How Do We Ensure Accountability As Bubble Bursts?’
Readers suggested the topic of housing bubble accountability. “What do the bloggers here think of this topic: Accountability: How do we ensure it in the housing bubble’s bursting? Civil lawsuits? Criminal lawsuits? Tarring & feathering or other community direct action?”
“Those are the only ones that I can come up with, what are some other ideas. When I say accountability, there could be different levels. Garden variety FB. Flipper with 20 homes. Public figures in the REIC. Garden Variety RE agents & brokers. Scuzzy mortgage brokers. How will the responsible end of the community ensure that the deserving shame follows these people and the endure the consequences of their prior actions?”
A reply, “I’ve been very vocal about my stance; no lawsuits/personal accountability. Unfortunately, that means the scuzzy mortgage / appraisal folk are spared. However, their payback should be job loss (and for many, it will be - even the ethical ones if they exist).”
“Look, the information is out there for buyers/owners. To go into it half educated is just stupid. But no one’s fault but your own. I feel sorry for people who lose their jobs and then lose their homes because of it. People lose jobs every day and survive, myself included a few years back. I feel sorry for those on fixed incomes who see their tax bill overbloated due to this ridiculous housing mania.”
“I do not feel sorry for anyone who put all their financial planning/goals/dreams into their house. That’s not what a house is for.”
Another said. “The old common sense about 5-7+ years to make it worth it is gone. I live in a semi-bubbly area (50% in 5 years). I know one example first hand. Single guy, friend of mine, bought at $125k house on a $30k salary. Plans to stay there only two years. I asked him why he bought, and he said ‘I think housing is a good investment’ and ‘I’m tired of throwing away money on rent.’ Now he’s complaining about how expensive it is while I rent dirt cheap.”
The Denver Post. “Monique Armijo and her husband, Anthony, are among the many Colorado residents who managed to acquire a house without a down payment, only to see it foreclosed on a year or two later. Anthony met a real estate agent who assured the couple that shaky credit and lack of cash for a down payment were no longer barriers to homeownership. They ended up signing a loan that required them to pay off a $44,000 second mortgage in 14 months.”
“Buyers often compound their risk by combining 100 percent financing packages with interest-only loans, adjustable-rate loans that allow the borrower’s debt to grow rather than decline and loans that require no proof of income.”
“Aggressive lending practices and poor consumer education also play a role, consumer advocates say. ‘Seventy percent of the people who come in here got the wrong loan,’ said councelor Zachary Urban.”
“Lenders say they’re simply meeting customer demand for less restrictive loans. ‘There are very few people who have 5 or 10 or 20 percent cash to put down. Or if they do, who want to,’ said Colorado Mortgage Lenders Association president Chris Holbert. ‘If you want 100 percent financing, and you qualify, can they turn you down because it’s not a good idea?’”
“High-risk loans such as option-ARMs, were introduced by savings-and-loan associations in the 1980s to serve high-income borrowers. Only recently have they spread to less creditworthy consumers. Mainstream lenders and mortgage brokers say they’ve had to offer all of the alternative loans, at competitive terms, or risk losing business.”
“‘If we don’t do it, they will go down the street,’ said mortgage broker Mike Thomas in Aurora.”
“The next wave of defaults may come from option-ARMs, experts say. Louis and India Harts of east Park Hill refinanced last year into an option-ARM with a low teaser rate of 2.6 percent that quickly shot up. They’re making a minimal monthly payment of $919 on the $180,000 loan, but that doesn’t even cover the interest. Since March 2005, the principal has grown to more than $183,000.”
“The interest rate is now 8.1 percent, and according to their loan documents, can go as high as 9.95 percent. When the principal hits 115 percent of the original loan in a few years, the bank will force them to begin paying it off. ‘I don’t know how we’re going to do it,’ said Louis, a retired worker for Public Service Co. of Colorado.”
“The loan has a ‘prepayment penalty’ clause, making it difficult to sell or refinance during the first three years. When they called the lender, Countrywide Home Loans, they learned it would cost $11,000 to get out of the loan.”
“The Hartses blame their mortgage broker, Team Lending Concepts in Greenwood Village, for putting them into a loan they didn’t understand, though they admit they signed papers spelling out the terms. Team Lending president Jeff Lowrey said the loan was the best option for the Hartses because it guarantees a low payment for four to five years until they refinance again.”
“‘That type of minimum- payment option definitely helps those kinds of people,’ Lowrey said. ‘We minimized their payment so they could afford things like medical expenses and gas.’ Team Lending collected $3,900 in fees at closing and $4,200 more from the mortgage company for originating the loan. ”
“‘We are just starting to hear about ARMs,’ said Adams County trustee Jeannie Reeser. ‘That is what is going to drive foreclosures next year.’”
“Spectrum Funding, a Utah-based lender, supplied the $176,000 first mortgage toward the $220,000 purchase of a middle-class home in Arvada. Ad Two Inc., the company selling the house, provided the $44,000 second mortgage.
…
The Armijos’ sole source of income: about $30,000 a year from Anthony’s carpet work. Within months, they were behind on the first mortgage. ”
Again, WHAT IS WRONG WITH THESE PEOPLE? You should NOT be buying a $220K house if all you make is $30K. That is called COMMON SENSE.
I have no sympathy for total morons like this. Go ahead and lose your house, dumbass.
I agree it’s common sense, but when guys in suits are telling you not to worry, many people don’t worry.
Both parties need to take responsibility. We need a strong consumer federation to put a stamp of approval on mortgage companies that did not hand out loans that would very likley lead to default in a few years.
Scuzzy MBs should be prosecuted. However, at the end of the day, even a scuzzy MB could not get an educated buyer to take a certain loan. The fact is that we (America) CONTINUE to make excuses for our dumb populice. These loans would not appeal to someone who was smart enough to know that AVERAGE citizens here cannot afford homes above a certain price level (I say 200k) and that being delusional about their own particular situation is not the way to go. Caution is always a good strategy if one is unsure. Instead these sheeple rushed headlong into the slaughterhouse.
I say you need not look further than the buyer - because the buck stops there. Period.
That said - MBs, bank failures, etc. better have some people walking the chain gang because their actions will have ramifications to the economy, in general and should not go unpunished.
agreed.
Your post would be much better if it didn’t end in a double negative.
“We need a strong consumer federation to put a stamp of approval on mortgage companies…”
One would have thought that Consumer Reports could have/should have taken this on, though it is daunting relative to the total number of lenders out there. Hopefully they published warnings about toxic loans.
Too bad pious SOBs like George Soros did not fund billboard ads warning people away from these loans. Naah, guess he’ll have to settle for buying up the properties on the cheap. What about every other “philanthropist” out there. Why has not Bill Gates used some of his mega-zillions to educate the public? Why, for that matter, am I apparently the only one asking this?
I remember Warren Buffett issuing a few warnings. And why? Well, I imagine if you’re wrong, someoen will try to sue you
you keep your mouth shut…. different story.
“Both parties need to take responsibility.”
That’s right. Joe Soccermom has to learn to distrust the scumbag Realtors (TM) and mortgage brokers who are trying to convince her to take out a loan she will never be able to repay on a house she cannot afford. It is also her fault that her dumbed-down American public school education did not teach her enough maths to figure out when she is at risk of washing her family’s financial stability down the drain.
Agreed. Being greedy is forgivable; being greedy and stupid is not.
As for legal recourse - it’s unlikely. Contract law is usually concerned with enforcing contracts, not dictating morality.
Greedy people stealing from stupid people may seem forgivable, until the rest of society finds out that we are all bagholders now.
Greedy people stealing from stupid (or trusting, or undereducated) people is immoral and totally unforgivable. Christian churches would say Greed will land you in hell. At the minimum, it should land you in prison.
This practice is the bedrock on which the US economy is built: Be greedy, be smart, or be fleeced. Very sad, and very shortsighted.
Would love to know how many greedy lenders are also faithful churchgoers … I am guessing pretty many!
of course, that’s where you can get your fresh marks er customers. and they trust ya cause you’re in the choir.
How right you are! You reminded me of a Realtor (TM) who has handled the (overpriced) home purchases for many of the faithful recent buyers in my wife’s church congretation. Never do business with family members or church members, I always say…
GS Posts “Greedy people stealing from stupid people may seem forgivable, until the rest of society finds out that we are all bagholders now.”
I say all lenders must be made to “hold” all of the loans they wrote over the last 5 years. The let the chips fall where they may!
The borrowers aren’t the only stupid ones. I see a lot of comments that seem to be based on a presumptions that the mortgage guys know what they are doing. Consider the probability that 90% of the folks working in the mortgage industry are just as stupid as the folks taking the loans, they are just sheeple doing what they’ve been told to do as well with no independent thoughts of their own. Just following a system,… much like serving hamburgers at McD’s.
Consider the probability that 90% of the folks working in the mortgage industry are just as stupid as the folks taking the loans, they are just sheeple doing what they’ve been told to do as well with no independent thoughts of their own. Just following a system,… much like serving hamburgers at McD’s.
Have to somewhat disagree here. The low-level brokers themselves may be cheap hucksters and low-grade con-men, sure, but the big guys running the show at the top knew EXACTLY what they were doing. Sell all the toxic waste you can to anyone with a pulse, then bundle it up as MBS/CMOs and sell it off to sucke– er, investors as fast as you can.
I wish we could put AE Newman’s suggestion into practice. If banks/lenders were forced to buy back & hold all the toxic crap they’ve issued over the past 5-6 years, those “quaint” sane lending standards would return with a vengeance.
I’ve met many greedy liberals and conservatives. Athiests, Christians, Muslims and all other beliefs have greedy people. None of those beliefs teach greed or selfishness, so I lay it at the feet of the person, not the belief system.
“I lay it at the feet of the person, not the belief system.”
Ditto. See my remarks above. Named names.
Fair enough. But it is more poetically just when the greedy soul is an upstanding member of his local church — the last bastion of scoundrels and thieves.
I believe that’s patriotism.
Now, how about a betting pool for the date the DADA (Defend the American Dream Act) gets enacted?
Let’s see, $30k/yr household income and the 4th kid on the way. Sounds like lots of responsible decisions being made by these folks.
That said, I would argue a real hardass risk-benefit analysis would say they made a good choice for themselves (assuming they can deal with the psychic impact). These people are soon out of the FB loop, and likely with minimal $ damage to themselves. They got to live in a place they liked for a year or two. There appears to be nothing else to go after. Ruined credit for them? Meaningless.
