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Most of the bad loans were originated between 2002~2007, not in the 90's. Although, in many cases Gen Xers that purchased in the late 90's cash out refinanced or HELOCed themselves to death. So, although their original mortgage was affordable, they refinanced between 2002~2007 and/or took out home equity loans when prices sky rocketed. From the Gen-Xers I know here in California the typical pattern was to first cash-out refinance when rates were low. They'd take out around $100k and then when the money ran out (around 2 years later) they got a HELOC with a line of about $100~200k.
The Boomers were mainly counting on their bubble equity to fund their retirement. Unfortunately many of them sold too late. They also got involved in purchasing "investment properties".
I heard that the majority of boomers have little savings and are planning to "work 'til they drop".
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Originally Posted by Humanoid
Most of the bad loans were originated between 2002~2007, not in the 90's. Although, in many cases Gen Xers that purchased in the late 90's cash out refinanced or HELOCed themselves to death. So, although their original mortgage was affordable, they refinanced between 2002~2007 and/or took out home equity loans when prices sky rocketed. From the Gen-Xers I know here in California the typical pattern was to first cash-out refinance when rates were low. They'd take out around $100k and then when the money ran out (around 2 years later) they got a HELOC with a line of about $100~200k.
The Boomers were mainly counting on their bubble equity to fund their retirement. Unfortunately many of them sold too late. They also got involved in purchasing "investment properties".
The lower priced properties are being foreclosed on at a higher rate at the current time suggesting younger buyers. If the market follows the template of the Great Depression the higher priced real estate will be affected later in the cycle. The boomers simply have the resources to hang in longer, but they too will be pulled down in time.
Most of the bad loans were originated between 2002~2007, not in the 90's.
HUD data shows that the number of sub-prime home equity loans increased from 66,000 in 1993 to 658,000 in 2000. Over this same period, the number of sub-prime loans to purchase homes increased 16,000 to more than 306,000.
That's 75% of all sub-prime loans.
As you can plainly see, the bulk of the sub-prime loans are not home loans, rather they're home equity loans, 2nd or 3rd Mortgages taken out to consolidate credit card debt and auto loans, and in some cases, student loans.
That makes perfect sense, right? People are maxed out on credit cards, their credit scores drop, they don't qualify for a prime 2nd/3rd Mortgage, so they get a sub-prime mortgage.
I don't suppose you all remember the commercials running in the 1990s by Country-Wide, HSBC and other, "consolidate your bills, take that cruise, the 2nd honey-moon vacation, yada, yada, yada."
It was fine the first few years, and then when their ARMs reset, they couldn't afford it.
So you had complaints, which then-Attorney General Eliot Spitzer was investigating, and that's when the sub-prime scandal broke in 2002.
I think Gen X (of which I am a member) is getting killed in the current financial crisis. Unfortunately, many Gen-Xers came of age as young adults during the internet runup from 1996-2000. In other words, they are used to bubbles and the concept of making investments where you can double your money every year or two is not farfetched because there is precedent. After the internet bubble burst, a real estate bubble followed, right as many Gen-Xers were buying their first house. Seeing housing prices go up 25% every year (in hot markets) caused many boomers to jump on this next gravy train. But because their incomes were not truly able to support the steep and rising prices, many Gen-Xers resorted to adjustable or interest-only mortgages with the thought they could always refinance or sell 3-4 years down the road. As a result, I think the credit squeeze and foreclosure crisis is going to be a big problem for them.
Boomers, on the other hand, come from a generation that dreamed of paying off their house and living free and clear into retirement. Some boomers got caught up in the real estate runup and may suffer too, but not as bad as the younger set.
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Quote:
Originally Posted by Humanoid
Most of the bad loans were originated between 2002~2007, not in the 90's. Although, in many cases Gen Xers that purchased in the late 90's cash out refinanced or HELOCed themselves to death. So, although their original mortgage was affordable, they refinanced between 2002~2007 and/or took out home equity loans when prices sky rocketed. From the Gen-Xers I know here in California the typical pattern was to first cash-out refinance when rates were low. They'd take out around $100k and then when the money ran out (around 2 years later) they got a HELOC with a line of about $100~200k.
The Boomers were mainly counting on their bubble equity to fund their retirement. Unfortunately many of them sold too late. They also got involved in purchasing "investment properties".
I think Humanoid pretty much nailed it. Really in the end both Gens are pretty screwed overall.
Of course there are exceptions. People that bought their house and car(s) outright, didn't rack up there credit cards, didn't have insanely high college debts, didn't have tons of kids, and actually saved some cash in there bank accounts should be OK. Wait............how many people actually didn't that???????.....Never mind we're all screwed.
Actually I fit most in this category( Own a house in one state but work and rent in another.....well at least when/if the bottom fall out). Sometime growing up poor teaches you something.
HUD data shows that the number of sub-prime home equity loans increased from 66,000 in 1993 to 658,000 in 2000. Over this same period, the number of sub-prime loans to purchase homes increased 16,000 to more than 306,000.
Sub-prime originated in the 90's isn't that problematic as the house is always worth more than the loan value. Most of the defaults are from loans in the 2000's not the 90's. A sub-prime from the 90's isn't problematic at all, the loan is going to be less than the house. Even if they took out a home equity loan the first is going to get paid in full. Most default are from loans originated in the 2000's. The subprime in the 90's wasn't as bad as the houses were reasonably priced and the loans appropriately priced risks.
Quote:
I heard that the majority of boomers have little savings and are planning to "work 'til they drop".
I haven't seen any actual statistics on this, but at least the boomers I know they tend not to have much savings outside of their home. Their home is their savings and now that the bubble equity is quickly vanishing their retirement funds are also vanishing. Most of them have pensions, 401(k), etc so they will have a roof over their head and food. But their retirement is not going to be nearly as lavish as they thought it was going to be.
Really, the story is going to be the same for generation Y, X and the boomers. Their standard of living is going to decline. I imagine generation Z is going to be much like the depression babies. They will avoid debt, the stock market, and save money for they will see how bad their parents were effected by excessive debt and no savings. Unlike the depression, the stock market wasn't wildly overvalued so perhaps avoidance of stocks will play a smaller roll.
I agree that Gen-xers are getting the short stick in this economy. The dot com bubble, 2001 crash, the real estate bubble and now the credit crisis. All since 2000! Most of the baby boomers I know took out at least one large home equity loan, were depending on the value of their house for retirement, and just didn't save or invest. I'm in Gen X, and at least my circle of friends pays off their credit cards every month and tries to have six months income saved up.
Boomers, on the other hand, come from a generation that dreamed of paying off their house and living free and clear into retirement. Some boomers got caught up in the real estate runup and may suffer too, but not as bad as the younger set.
You're joking, right?
Boomers are the biggest spendthrift generation in american history. They led the yuppie spending boom into the 1980's buying "the best of everything" - Expensive european cars, high end housewares, etc. etc. They were the generation that bought $50k Beemers & $5 Lattes - all on credit. They want the best & they want it now.
As a whole they don't have a pot to **** in. You constantly see articles about the boomer generation having no money for retirement. Boomers spend money like water & live on debt.
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