‘The Guiding Principle Of Mortgage Lending’
The Rocky Mountain News reports from Colorado. “Erin Toll’s top priority as the new director of the Division of Real Estate for Colorado is to shut down appraisers who are artificially inflating home values, contributing to the state’s escalating foreclosure crisis.”
“She agrees with many in the real estate industry who believe inflated appraisals are contributing to rising foreclosures in Colorado and nationwide. Toll said she expects to unveil an investigation next month of an appraiser she said has inflated the value of homes by as much as $100,000.”
“‘Overinflated appraisals hurt everybody,’ said Toll. ‘Consumers are hurt when their property values are artificially inflated in price when they go to sell them.’ Colorado has the highest foreclosure rate in the nation, according to national studies.”
“‘And lenders, who trust the appraisals, are often victims, too,’ Toll said. Others, however, say that lenders often pressure appraisers to artificially inflate properties so they can justify making loans and collecting fees.”
“A lot of fraud is committed by appraisers who want repeat business from lenders, said Ivor Hill, who heads Pueblo-based IJ Hill Appraisal Services. If the lenders don’t get the amount they want for the loan, they will ‘blackball’ the appraiser and hire someone who will provide that amount, he said. ‘They commit fraud to stay in business,’ Hill said.”
“When a house whose appraisal has been inflated is used as a comparable by other appraisers, those buyers will pay too much for homes, creating a domino effect, Hill said.”
“Demos, a New York City think tank, quoted an unidentified Denver appraiser who wrote on a Web site that ‘finding a mortgage broker client who wants a fair market value on one of their deals is like finding a needle in a haystack these days.’”
“The appraiser suggested that the ‘real estate market in Denver was artificially propped up by dishonest appraisal practices following the tech bust and the economic downturn of 2001, with homeowners now paying the price.’”
“Matt George noted he has completed more than 20,000 appraisals since 1974 and said that ‘fraud is rampant in our industry.’ He often reviews appraisals completed by other people for lenders. He said he has found that more than 50 percent are inflated.”
“In one case, a house that couldn’t sell for $500,000 was appraised at $550,000 for a refinance, George said. It later went into foreclosure. ‘The lender was furious,’ he said.”
The Denver Post. “Today’s lenders (are) moving to riskier loans as the housing market heads south. Things have gotten so bad that people now buy homes with monthly payments that don’t even cover the interest due.”
“‘Every case is different,’ said Boulder real estate lawyer Jon Goodman. ‘Some loans are explained by mortgage investors irrationally chasing high yields. In other situations, the loans are caused by people downstream in the money chain fooling people upstream.’”
“But with lenders packaging dog loans among huge portfolios that they sell to institutional investors, such as pension funds, the bad guys often get rich and leave the misery to retiring teachers and firefighters, former Securities Exchange Commission accounting chief Lynn Turner said.”
“‘Appreciation,’ Goodman said, ‘covers up a lot of bad lending. Depreciation reveals negligence and sometimes loan fraud.’ Turner’s SEC experience ‘is that bankers have been able to get away with murder before auditors call them on it.’”
“In their first months or years, option ARMs let homebuyers pick how much they want to pay on their mortgages. Lenders, meanwhile, book the maximum payment as revenue. According to Business Week magazine, three of the country’s big mortgage lenders; Countrywide Financial, Washington Mutual and Golden West, counted nearly $1.5 billion in ‘net deferred interest’ as revenue in fiscal 2006. ”
“If borrowers default on those loans, the lenders will never see the money. Still, Turner said, accounting rules let companies ‘record as interest income that you think you probably will collect.’ So for the time being, executives can pocket bonuses, then bail before the crunch comes.”
“That, I now understand, is the guiding principle in the increasingly ugly business of mortgage lending. The real trick as the housing market collapses under its own greed and suspension of disbelief is to leave someone else holding the bag.”
Oh that’s nice…about 3 years too late.
Nobody cares when the times are good…but they are quick to ‘blame’ and find ’solutions’ once things head south.
SoCalMtgGuy
http://www.housingbubblecasualty.com
BLAME GAME STARTING. Look out. Politicians will scramble to throw together bills that save the poor unsuspecting FBs in some way. It’s everyone else’s fault when a dolt overpays for something. I would like to see which politician stands up and says, “Tough sh!t. Take your licks like a man and quit sniveling”, to the FBs. There are arguably a lot more people that stood back and watched the insanity in disbelief and they deserve to be rewarded, not the crying FBs.
Oh you just know they will too! Not to single out the Dems but I get the sinking feeling they will be the ones to most exploit this issue and transfer the cost to the rest of us. They GOP, on the other hand, will probably just keep ignoring it - which while not a solution is at least more palatable than having to listen to “mortgage moms” give their canned appeals for a bailout as another Clinton “feels their pain”.
Again… “they bought their tickets…I say let ‘em crash!”
Really? I am convinced that your choice of party determines whom we bail out, not whether. Dems its the borrowers, Repubs its the lenders.
Which type of bailout would be the least likely to distort the market?
If the individual borrowers are bailed out, they won’t need to sell, and prices will remain high (though with little sales activity.) On the other hand, if the lenders are bailed out, the bailout will probably not be without conditions and some genuine suffering by the lenders/noteholders. Remember the S&L bailout and the RTC? That was a “bailout,” but a lot of institutions wound up being taken over by the feds and liquidated, and not a few people went to jail. If there were that kind of a “bailout” for the lenders, there would definitely be a contraction of the easy credit that’s propelled this bubble — while the individual borrowers would still be liquidated, forcing prices to drop with all the forced sales.