So now that they’re out of the loop with whatever damage they’ve sustained, the question becomes: Who eats the cost of this failed exercise in homeownership?
- 30K WORKS if you live in a tent in a camp ground.
nah…here in soooo cal, it’s 10k a year just to sleep (camp) in the park.
…Let’s see, $30k/yr household income and the 4th kid on the way. Sounds like lots of responsible decisions being made by these folks….
Implosion - agreed. Look around you. In general, the people breeding the most are the ones who should not - the borderline dull and the ones who cannot do right by their children, etc…. Really, I do not mean to be unkind, but kids are expensive - just for the basics (forget 4 yrs at Harvard). If you cannot do right by them - DO NOT HAVE THEM.
Childless people are often seen as selfish. I think the opposite is true. Are these people really so self-absorbed that they MUST have a little version of themselves running around - even though they do a half-baked job (at best) of raising them?
Childless people are often seen as selfish. I think the opposite is true. Are these people really so self-absorbed that they MUST have a little version of themselves running around - even though they do a half-baked job (at best) of raising them?
Don’t speak of things you clearly know nothing about. If remaining childless is your choice, all power to you. I don’t know a single parent who would say their children are “little versions of themselves” — while some of our traits come out in our kids, for better or worse, each child is their own little person. Also, plenty of us are doing the best we can to raise our kids to be a benefit to society and a blessing to those around them. “Self-absorbed” in my opinion applies far more to those who choose NOT to have children, and would shudder at that kind of commitment and responsibility.
well put, Sammy.
Sammy and Jeff -
I see people completely missing the boat in raising their kids - all income levels. I pity these kids who have these clued out parents. They are truly f^cked.
I respectfully disagree. It is precisely because I think raising kids well is THE hardest and most expensive job, that many adults are ill-suited for parenting and do not know themselves well enough to reach an informed decision of whether it is for them or not.
Oops! Whoops! Well, I guess I will give it a shot for the next 18+ years! Sometimes that attitude works, but often if parents are not prepared, it is disaster.
and I will give you that not all people want little versions of themselves….that is not always the reason. But what are some of the others? Peer pressure, the “expectation” that this is what you are supposed to do, biological urges (which can be suppressed), cheap labor (not so much in the USA), someone to take care of you when you are older (yeah right - you better have a female), someone to mentor, your harping mother/mother-in-law - whatever…
Look around you. In general, the people breeding the most are the ones who should not - the borderline dull and the ones who cannot do right by their children, etc…. Really, I do not mean to be unkind, but kids are expensive - just for the basics (forget 4 yrs at Harvard). If you cannot do right by them - DO NOT HAVE THEM.
On this we are in full agreement, M.B.A. There’s an inverse relationship between low IQ and birthrate. In addition, the more intelligent portion of the population is waiting longer and longer to have the 1.3 kids (or whatever it is) that they eventually have, which raises its own problems.
Imagine the world before welfare, social security, etc. Actually I don’t have to imagine it: I saw it in most of Asia. People make far better choices when they know that their ONLY safety net are their families. Here you can make all the bad choices and decisions you want, and someone else will get the bill. Doesn’t exactly encourage a sense of self-discipline and responsibility. And the results of the overbreeding cretins are becoming more and more visible and appalling with each new generation.
I would add one more thing to what MBA said: If you’re not going to raise your own kids, then don’t have them. That comment is not aimed at the unfortunate single moms who have to drop off junior at daycare for lack of any alternative. Them, I pity. It is aimed at the Yuppie scum who place material possessions and keeping-up-with-the-Jones mentality over the wellbeing of their own offspring.
“Childless people are often seen as selfish. I think the opposite is true. Are these people really so self-absorbed that they MUST have a little version of themselves running around - even though they do a half-baked job (at best) of raising them? ”
I am with you M.B.A. I think many people who have chosen to have children can take the Pepsi challenge on selfishness with those who choose not to have children.
You’re right M.B.A. Indeed the medicore are spawning at an alarming rate nowadays. All these people are doing is raising little manic consumers who will eventually fall prey to the cold hard truths brought by further globalization. Those who choose to hold out hope for a continuation of this nation’s unprecedented post WWII prosperity are the ones who really don’t know what they are talking about. This housing bubble may very well prove the watershed event between that old era and a new one rife with uncertainty the likes of which haven’t been seen since the thirties.
Shop. Spawn. Die.
“WHAT IS WRONG WITH THESE PEOPLE?”
One big thing wrong is that the rules of the game changed too quickly for anyone without college coursework in finance (or equivalent training from experience) to grasp the situation. Ten years ago, virtually no low-income buyer could have qualified for a 100%-financed Option ARM to buy a home they could not afford, as any lender would have recognized that this was a recipe for a guaranteed future default. How is Joe Soccermom supposed to figure this out when deceptive lending practices and regulators willing to turn a blind eye are encouraging them to take the bait?
I have an MBA in Finance and Accounting and most of what I learned re: RE is just from observation and a good fiscally conservative viewpoint. You do not need to know payback periods and ROI calcs (necessarily) to figure out that an option ARM is lose-lose…. common sense should do for the avg Joe. THAT is what blows my mind - the lack of common sense.
yup, but if it’s so commonsense, then why:
1) do well educated sign up for them as well (i’m in the OC).
2) do schmucks w/doctorates in econ, etc not see the danger
3) do the yahoos (sorry, Yahoo!) running the Fed not stop the train before it plunges off the end of the bridge into the abyss below?
Yes, it’s idiotic to take one of these, but just cause someone got their PhD from Harvard doesn’t mean they know their ass from a hole in the ground.
“An Intellect” A person educated beyond their intelligence
The assumption that common sense it taught (or even can be) is just plain wrong.
is taught
is taught
asuwest2, those are some good questions. Let me take a crack:
yup, but if it’s so commonsense, then why:
1) do well educated sign up for them as well (i’m in the OC).
Because the “well educated” are as human, fallible and non-rational as the rest of us. They are no more immune to the forces of greed and FUD that anyone else. They see housing only going up, up and up for 6 years straight. They see their neighbors making a killing in RE. What impact is this likely have on them or any person? It also matters in WHAT field that higher education is –finance/business/math/econ or liberal arts/theater/languages.
2) do schmucks w/doctorates in econ, etc not see the danger?
Possibly some do, but then the irresistable forces of FUD & greed go to work on their rational bubble-believing side, and before long they begin to doubt their own conclusions. The fact that this thing lasted far longer and went far higher than most rational people would have thought possible also tends to undermine one’s confidence in economic fundamentals. The longer the bubble went on, the more even intelligent people became susceptible to “new paradigm” thinking.
3) do the yahoos (sorry, Yahoo!) running the Fed not stop the train before it plunges off the end of the bridge into the abyss below?
The Fed is run my cheap political hacks and banking industry shills who will do ANYTHING to keep their masters (Congress & Administration) happy. This is true whether an ass or an elephant happens to be running the show.
“common sense should do for the avg Joe”
Greed trumps common sense everytime.
Good God! You have an MBA, so you are in approximately the top 1% in terms of financial sophistication. Take this simple quiz:
a) a dollar compounding at 7% will be nominally worth what after 10 years?
b) why do corporate bonds usually yield more than government bonds?
c) in what order do bond-holders, share-holders, and employees get paid if a company fails?
You got all the answers right, of course. Now, the average person doesn’t even know what we are talking about! No about of “common sense” is going to fix this.
We (the USA) requires series 7 before you can sell a share of stock to the average person. But, you can be a mortgage broker, leverage them 10 to 1, say anything you want, and as long as they sign, you are home free.
None of the facts mattered. This is a classic bubble and it did not matter you could not pay after the rate adjusted (whatever that meant), because you just made a clear $100K on your house. You can always sell or refinance if you need to right? Now, here in San Diego, I incorrectly assumed that in 2003 prices had already gone far higher than they should have and held off buying. Prices shot up 40% the next two years and who would have ever guessed. So with that kind of evidence the risk did not see great for many even in 2005.
“So with that kind of evidence the risk did not see great for many even in 2005.”
But we had all the evidence, plus the clearcut example of the dotcom bubble. Phase 1 - Prices rise over the course of several years. Phase 2 - Price rises accelerate to levels which can not easily be justified on normal valuation levels (irrational exuberance). Phase 3 - Finally -the bubble stage - prices spike up even more dramatically to levels that clearly make no sense and people begin to say “it’s different now.”
The evidence not only was there, but the exact paradigm had played out five years earlier.
I am sure that all the mortgage broker salesmen had very slick pitches and ways of deflecting even honest ordinary people with decent instincts.
This was greed and entrapment enabled by the business model which enables them to sell off 100% of the unsuitablity and foreclosure risk, with enormous incentives to lie and cheat.
It was a per-transaction fee-business with the strongest payoffs to the con-men for putting people into the worst loans. The results are predictable.
This isn’t an issue of “people were more moral back in my day” or any such patronizing scolding BS. Back in the day, banks had their dick on the block.
This had little parallel in the dot com bubble—some BS analyst’s report was nothing compared to the well-practiced sophistication of a million greedy mortgage brokers.
As said before, the best way to stop this would be foreclosure bonds on the mortgage brokers. Any delinquency in the first 3 years of a loan? They’re on the hook. It would stop the crap cold.
Merrill Lynch is on the hook if their salesman puts grandma’s whole portfolio leveraged 400% into a exotic currency hedge fund (with juicy 20% fees and huge kickbacks to the broker).
That’s why they don’t do it, not morality.
“Back in the day, banks had their dick on the block.”
This is right where they belong!
This was greed and entrapment enabled by the business model which enables them to sell off 100% of the unsuitablity and foreclosure risk, with enormous incentives to lie and cheat.
It was a per-transaction fee-business with the strongest payoffs to the con-men for putting people into the worst loans. The results are predictable.
This isn’t an issue of “people were more moral back in my day” or any such patronizing scolding BS. Back in the day, banks had their dick on the block.
As said before, the best way to stop this would be foreclosure bonds on the mortgage brokers. Any delinquency in the first 3 years of a loan? They’re on the hook. It would stop the crap cold.
Merrill Lynch is on the hook if their salesman puts grandma’s whole portfolio leveraged 400% into a exotic currency hedge fund (with juicy 20% fees and huge kickbacks to the broker).
That’s why they don’t do it, not morality.
Very well said –this post sums it up as well as I’ve ever seen.
