert” advice on where to invest their hardearned money while he, himself, didn’t perform the tiniest amount of due diligence or planning when buying a home in – of all places – Las Vegas. Then he screwed up over and over and over again. He openly admits that their method of “financial planning” was to look around and see that “everybody else was doing it”, making it reasonable to infer that it was financially stable to follow “everybody else’s” lead.

I have only one question for the “financial planner”: how many of his clients did he put into Madoff?

[sdrealtor]

eaves
Thats the majority of the financial planning industry as a whole. Most are just selling what they are told. Caveat emptor is and always will be the rule.

[eavesdropper]

[quote=bearishgurl]Here’s another link as to the Richards’ details:

http://www.nytimes.com/interactive/2011/11/09/your-money/20111109_CARL.html?ref=business

They appear to be young and all their children are under the age of 12. The wife claims they had a lot of good memories in the house. A b-day party photo is shown (to elicit sympathy?)

The link addresses the fact that they sold $200K short, but does NOT address what they did with the money. The Richards are “philosophical” in the end and state that they don’t blame the “mean banks.”

Why should they? They got $200K of “free money” and the debt “pardoned.”

I feel if he makes $$ off his book explaining how “dumb” they were, he should have had to use it to pay off their “short,” (or in the least, their income taxes stemming from the short).

Alas, our lofty GOV now has it set up where they won’t have to.

This is fundamentally where I have a problem with short sales.[/quote]

Actually what I love about this useless dickless brainless tool is his little swipe at the Occupy Wall Street protesters and sympathizers (heard at the end of the interactive): “We all make mistakes, and we can sit around and whine and complain about the big, bad, mean banks that got us here, or we can sit down and make a plan to get us out of these mistakes and move on to a new life”. Not that I believe in blaming the “big, bad banks” – they were highly complicit in what happened, but not entirely responsible – but this guy has the temerity to claim that he had a plan??! Shit! He didn’t even have a clue. He panicked, dumped his house, and moved his family of six into his parents’ basement. The fact that his house got bought up at the last minute, albeit at far less than he had borrowed on it, was simply another stroke of luck for this guy.

[sdrealtor]

Its not about what you think which is obviously because of the following:

It’s a “slap in the face” to those “pre-bubble” homeowners who kept their heads down and elected not to join the party.

Pretty certain this describes you. You are selling your book here. You have to ask yourself what part you played in buying where you did. Have you never thought of your home as your retirement nest egg and counted on some level of appreciation?

There are no one size fits all descriptions of how people got themselves into their messes. Its a mess out there and there is no one size fits all solution either. It takes lots of things.

Sorry you got caught up in an area that got hit among the hardest but thats all in the past now. Simply taking punitive actions is not the solution. We can only go forward in cleaning up this mess to the best of our abilities.

[bearishgurl]

I just looked at the photos of the (interactive) link again. The spouse is fit and attractive. Here are some GREAT legitimate ways she could have made $35-$75K annually (on graveyard shift while “financial-mgr spouse” slept with kids.)

Roving change attendant
Chip cage attendant
Cigarette/Cigar vendor
cocktail waitress (dinner/showroom/casino floor)
Craps dealer (12-16 wk training)
Roulette spinner
Front desk clerk
Concierge
Wedding chapel attendant/witness (pt time)
etc….

She could have obtained full health benefits for her family (for a min 32-35 hr workweek and biweekly deduction) and opportunities for advancement in these jobs, as well. A handful of these casinos even had defined benefit plans in the ’90’s (not sure about now).

Then they could take turns taking the kids to school so mom could sleep during the day.

If I was in her place and going to lose my 3500+ sf home for my 4 kids, I’d be out there looking for way to make $$ . . . but that’s just me.

[bearishgurl]

[quote=sdrealtor] . . . Pretty certain this describes you. You are selling your book here. You have to ask yourself what part you played in buying where you did. Have you never thought of your home as your retirement nest egg and counted on some level of appreciation? . . .[/quote]

I can’t go into the precise reasons here as to why I purchased where I did but, suffice to say, I had no choice in the matter at the time if I wanted to continue to raise my children. My particular area did not get nearly as hard hit as the newer (MR/HOA) areas of Chula Vista. And no . . . I never even considered that my home would be my “retirement nest egg.” I considered it to be a more than adequate home to raise my kids in. And when the last one is gone, I will be gone. End of story.

Are you suggesting I write a book? Who do you think would buy it??

[sdrealtor]

Why couldnt you have rented?

We want to hear the precise reason why you purchased and your exact thought process every step of the way when you took out new loans. You have no problem digging into others reasons and situations in excruciating detail so please do the same or stop asking others to do so.

It doesnt matter that other parts of Chula Vista got hit harder. Yours got pummelled also. Again if you wanted an adequate home to raise your kids you could have rented one. You surely must have other motives you are not admitting to. At some point you bought into the same herd mentality as the author of the article.

And please dont write a book, its just a figure of speech.

[Author]

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