So if you’re afraid of a bailout perpetuating the bubble, vote Republican. Their style of bailout (if any) will distort the market, but not as much as the alternative.
Don’t kid yourself. The lenders, especially member banks, will get a bail-out either way. The staility of the financial markets is the USG’s primary concern. FB’s on the other hand is where we’ll see some partisanship. The housing bubble despair and grief period will be in full swing around the time of the ‘08 elections with enough hard luck stories and mortgage-mom trips to DC to make you sick. Expect this to be the issue-du-jour for the entire election cycle.
The Dems will be the ones looking to bail out the FBs???? Excuse me … Who rushed out in the aftermath of Katrina, at the first hints of criticism of the federal response, and promised to spend “whatever it takes” (i.e., hundreds of billions) to rebuild New Orleans?? One could argue that people on the Gulf Coast who chose not to get flood insurance should not get a bail out … but the federal gov’t is doling out $150K to each uninsured homeowner. This has never been done on this scale for any other national disaster. Bush has set a precedent where now, whenever there’s a disaster, the uninsured population will expect a federal bailout.
First, many Katrina victims had no prospect of getting insurance since many simply couldn’t afford it. The same is true in CA for quake insurance, so expect Katrina2 only with the feds tripping over their dicks to hand out $500K/household.
Second, aside from the financial scale, there isn’t much else in common between Katrina and the housing bubble. FB’s brought the debt and likely default on themselves. They volunteered for it, with greed and easy street as their principal motivation. No one in the gulf coast signed on a dotted line applying for a hurricane.
Anyone else here choose to live BELOW SEA LEVEL on a hurricane-infested coastal region?
“…but the federal gov’t is doling out $150K to each uninsured homeowner.”
I read a discussion about this, but I wasn’t aware that this poor idea has actually been implemented; has it?
Anyone else here choose to live BELOW SEA LEVEL on a hurricane-infested coastal region?
Nasty as this sounds, I agree with you. It would be cheaper and better for all involved to shift where New Orleans is, and reloate the lowest areas to nearby higher ground. Or make a new “North New Orleans”, etc.
Of course, that wouldn’t be politcally popular.
“FB’s brought the debt and likely default on themselves. They volunteered for it, with greed and easy street as their principal motivation. No one in the gulf coast signed on a dotted line applying for a hurricane.”
Gulf Coast residents may not have “applied for” a hurricane, but they chose to buy property or build houses on the coast in an area at high risk of hurricanes and many of them chose not to buy insurance. That’s signing up for disaster in my book … Saying “I can’t afford insurance” is no excuse … If you can’t afford to insure, you can’t afford to buy a house there .. .case closed! And now those who chose not to buy insurance have their hands out to the Feds expecting a bail out, AND many insist on rebuilding right back on the coast again.
Amen.
Look, I realize there might be safer places to live than in a hurricane target, but seriously, how is it fair to equate a humanitarian crisis related to a natural disaster with bailing out FBs?
They are the same … Bailing out FBs is already painted in many MSM news stories as “humanitarian” … How many news stories have we all seen about the poor, struggling families who were “duped” by the big bad mortgage broker into taking a suicide loan, and now they’re at risk of losing everything! What do you think comes next?
Although Hurricane Katrina was indeed a “humanitarian crisis”, the appropriate and compassionate response is to sent the Red Cross and other first responders down there with emergency supplies: food/water, clothing, medical supplies, and such. An appropriate response would also include helping arrange for TEMPORARY, emergency shelter. It turns into a BAILOUT when the Federal Government is expected to rebuild the entire City of New Orleans, hands out $150,000 to each uninsured homeowner, doles out $2,000 debit cards which are promptly used to buy porn, booze and strippers, and pays for HOTELS for people to stay indefinitely!! Remember the UPROAR, about six months after the hurricane, when the government moved to stop paying the hotel bills of “Katrina refugees” … I mean give me a break!! If you have not moved on in 6 months, there is a serious problem. It drove me crazy to see the news stories on the 1st anniversary of Katrina, with people down there complaining because they’re still living in a FEMA trailer and the government isn’t doing enough!! It’s been a YEAR for chrissakes!! … Any responsible person with common sense would have moved on by now … to Atlanta, Nashville, Charlotte, Raleigh/Durham … there are a number of cities in the South with plenty of jobs and affordable housing.
posted Again… “they bought their tickets…I say let ‘em crash!”
I agree. The guy that ran the S&L Clean-up does comentary on CNBC…. maybe they could get him back? I use to laugh when he would call an S&L a “Zombie” …..walking dead….LOL…..Plenty of Zombies
Here’s an idea: yank the FB’s voting privileges. They’ve proven they’re too stupid to be allowed to decide the leadership of this country.
This is typical of the US in the 20th-21st centuries. We are a people of reaction, not proaction. These crinal activities should never have been allowed to even begin, let alone continue this long untouched by the law.
You’re right. However I would like to see:
1. Appraisers go to jail for fraud
2. Borrowers (especially those who lied on their applications) go to jail for fraud
3. People who recently got “incentives” (cars, cash) having to pay income tax on the value of these, etc.
Yup, nothing like shutting the barn door after the cows have already left.