Good point. I think too many people formed their opinion of realtors, mortage brokers, appraisers, etc. back when the home-buying process was governed by far more conservative and probably ethnical guidelines than those in place over the past few years. As long as houses were going up, the shady dealings of the RE industry were masked, or cushioned, by rising equity. No more.
People like the Armijos unfortunately tend to be deferential to “professionals” who, they assume, are much better than they are at navigating the complex home-buying process. Where the Armijos and countless other FBs went horribly wrong was their mistaken assumption that they were dealing with knowledgable, trustworthy, reputable institutions and advisors. As these cautionary tales multiply, the public (baaaaaaaaaa!!!) is going to rightly begin to view all realtors, all mortage brokers, all lending institutions, as the unscrupulous, deceptive, only-out-for-themselves pit creatures that 99% of them are — and will deal with them accordingly.
(FYI - My previous comment was directed to GetStucco’s post)
>>Where the Armijos and countless other FBs went horribly wrong was their mistaken assumption that they were dealing with knowledgable, trustworthy, reputable institutions and advisors.
BINGO
Ding ding ding!
Imagine the same circumstance, e.g. with doctors.
Unsophisticated people get sick, they go to the shiny office with professional looking people in white coats who tell them all about the most effective modern therapies and how this will impove their health for decades. Nobody’s ever been put in prison, and so far most of their family and friends say they’ve had great results.
So they regularly get their chakras cleaned with bio-engineered lizard grease, just like many other people they know.
“Imagine the same circumstance, e.g. with doctors.”
Hear hear! When Congress gets through with their inexorable investigation into what went so horribly wrong in the lending industry and moves on to seeking remedies to ensure that it never happens again, I propose malpractice laws for lending professionals as tough as those currently on the books for docs. It should not be legal for lenders to pull the wool over their customer’s eyes and set them up for future bankruptcy in the process.
One big thing wrong is that the rules of the game changed too quickly for anyone without college coursework in finance (or equivalent training from experience) to grasp the situation.
A good point but then how did they suddenly learn so quickly in the last few months?
When prices were going up these inexperienced Joe Soccermoms were at the front of the line getting their exotic mortgages and moving into overpriced houses with all the trimmings. Then almost overnight when the prospect of getting rich quick started to fade, they stopped buying.
Even the best efforts of Sellers and realtors have failed to lure them in recently. Have they all been at college studying finance? Or is it that they were perfectly aware of the risks all along but chose to focus on the money they thought they would make.
If they were truely that gullible they would still be falling for the deceptive practices and buying in similar numbers to this time last year.
The same principles that applied in the “Gold Rush” still apply today.
They’ve stopped buying because we have run out of GF’s for the most part that would have qualified a few years ago but cannot do so now since the rates have gone up. The slowdown in the past few months is by default not by design. I agree with the other posters that most average schmucks do not understand time value of money principles and most of them relied on the rotten realtors and malicious mortgage brokers to guide them. I’m also a finance professional with formal training in subjects like ROI, NPV, TVM. Trust me, J6Pack doesn’t have an Effing clue about such things. In my opinion, the real estate industry is going to need a serious overhaul and there should be plenty scorn heaped on them because they knew that they were getting a lot average people into trouble.
I’m not sure how you’ve reached the conclusion there are no more GF’s out there, I know plenty.
Your comment that some people would have qualified a few years ago but not now is quite plausible. Except, I was talking about a slowdown earlier this year when one month people were out there buying like crazy and the next the sales figures tanked. I dont think interest rates had changed at all but if they had it was only by 25 basis points. One month everyone qualified the next month nobody. I don’t think so.
I agree that Joe 6 pack doesn’t understand the intricacies of finance but then he never has and probably never will. Bubbles are not driven by analysis and rational thinking they are driven by greed. As long as there is a belief that money can be made in property he will beg, steal or borrow to get it. When he stops believing he will start looking somewhere else for the next bubble.
As for the RE industry needing an overhaul, no arguement there.
“I’m not sure how you’ve reached the conclusion there are no more GF’s out there, I know plenty.”
Read more carefully. JWM did not assert we have run out of GFs per se, just GFs who have not already bought and can qualify at higher rates. I totally agree with his points.
Read more carefully. JWM did not assert we have run out of GFs per se, just GFs who have not already bought and can qualify at higher rates. I totally agree with his points.
I went on to explain: Your comment that some people would have qualified a few years ago but not now is quite plausible. Except, I was talking about a slowdown earlier this year when one month people were out there buying like crazy and the next the sales figures tanked. I dont think interest rates had changed at all but if they had it was only by 25 basis points. One month everyone qualified the next month nobody. I don’t think so.
There are millions of people out there right now who could buy properties for cash, myself included, if we thought the opportunity existed to make money. Don’t get sucked into thinking there’s nobody left who can afford to buy at these prices.
This market went up for a long time and plenty of people made a lot of money. The reason prices are dropping is because the smart money moved out over a year ago into other commodities/parts of the world. Not because there is a limited supply of GF’s who can qualify for mortgages.
I’m happy for you that you totally agree with JWM but you are both totally wrong. It is the richest 10%, with 70% of the country’s wealth that move markets. The rest who go along for the ride often get burned. All the fillpers and GF’s combined have only a fraction of their resources and by the time the market bottoms they will have even less.
Well Mr. 6pack could be forgiven for not wondering whether there was a bubble in 2003. He can be forgiven for not reading ALL of the fine print on his mortgage. But even the unsophisticatd should realize that there is SOME kind of catch involved in these 1% interest 100% financing cr@p out there now. Once you know that there’s a catch, you have to either understand what you’re signing or get somebody to understand it for you. Willfully ignoring the fact that there’s a catch and signing anyway will almost always bite back.
“Spectrum Funding, a Utah-based lender, supplied the $176,000 first mortgage toward the $220,000 purchase of a middle-class home in Arvada.”
Good Mormons on Sunday, evil scamsters the other six days of the week…
If you are Mormon … can’t you have 4 or 5 wives? One will take care of the kids and the rest will all have jobs.
Only if you are a Fundamentalist Mormon. In that case, you can practice polygamy and also can have 14-year-old wives, at least until you get hauled off to jail.
Except that on a federal level, your other 5 14 year old wives are single moms collecting welfare and earned income credits too.
The same thing will happen to several hundred buyers of new homes in the town of Greenfield, Ca. A friend of mine worked for a title company last year helping buyers with their closing documents since he spoke and read Spanish. The buyers didn’t understand the concept of home ownership. Didn’t know about property taxes or Mello-Roos. Didn’t know about insurance. The buyers were shoe horned into I/O No down loans at 1% for the most part that will reset in ‘07.Oh, they had 2nds held by the sellers to pay their taxes and insurance. Pendejo builders and brokers. Homes have also lost 15% of their value in the California bubble burst so far.
If banks had stuck to their old standards of a 10% or 20% down payment, loan size of no more than 3x gross income, credit card debt paid down, cash in the bank, prices would never have reached current levels.
But I do think buyers are ultimately responsible. Just because Countrywide is willing to loan you 9x your income doesn’t mean you have to take them up on it.
Lisa Posts But I do think buyers are ultimately responsible. Just because Countrywide is willing to loan you 9x your income doesn’t mean you have to take them up on it.
I say let Countrywide keep the loan. If it was good enough to write it should be good enough to keep!
Amen. The core problem is the ease at which mortgage banks and brokers have been able to lay off their risk by selling downstream, eventually having all these crap loans packaged up as MBS and sold to the foreigners and pension funds eagerly chasing yeild.
This is where it becomes puzzling to me. Obviously there is a bagholder at the end of this Ponzi scheme (lenders reselling loans to those who package up MBS and resell them to investers), but I am not clear who they are yet, as we have not seen a sufficiently serious drop in the value of MBS or the firms which deal in them (Fannie) to fully price deteriorating housing market conditions.
“If you don’t know who the sucker is in a poker table…”
Please don’t be offended. All I’m trying to say is that we are all bagholders of last resort.
Obviously there is a bagholder at the end of this Ponzi scheme
GS..I’m with you. I stay on this bubble deal constaintly,
I cannot understand the financial entities who are getting stuck with all the overvalued paper.
To me the potential for suit is enormous. It runs right down the line in these mortgage ops.
I know one mortgage outifit where the operation deliberately hired female underwriters, who were of sufficiently weak so as not to be able to withstand the badgering and intimidation of the mortgage loan sharks, to underwrite according to the deal.
Of course the only appraiser’s they used were in their pocket relative to receiving kickbacks.
So from appraiser to underwriiting the whole game was rigged.
The lawyers will have a field day.
In the end, how much will we all pay for the FDIC and PGBC to bail the customers of those who bought MBSs?
“Just because Countrywide is willing to loan you 9x your income doesn’t mean you have to take them up on it.”
How would the Average Joe, Jane and Juan really know this?
This is different from the dot com bubble. Then, even in the upward bubble there were all sorts of warnings how internet stocks, and stocks themselves, were risky and not appropriate for most people, blah blah blah. Those who put money on them knew they were making a gamble for greed. Note that the securities industry is much more regulated in this way about recommending unsuitable and risky investments.
By contrast, with property all the propaganda was how this was part of “The American Dream”, how it was a hard asset “unlike those risky dot coms”, how homeownership was a sign of maturity. Many bought homes out of fear (of being left out) and I’m sure many new and inexperienced buyers were harangued by their parents or spouse. There is much more emotional guilt-tripping involved with a house—I can’t imagine many parents giving their children the spiel that they didn’t put money in pets.com. And the financial aspects are more arcane: how would they know what is the right loan per income—the loan experts have fancy calculators and computers which spit things out and people go along with it.
Sure, mass property flipping would be regarded as greedy speculation (still considered safer than stocks by most people) but not owner occupied housing. And there will be many of them being hurt.
The SEC regulations probably helped many grandmas from losing their life savings in the dot com bubble. The Real-estate-Industrial-finance-Complex will end up ruining many more lives this time. And so far they are pouring on the BS even harder without the slightest flutter of remorse.
My sentiments exactly. J6Pack doesn’t have a f**king clue about how to amortize a mortgage and what ROI is supposed to mean. There was a virtual cacophony of housing bulls for the past 5 years goading people into buying houses. Only the those very astute, and blessed with intestinal fortitude, thought there was something wrong with what was going on.
“Many bought homes out of fear (of being left out) and I’m sure many new and inexperienced buyers were harangued by their parents or spouse.”
