Red Flags In A ‘Muddled’ Lending Climate
A report from the Wall Street Journal. “Federal and state authorities are investigating allegations of an elaborate mortgage fraud involving about 100 people living in or near Martinsville, VA. who say they unwittingly took out loans to buy houses at inflated prices in Indiana. Now, many of the loans are in default, the borrowers’ credit ratings are in ruins, and lenders are pursuing the organizers of the purported investment group in court.”
“Companies stuck with the defaulting loans include Countrywide Financial Corp., the nation’s largest home lender, and Argent Mortgage Co., another big lender. Representatives of the borrowers put the total value of loans involved at about $80 million, which would make it one of the largest mortgage-fraud cases ever.”
“Part of the problem, say critics inside and outside the industry, is that, in their haste to earn commissions and fees, loan officers and brokers are asking fewer probing questions. ‘We aren’t asking questions, and we aren’t verifying like we used to,’ says Bob Simpson, (who) helps lenders recover losses from fraud. ‘For legitimate, honest consumers, that’s a good thing,’ but it creates opportunities for crooks, Mr. Simpson says.”
“Kurt Pfotenhauer, a senior vice president at the Mortgage Bankers Association in Washington, says the pursuit of efficiency in making loans has made the industry more vulnerable to fraud.”
“Nancy Muse heard about the group from a friend. Months later, Ms. Muse found out she was in trouble when she inquired about buying a modular home for herself. A representative of the home-building company checked her credit and told her she already owned four homes.”
“One church secretary, who says she heard about the investment group from her pastor, says she and her husband, a building-maintenance worker, learned that they were the owners of 14 homes in Indiana, a state they had never visited.”
“Fannie Mae acquired some of the loans from Countywide and has reported its findings in the case to law-enforcement officials and regulators, a spokeswoman said.”
“Fraud has proliferated as lenders increasingly deal with borrowers through brokers and other intermediaries rather than having face-to-face relationships. ‘Lending is becoming more anonymous,’ says Rachel M. Dollar, a Santa Rosa, Calif., attorney.”
“Borrowers’ attorneys and other consumer advocates say many problems arise simply from greed or haste on the part of loan officers and brokers motivated by commissions to push for high volumes. ‘The red flags were as strong as you can get,’ says Jessica Attie, a staff attorney with the clinic’s Foreclosure Prevention Project.”
“Other lenders also appear to have overlooked some suspicious borrowing patterns. According to a mortgage-fraud indictment..one borrower, identified in the court filing only as Justin Z, obtained loans from National City Corp.’s mortgage arm to finance purchases of 20 condominiums in the Atlanta area between Feb. 1 and March 26, 2001.”
The Sentinel and Enterprise from Massachusetts. “The state Division of Banks is cracking down this month on what it sees as abusive business practices by mortgage lenders and brokers.”
“The mortgage industry’s climate is somewhat muddled, Commissioner of Banks Steven Antonakes and some local lenders acknowledged. Some brokers and lenders offered many more atypical products during the recently concluded real-estate boom, according to Thomas J. Gray, senior vice president of lending at Workers’ Credit Union.”
“‘In the mortgage business, because it’s cyclical, when the real-estate market is going up, there are some mortgage companies and brokers that would make loans they might not normally make and (then sell the loans to other lenders),’ he said. The real-estate market’s slowdown negatively impacts homeowners struggling to keep up with a loan’s payments because they can’t quickly sell their home to avoid foreclosure, Gray explained.”
“But the slowdown has also put lenders in a tough position, said Christopher J. Iosua, president of the Mortgage Connection Inc. ‘When business slows down the way it has in the past six to nine months, new loan originators and those without a strong base of customers do things they probably wouldn’t normally do,’ he said.”
“Commissioner Antonakes said, abusive lending practices can destabilize the entire real-estate market. ‘In the worst case, the home will be foreclosed upon, and that kind of activity could result in the home being sold for less than its value and before you know it, you have a domino effect.’”
The Oregonian. “It seems like every month, I’m running into people passing out a slick new business card that announces them as a real estate agent or mortgage broker. On certain Portland streets, housing prices are doubling in a matter of months. And when there’s this kind of temptation to make quick money, greed can’t be far behind.”
“Last week, Leanne Booth, a real-estate loan broker; Troy Martin, a real estate sales agent; and Ryan Bonneau, a former mortgage loan originator, were indicted on money laundering and wire fraud charges. They are accused of selling two Marine Drive homes at inflated prices so they could pocket the profits.”
“One house was sold at about $100,000 more than its $350,000 market value. The other, next door, sold for $50,000 more than its $350,000 value. The biggest loser is the Indianapolis bank that loaned the money. And once the real-estate market bottoms out, the dominoes of loan defaults that will likely result will reveal even more mortgage fraud cases, says Lance Caldwell, one of Portland’s assistant U.S. district attorneys.”