OT- I love how Fastow is now implicating 4 large banks in the Enron debacle. What? A bank can do bad things?
‘Yup, nothing like shutting the barn door after the cows have already left. ‘
Someone from AZ said it another way-
- ‘Who left the gate open to Dumb Ass Ranch’
So right. Blame the appraiser.. lets make the appraisers take more C.E. courses. Maybe I will become a teacher..
Don’t do that, Honest Appraiser. If you want to see finger-pointing and unjustified blaming, just look at the teaching profession. IMHO, there are very few jobs that have as many politicians’ hands in the pot as with teaching. Teachers are pawns in the political arena.
I blame the parents.
So do I! (former teacher and current parent here)
“IMHO, there are very few jobs that have as many politicians’ hands in the pot as with teaching.”
Got that right!
“Nobody cares when the times are good…”
But it’s obvious that the times never were all that good. Just inflated appraisals and fraudulent lending. The whole runup in prices was manufactured by 1. greedy lenders who could push the inflated loans off on GSE’s and greedy hedge funds using OPM. 2. greedy appraisers willing to sacrifice their integrity for a piece of the action. 3. greedy speculators…I know that’s a redundancy…4. greedy owners who hopped on the band wagon and became financial geniuses overnight. Do we see a theme here?
Well the bubble has burst and all the crap is exposed. Now as the fraud washes out we’ll end up where the prices should have been all along, after a wild ride that will wipe out a ton of people, lenders and RE ‘players’. Perhaps normalcy will return eventually.
‘The Rocky Mountain News reports from Colorado. “Erin Toll’s top priority as the new director of the Division of Real Estate for Colorado is to shut down appraisers who are artificially inflating home values, contributing to the state’s escalating foreclosure crisis.”’
The road to perdition is paved with good intentions. Does she realize that if she succeeds in shutting down the fraudulent appraisers, she will also knock the legs out from under inflated sale prices, further contributing to the state’s escalating foreclosure crisis?
Damned if she does, and damned if she doesn’t.
You are right. And one of the beauties of the bubble is that, eventually, everyone is damned if they don’t, and so they all will.
I call this story BS on Erin Toll. Appraisers are not making the loans. Banks are making the loans. To pick out the least financially strong unit and blame them for foreclosures is ridiculous. If Erin had a real desire to correct the problems in the Colorado market - she should be investigating end lenders. I do not think a suspect appraisal from 150K to 200K is going to be the differrence for foreclosure - either the borrower qualifies or doesn’t qualify. Another Snark hunt for who is responsible.
Absolute agree, Hoz! You nailed it. All are culpable, but the lenders are the worse.
It does appear that she is taking on the issue for political reasons. Why is she so quick to let the banks off the hook? I’m glad the paper didn’t.
I agree all are copable but the appraiser is the local ‘expert’ who has a fiduciary responsibility to appraise the property correctly. There are avenues for appraisers to take if they believe there is fraud going on. I would be curious if any appraisers have tried to blow the whistle and what was done about it. Probably very little since everyone was happy making money!! If one looks at the number of appraisers that have chased the easy money it has almost doubled in the last 5 years. With this flood of people, it has inadvertantly lessened the standard for which they are upheld. Now that the easy money is gone, people are actually examining the practices of the past, and the appraiser as the paid expert is an easy target!! If the appraiser followed the proper procedures that govern their practice then they will survive the inquisition. If they stepped outside those guidelines then they will fry as they should. Appraising a property in a rapidly changing environment is difficult at best. One has to look backwards and the trend it shows in order to come up with an appraised price. The trend has rapidly shifted and a lot of properties were appraised way too high. Some of it is due to the fools who were paying too much and some is due to fruad on the appraisers part. Hopefully, lessons learned will be captured and incorporated into better guidance for an appraiser. ie compare house price with local rents in order to prevent such a disconnect. An appraisal is an extimate of ‘market value’ which assumes a motivate buyer and seller. The environment we were in was an overly motivated buyer and a greedy seller which scewed the numbers
I could not say it any better..Shakes..
How about licensing the loan officers?
How about the final lenders (secondary market) having their own, independent appraisers and underwriters. Appriasers used to be honest because they had to protect the lenders’ interests. Now, they are sales tools for the mortgage originators. They have no incentive to give honest appraisals.
I concur the loan officers requirements and standards of practice need to be raised. Licensing will set that standard and at least put them on the line when questions are asked after the next bubble bursts
If banks really cared about the appraisal process, they would do it themselves.
Remember to look at history and how punishment is often meted out. At the end of World War II the prison guards of the Nazi camps were being summarily shot in the field. There were many executions at the hands of former inmates and allied soldiers. The generals and “businessmen” got their glamorous day at Nuremberg. A few got hung but many got prison sentences. Often the prison sentences were decreased over time. Krupp even got to take back the company that had built the bombs and guns that had terrorized Europe.
The guy at the bottom of the food chain always gets the most severe penalty because he is easily expendable. There are forces at the top that prove to be mutually protective. It is better to be the guys that create the machines for destruction than to be one of the tiny cogs in that machine. To appraisers everywhere, you will find out just how small a piece of the machinery you really were. It won’t be pleasant for you.
