Just because they make more does not make them smarter

Shocking news from MSNBC - the rich (well those that make over $100,000) are also in the mortgage mess. I think MSNBC needs to rethink their idea of what is rich in the 21st century. On either coast they are middle class, not even upper middle class here in NJ. The story is very long so I will cut some key parts and add my 2 cents. So lets look at the story -

...These are not lower- and middle-income borrowers, but more affluent consumers with annual incomes of $100,000 or more who are increasingly being ensnared in the home mortgage crisis.

People in all income categories “are facing the shock of new payments that can be twice as much as previous ones,” said Susan M. Wachter, professor of business and a real estate specialist at the Wharton School of the University of Pennsylvania.

...Today’s ARMs were “designed to fail, so you have to refinance,” Ms. Wachter said. “It shouldn’t be surprising that values go up and down in this kind of situation. And when you most need to refinance you can’t — the crux of the crunch.”

Remember the brokers make money everytime you refinance.

Jeffrey Conner, a San Francisco real estate lawyer, says he regularly hears from his clients “that lenders assured them they could always refinance.”

Refinancing requires some equity. Even if homeowners put a substantial amount of money own, many have no equity because their homes are worth less than they owe.

Refer to the story below where people always think they can refinance over and over again...

“It’s a game of chicken,” Mr. Baker said. “And you can’t play it effectively unless you know what your risks are, including whether lenders can come after your other assets if you walk away.”

Borrowers should determine if they live in a state with nonrecourse laws. In general, lenders in those states cannot pursue borrowers for money owed. But these laws are complex and change often, so consulting with a lawyer may be necessary, Mr. Geller said.

Finally some good advice.

In Oceanside, Calif., north of San Diego, people paid $650,000 to $750,000 in 2003 and 2004 for row houses on Cleveland Street, said Chris McBrearty, certified mortgage planning specialist, in Carlsbad, Calif., who wrote many mortgages there. When prices for the houses rose as high as $1.5 million in 2005, many of those people refinanced with ARMs to take out cash, he said.

Heloc Heaven in San Diego!

“But if your payments are still going to be more than half your gross income, the lenders won’t do it because they figure you’re going to default later,” Mr. Geller said. “It’s not rational to dedicate your life to making the next $5,000 monthly payment on an asset declining in value.”

Who could afford half of their income to go to housing. That is crazy - but read on...

The lawyer, now divorced, calculated that the mortgage payments, now $6,200 a month, plus taxes consume 96 percent of his net income, which includes occasional rent from vacationers who use the house. He lives with relatives and sleeps on the floor.

Does this man eat?

That borrower, a real estate consultant in California who did not want to be identified because he feared angering his lender, said he used his understanding of state law to negotiate the refinancing. He bought a condominium two years ago for $450,000 and invested another $50,000 for improvements. His ARM had a 5.5 percent initial rate that was soon resetting to 7.25 percent. But his condo is now worth only about $350,000.

His lender agreed to give him a 6 percent fixed-rate mortgage and, he said, to knock $135,000 off the principal.

This man should go into business and sell tips. He obviously has much better techniques than No Hope, I mean Hope Now. Probably has a much better future in mortgage re-negotiations than in real estate.