“‘It reminds me,’ Caldwell says, ‘of the savings and loan crisis.’”
‘In the mortgage business, because it’s cyclical, when the real-estate market is going up, there are some mortgage companies and brokers that would make loans they might not normally make and (then sell the loans to other lenders),’ he said…But the slowdown has also put lenders in a tough position, said Christopher J. Iosua, president of the Mortgage Connection Inc. ‘When business slows down the way it has in the past six to nine months, new loan originators and those without a strong base of customers do things they probably wouldn’t normally do,’ he said.’
So, when it is busy, they cut corners to make a buck and when it slows down, they do the same thing. Interesting industry!
It’s not their money that there lending so what the hell? I think they would do some more investigation into the situation if they would be held more personally responsible.
Here is an add from the Sacramento Bee TODAY (9/28/06) under Investment Properties: “If you have a Fico 620 or better, we can get you 100% financed and $20,000 cash back at close of escrow.
That’s right folks…in the NEWPAPER. It is like drug dealers on the interenet. Get your money here……….no questions asked.
If you think this is not a credit bubble, read on.
Just did a few back-of-the-envelope calcs.
Population Growth: 3M/year
Avg People / Household: 2.6
New Home Building Rate — past few years: 2M/year
(not including conversions, etc)
So, we need 3M/2.6 = 1.15M homes/year to satisfy pop growth
In Econ 101, you learn that when supply (2M/yr) is more than demand (1.15M/yr), prices drop.
Eventually, the insanity will end and true supply and demand will dictate prices.
Except for those economists over at the Anderson School. Apparently they think that when that happens, prices flatten.
Funny how nobody gives a damn until loans start defaulting!
before they default they are sold off.
As Warren Buffet said, ” You don’t see who is naked until the tide goes out.”
This applies to most investment/speculation cycles. Every idiot is a genius in a bull market. Fraud is overlooked. Regulators, lawmakers, legislators, banks, lenders, buyers, and sellers are solely concerned with making as much money. Ends justify the means.
Now, as with other crashes, we will be witness to the underbelly of the beast. As the losses mount, the fingers will be pointed, civil and criminal prosecutions will take place, and the corrupt lawmakers will attempt to distance themselves by enacting laws to “protect the public.” There wil be a few token patsies sent to jail, but the CEO’s, and Powers To Be will keep on rolling to the next scam.
We all know who will end up paying for this. The rest of us.
Having known more than a few regulators in my time, they are pretty nervous even in the good times, but no one listens to them then (they would make most people here look positivly bullish).
Interesting fraud stories.
http://www.motherjones.com/news/feature/2006/09/prime_suspect.html
One day they will come in the spigot will be turned off. I saw this first hand doing some mtg brokers audits in the early 90’s. One in particular - the funding source for these crooks was Lomas Mtg - they came in one and they told them we are not buying anymore of your crap loans. Two months later all 10 branches were closed and everyone was fired. It can turn on a dime. I waiting for this to happen again.
It appears we won’t have much longer to wait until a large mortgage banker scandal hits the proverbial fan.
I remember Lomas they stayed in the foreclosure sheets if I remember correctly.
Posted” Red Flags In A ‘Muddled’ Lending Climate”
Next will be the White Flags!
“‘It reminds me,’ Caldwell says, ‘of the savings and loan crisis.’”
it is, version 2.0
yeah, this is bigger b/c it’s global…
Similar story — systemic risk at its worst — but with different actors involved (e.g., FNM in place of the defunct FSLIC).
http://en.wikipedia.org/wiki/FSLIC
Anyone remember the Resolution Trust Corporation? Think that’s coming back?
It is already is. I think it’s called NewBank or something like that, set up by the FED.
Oddly enough NewBank is also an area in Glasgow. How appropriate! Euphamism of the day: The underwater properties are all “going to Glasgow.”
“Fannie Mae acquired some of the loans from Countywide and has reported its findings in the case to law-enforcement officials and regulators, a spokeswoman said.”
We have been continually told(lied to) that FNM doesn’t get the bad Mortgages. Wow, I’m reallys suprised that’s not true….NOT!!!!
Do you remember the homeless guy in Florida who ‘owned’ and overpaid for 5 dilapidated houses? All 5 loans were bought by Fannie.
Yep — I remember the case, but I don’t remember if all the perps involved went to jail.
Ben,
Sure do. It was actually kind of sad. When the guy passed away his sister said he’d been a wino most of his life and lived on the streets. Then she comes to find out he “owns” FIVE houses! (Imagine her surprise!) The guy had been a pain to the family for years in life and now that he’s dead he’s still causing problems for them. (Probably signed on the dotted line for a 5th of Mad Dog 20-20).
I don’t mean to make light of substance abuse but isn’t this typical at the end of a boom? They’ll take anyone’s money. In this case, borrowed money.