The crack down on lenders will kill all of Bernake’s attempts to fix the situation as well. He could drop interest rates to 0%, but what bank would want to loan out a 0% down 0% interest mortgage (and what foreigner would buy it).
Thus the “0-bound” problem asserts itself again (just like Japan)
Thanks for your optimistic viewpoint…
It will be lent, or helicopter dropped if the velocity of money contracts too much. The dollars must circulate or the economic patient dies.
The speed at which money is transferred from buyer to seller, from employer to employee, or between borrower and lender is referred to as the “velocity of money”. The velocity of money is an important factor when considering theories of money and credit. Suffice it to say that with the changes in technology and electronic transfers of money, the velocity of money has never been so great as it is today. The greater the velocity, the sooner money can earn a rate of return or interest. ALL money (debt) that has ever been created, ALWAYS seeks a rate of return, 24 hours a day, 7 days a week, 365 days a year.
Velocity of money could hit a wall like a bullet train into a mountain, and if it does, it will happen faster than you can imagine. Cheers.
Thus the problem with todays world of having to run faster just to stay in the same place! Aye Carumba, what a miserable journey the quest for yield has created for us.
Good explanation on velocity of money. I don’t think the velocity of money will hit a wall but the direction it takes will drastically change and it may slow down to some extent. If you know the direction you can profit when everyone else is losing their shirt. For every loser their is a winner. If you in the RE business it may feel like the velocity of money stopped but what happened is it took a different course and your train stop is now a ghost town.
santacruzsucks,
I would only add:
“what a miserable journey the quest for yield has created for us (in a 1% over-night rate environment!)
Fannie and Freddie existed before the “boom”. Placing and LEAVING “the cost of money” so low for so long has created much of this mess.
And the rest of the mess is due to the QUANTITY of money created, via a fractional reserve ratio of 10%, monetization of government deficits, and open market operations, has been huge. Banks needed to shovel this money out the door as fast as possible in order to maintain their returns and growth. In spite of 17 rate increases, the quantity of money (debt) continues to expand exponentially. Implosion is inevitable.
Fred
The quantity of money created has been enormous!! The spigot was opened too wide and for too long. The problem we now face is if housing tanks and the jobs that go with it tanks how will the government respond? If they open up the spigot again in an environment where there is already too much money how will our economy react? It is my guess it will not spark growth as it did in the past but instead lead to a major devaluation of our currency and excess inflation. If they don’t open the spigot the unemployment rate will rise and unless another industry takes up the slack we can get into a depression. The gov will always choose inflation over deflation but what will it cost us this time and what industry/entity will gain from it?
Wasn’t Japan a classic example of the Keynesian liquidity trap?
I’m sure she will soon……
Everybody knows that if prices go down, some will get hurt.
They also know that if prices DON’T go down, even more will get hurt in the future.
If they’d stopped this crap 2 years ago, the last 2 years of GF’s would have been saved, etc.
Time to stop.
‘The Denver Post. “Today’s lenders (are) moving to riskier loans as the housing market heads south. Things have gotten so bad that people now buy homes with monthly payments that don’t even cover the interest due.”’
Moving to riskier loans as the market heads south reminds me of the day last year when they issued a tsunami watch along the San Diego coast. The traffic headed towards the beach was somewhat heavier than usual the rest of the day, as curiosity seekers drove in to get a close look.
Same thing happened in Newport Beach awhile back. People packed the Newport Pier to watch. (I, being a sensible rubbernecker, elected the cliffs at Big Corona. Nothing happened, darnit.)
Repost and OT :however if there can be any suggestions, need them now. Thank You!
My rent went up from $1400 a month to $1565 a month here. A $165 increase. ( for 1 year lease) 2 months back other people had the increase at $100.
(if No lease, it is 1880! and for six month lease it is 1535, less than that of one year lease! Indicating they intend to keep on increasing the rent.)
This is in Thousand Oaks area, Socal area. Any idea if this can be negotiated down or something can be done.
For Rent signs must be piling up everywhere in Socal by now. Do a few phone calls to see what rents are like in other buildings/houses.
Find a nice place with low rent then threaten to move if the LL doesn’t match the rate (or just say to hell with it and move anyways). Reduced rent is better than a vacant appartment. When there’s high vacany, you have all the negotiating power.
The parties not over there yet and that’s bad advice. If you like it there suck it up and try to negotiate if you can. If not move if you can find something comparable for cheaper. But we both know the answer to that. TO is a very desirable place.
You can do what my friend & cousin did. They shared a room for $500. In my last post, I said that my friend moved when the landlord raised rent to $1500 for 2 bed apt. That sucks, but rent is going up & up & house prices have not gone down much.
Rent is going up crazy in SoCal. My friend has just moved last month because the landlord lady increased the rent from $1200 to $1500 for a 2-bed. I was looking for a house to rent last two weeks. So far I only found undesirable, ugly 2 bed apartments for $1200 to $1500. They are very very tiny for that price. A decent 3 bed house is around $1800 to $2200. The luxury ones are around $2400.
Apartment rents WILL increase as (1) people sit out the bubble by choice or force, and (2) condo conversions reduce the pool.
Rents for individual-owned properties will decrease. Try to locate a good condo or SFH rent, and negotiate with the owner. Preferably a property that didn’t sell.
