Warning! Don’t read today’s post if you have a weak stomach or a strong affinity for consumer debt.
This is your only warning.
Hang on, Alice, as we bolt through the rabbit hole on an adventure to financial Wonderland. Come with me on a fantastic journey to the Great Lakes to save fish falling prey to evil bloodsuckers, and along the way we will save borrowers from the evil of debt peddler, Louie the Lender Lamprey.
The Sea Lamprey and the Great Lakes
Prior to canals of the nineteenth century, the Great Lakes were a thriving fishery. With over fishing and the introduction of the sea lamprey through the canals, the fisheries of the Great Lakes were devastated. According to Wikipedia:
The Sea lamprey (Petromyzon marinus) is a parasitic lamprey (a kind of jawless fish) found on the Atlantic coasts of Europe and North America, in the western Mediterranean Sea, and in the Great Lakes. It is brown or gray on its back and white or gray on the underside and can grow to be up to 90 cm (35.5 in) long. Sea lampreys prey on a wide variety of fish. [Pictured right: Louie the Lender Lamprey] The lamprey uses its suction-cup like mouth to attach itself to the skin of a fish and rasps away tissue with its sharp probing tongue and teeth. Secretions in the lamprey’s mouth prevent the victim’s blood from clotting. Victims typically die from excessive blood loss or infection. [emphasis is mine]
The sea lamprey and the fish the lamprey scrapes and chugs is an allegory for the modern lender and the borrower the lender infests.
Lenders and the Sea Lamprey
- The sea lamprey’s sole purpose is to attach itself to a productive organism and syphon a steady stream nutrients from the host’s bloodstream. A lender’s sole purpose is to attach itself to a borrower and obtain a steady stream of cashflow from the borrower’s productive financial life. [Pictured right: Louie's courtship dance]
- The sea lamprey provides no value to the fish, and once attached it remains attached. The value of lending to borrowers is debatable (mortgage debt is tolerable, but consumer debt is not); however, with the “sophisticated” borrowers of today who believe debt is something serviced and not retired, once a lender becomes attached to a borrower, they stay attached for life.
- Sea lampreys were not a problem in the past, and fish populations had to adapt or die when the sea lamprey was introduced. Modern credit cards were introduced in 1958, and with the explosion of debt availability over the last 50 years, our population has come to accept borrowing — and its associated lending sea lampreys.
- If the sea lamprey were eliminated, nutrients diverted to its existence would instead remain with the fish resulting in stronger fish populations. If lenders were eliminated, particularly those focused on providing consumer debt, billions of dollars flowing in to lending would be spent by a stronger, debt-free population on more productive economic uses. Consumer credit only benefits lenders.
- Sea lampreys tend to seek out juvenile fish because the young have fewer defenses, the young are stronger and more resilient and thereby less likely to die, and the young fish can nourish the lamprey indefinitely. Lenders indiscriminately target 18 to 21 year-olds through credit card offers and mountains of student loan debt in order to acclimate teens to debt and assist them in sustaining debt through their funeral pyre.
- If a sea lamprey causes the death of its host, it detaches itself and moves on to another. If a lender bankrupts a borrower — causes a financial death — the lender detaches itself and moves on to another borrower. No emotion when pulling out.
Most home buyers allow lenders to suckle financial excretions through a home mortgage. If the cost of the mortgage is offset by saving on housing expenses, the debt is actually beneficial, and the relationship is symbiotic, like a clownfish (Nemo) and its protective sea anemone, or perhaps the Trill from Star Trek. However, if mortgage interest exceeds comparable rents, the excess lender slurp is parasitic and the borrower loses life force to the lender lamprey.
A typical borrower during the Great Housing Bubble looked like a fish with the two implanted sea lampreys [Pictured right: Big and Little Louie after borrower attachment]. The first mortgage is like the lamprey attached at the throat, and the second mortgage is like the one attached at the nether regions.