Great point. Despite nineteen years finance-related work experience and college education, I was not 100% convinced until I saw documentary evidence that prices were falling this year that my wife and I made the correct decision to wait out the bubble. Other folks I know who made the same decision a few years ago (after California prices already had climbed steeply) are truly priced out renters at this point.
There are a lot of highly manipulative sales people out there who are professionals at one thing, and one think only getting the deal inked with the maximun profit to themselves. The problem is the mortgage industry lately has made the used car business look half way honest. At least they lie to your face.
“Accountability: How do we ensure it in the housing bubble’s bursting”
Angry mobs of people that live within their means, brandishing pitchforks and torches…
Oh well, we’d probably get mowed down by homedebtors in their Hummer H2s…and they’d probably go through our wallets afterwards.
This is my fear. We are out-numbered and don’t stand a chance when the politicians respond to the wailing of the FB’s. That’s the point when the politicians go thru our wallets to pay for this mess and the “rules” (if you want to call it that) will have changed once again.
While I agree that the politicians will be more sympathetic to the FB’s, we may be in better shape than we suspect. The number of people who own their house outright, with NO MORTGAGE is about 40%, I believe. I am one of them.
We don’t want higher insurance, higher taxes and higher debts to pay for this mania.
The buyers at the margins are the ones who set the pricing.
They are a minority.
That said, here in Florida, on the front page of yesterday’s Tampa rag, Enterprise Florida, Jeb’s pet business/govt. laison had Lt. Govern Jennings working with business leaders to solve the SHORTAGE of AFFORDABLE housing.
It seems people are not wanting to move here for jobs, because the cost of housing is too high. Imagine that!
However, there approach is typical of bureaucrats. Some type of “subsidy”, so instead of letting the market work it’s way through the WOPPOS, the gov. is talking about feeding the gators. What idiots !!
you might want to research imputed rent? The govt can screw you big time for having a paid off mortgage.
From Tampa;
I heard a commercial on the radio yesterday, from law firm here advertising their services to FB’s.
Almost any spectacular disaster, such as an exploding space shuttle or a war with no exit strategy, involves a chain of screwups. Saying that x was responsible can be true but incomplete. X screwed up, Y screwed up, Z screwed up. They all played their part.
Saying that the borrowers are responsible, because they should have known better than to buy a $220K property on a $30k income, is certainly true but pretty incomplete. Crookerd appraisers and loan originators have a big share of the blame for the coming foreclosure debacle (although I don’t know if they had a part in this particular Colorado case or not), along with the states that are supposed to regulate them but generally don’t bother. Who else should we nominate?
Underneath my smiley-always nice and polite exterior, I’m pretty hard. My husband and I waited until we were almost 40 to have a child; we are in our third home and each bought as a place to live in, within our means; our cars are a 7 year old Intrepid and a 3 year old Vibe. We aren’t martyrs and we didn’t suffer and its been a good life. I feel sorry for the anguish of people who are losing homes they shouldn’t have bought because they couldn’t afford them but I don’t want to chip in anything via my taxes to help them out.
Absolutely, and the sad thing is that the FB’s who overstretched will put everyone else at risk as well. Declining property values impact across the board, whether you bought within your means or not.
Whether you bought within your means or not, your house is probably overvalued, and should deflate.
Deflate how much and how fast? “Boom and Bust” is bad for all of us. A boom doesn’t mean we have to bust, I want a slow, gradual correction if not flat market until salaries catch up to present values.
Home values are tied to the local economy and national standard of living: Bad policy means greater losses and worsening economy. Good policy means managed losses that benefit all of us as we go on with our lives.
Hard-ass inspired policy that says “tough” means greater and needless losses for all of us — including renters. A bust housing market will halt new construction and as demand builds, rents will need to increase to a higher threshold before builders make investments.
Currently, I rent. I want a bust, so I can afford to buy a decent house at a fair price within the next few years. I don’t know where you live, but in my LA neighborhood asking price for a 2 bedroom 1 bath 950sqft houses is between $600-800K. A slow decline of “managed losses” while wages catch up doesn’t help me or the other 95 percent of Angelenos who can’t afford the median house without taking on a suicide loan. A flat market over a number of years might be the best case scenario for homeowners looking to preserve their so-called equity, but it certainly isn’t good for everybody.
Don’t worry…LA will be down 40-50% by 2008. Even then, it sounds like it is too high. Maybe 70% down by 2010. 2-1 should go for $150K-$200K or so to be affordable for a $50K-$70K income in a coastal city. It will be worse if the govt caps or eliminates the mortgage deduction while raising taxes in 2009 (quite possible).
No one will want to buy by 2008-10. When you can positive cash flow a basic tract house 25% over the mortgage at 80% LTV, you’ll be at bottom.
Thanks for the tips, Army. Wife and I rent for $2100. We can afford 20% more. Planning on waiting till that buys us a 3 bedroom in a decent area.
Do you really think congress would really do away with the mortgage deduction? A committee appointed by Bush recommended that earlier this year but it was DOA, if I remember correctly.
“Deflate how much and how fast? “Boom and Bust” is bad for all of us. A boom doesn’t mean we have to bust.”
Yes it does, and probably very fast. The policy makers should have known about the consequences of an out of control boom, and done something about it while they had the chance. Too late now, and the suffering will be amplified because of their inaction. The consequences of bubbles are well known be even the dumbest of us, i.e the dot-com bubble. Ignorance is no excuse.
Economists argue that the same irrational behavior that drives a boom reverses in a bust. We over react the other direction.
For example, property in LA and SF will not drop 70% or even below 30%. That’s not plausible unless the Ross ice sheet collapses. Foriegn investment would prop up land and residential values.
Japan had a Boom BUT didn’t have a Bust or massive collapse. They managed a slow correction and recession that took well over 10 years. I’d like to see the same kind of correction happen in the US.
Are things that bad? No. We don’t have inflation driven rate increases. For years, a 30 year fix rate under 8% was considered very good and rates are still at historically low levels. In coastal CA they aren’t making any more land.
With energy prices, I’d worry more about with massive homes in remote developments that are car-based with long commutes and minimal local infrastructure.
“Do you really think congress would really do away with the mortgage deduction? ”
Not in OUR lifetimes. This is the most sacred of all federal tax deductions.
Manray — while I think that Army’s heart is in the right place, I do not think the rulers will eliminate the mortgage interest deduction for a primary residence. For most JSPs, the deduction is a nominal or useless benefit because the Standard Deduction makes the interest dedution, at their income level, worth little to zero. The mortgage interest deduction truly benefits only big-bucks people, so you can guess the result.
I do think, however, that there will be strong, and I hope successful, pressure to eliminate the deductibility of interest on mortgages for second homes of any sort.
We did the same thing minus the kids. Two houses, sold the last one in 1989 and have not bought since. Our cars are a first gen Prius and Honda Element and we have the same funiture and bedroom set we used in college. We live like a couple of 20 year olds, but that also includes the freedom and lack of responsibility for much of anything that 20 year olds have. It seems as I get older, I get more irresponsible and flaky. Can’t imagine having to show up anywhere every day other than to work for myself. None of this gibes with maximum debt and gigantic ball & chain (house) so we rent on . . .
TxChick,
I envy you, and your husband as well, who had the sense to marry a very wise woman…
get to it –i hear polygamy is the new ‘black.’
Why even get married and have multiple spouses? That’s illegal. The guy from UT in jail in NV would have had no problems if he just “lived” with all those women. Could have had all the children and everything.
Geez, you’ve got to work within the rules of the game. Outside the rules - fraud = illegal, maybe = jail. Legit, working within the rules - no fraud, just bad luck = walk from $100k negative equity = crappy credit.
I was simply complimenting her financial prudence, not expressing interest. But I guess I set myself up for that one…
Our family also delayed gratification, long years of college, waited until 40 for our first kid, sensible home near mass transit, drive a 3 year old Vibe and 9 year old Taurus wagon.
I think it’s our best interest to: 1) Repeal the rotten corporate friendly bankrupcy bill. 2) Help people and not the mega-billion corporation recoup losses from these bad loans. Let people get out from paying these fees and penalties so they can refinance their mortgage, keep their home and be productive taxpayers. 3) Encourage financial literacy in schools. 4) Change accounting so lenders can’t book these low entry level loans the same as a 30 fix with no optional or felixble payment schedule. 5) Pray I don’t get sick despite having an employer financed health plan and 6 months savings in the bank.
“Encourage financial literacy in schools”
It will never happen. The bankers who own everything (including the schools, the textbooks…) will never allow the slaves to understand exactly how fractional reserve banking operates.
schools can teach kids to make change from a dollar and the value of compound interest until they’re blue in the face. but as long as they get their REAL education from tv that woos them with get all the coolest, hottest and fastest RIGHT NOW CAUSE YOU KNOW YOU WANT IT, and tommorrow the show leaves town anyway burn-it-up lifestyle — “AND IT’S ONLY $99/mo.”, don’t expect them to learn too much in school.
It is up to parents to teach financial literacy to their children. My parents never bought a “new” car or tried to impress anyone. Money wasn’t wasted on frivolous consumption. My father was a lawyer- we had money, we just didn’t waste it. Don’t expect the world to teach your children.
There’s nothing inherently wrong with buying a new car, if it’s the car you want to have for a decade or more. You just have to make sure that little things like “gap insurance” (which covers that initial depreciation in case someone wrecks your car) are in place.
We bought a new car for two reasons: 1) the style hadn’t been around long enough for there to be used ones on the market, and it was precisely the car to fit our needs, and 2) we like our cars well-maintained (so they last forever) and many leasers don’t bother to do that with a car they’re getting rid of in a year.
Oh, forgot to mention: the reason we had to buy a car right then is because our previous one got totalled by a hit-and-runner (caught.) Yes, one car, two geographically disparate work locations. It can be done.
Teaching “financial literacy” in schools means how to read, calculate and reason about personal financial decisions and it would include some history for context (e.g. prime rates over the last 5 years). Literacy is not the same as “values”, “ethics” or “priorities”.
The “case studies” I read on this blog center around people making decisions with unanticipated consequences — assuming unlimited growth, misunderstanding the “fine print”, not understanding the risks and latent benefits of home ownership.
I’d add: Eliminate the home mortage interest and property tax deduction scam. No reason for LA apartment dwellers to subsidize idiots who pay too much for their houses.
… or to subsidize the builders who build them too big, as a larger house translates into a larger deduction.