Umm…. the condo conversion thing is SOOOOOOO over. They are re-partments now. And most of the “converted” are still on the market as rentals without a centralized landlord — esentially still apartments.
re-partments …good one
I live in Thousand Oaks and I also rent (sold in 2004). You might want to try some area outside of T/O like Camarillo or even go south a little (Woodland Hills area). The problem with T/O is it’s booming and, even though I don’t own property here, I get the feeling it isn’t going to get much cheaper. 6 years ago you could drive into any supermarket parking lot and there would be 50 spaces plus. Now you have to drive around waiting and looking for someone to pull out.
Actually, I was thinking of relocating to Las Vegas because I’m sick of paying high California taxes and I notice you can get 3 times the rental value there and Las Vegas rents (I suspect) will only get cheaper as those fb dump properties over the next 2 years. I figure the money I pay California in state taxes every year would pay 100% for a rental in Las Vegas. I was also looking at Oregon (I day trade so I can move anywhere) but it’s too cold for my old bones. I doubt if prices will go much higher in the T/O area but there’s so much money around here (including Westlake) that it’s no guarantee. I might come back and take a look sometime in 2008/9 (if I move) and buy again. That’s when I figure the bottom MIGHT be in.
Mike,
Thanks for the feedback.
One unrelated question I have been curious but afraid to ask. Can someone daytrade and make a leaving-some do like you-question is how easy and howmuch capital does it take. What else? Nerve of steel, is it required?
One day I want to quit the technology work that I do!
rent2home:
I would not recommend day trading (stocks, real estate, etc) as a way to make a living. It is very difficult, and if you bet the wrong way, you profit/living just melts away.
The best way to start whittling down the hours you work is to #1) always live below your means and #2) save as much money as you can, preferrably in something other than paper dollars.
Sounds anti-American, doesn’t it??
“The problem with T/O is it’s booming and, even though I don’t own property here, I get the feeling it isn’t going to get much cheaper”
I live in WLV (sold in Camarillo in 11/04 and now rent) and have followed local real estate prices for a while. Thousand Oaks real estate has rolled off a cliff this summer and prices reductions are now hitting the comps. This data and the first wave of toxic loan foreclosures will hit the reports by December or earlier. Amgen isn’t going to grow here anymore and Countrywide (the two major private employers here) layoffs are just starting but will grow very significant. School district enrollments are dropping 10% per year now due to families leaving and Oxnard is extremely overbuilt. You will see 40-50% price declines and an unprecedented number of foreclosures in the Conejo Valley by 2009.
It all depends on how mobile you are. When I was younger and VERY mobile, all I had to do is look for a new place to rent — and move. Sometimes it was just to the next block over.
One particular spot I was in once, though, was great. Nice location, good neighbors, plenty of space in the house. Landlord jacked the rent up, and … we paid it. We eventually did move, but only after he jacked it up one more time and THEN threw us later out to refurb and flip it!
Ah well, after all, it *was* his house.
I can’t speak for SoCal, but my guess is that in a lot of places you will do better on a cost/sqft basis with SFH’s instead of apartments. And you might do better with condos as well, though have a FB as a landlord can get dicey because you might end up with the bank as a landlord. As ever, though, stay mobile — or pay up.
Rent is going up and up!! The flood of FB is starting to hit the streets. Rent prices have been held low for many years due to the flood to be a ‘homeowner’ rather then renters. Now the demand of people looking to rent a place is increasing with less supply of places available for them to go thus increase in rent prices is coming. Some may say what about the house they just left it comes on the market too so it should be a net gain of 0. They house they couldn’t afford was bigger and nicer then the one they are looking to rent thus the low end rent will increase in price and the high end will go down due to less people chasing the same number of houses. This works if the total number of housing unit is equal to or less then the number of people needing houses. In areas where it was overbuilt then I would expect rent prices to hold steady or even decrease as excess inventory of empty homes come on the market. The aswer to your question lies in educating yourself on the local market conditions. Find out what the comparables are, collect the data and present it to the landlord. No landlord likes turnover. I for one will accept a $100 less per month to keep a tenant rather then have the costs associated with turnover. This is 100 less then ‘current market value’ and if the tenant pays on time and I think they are ‘good people’.
Okay, I’m glad this topic came up because I’ve seen some very disturbing things in our neighborhood these past few weeks (north San Diego county).
About a week or two ago, we started seeing an unusually high number of “for rent” signs going up in our fairly desirable SFH neighborhood. I thought that was good because I had noticed rents going up a bit too much, and welcomed the new inventory.
As of today, most (if not all) of those houses are rented (the signs are down, so that’s what I’m assuming). Not only did they move VERY quickly, but the rents they were asking were 33% higher than what we are paying for an equivalent house (sold and rented in 2004).
I’m starting to panic as we cannot afford to have our rent jacked up to market rates. So far, our LLs love us, but that can only go so far. Pi$$ed because, in 2004, I anticipated this would happen and my DH would not let me negotiate a multi-year lease when the rental market was soft and the LL would have been open to it.
Ben B. BETTER raise rates because this is REAL cost inflation that cannot be avoided.
Praying for this d@mn bubble to resolve much more quickly already.
Oh, that 33% is higher than current rent which was already raised 5% since 2004. Rents are up over 40% in our hood from 2004 — exact model matches.
I think some FBs will want to remain in the same school district, at least until May, so might well pay overpriced rents. In the long run rents will rise substantially because they have been kept artificially low in So Cal for 5 years. In the intermediate run, there will be an unprecedented amount of rental stock coming on the market in suburburia and exurbia, so they may fall in 2007 and 08.