Fannie buys about anything these days. Just add it to the shady portfollio and let it get lost in the derivitive scheme. Oh hell, just hide that puppy over in the little black box?
Fannie buys about anything these days. Just add it to the shady portfollio and let it get lost in the derivitive scheme. Oh hell, just hide that puppy over in the little black box?
And remember how you used to see Fannie CEO Franklin Raines on ever interview show, and the cover of every business magazine? They called him the “Jackie Robinson” of buisness. They owe the Robinson family an apology.
http://www.slate.com/id/2107894 (for example)
Ben, I saved this article among my archives.
Here’s the link…
http://tinyurl.com/jm6am
I talked to someone who works at Fannie Mae and he told me that the vast majority of loans that they accept are automatically accpeted via some sophisticated computer system.
maybe that’s why Barron’s has consistently talked up FNM as a great investment … for their ’sophisticated’ computer system. they certainly couldn’t base their claims on reported financials.
The whole industry is corrupt from top to bottom!
It’s that there is so much help in facilitating the corruption! You’ve got shady loan brokers/officers that just want to make their points off the home buyer. You’ve got slimy RE brokers/agents that want to put buyers in homes they can’t afford. You’ve got appraisers with no ethics that let the lenders and RE agents dictate what things appraise for. You’ve got the specuvestors that speed up this whole process. And of course you’ve got the uneducated buyers who want the American Dream and trust and rely on the loan broker, RE agent, escrow, notary, appraiser, etc to just tell them what to do.
Maybe they should require a filming of all loan brokers taking loan applications as well as filming the loan doc. signings .
In addition a review appraisal should be done by a party that does not know the original appraiser . In addition maybe a borrower should be given a form to sign that states all the possible ways they might be part of a fraud ring they might not know about that might be using their name .
After saying all that , if someone came up to me and wanted to give me 2k to use my name in a real estate deal I would know right off the bat that it was a foul play thing . How could someone give away their name and vitals for a lousey 2k or any amount to people that they don’t really know . Apparently they didn’t look at all the papers they were signing or once the crooks got their vitals they forged the signing of loan docs .
Always realize that if your given money to give up your name ,it’s not normal , its a bribe .If your investing you usually have to pay money .You see alot of signs on telephones pole where a investor is looking for someone with clean credit to be a apprentice …..run for the hills .
Its no different on the deal where the realtor promised the buyer 100k at close of escrow if they bought a house in which they inflated the appraisal to cover the kickback .
Wis — you’re right, of course, but some of these crooks can be very clever — look at that small town in Virginia, the story about which another posted linked today — a whole lot of people were scammed by someone they knew well and trusted, and indirectly, by thinking they were part of a modest investment club that would gain them $2,000.
I really like the solution Americans had for that kind of stuff in the 1880s.
Well ,hopefully this big fraud case will be talked about in the main media so the sheep are put on alert .
By the way Chip, are you talking about the town square public shame punishment where they put peoples heads and hands in those blocks ,or tar and feathering , or just a good old hanging ?
NOt just the “industry” the whole economic and political system has turned fraudulent. That is what peple need to grasp and come to terms with.
Bernanke and Greenspan are directly responsible for the financial fraud in the “industry.” NO?
Jas Jain
I don’t know if Greenspan knew that the lenders would drop all lending standards . I think alot of people assumed that the lenders were doing their duty and the appraisers were also .
Greenspan didn’t raise the rates when he should of and that extended the boom for another 3 or 4 years that set the stage for all the fraud .
Wiz,
If Greenspan didn’t know what so many of us “regular Joes” knew, he’s one of the most overpaid, undereducated idiots out there. Of course, I don’t believe that’s the case. IMHO, there is NO DOUBT that he not only knew, but was an active participant in setting it up.
Based on the WSJ and Oregonian articles, it seems a lot of criminals figured a way to exploit the loose unerwriting. Anybody care to guess what percentage of loans were similarly but not criminally inflated?
Furthermore, these articles expose the degree of looseness in the system; the industry was handing out cash to anyone willing to ask.
“It seems alot of criminals figured a way to exploit the loose underwriting.”
Yeah, if you consider anyone that lies on a Stated Income (Liar loan) a criminal, then that means all of the borrowers and the mortgage brokers that put them in them fit that title.
I thought lying on a mortgage application constituted fraud. Has this been repealed? If not, any reason why state AGs can’t investigate and indict these folks? Why not start with the borrowers? If they “stated” they earned more than they do, indict them. While criminal proceedings are underway, notify the IRS and let the tax dogs do their stuff. Then follow the paper trail.
This is not rocket science.Without lying, dishonest borrowers, the game is up.Remember the old chain gang movies–the convicted FBs could be put to work to repair the country’s decaying infrastructure. The FBs would learn the value of hard work and the taxpayers would be repaid.
