I am a little bit baffled as to how building empty cities, shopping malls and skyscrapers is evidence of growth in China GDP?
Speaking of crazy economic "logic" -- I was both horrified and fascinated by a recent conversation with some new clients. They bought a house for $600K in 2005 and flipped it for $800K in 2006. Used the profits and some money from other sources to buy a house for $1million in 2006, putting down $400K and financing $600K.
In 2007, unable to flip again, they first took out $200K second mortgage, then again in 2007, cash out refinance for $950K. Husband, who drove a delivery truck, lost his job a couple of years ago. Eventually the house went to foreclosure earlier this year. I am guessing they did not pay the mortgage for many months, how could they?
Bank of America bought the house for $891K.
They asked me, "what happened to their $400K down payment?" The wife gaped at me, in open mouth horror and shock when I told her, "it's gone." I had not gone through the land records yet so suspected, but did not say, "it's gone because you spent it." I think the husband knew and was just pretending that he didn't. Latin American immigrants, the husband speaks much better English than the wife.
That was all done in the years when they were lending money to anyone, no questions asked. Lending $1 million to a couple of blue collar workers. We are still seeing the great unwinding.
Where did the money come from? These days the foreclosures I am seeing are being brought by this and that bank for the benefit of this and that tranche of asset backed securities, mostly from 2006 but some 2005 and 2007.
In this particular case, it wasn't a bad investment. Property still assessed at $965K. 1.3 acres of land inside the Beltway, structure 6000 feet above ground, not counting the basement, 6 bedrooms, four baths. Inside the Beltway you can put five houses on 1.3 acres, these days houses are being built (when they are built) on 1/6 acre or less, but you need some left over for street and common area. If they hadn't refinanced they would have been OK. In this particular case, it wasn't a bad investment. Property still assessed at $965K. 1.3 acres of land inside the Beltway, structure 6000 feet above ground, not counting the basement, 6 bedrooms, four baths.
Why did they cash out their equity? My guess is, and I have seen this a lot, they did not want to sell for less than they paid, because they would "lose their down payment". So, they cashed out and used the equity to make the mortgage payment until it became impossible. And now wonder where the money went.
Question, is this what gamblers mean by "doubling down"? |