I live in North San Diego County as well and have been monitoring the rental rates since I purchased in Mar 04 since this is my fallback, should I be forced to move. Anytime I negotiate a multi-year lease I use the rate of inflation from the Bureau of Labor and statistics which have the CPI Cunsumer Price index which measures inflation plus tax and insurance increase. It protects myself against rising inflation and rising costs. Upon termination of the last adjustment I look at the current local market conditions to raise or lower my rent price accordingly. I think in your case if you could negotiate a set increase based upon National inflation rate it might work to your benefit since I think that rental prices in SoCal are going to rise quicker due to the housing situation. the website is http://www.BLS.gov. Is DH Darling or devoted husband? The numbers they get for housing are rental prices so we could see the inflation rate tick up over the next couple of years. THis also explains how housing inflation numbers have been so low!!!
Or is DH damned husband?
troll move or pay up your flipper landloard just got laid off from countrywide
bottomfeeder,
I hope you’re not calling *me* a troll. I’m as bearish as they come and have been on Ben’s blog since the beginning. I’m going to assume you were referring to shakes, since your comment is embedded there.
“But with lenders packaging dog loans among huge portfolios that they sell to institutional investors, such as pension funds, the bad guys often get rich and leave the misery to retiring teachers and firefighters, former Securities Exchange Commission accounting chief Lynn Turner said.”
It will get really ugly when this brown stuff comes flying off the fan blades.
With this I whole heartedly agree! It will get really ugly.
Good thing I ain’t standing ‘neath no dang fan!!! Always rented…:-)
Unfortunately, the poo will spread far and wide, you won’t need to be standing directly under the fan to be hit.
- “‘Appreciation,’ Goodman said, ‘covers up a lot of bad lending
- Depreciation reveals negligence and sometimes loan fraud.’
The ‘appreciation’ was a ponzi scheme…that only worked while more suckers piled in at the bottom.
Now, we’re faced with the fraud of the speculators and ‘no doc’ dreamers decieved by the media hype of ‘Now is the Time’..’You deserve it’…
The vast main stream journalist and public as well understandable do not know how “money” system realy works. It is not taught in schools as higher learning knows not. For those who care go to http://www.financialsense.com and read “The Frauds”. The lender knew in advance what was going to happen. They are not stupied. What was their lost? The paper and ink costs to print the money?
Yes. Otherwise their home free. If they get a few payments on a loan, their ahead. After thinking about this “bubble”, some late evening, all at once you’l see the light. The Federal Reserve and the political establishment are beneficiaries to the way things work and they don’t want any changes that might effect profits or patriotic ambitions. Stay confused, blame others, and do not
think about this “money thing”. Their counting on you!
“We don’t need no appreciation, We don’t need no rent control, hey lenders, leave those fools alone”.
A little off-topic, and this may have been posted last wk. when I was out of town, but….
(from The Onion)
For the third straight month, sales on pre-existing homes dropped, leading realtors to call it a “buyer’s market.” Here are some strategies sellers are using to entice buyers:
–dropping price by 50 bucks
–carrying around wad of money; acting like owning this house got them that money
–pointing out dishwasher SEVERAL times
–explaining to potential buyers how fulfilling it is to make mortgage payment on time
–telling long, touching story about how grandmother needs $312,500 for kidney operation
–letting third blouse button go
–drowning out sound of noisy furnace with soulful vocals of Michael McDonald
–reassuring buyers that people purchase things they can’t afford all the time.
Our non-parody FB’s we’re reading about aren’t too far from this!
‘–drowning out sound of noisy furnace with soulful vocals of Michael McDonald’
Wasn’t that Michael Bolton?
Michael McDonald= soulful
Michael Bolton=caterwauling
Michael Bolton and David Lereah - both of them are no-talent ass clowns, at least according to the “real” Michael Bolton.
Yamo be there…
ahahahahah - misty irritating memories!
So for the time being, executives can pocket bonuses, then bail before the crunch comes.
HA HA HA! One of these days the whole nasty odious financial system is going to collapse under the weight of corruption and greed. I laugh in advance at all the stupid sheeple. HA HA HA!!
Speaking of corruption this statement below made me speechless.
“three of the country’s big mortgage lenders; Countrywide Financial, Washington Mutual and Golden West, counted nearly $1.5 billion in ‘net deferred interest’ as revenue in fiscal 2006. ”
That is the biggest crock of sh@t I have ever heard of. Better stay away from those companies as their books are crooked as hell.
Better yet buy a ‘put’ on their companies and laugh all the way to the bank when they collapse. It takes some real guts to do so I don’t recommend it to many but if it works it becomes twice as satisfiing. You made money and the crooks got theirs in the end. It is stuff movies are made of!!
The problem with shorting manipulated markets is that they are, well, manipulated. Even if you are right on the eventual outcome, you can be wrong on the timing (due to manipulation) and get screwed on your shorts. Happens in the precious metal markets all the time.
posted “$1.5 billion in ‘net deferred interest’ as revenue in fiscal 2006.”
Oh Brother! That will be going to Money Heaven.
Because the economy (and I) depend on this financial system for credit, transactions, 401Ks (not my salary), I don’t laugh about it. Cleaning up, yes; collapsing, better not.