Talk to your local school teachers of your children about any economic theory, from the Austrian School on. Their blank stares will show their ignorance. Ask them about Milton Friedman or even the idiot(Krugman) from Princeton who writes in the NY Times. If they quote Lareah or LAY I’ll be surprised.They might say,’RE only goes up’, and ask back if you saw the Flipper Show (not the dolphin) in channel 67 on Tuesday.Today our teachers are the dumbest in history and if you have children and can do it, home school or maybe a charter school.In addition, the little mush heads are getting brain washed as the CTA and NEA are politically bankrupt and are socialist/communist in thinking. Boy I feel good now.
Pismo — we wish. I would be astounded in any teacher in any randomly picked government school even had a clue about what Austrian Economics is about. To whatever abysmally insufficient extent pre-college (and in some cases, college) students are taught about economics, it is the econ equivalent of “new math.” They might be taught about Galbraith, but likely not about Samuelson; as for von Hayek and Bastiat, or even Murray Rothbard, no chance, IMO. You and I are free marketers; the NEA most definitely is not.
That is very nice that you think the govt. should help people keep the house they overpaid for by letting them off the hook.
Sorry, I don’t agree.
Those people robbed me, and every other responsible buyer.
I have been SAVING money for another house. I was SAVING when this MANIA started and got OUTBID by these GREEDY basta$ds. The wanted to buy now before they got priced out forever. I thought the price was already too high and choose to wait for a slowdown in the market.
I am now waiting to buy at the historical MEAN average price.
Those people deserve to be thrown out and they can find a rental.
Screw them.
nice.
diogenes …When I see you talk I am reminded of the people who got priced out of this market because of all the greed/fear . I can understand why you don’t give a damn about these greedy people . You will come out better in the end because you backed off from the mania .
Diogenes — I agree. Screw ‘em.
I think it’s our best interest to: 1) Repeal the rotten corporate friendly bankrupcy bill. 2) Help people and not the mega-billion corporation recoup losses from these bad loans. Let people get out from paying these fees and penalties so they can refinance their mortgage, keep their home and be productive taxpayers.
Wrong. These dumbasses need to learn that stupidity has consequences.
I didn’t think Intrepids lasted seven years.
Accountability:
Lender to Buyer: “Here’s a knife, stab yourself.”
Buyer: OK
Buyer plunges knife into his chest.
Crime? No, no intent to kill and suicide is not a crime.
Civil libility? No, Lender has no duty to see that buyer doesn’t stab himself.
The Market will punish these fools.
Are you a mortgage broker or a lender? Because your story sounds like the standard industry defense (”the buyer insisted that we give him a loan which would obviously result in his losing the house within four years”). Guess what? Most buyers don’t know they are putting a gun to their head when they sign the loan papers on an Option ARM. To pretend to be ignorant of this is just as deceitful as David Lereah pretending to be ignorant that prices are likely to keep dropping for four or more years into the future.
i agree 100% with gs. this was the equivalent to not having railing protecting the public at the top of niagara falls, and telling people that it’s just a wading pool, “why not dip your feet in.” this was absolutely predatory lending — i/o option arms are designed specifically for a very wealthy class of people, not gullible bumpkins. guilty on all counts. lenders’ prisons. plenty of plastic cuffs to go around.
… i forgot to mention “pushing the fb’s over the edge with a chuckle — ‘enjoy your swim.’”
This may seem like a stretch, but there was a PBS Frontline program a while back that talked about retirement programs, specifically how 401k’s are fast becoming the primary retirement vehicle, that they were not designed to be that, and that most people lack the education to make wise choices. Some companies, recognizing that most of these folks do not have any financial education, nor do they have access to the financial advisors those in executive management do, have created fund choices that mimic the old defined benefit/pension programs. One corporate CEO, when asked if he would allow one of his lower level employees to choose the CEO’s portfolio, said “not on your life”. When he was asked why he would let that same guy make unwise choices for his own future, he recognized the difference in their situation. You can extrapolate from this to the current situation with ARM’s, originally designed for the wealthy who knew what they were doing, in most cases. The great majority of ARM’s in the last several years were likely sold to people who did not understand them. Is it fair? In a strictly capitalistic economy, yes.
Stucco: Neither, I’m a lawyer. My point was that I think the criminal and civil justice system will not be as effective at accountability as the market itself. By the way loved your “desperate lives” reference (in prior thread); I am also a fan of Henry David.
“Stucco: Neither, I’m a lawyer.”
Close enough
I should have seen that coming.:)
Just kidding — I have close friends and family who are good people and attorneys, too.
The reason the court system will not be effective is because how do you separate the victim borrower from the gambler borrower .
Railing - you mean like the warnings on the side of a pack of cigs? Many people still jump the railing having a pretty good idea of the facts anyway.
1 cig won’t kill ya’. but 1 slip off of niagara falls? you’re trying to equate apples and grenades. the lenders had no business pushing these loans to unqualified borrowers. even the term ‘unqualified borrowers’ sounds oxymoronic, quaint … how about dti challenged???
i should say ‘HAVE no business pushing these loans;’ the fact that these practices are evidently still very much in fashion indicates what a supernova of a bubble this is, and what a crash there is to come.
i think the posters on ben’s blog forget just how far ahead of the hoi bubbloi who are STILL APPARENTLY BUYING! that is why this thing will stretch out for many years to come. many of the yet-to-be-shorn sheep are barely born. good krikey!
…but OF COURSE they are still pushing these toxic loans, which provided the sustenance and now the last gasp of buying power to the masses for now insanely overpriced alligator housetraps.
but the jig is just about up.
Yeah, I agree with you.
It’s just in my own case I can’t stand to have some DB who works at some jerk-off job decide what I can and cannot do. I want ALL the info about everything relevant to my decision. If I can’t figure it out, I’ll find somebody else to help me. I had a MB tell me one thing, and it showed up at closing with a sh*tload of fees, impounds, etc. that were not part of the deal. Just refused to sign and walked away.
They have a old English law case that took a guy to trial because he didn’t stop his wife from jumping out of the car to her death . The courts came up with the concept of “what would a reasonable man do under the same circumstances. ” it’s a interesting case because it addresses what social responability people have to be their brother’s keeper .
Apparently in this case the husband had just grown tried of stopping his wife from jumping out of the car and he claimed he didn’t really think at that point she would do it . They tried to rule on the case based on what a “reasonable man would do in the same circumstances “.
It seems as if the only training the loan agents get today is how to put a borrower on a loan that gets them the biggest commission .
Come on , putting a retired person on a fixed income on a adjustable . Why should a person have to refinance from a adjustable to another adjustable ……just to get a teaser rate for another 6 months ….and pay 10k in fees for that .
I think the public would be shocked if they knew how much money the loan agents were making on these loans . I think some of these agents would of said anything to make this kind of money . Why do you think so many mortgage companies opened up in the last 5 to 7 years .
How about the fact that certain loan companies did not offer borrowers all the loan product they could of qualified for .
The cheerleaders/realtors/lenders etc. urged people to overpay for housing based on lies like ,”real estate never goes down /always goes up” , “were running out of land “,and they induced panic buying with,” get in now before your priced out forever “. Take this loan ,”real estate always goes up ,you can refinance later “.
The housing boom was a mania and all parties felt they could do no wrong and their actions were justified .
Looking back tons of people are going to feel stupid about how they suspended their common sense and jumped in with the herd .
Who should pay ? Good question . All I know is this Housing Boom just took a big bite out of America and weakened it .
If it was my FIRST wife I would have speeded up to 90mph. hehehehehehehe
I have a pretty good idea what the mortgage brokers have been making. The office across from where I work is a mortgage office and there is a bright yellow ferrari, a mercedes 600 barbara (specially imported from Germany) and a couple of other over 100K cars. Funny thing sometimes they park in front of our building and clients who visit are like you guys are making WAY too much money here
I noticed a couple of months ago the cars all vanished so perhaps the office closed.
“I think the public would be shocked if they knew how much money the loan agents were making on these loans . I think some of these agents would of said anything to make this kind of money . Why do you think so many mortgage companies opened up in the last 5 to 7 years .”
Wiz — that was much of the point of a post I made earlier today — while I have seen real estate agents pounded repeatedly concerning their commissions, I have seen nothing similar about mortgage brokers and their commissions which seem, to me, to be much greater per hour worked. It it the mortgage brokers who ride around in the gaudy cars.
I know this sounds cruel, but fraud is fraud, and in cases where buyers overstated their income (by a large margin) they should be criminally prosecuted. If it is determined that the loan broker encouraged them to lie (probably suggesting that prices were going up up and away, so no worries there…) The broker should also be prosecuted.
The rest of us who work hard and are trying to raise a family and who are now priced of the market for several years because we would not lie and cheat to compete have to suffer for this fraud and I for one do not believe a bad credit report for a few years is sufficient for what amounts to large scale theft, although I suppose spending years running from the IRS will probably have to suffice for many when they default on their loans and the lender has to forgive hundreds of thousands of dollars, resulting in a nice little 1099-C filing.
If child molestors are getting 4 months probabtion, and the jails are releasing non-threatening criminals because of overcrowding, what District Attorney is going to prosecute this white collar crime from a bunch of no name lenders.
Now, if it was a really well known person fronting for a lender, who is hiding out in Thailand, then we could have the Boulder DA send start the investigation, and fly the alleged criminal back 1st class
GH — a note of optimism. Not only will you fairly soon be priced back IN to the market, by having faithfully followed Ben’s blog, you will know just about every question there is to ask before commiting to the home of your dreams.
LOL Right you are!
No.
Lender to buyer: “here’s the best sex toy on the planet, it gets you off like you’ve never felt before. It might seem expensive but it’s really worth it. Trust me it really really works.”
buyer, 3 years later: Razor blades??!! AAAGH! When did the pop out?
As we will all sooner or later learn, its not so great living in a time when there is no limit to the money supply; in a time when GSEs side-step the FRB and print their own; in a time when risk and reason as we know it ended.
I’d like to see ARM peddlers and the entire ASB market that quietly supports them implode! Then and only then can we right the wrongs that have been afflicted onto the unsuspecting.
” in a time when GSEs side-step the FRB and print their own; ”
That one is new on me. How does this work?
GSE’s cannot print their own money, but they can generate their own credit, which amounts to the same thing.
