Anyone who has followed the financial sectors over the last several weeks knows that thing have not been going smoothly, to say the least.
The stock markets of the world have been taking a roller coaster type ride. Credit markets ground to a halt, and have only recently started moving again. Central banks dumped tons of cash into the system to keep a full on panic from occurring.
At the heart of all of this mess has been the implosion of the mortgage sector. I shouldn't have to go into all of the details behind this matter as Bonddad has done a fabulous job of explaining things.
Last night I was awakened (literally) to the messy reality that kicked started all of the market turmoil. What I would like to do is relay my personal observations, as a series of vignettes, from one of the places at the heart of the meltdown...Atlanta.
I've lived in Atlanta for the past 3+ years. I came up from New Orleans for grad school in the summer of 2004.
When I was looking for a place to live here I was torn between renting and purchasing a condo. To make a long story short, I ended up buying a condo.
Here's what I got...a 2 bedroom, 750ish square foot place originally built in the early 70s as an apartment complex. The previous owner put alot into making the place look great, and I was sold. It only set me back 80K.
As a grad student I get a rather paltry stipend of ~20K, so I was worried about financing the place. However, I found it no problem whatsoever to obtain financing for 100% of the price of the place. I don't know what the guy fudged on the application, but it only took a couple weeks of frequent calls back and forth to finagle things. Really all it took to get things squared away was telling him that I would take on a roommate if I couldn't afford the mortgage myself...that and signing the papers.
I don't really want to go into great detail regarding the terms of the mortgages, but suffice it to say I'm one of those adjustable rate mortgage holders (though mine won't reset until 2009). To answer the question of why before hand...let me just say that I knew my girlfriend would be coming with me and would provide a second (higher) income. I just couldn't tell the mortgage guy because she's from overseas and had no real credit history, and hence a poor credit score.
Anyways, I came into my place not knowing much about the complex. More so than the terms of my mortgage, this has been my biggest mistake. Don't get me wrong...I like the place, most of the neighbors, and the rather spacious condo itself. What I don't like is the poor financial predicament of many of the other owners here.
Many of them (like me) leveraged their way into buying a place here a couple of years ago. Now we are having problems with foreclosures. The first one of the year was one of the units in my stairwell (there are 6 units per stairwell). The guy had only bought the place 6 months or less before he disappeared one weekend. Coincidently, the weekend he vacated his unit there occurred a sewage leak into his unit...coincidence? We don't know. But the condo association had to dump over $10,000 into gutting the place and making the rest of the stairwell habitable (the smell was bad 2 stories up). The bank was obviously left holding the mortgage and the gutted condo. It is stories like this that lay at the heart of the mortgage meltdown.
But this incident was just the first hint of what was coming as things progressed. Since then 3 other units have been foreclosed upon. And we noticed an uptick in the number of units who had fallen behind in paying their condo association dues.
Last night, in preparation for the condo association board meeting today, there was the monthly budget committee meeting. During the meeting we covered the growing problem of people becoming delinquent on their fees. Previously we had speculated that it was predominantly a problem of investors shortchanging the association. This was a reasonable assumption as we have approximately half of the units being owned by investors and, until this month, no comprehensive list of which units were owner occupied vs investor owned. Last night we discovered we were absolutely wrong. 60% of the money owed us was from owner occupied units, 23% from foreclosed units and the rest (16%) was from off site owners. Things are looking to get even worse in the coming months for us.
It was also at the meeting that I found out that my neighbor is 3 months behind on his association dues. I didn't think too much about it at the time of the meeting, as there are many reasons people fall behind...some more troublesome than others. However, at 3:30 this morning I awoke to a horrific screeching sound. Initially I didn't think too much of it, but lasted long enough and was so annoying that I got myself up so I could look out the window. The noise was the sound of the a tow truck driver trying to move a car when the parking brakes were on. Then it hit me that this was my neighbor's car, and that the tow truck driver was leaving with the car. The car was being repossessed!
Everything hit home then...the global economic turmoil we've seen has at its root the hardship of millions of American families who for whatever reason have found themselves unable to keep up with the growing cost of the American Dream.
The vast majority of the stories leading up to the mess 1 2 3, or more recently tend to give a sterilized version of what's going down. They focus more on the effect of the mess on the greater economy, not on how this mess is going to be ugly for everyone involved. Take for instance the following quotes from Countrywide Financial CEO Angelo Mozilo (in the MSNBC piece I linked out to):
"I don’t see a light here at the moment," Mozilo told CNBC. "Something could happen to change that overnight, but it seems to me we just have a way to go to work our way through this."
I can't believe when you're having this level of delinquencies — [home] equity is gone, the tide has gone out — that this doesn't have material effect on the psyche of the American people and eventually on their wallets.
Seems to me that peoples' wallets have already taken a hit if they're delinquent on paying off their mortgage...but what the hell do I know. I'm just a lowly grad student working 60+ hour weeks trying to get what my father got with just a high school education. Of course it's costing me a ton more to do so, both in terms of money (I have over $45K in student loans) and time (at my age my father had 2 kids and one on the way).
Such is the state of America today.
I think it's time for some more tax cuts for absurdly wealthy, like Mr. Mozilo from Countrywide, cause I don't feel enough trickling down yet. And I'm pretty sure my neighbor isn't feeling it either.