Born a slave to the bankers, live as a slave to the bankers, die a slave to the bankers - bankers who create money (debt) out of thin air and attach interest.
Get off your knees!
Down in SW Florida, it appears that mortgage fraud is rampant, yet no one seems to care. Properties are listed at lets say 899k and close at $1.235 mm. This looks like the old kickback cash at closing scheme. The market is soft as a babys ass, and the mls is loaded with reductions, yet some properties are closing 100, 200 or 300k above list. What gives?
I understand that neighbors and friends who have been denied refi go buy each others house with zero down ARM stated income loans and basically just continue to live in their old houses rathe then move. Pick-up 200K to 400K cash.
lineup32,
Really? That is astounding! Just look at the way we’ve become almost totally Housing ATM dependent! That is beyond pathetic. You’d think someone (with half a brain) would catch that right out of the gate?
Let’s say you bought a house for 500K, now your ARM is resetting, and you can’t pay the mortgage. Selling at market value would fetch only 400K, leaving you with a 100K loss.
Now, go get a friend or relative to buy your house for 700K (using the stated-income ARM), then split the 200K cash with them.
Repeat the process among friends. Chose one friend with bad credit (nothing to lose) to finally return the house to the bank.
That’s how you rob the bank for a few hundred thousands
and no one is going to jail. Just bad credit for a few years, but
you don’t need any credit when you have few hundred Ks.
Don’t feel bad for the bank, they already booked profit and sold your loan the Chinese, who has too much cash anyway.
It’s a win-win for everyone.
Yes, there was a huge article in the St. Petersburg Times a few months back about this. Florida is on the leading edge of our country’s financial cesspool.
Not only is that the perfect scam, but there will be many more of these if there is a federal bailout of mortgage bagholders. Why make honest loans when the government will just subsidize the losses from fraud?
This is happening in Phoenix/Scottsdale too. The sharks are picking fixers to offer well over the asking price, then the kiick backs come in. They are all involved, Sellers, Agents, Appraisers, Mortgage Brokers, and as you say, no one seems to care!!
When I read this I alternated between thinking “how true” and having my blood boil.
People talk about politicians saving the FB’s, but at some point it will turn to saving the union pensions! I might not be pro-union, but I respect that they have a lot more political clout than Joe FB…
Neil
It all should be based on the ability to pay. The appraisal is just a snap shot in time. The amout of fraud is staggering.
The pensions are screwhoohooed. They are all tied up in funds where the worst low life scum in the world skims, buys crap MBS, on and on. The stupid sheeple put there futures in the hands of the worst miscreants on the planet.
The problem of too high appraisals seems due to separation of responsibility and risk. If the people who decide about the loan carry the risk of it failing (like an old-fashioned bank), the market would correct it itself by punishing takers of too high risk. The state might regulate this by reducing the separation of risk and responsibility, but should not crack down on appraisers that were under pressure from brokers (except for going after the brokers).
AppraisersForum.com has some interesting threads where appraisers talk about the pressure to “make the number”.the odd thing is,an appraiser committing fraud doesn’t make much money,they are only going to get a normal fee of $250-$400.a loan broker might make and extra $5k,and a realtor 2 or three times that….so ten years in prison divided by $15k,minus attorney fees…..hmmm,think i’ll have the coffee instead.
So, do we need more regulation to correct the ongoing malfeasance? Or, are we going to continue down this path?
I think that the regulation that is needed is not with the appraisers who are small fry but with the lenders who because of funny accounting and the ability to dump the loans off on bonds and others so they don’t fully take the risk which means they don’t supervise the loans enough. Once you make lenders fully responsible for the loans they give out they will start policing the appraisers.
i agree, mandate that the non performing buy back clause must remain at least a year after the loan indexes to the *real* payment.
“ongoing malfeasance” = Federal Reserve controlled fractional reserve banking system + government deficit spending.
WTF. I was having a half way decent day, got an appraisal order today (thank god) and now I turn on the computer and have to read that LOAD OF CRAP… All you have to do is this.. Everytime you see appraiser replace it with lender. Now read the article again remembering to reverse them. This statement is classic. ‘Consumers are hurt when their property values are artificially inflated in price when they go to sell them.’ No Shit. Dont Cash Out Refi into a 3 year opt arm… I read 1/2 the article and had to vent I will read the rest ..fell free to comment as I am pissed off right now.
I feel like that guy in mythology or literature who was looking for just 1 honest person (I always think Damocles, but he was the one with the sword over his head). I know you guys here are honest, but I mean in the rest of the world. Can’t I find an honest man somewhere?
Diogenes.
Noah.
Lot.
Anyone else here starting to get that sinking feeling that maybe the bankers and Wall Street have gone too far this time? That we are standing at the edge of the financial abyss so to speak. People like boulderbo and SoCalMtgGuy have been warning of the fraud to us bloggers for the past year, and its only now hitting the media. Real debt was issued against these appraisals. It cannot just be erased.
CA Guy posts “Anyone else here starting to get that sinking feeling that maybe the bankers and Wall Street have gone too far this time?”
I will admit I do. Also doubt if even the smartest person here will get out without getting a little stung. The big story yesterday about the couple that only GROSSED 4,000.00 per month and got a house with a $4,200.00 dollar payment…..put the fear in me!