Are you saying they can loan with 0% reserve requirements? (Kinda reminds one of borrowing with a 0% downpayment…)
Here is another way to look at the argument. A bank’s ability to lend is limited by its reserve requirement. When FNM buys a bank’s mortgage portfolio it wipes the bank’s books clean and allows the bank to start the lending process all over again, essentially increasing the bank’s ability to loan money beyond its normal limit and in effect increasing the money supply. Were it not for FNM, there would be a real limit on the bank’s ability to lend and thus a limit on the money supply.
Bingo!
GS, here is some further reading material on the subject money and credit: http://www.prudentbear.com/archive_comm_article.asp?category=Guest+Commentary&content_idx=34099
“Mainstream lenders and mortgage brokers say they’ve had to offer all of the alternative loans, at competitive terms, or risk losing business.” “‘If we don’t do it, they will go down the street,’ said mortgage broker Mike Thomas in Aurora.”
And the problem with that is…?
I believe if these lenders/brokers took the time to educate prospective borrowers about how an option ARM really works, a majority would not want them. This is just a total cop out on the lender’s part to offer this product that pay them the most money. As stated in this article, the broker ended up making $8k. If this was a normal 30 year fixed rate, the broker would’ve probably made 1/2 as much if the borrower did any type of rate shopping. The LO can just focus on the payment, nevermind the margin he/she charges because that’s where the real money is for the originator.
I’m always amazed at people who don’t read what they sign. RE is probably the most money you’ll ever pay for anything in your life, why wouldn’t you spend 10 minutes reading the small print….even better, shell out a couple of hundred bucks to a lawyer of your choice who specialises in Real Estate to read over your paperwork. A couple of hundred now versus a couple of thousand every month for years to come….? Even better, get out the trusty calculator and crunch the numbers yourself.
I blame the attitude surrounding ‘homeowenership’ too. Millions of people around the world rent all their lives, and thier heads don’t explode with shame. Forcing people to buy out of a sense of moral superiority and fear is bullying. Its illegal in grade school, so if we expect our kids not to do it, what kind of example are we setting them by allowing it to happen outside of school. Fear and greed. Meh.
I think the whole RE industry is to blame. Realtors for encouraging both buyers and sellers not to be realistic about thier prices, mortgage brokers and lenders for not ensuring that the lendees are actually able to pay back the loans…the whole thing is rotten to the core, and it will be entertaining in the coming months to see who points fingers at whom.
I live in an apartment building in Tampa, and received a large card in the mail yesterday picturing a couple in sunglasses with the caption, “Way too cool to rent,” or some such, from somebody looking for buyers. I noticed a pile of these things thrown into the trash by other renters. I thought it was a galling advertisement aimed at utterly stupid, pretentious twits, but I bet there are enough of those to make it worth the advertiser’s money.
This is something I really struggle with. I didn’t stretch to try and buy my first place when things looked overpriced. I felt a lot of *shame* being the only “renter” I knew at my age - as if I had failed some big “success test”. But, I don’t have an overpriced place I can’t afford - and that I’m stuck with.
“Way too cool to rent,”
Way too smart to buy. What’s a person to do.
“Way too smart to buy”
That should be a bumper sticker — it is the right time for it.
>….and it will be entertaining in the coming months to see who points fingers at whom.
Let’s start with that moron, Terri Gallmeier, the Ad Two president, who states she knew nothing of the Armijos financial information, yet her company is known for financing seconds.
Unbelievable!
Accountability lies with the BUYER, noone knows the financial situation and obligations better than the buyer. Yes, the scuzzy lenders, scandalous RE agent and appraisers have their hands in it too, BUT ULTIMATELY it’s the buyer who has the power of saying nay or yay over the financial future. Don’t be weak minded, if you can’t afford it, guess what, YOU CAN’T AFFORD IT.
the problem is, as others have said, is that buyers, most of whom are financially ignorant, are far too trusting that lenders/realtors/brokers have their best interest at heart. I expect stronger state/federal consumer protection laws related to mortgages after the fallout. Note that only about 1/2 states have predatory lending laws … but some of the stronger ones, such as in N. Carolina, don’t really address the issuance of exotic loans.
I did a research paper on legalities and ethics related to the housing boom and the expected fallout. I won’t post the entire thing as it’s a bit lengthy, but here is the Executive Summary:
“The recent national boom in real estate prices has not only been a product of historical low interest rates, the investor-friendly 1997 Taxpayer Relief Act, and a skepticism of the US stock markets. It has also been fueled by an artificial demand created by mortgage fraud, appraisal fraud, the widespread usage of exotic, risky loans, and a “can’t lose investment” mantra pushed by the National Association of Realtors. These factors have created a real estate bubble that is starting to pop as prices begin to fall and inventories in major markets have risen over 100% in the last year. Based on historical standards, prices should decline by at least 25-40% over the next few years. Property owners with little or no equity will find themselves owing more than their home is worth, and those with exotic loans won’t be able to make the payments once the teaser rates adjust upwards and will foreclose. About half of the states have tough ‘predatory lending’ laws that seek to offer protection for homeowners from fraud, but resources to enforce are slow. The amount of mortgage and appraisal fraud reports has increased 5X in the last few years, and the FBI is working to address this “epidemic”. Federal Agencies are proposing guidelines for the risks and usage of exotic loans, and the House of Representatives is currently considering two similar, but distinct bills that seek to strengthen the predatory lending and fraud laws in the nation. Besides tougher laws, a stronger practice of ethics in the lending and real-estate business is suggested to limit violations. In the fallout of the bubble, speculators will learn that risk cuts both ways, but many honest people will experience financial pain. To restore faith in the home buying process and our capitalist economy, it is important that these laws and regulations are well written and strongly enforced to provide adequate consumer protection. “
JeffinAZ — that’s a punchy, kick-butt excerpt with a nice strong lead-in. Thanks for posting it. Good luck to you in its presentation, whether you are a student or other.
Jeff,
You did a nice job with that. Agree with what you wrote. Buyers tend to be ignorant because they don’t buy houses every day. Lenders (and the REIC) do this every day. They know better.
Some stories have been posted here about how borrowers were lied to and “rushed” through paperwork. I’ve seen it myself. Not to mention the fact that ARMs have been advertised as “fixed” loans because they had a hybrid teaser period.
We need to regulate those who choose to do business in our country. One of the things which differentiates the US from third-world countries is our trust in private property laws and fair business practices. If we have no integrity in our business & financial markets, we would all end up gamblers and theives in order to outsmart the others (not that we’re not already there, unfortunately). Not a good idea, IMHO.
There is a Darwinian tendency fostered by the current lending environment for exactly those buyers who do not realize they cannot afford overpriced homes to fall victim to lenders scraping the bottom of the qualifications barrel in order to keep business humming.
Try reading through documents at closing. It’s not 10 minutes, it’s 4 hours for an educated Joe to understand what’s being signed. For the average Joe even four hours would not begin to provide an understanding of what they are signing.
Try getting them ahead of time from the parties. It’s like pulling teeth. Either they are not prepared, or there are some changes, or a myriad other excuses. The next time I buy, there will be a contingency that required loan documents to be forwarded to me 96 hours in advance of closing. No docs, no closing.
The average Joe has been conditioned to accept the the judicial system as fair. What a crock. So many people are going to get screwed by the system. In many cases jingle-mail will be the only remedy FBs have.
Couldn’t agree more, Backstage!
No one forced them to sign… many people saw houses (yes plural) as a “can’t lose” lottery ticket they were buying. So, sure… $30K income, I can make that option payment for 2 years and then make $75K profit after fees…sure I can…
You can wander the casinos in Vegas or elsewhere and see the same behavior.
Just saw the front page in the Fresno Bee. Some Indian casino, (Table Mtn) is welshing on a $750k payout. Says that the machine malfunctioned. Gambler took a picture of the data on the front of the machine, got his attorney, Indians hid the machine. Don’t you just love it as white man has no jurisdiction on ‘reservation’. Good Luck. So much for Indian slot machines. I thought that they were a ‘Sure Thing’. hehehehehehehehe
Same thing happened in Oklanhoma when the Indian casino refused to pay a winnera few hundres K’s. They said the machine malfunctioned. What a bunch of Indian givers.
LOL.
I agree that the flippers who attended some seminar (scaminar?) and went out and bought 14 LV condos deserve all they get.
Bet there are a lot of decent, under-deucated people who believe what Suzanne-like realtors and brokers tell them. They buy one house because a ‘professional’ told them:
- Buy now or be priced out forever
- RE never goes down
- 15% is in the bag
- I researched this, you can do this
The MSM and RE industry repeated this message until they believed (ever hear any of this?).
Then they go out looking for a house and find that all the professionals tell them they can get more house than they ever dreamed possible. And why? Because lending standards were looser than ever before. Because a ‘pro’ told them that an I/O loan would be a good thing for them. Because they were pushed by a two-faced loan broker to take on the biggest, most risky mortgage they could get.
These folks do not deserve what’s coming to them. Sure, the legal, micro-level bottom line is that they are to blame for not reading and understanding the contract they signed. But when this bubble fully deflates and the economy slides into recession, when millions loose their jobs and homes, know that the finance industry is to blame.
When the cows stampede and destroy your ranch, don’t blame the cows. Blame the wolves who started it.
When the cows stampede and destroy your ranch, don’t blame the cows. Blame the wolves who started it.
This isn’t cows stampeding. It’s sheep getting sheared, or slaughtered. Very few rate any pity. Yes, they were victimized by unethical sharks. But the vast majority made easy marks because of their own greed, ignorance, and stupidity. Our whole culture is long overdue a painful lesson — the only kind that changes behavior — in personal responsibility and living within our means.
I am likely to be be shocked when I learn how many people were screwed because they bought SO MANY properties, each. I’ve been licking my chops at the thought of buying a fairly-priced or less-than-that home after the bust, but the sheer magnitude of the greed this easy credit generated may unfold as surprising to even those of us who’ve been dedicated housing bears all along.
The cult of home ownership is purely a social contruct.
Germany’s rate of home ownership is a bit over 40% and has been for decades. Now, the post-WW2 housing crunch definitely had an impact there, but 60+ years later they still have the lowest rate of home ownership in the EU, and it doesn’t seem to bother them one bit.