Do you know that sensitive spot on the soft tissues of your throat about an inch above your collarbone? Taking on mortgage debt is akin to allowing Louie the Lender Lamprey to drive his dagger teeth deeply into your epiglottis with a cartilage-cracking crunch; let him rasp a gaping gash, ply you with salivary siphon grease, and deflect your financial food toward his gullet.
The pain is necessary evil perhaps, but one to be minimized to the degree possible and removed at the earliest convenience. Unfortunately, most borrowers want to secure the largest toothy leech available and nourish the sponger’s growth until the borrower’s death. ~Gulp~
The second mortgage — the lamprey biting the borrower’s butt — is usually a non-lethal pain in the a$$. In fact, this biting flesh wound is similar to any consumer borrowing like home equity lines of credit, car loans, credit cards, and other payment liabilities like forgotten subscriptions to magazines, websites, or software. Taking on debt may have delivered a fleeting pleasure, but like gonorrhea, debt plagues borrowers until the debt-disease is treated and ultimately banished forever for optimum financial health.
As our foreclosure crisis illustrates, many borrowers who take on excessive debt and hope to manage their parasites underestimate the tissue damage and succumb to the vampiric excess. Like Louie’s former customers [pictured to right], many people bought McMansions, they took out multiple mortgages, and they used financing terms requiring accelerating home price appreciation in order to function. The collapse of hundreds of thousands of personal Ponzi Schemes litters America with of rotting financial carcasses — a pungent and painful reminder. Renting-former-owners spend their hours in fear or denial of the collection call yet to come from a long-forgotten mortgage debt holder.
Like most others, I will select a lender lamprey and hope my self discipline prevents him from growing out of control. Images like the ones from this post should ensure I remain focused on his removal.
[seven seconds you will enjoy]
The lamprey earrings are a nice adornment, aren’t they?
$102,000 washed away
The owner of today’s featured property got a “deal” after prices fell in 2007. I imagine he was ecstatic to get such a good price, after all, real estate prices always go up. He paid $510,000 using a $408,000 first mortgage and a $102,000 down payment.
This property was in shadow inventory for quite a while. There were no notices issued on this property before mid 2012, but apparently he quit paying his HOA dues long before then. The HOA foreclosed on the property (probably believing there was equity in it) on 1/27/2012. Unless he was paying the mortgage and not paying the HOA dues, both payment were likely delinquent for a very long time in order to get the HOA to foreclose.
The bank finally did foreclose on 10/25/2012 for $423,958. Perhaps the flippers missed this one. If the bank gets their $544,900 asking price, they will make a good profit on the deal.
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Proprietary OC Housing News home purchase analysis
$544,900 …….. Asking Price
$510,000 ………. Purchase Price
11/30/2007 ………. Purchase Date
$34,900 ………. Gross Gain (Loss)
($43,592) ………… Commissions and Costs at 8%
($8,692) ………. Net Gain (Loss)
6.8% ………. Gross Percent Change
-1.7% ………. Net Percent Change
1.3% ………… Annual Appreciation
Cost of Home Ownership
$544,900 …….. Asking Price
$108,980 ………… 20% Down Conventional
3.46% …………. Mortgage Interest Rate
30 ……………… Number of Years
$435,920 …….. Mortgage
$111,802 ………. Income Requirement
$1,948 ………… Monthly Mortgage Payment
$472 ………… Property Tax at 1.04%
$0 ………… Mello Roos & Special Taxes
$136 ………… Homeowners Insurance at 0.3%
$0 ………… Private Mortgage Insurance
$332 ………… Homeowners Association Fees
$2,888 ………. Monthly Cash Outlays
($303) ………. Tax Savings
($691) ………. Equity Hidden in Payment
$119 ………….. Lost Income to Down Payment
$88 ………….. Maintenance and Replacement Reserves
$2,102 ………. Monthly Cost of Ownership
Cash Acquisition Demands
$6,949 ………… Furnishing and Move In at 1% + $1,500
$6,949 ………… Closing Costs at 1% + $1,500
$4,359 ………… Interest Points
$108,980 ………… Down Payment
$127,237 ………. Total Cash Costs
$32,200 ………. Emergency Cash Reserves
$159,437 ………. Total Savings Needed