They didn’t go too far - they went as far as necessary to keep the debt pyramid from imploding. Mathematically, enough new debt must be created to service previously created debt as well as pay for the cost of current existence.
Had we not had the arm/cashout refi/inflated appraisal/stated income f*%k fest of the past few years, the debt pyramid would have imploded in 2001.
All they did was buy a little time - for themselves and for those smart enough to see what’s coming (who used the time to prepare).
Now that the last pillar of debt inflation is gone, the whole mess will start unravelling. You thought Great Depression I was bad? Stand by…
I have a little sticker on my monitor: Prepare Now!
This is not a time to procrastinate.
i posted earlier today about the crackdown by the massachusetts banking commissioner on mortgage brokers and “stated income” deals. while this development and the one’s taking place in colorado are being instigated by regulatory bodies, the wholesale investors continue to offer “stated income, stated asset, no trade line, 100% financing to investors with fico scores as low as 520 (do you know how bad your credit history has to be to get to 520 score?). it’s a direct reflection of the fact that the originators, wholesale investors and wall street don’t give a sh%t about the paper as long as they can get rid of it fast before it defaults. i can almost guarantee that they are not aware of the coming wave of “unrefinancables” they we see on a weekly basis.
“The real trick as the housing market collapses under its own greed and suspension of disbelief is to leave someone else holding the bag.”
Lots of potential bagholders are currently hoping they are not the guy who does not find a chair once the music stops.
the truth is that most lenders don’t give a crap about appraised value. if they did, they would review appraisals like they did prior to licensing. and they would maintained approved appraisers lists like they did once upon a time.
used to be that you had to demonstrate a certain level of competence to a lender in order to do appraisals for them. they used to require tyically 3 to 5 years experience, work samples, references, etc.
not anymore. now all they require is a license. which is more difficult to get than a real estate salesman license, but not that much more difficult. plus they don’t review reports like they did in the past.
everybody’s trying to blame the appraiser, but put the blame where it really belongs. put it on the greedy prospective homeowner who thinks properties are going to increase 10% or more per year forever and on the lenders who’ve abdicated their responsibility to maintain sound lending practices with bogus loan programs and not reviewing appraisals.
if the appraiser fraudently describes the subject property and creates / makes up fraudulent comparables, nail him/her to the wall.
believe it or not, there are alot of honest appraisers in the business.
All of this fraud puts a whole new meaning into the saying, “House of cards.”
Saw in the thread that some still believe the banks work under 10% fractional reserve requirement (the 10% of your deposits that the banks used to keep availble).
However pls. realize that in 1995 the fractional reserve requirements were lowered and are now probably close to 0 as I understand it.
read e.g. http://www.itulip.com/forums/showthread.php?t=292
Read it and get very frightened. Better get your money abroad or spread it (in the hope that FDIC insurance will reimburse your deposits if your bank folds). Financial accidents will happen in this bust.
BTW that iTulip site has very very good info on economics and housing.
ITulip has good information if you can stand all the green and black color scheme!
Unlike stock market bubbles, real estate bubbles don’t pop. Collapsing stock market bubbles are characterized by a sudden collapse in prices because stock markets are highly liquid. You see huge volumes of transactions at ever lower prices during a stock market collapse. Collapsing housing bubbles, on the other hand, are characterized by illiquidity, a sudden collapse in transactions. Buyers and sellers seem to disappear.
From this article…. http://www.itulip.com/housingnotlikeequities.htm written TWO and a HALF YEARS ago!
“But with lenders packaging dog loans among huge portfolios that they sell to institutional investors, such as pension funds, the bad guys often get rich and leave the misery to retiring teachers and firefighters, former Securities Exchange Commission accounting chief Lynn Turner said.”
This how it will end folks, and many of these retirement funds will not produce any data regarding their exposure to these risky MBS within their portfolios. Never trust a Money Manipulator from Wall street.
Seems like the lenders have already made their buck and passed these loans on. Also the realtors, appraisers, loan brokers, etc. So who do you think will be the bagholders in all of this? Aside from Mr. and Mrs. FB, who have nothing to lose in most cases but their homes that they never really owned, and their credit.
I am so glad that states have FINALLY started to investigate this practice. For a while, I thought people would ignore this situation because the only losers are the 5% of the American Public who actually like to SAVE money.
Otherwise, it’s win-win-win:
-Homeowners get their “ATM Machine” so only the small minorty of smart ones will think there’s anything wrong with crazy house valuations
-Governments get more property tax revunue
-Banks make money
-Granite Countertop companies make money
-Investors “get rich quick” buying and selling to each other, at least as long as the pyramid can sustain itself
People often enough forget: When something is too good to be true…
Suckers always think that they are being smart in not missing out on a good thing.
Jas Jain
We are renting a home having paid the entire years rent up front. In the event the owner were to lose the home’s title could we be kicked out before our lease is up? Anyone know the answer or have theories?
You need to ask a RE lawyer.
i’m not a lawyer, but i’m familiar with a saying “possession is nine-tenths of the law”
if you paid your rent only 1 month in advance you wouldn’t be worried, would you?
i hope you come out OK, but don’t do this again in the future.
Tenant law and protections vary a LOT from state to state.
I don’t know if this is off topic or BACK to the topic at this point, but does anybody have info on a crackdown on appraisal fraud in California? Is it happening or expected? Is there something we can do as citizens to demand it from our state government?