Since these mortgage brokers presumably are not splitting their commissions four ways, as is typical with RE agents, I wonder why there is no uproar, not even in this blog to any noticeable extent, about the commissions paid to the mortgage lenders? Nor is there much revelation about whatever the extra fee is called that the mortgage broker gets when they jack the borrower up into a loan they don’t even need to get to where the borrower wants to be. Realtors take it in the shorts here constantly, but frankly, the look-at-me cars with custom plates that I see around here are the lenders. The “Miz Loan” plates are a dead giveaway. Mortgage brokers seem to favor black cars here in Florida. They tend to be H2 or H1 Hummers, or Bentleys, of Beemers. Is the amount of time and effort they put into their transactions, relative to their “take,” anywhere close to that of the RE agents? I ask because I see very few of the agents riding around in such luxurious cars.
“H2 or H1 Hummers, or Bentleys, of Beemers”
Hmmmmm, there might be a good discount market on used Bentleys in the next few years…hmmmmm.
Sorry, the Bentley market won’t tank. They don’t manufacture annually enough to ever overwhelm the true [ie., non-bubble] market for their product — something builders are too stupid/greedy to understand.
Bentley is a one-of-a-kind product; hence the manufacturer has market (monopoly) power to regulate supply and maintain stable profitability. The big Wall-Street-listed builders of McMansion tract homes are more like a cartel — they successfully exercised market power for a while during the bubble runup, leading to record profitability, but like most other cartels in history (e.g., OPEC in the 1980s), they have an incentive when prices get very high to enter a race to build in order to beat their rivals to capturing record price levels. The unintended consequence is extinguishing the boom by drowning the market with new supply.
The only people I saw driving these were real estate industry folks
Plus I doubt anyone would sell or lease you a Bentley for “only $599 a month” like Lexus. Either you can afford a Bentley or you can’t.
the mortgage brokers will get their’s. from what i can tell, these landscapers and waiters buying a $400,000 will claim ignorance or even worse- that they were victims of these “predators” that put them into “toxic” loans. forget the greed, forget the frenzy, they were victims and all those predators; realtors, appraisers, mortgage brokers, title companies were the perps.
i am so glad that we cast our “seasoned loan professionals” onto the open waters over a year ago. when we looked up an saw someone making $200K a year doing stated income, 80/20, b-credit loans, the writing was on the wall.
‘There are very few people who have 5 or 10 or 20 percent cash to put down.
Why not? Because the Fed has made saving in money impossible. That is the normal reaction to negative real interest rates.That is why people have been forced into non standard loans and not because of the perception that most people were getting greedy. People were trying to save by buying houses because they could not save in money.People became FB’s because of a deliberate policy of the Fed to make up for the previous bubble.
TG
“Because the Fed has made saving in money impossible. That is the normal reaction to negative real interest rates.”
excellent point, tg! doesn’t excuse but certainly helps to explain.
Yes! Thank You!
It was proposed that savers would get a credit for the money that they put in a savings account. Gore and the Clintonistas nixed it the same time the Dems decided to tax the other half of your social security. If you want to increase the savings rate then bring it back with NO means testing. Thank you very much!!!
I get very little interest on my savings, but I manage to save at least $10 thousand a year in my money market account, on only $40g’s gross /year. How is that possible?
1) you are single and live frugally in a very low cost area
2) you don’t have health insurance
3) you get paid in an all cash business
4) You love Thai jasmine rice and buy it by the 100 lb. bag and are a vegitarian. Or at least a starchitarian.
‘There are very few people who have 5 or 10 or 20 percent cash to put down.
Why not? Because that is the result of real negative interest rates. Most people who have bought lately are actually thinking they are doing the prudent thing. You can not save in money and get ahead so you try and buy a house. Houses keep going up and your attempt to save keeps falling further and further behind. The real accountabilty belongs to the fed. I am arguing that the saving impetus is as strong or stronger than the consumption impetus and greed impetus. However the fed has destroyed people abilty to save in the commodity that evolved for savings just as the younger Greenspan predicted it would. The reason money evolved was to be able to save in the immediate transaction for future transactions.
5 or 10 or 20 percent of what? Requiring 0% downpayment for any length of time results in prices driven to unaffordable levels where buyers who can afford a downpayment are advised to stay on the sidelines. Firstt wait until the folly of 100% financing is relegated to the same pages of history as stories about the margin loans widely used to finance stock purchases in the 1920s.
Accountability? In America? Look, here is some realism: The people who will be held accountable will have had the least to do with it and tried to stop it. The people who will have to pay for this will be the ones who would have never profited from it. The whole of American Gov’t, Business, and Military are built on this view of accountability.
Roidy
P.S. I’ve seen this. I saw someone get more or less fired for his manager following cheery and optomistic advice over a realistic assessment. His realism was right, and he got screwed when the project went bad. I saw him asked “Why didn’t you stop me?” He answered, “I tried for over a year.” and told, “You should have tried harder.” I didn’t dare protest for him - my job was at stake if I did. After he was forced out, I got another job and left shortly thereafter, also.
Truth.
biz relies on itself- I don’t see how they get bail
“Aggressive lending practices and poor consumer education also play a role, consumer advocates say. ‘Seventy percent of the people who come in here got the wrong loan,’ said councelor Zachary Urban.”
More than likely, any loan was the wrong loan for those 70%.
I be gettin 100k a month fo life
thanks whitey !
F Raines
I was thinking a letter to the editor might get this issue in more of the publics minds.
Good idea, Ben!
Perhaps we could all work on our own versions and post them next week. We could pick and choose different aspects of each other’s letters and formulate a really good argument.
And then submit them afterward, of course!
How about the so-called financial planners who recommended, even sold, these option-arms? I had one of these guys come to my house a couple of years ago and try to convince me to refi all my properties into option-arms. He wanted me to invest the “savings” with him on a monthly basis.
I told him he was nuts. He even had a lender lined-up for me. What a joke. I hope he did not convince too many people.
That makes me want to hurl.
Hahahah. Didn’t want to disappoint you.
txchick,
Have you been banned from the SD “Creative Investors” forum? Either the site is down, or they banned me.
site is not down
I’ve been banned.
I think it was my Flipper icon that pissed them off.
No, I”m not banned. I’ve been able to get on. I’d better be. I’m a paid member.
Nice thread
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1033651
I wouldn’t know. I can’t see it. My IP has been banned.
Did they have any comments to my posts? I am a cheap bastard and don’t want to give them $45 in order to post.
Don’t worry - someone posted your e-mail. Apparently, they do not like “dire” predictions on their blog, so they erased your post. RE, go down ??? Please…
good to hear from you tx. worried about all that vomiting!
Where is your BF Lance?
hey crispy!
Big hello from our Nation’s Capital!
Hey what happened to the rest of my comment?
There is a close parallel between what happened in the pension industry with the 401(K) revolution and in the lending industry with the increasing prevalence of lenders unloading mortgage loans on the secondary market to be repackaged as MBS. In both cases, financial risk has been transferred from large, deep-pocketed, financially sophisticated corporations (companies with defined pension plans in the first case, and lenders with mortgage debt in their liability columns in the second) to individual households. What is worse, a sizable share of MBS seems to have snuck into the asset allocations of many of the investment funds to which 401(K) plans steer their participants, just as the credit quality of these assets appear to be vulnerable to decline with the imploding housing bubble.
The collective consciousness is still mired in a world where paternalistic corporations shouldered the burdens of their former employees’ retirement costs, and where lenders were careful to only make loans they expected to be repaid. How is Joe Soccermom supposed to figure out that these rules have been completely overturned in the short span of a decade or two, especially when the experts are all so busy pulling the wool over her eyes, and saying that it is up to her to figure it all out for herself?
I should have clarified “privately saying that is up to her to figure it all out” — noone in the biz would publicly admit they have abdicated any duty to inform the public about borrowing risks.
That’s deep!
What I cannot understand is this: When these FB’s desired to purchase a new car, they likely read Consumer Reports, talked to friends, compared prices… in other words, they did a lot of research before making a $20,000 purchase.
But then, when it comes to financing a $180,000 home, suddenly these borrowers claim ignorance? Give me a break.
Home financing is hardly rocket science. You research, weigh the potential benefis and risks, then decide. These borrowers who concluded that the benefits of low initial payments outweighed the risks of increased interest rates should hardly complain now that interest rates are increasing.
FB’s really have nobody but themselves to blame.
anyone want to allocate blame percentagewise between:
the fb,
gov’t regulatory failure,
the lenders?
how about 50%, 10%, 40%
Not even close try 90,5,5
Thanks for the industry spin. I think lenders should share the bankruptcy costs 50/50 with the FBs they set up — that would instantly fix the problem and also protect nonparties to the doomed lending transactions (taxpayers).
Its called “free economy”…not “fair economy”.
I think the govt should stay the hell out of it. No bail outs, but also no new regs.
The FBs will get thiers.
The lenders will get theres too. Just like after the Great Depression, after this all goes down, folks will be afraid to get into dept.
Also once the buyers of the packaged/resold notes get screwed, they will be more picky on the types of loans they buy and the banks will have to play ball if they will want to sell them.
I think when it all plays out…the parties which caused this pain will pay.
But keep the Govt out of it.
Gene
Gene;
Are you seriously thinking a correction even approaching “the great depression” is going to leave you untouched?
The guv’ment helped this along by artifically making “housing dollars” cheaper with the mortgage interest deduction. All it ever did was make house prices higher, and not more affordable. Duh!
It’s probably more important to think about preventing this in the future than punishing those who did it in the past.
Stock brokers are required to be federally (and state) licensed, and in particular are required to ensure that investments are suitable for their clients. This doesn’t stop abuses (nothing will ever completely stop abuses) but it helps.
Houses are one of the biggest investments most citizens enter into, so it would seem appropriate to ensure at least the same standards of mortgage brokers/originators *and* real estate agents as we do of stock brokers. They should be federally and state licensed with stringent qualification exams (and background checks) and they should be required to determine whether real estate investments (and mortgages) are suitable for the house buyer/borrower. It won’t stop abuses but it will provide legal recourse in the event that someone screws the pooch.
it can’t really be prevented. speculative manias are a part of the human condition, possibly absent a totalitarian economy that is somewhat unimaginable. but if this is the BIG ONE it appears to be, there won’t be another occurrence for another 2 generations … oh, about 60-70 years. that’s just the way it is. greed + fear + forgetfullness = speculative bubble.
Foobar ..The real estate industry does have rules/regulations ,but in alot of cases these agents have just been violating the know rules . Real estate agents know it’s fraud to up the price of a house and not disclosed a kickback to the buyer ,as a example ,but doesn’t stop many from trying it to make a buck .That type doesn’t care if it raises the taxes in that area ,or results in a foreclosure where a lender will lose money .
The money has been so good that character went out the window in many cases . ( Please , good honest people in the industry ,Im not attacking you .)
Be careful what you wish for. Federal licensing of Realtors would probably result in a requirement that *all* property transactions be done through Realtors. This would simply lock in a monopoly and stop the trend toward disintermediation of RE transactions. I, for one, do not want an agent of the nanny state telling me whether or not a transaction is in my best interest or “suitable” for me.
The problem is the lenders have no incentive to make sensible loans anymore. Everything starts there. People will always be greed driven, but the lenders lit the fuse.
No funny money = no bubble.
The correction will come from the MBS market that will be far more picky about the loans they buy, once they lose their ass in this debacle. And that will force the lenders to tighten standards. After all, the lenders wouldn’t loan the money if it came out of their pocket, would they?
No need to worry about regulation. The market will take care of it, but millions will get screwed.
Welcome to America.
This is the key. Empirical evidence shows that the industry as a whole has the ethics of a newt. They will take these BS “training and ethics” classes and turn it into a gatekeeper to reduce their competition and make even more of a powerful propgandistic cartel.
The REAL way to stop unsuitable lending? Make the mortgage brokers be personally responsible for delinquencies in the first three years.
How to enforce this? Every loan will have documentation as to whether it was sold and backed up by a mortgage broker’s bond.
If it isn’t, make it be IMPERMISSIBLE to be counted as an asset at any bank in the Federal Reserve system.
The howls and roars would be titanic. Warren Buffet would applaud it. That’s how you know you’re on the right track.
Probably the Fed and OHFEO could do this as a regulation even without Congress passing a law, but legislation would help.
Good point Getstucco . The real estate industry changed so fast that many people thought the real estate industry and Lenders were doing right by the people .
I know when I noticed that prices went up ,the first thing I said to myself was ,”it must be solid or the lenders would not of allowed it or loaned on it .” Of course I found out later what has really been happening to my shock .
One good change would be that of agency. One agent or office would not be allowed to (double pop) represent both sides of the transaction. If you want to see the CAR,NAR scream, it would be this change.
‘If you want 100 percent financing, and you qualify, can they turn you down because it’s not a good idea?’
It’s morally indefensible not to try when you are dealing with a purchase so big. This guy should be strung up by his toes in the town square. What ever happened to compassion? Is replacing compassion with greed a good idea?
These ‘The dog ate my homework’ excuses are simply selfish and will be exposed. Unfortunately, those who profited most from this will get a pass.
I think accountability in the real estate professions needs to be established by the individual states. A few years ago, Utah ranked #1 in mortgage fraud. It also ranked very high in foreclosures and bankruptcy. This was something the government was embarassed by and something was done about it. Mortgage brokers were required to be licensed and fraud cases looked at the appraisal quite closely. Since implementation took full effect two years ago Utah’s fraud rate has dropped, so has the number of mortgage brokers who could not qualify for the new license. A further deterrent is the publishing of license suspensions and revocations in the Department of Real Estate’s newsletter. They even publish failed application attempts due to unpaid child support, non-disclosed criminal cases and so forth.
Unethical mortgage brokers are bad for everyone, even other brokers. Unethical brokers will lie to clients and promise them rates legitimate brokers just can’t provide. Bad loans that result in foreclosure are bad for property values. I’ve read many posts on this blog about loans I wouldn’t even consider getting a client into. There isn’t an exponential difference in commissions between a fixed loan or an ARM.
I don’t know for sure there is a bubble right now, though certain areas in the country are certainly experiencing a correction. I think it would be wise for every state to weed out unethical mortgage brokers and appraisers by creating licensing standards and investigating mortgage fraud more often.
The problem is really simple. You’ve got people borrowing money that are just plain stupid, combined with a loan shark environment.
But these people will get ripped off in any number of scams down the road, as they are too dumb to know this country has been BUYER BEWARE for a LONG TIME.
Half the country spends every waking hour trying to figure out how to screw the other half.
Unmentioned so far, the current administration deserves some blame for pushing the “ownership society” concept.The Prez in speeches publicly took credit for more Americans than ever “owning their homes”.
Add this to the cheerleading that fed the mania–folks who voted for the man were encouraged to get on board. And the growth of the “non-profit” downpayment gift programs, I. e. Nehemiah, shoehorning people without the resources or incomes necessary into becoming homeowners, added hugely to the mess. Besides, saving the downpayment is a form of financial discipline, which trains a first-time buyer to budget, and to make reasonable financial decisions. When you get a crowd of people who live on maxed-out credit cards and very limited incomes, handing them a mortgage and “first-time buyer assistance” is like giving them a loaded gun.
It’s Bush’s fault?
Everything is GWB’s fault. That includes the hangnail I got yesterday. Ouch. Thanks to that disgusting GWB. On the other hand, Clinton could do no wrong. Hand Clinton a knife and watch him stab someone and no, since it’s Clinton, he could do no wrong.
Funny how people hated Clinton so much yet chimp can do no wrong.
Strange country.
OOoooh no, the man who has been the president/commander in chief and leader of the free world for the past 6 years with the help of a conservative house and senate is absolutely not responsible for anything that has gone wrong during that period. Hail to the chief.
GW is totally innocent. His financial responsibility is called leading by example.
Hear! Here!
I totally agree. I remember that stupid speech. He was talking about how great the American economy was and how their were more “homeowners” in America under his leadership than ever before. I was thinking ……………you are an idiot, there are more people indebted to levels never before seen since the beginning of time.
BTW, I am a registered Republican, so this is not just an anti-Bush bash. But, I am also very, very disappointed in this administration. Bush should have replaced Vicente Fox, as President of Mexico. He is more concerned with them than me, a Native American.
He doesn’t care about Mexican’s well being either, really.
What he cares about is being part of the global elite: tycoons in the USA, Mexico and Asia getting rich as they all have the same self-interests. That includes unlimited immigration and outsourcing and transfers of capital regardless of nationality, and plenty of social and other limits on the ability of F@cked Citizens to complain and do something about it (like threaten to send your job to China or Mexico).
stupid people should rent.
Yeah, try telling THEM that.
Smart people are renting too. I have a unit coming open next month, and have already gotten several applications from people who have sold houses and are looking to wait out the decline in rented quarters. I like the idea of renting to folks that have six digit bank account balances. One of them actually offered to pay for leasehold improvements - now *that* was a first for an apartment rental in my experience.
I’d be reluctant to rent to someone who is waiting to buy. I prefer “lifer’s”; people who will never buy. Less turnover.
I’m in Santa Monica, so I can’t afford lifers. I need occasional turnover in order to bring prices up to market to keep up with inflation, and vacancy decontrol is the only way to do it.
I have a couple of lifers, and they cost me money every month because they are paying 1990 rents, thanks to rent control.
So your mobile tenants subsidize them?
Well, net-net, I suppose so, but that’s a fallacious argument in the sense that I can’t charge enough to offset the parasitic lifers. All I can get from the current tenants is the current market value. I lose money on the lifers, every month. If I could charge above-market rents to the new tenants to cover the subsidified lifers, that would be nice, but the market doesn’t allow for that. Why should new tenants subsidize old tenants? And would that be fair, even if it were possible?
Someone in an earlier post mentioned that foreign investors and pension funds will be the losers when the mortgage backed securities default.
Take this a step further. When the pension funds then can’t pay what they have promised The Pension Benefit Guaranty Corporation (or PBGC), an independent agency of the United States government steps in to pay a portion of the pensions owed. As of 2006 this agency is underfunded an estimated $450 billion. Where is this money going to come from?
In the end these criminal mortgages will end up biting those of us who acted responsibly; and every other taxpayer as well.
I vote for tarring and feathering the public figures like LAY and DL.
So I wonder how that would make Lay feel, since he’s merely a decomposing skeleton (or maybe a bunch of ashes)?
LAY (all caps) = Leslie Appleton-Young.
If there is not a penalty for being stupid why try to be smart? In our society we reward people for being failures all the time. Such as welfare, food stamps, parole. “Its not my fault!” cries the fool. “I’m the victim”, “I’m the victim”.
Without knowing one thing about mortgages the foolish potential home mortgage buyer could have gone to an expert and received the proper advice. Go to the library, or a book store. The internet. A friend who has a lot of experience in buying homes. The Con men cannot be successful if you are not greedy. It sounds to me that the 30K a year wage earner did not his homework. Lazy? Maybe. Would Common Sense have bailed him out before signing the mortgage contracts? YES. These people went to buy a home unprepared. So now they must pay the consequences.
Remember in anything in life you can become an expert if you work hard enough, study, and do research. It does not cost very much money to do this. This web site is a good example.
If our home buyer had been blessed with common sense they would not have bought that home.
“If there is not a penalty for being stupid why try to be smart?”
You’re assuming people **choose** to be smart or stupid. As terrible as it sounds, a certain percentage of our population will be less intelligent than the others. Instead of worrying about “protecting stupid people from themselves,” I’d like to think of it as, “protecting society from the actions and decisions of the stupid.”
“Without knowing one thing about mortgages the foolish potential home mortgage buyer could have gone to an expert and received the proper advice.”
Most people consider the mortgage broker and Reator to be experts. That’s been the problem with this whole bubble. They DID go to the experts and were given very, very bad advice. It doesn’t help that the media was trotting out NAR, CAR and other RE spokespeople as “experts” during the mania.
We are a nation of dumb-asses. Look at all these fools who jumped on the Panzi-schemed real-estate bandwagon. These real estate agents, banks and even the government are bunch of liars and thieves. They will all steal from you.
I blame the stars! They all went out of alignment at the same time!
Another said. “The old common sense about 5-7+ years to make it worth it is gone. I live in a semi-bubbly area (50% in 5 years). I know one example first hand. Single guy, friend of mine, bought at $125k house on a $30k salary. Plans to stay there only two years. I asked him why he bought, and he said ‘I think housing is a good investment’ and ‘I’m tired of throwing away money on rent.’ Now he’s complaining about how expensive it is while I rent dirt cheap.”
There’s a reason why (many) people are poor…it’s because they have a “money problem”, just like some people have an “alcohol problem.”
It takes skill and patience to come out ahead. For most people looking for a quick flip in real estate, they’ll actually come out losers. Sure some people at the start made money (though many exaggerate by not subtracting R-E costs, fees, taxes, repairs, etc, from their “profit”), but MOST individual “investors” will be left holding the bag.
Let’s just hope that responsible taxpayers like the people in this forum won’t have to bail them out!