“If not, any reason why state AGs can’t investigate and indict these folks?”
No reason. That’s what makes so many of us want to puke — the slimebag politicians don’t have the guts or even the interest to go after more than a token few, just enough for showboating purposes.
“Representatives of the borrowers put the total value of loans involved at about $80 million, which would make it one of the largest mortgage-fraud cases ever.”
Why does the phrase “tip of the iceberg” spring to mind?
Man the lawyers are going to be making big bucks off all this funny money. I know of people I wouldn’t loan 20 bucks to takeing out 400k loans. It is all about the commission check. These lenders are the people you see driving around in hummers thinking they are so dam smart.
Time to get a J.D. so I can put out the shingle, Bankruptcy and Fraud Lawyer
Cases like this are what I have been worried about all along when I found out about the loose underwriting and appraisals .I just knew that the crooks would take advantage of this climate of “anything goes” . I have been on pins and needles waiting for the first big case to come up and now it has .
I bet if you go back to those loan applications there was red flags all over the place . Anytime a underwriter has a appreciation rate go higher than a inflation amount in a short time the package needs a big double check .
Maybe the secondary market should demand review appraisals(,from companies other than the original lender ) before they buy bulk mortgage packages . The cost would be worth it .Add a review appraisal to the cost and give the scum agent at the mortgage company less .I know this might make the loan approval take a little longer ,but who cares .
Wiz,
Not only review appraisals, but random underwriting checks as well. I wonder if there are some provisions in the no-doc/low-doc paperwork which state that the lender can request *some kind* of backup for the supposed income and assets. I certainly would want to know if it were my money being loaned like this.
“Man the lawyers are going to be making big bucks off all this funny money.”
Talk about strange bedfellows — for the first time in a long while, I wish the lawyers well — the prosecuting ones.
“The way I would put it, the odds of recession have risen over the past month,” said Mark Zandi, chief economist for Moody’s Economy.com. “Today I would put recession odds at 1 in 4. A month ago, it was 1 in 5. A year ago, 1 in 10.”
Next month 2 in 4 and in 2 months …..Drum roll
What a great chief, all the facts still the same today as a year ago.
Odd the US being in a recession next year 90% + .
http://bubblemeter.blogspot.com/2006/01/coming-late-2006-early-2007-recession.html
Cigarette Defense: “Sure cigarettes are bad for you but selling them is legal and besides the government makes money on every sale.”
I think what we’re seeing is the hidden, indirect fallout of the Fed’s reckless easy money policy. The obvious inflationary impacts are there for everyone to see — $600 gold … $3 gas (for a while anyway) … $75+ oil (also down somewhat). But what slashing rates to 40+ year lows ALSO did was inflate asset values. AND even worse, it forced fixed income investors to stretch for yield. They bought anything and everything with all the money they couldn’t keep in 1% yielding cash investments and still live and/or generate sufficient returns. With the yield curve flat and liquidity still excessive, this problem hasn’t gone away. Hedge funds, pension funds, foreign CBs … they’re all chasing anything that yields more than plain-vanilla US Treasuries. Nobody is paying attention to risk … yet … they’re just looking for more yield.
Some day, the risk of loss will finally get priced back into many segments of the bond market, and when it does, things will get ugly, liquidity will drain away fast, and you’ll see lending standards tighten substantially. When is that day? Obviously not yet. Hopefully, in the interest of returning sanity to global financial markets, it won’t be like waiting for Godot.
Mike posts “Some day, the risk of loss will finally get priced back into many segments of the bond market, and when it does, things will get ugly, liquidity will drain away fast, and you’ll see lending standards tighten substantially. When is that day? Obviously not yet.”
I think that it has already started. The 10 yr has backed off and the S&P is sitting on a mountian of cash. My personal opinion is that this latest rise in the DOW is pure “distribution” prior to the slaughter. That will be driven from “Main Street” as home prices drop so goes all of the spending…. Look at the Auto market the first of the “big ticket” items to take a hit…. on and on it will go when they lower the price on Movie Tickets you will know….it will smell like the 30’s.
one borrower, identified in the court filing only as Justin Z, obtained loans from National City Corp.’s mortgage arm to finance purchases of 20 condominiums
Justin Z, har, har, hardy har. Come on lenders, admit it, you want to be defrauded, you’re begging to be defrauded. There are reasonable people all over the country that you tempt every day to take advantage of you. The fraudsters are slapping you on the butt and demanding that you tell them how much you like it, don’t lie.
How could National City approve 20 loans to the same person? Was it because of the fees collected (5K x 20 = 100K) ?
There must have been due diligence, checks and controls at National City, yes ?
How many of these class-AAA loans were sold to Fannie Mae, MBS ?
Mort — do you know if that is National City of Ohio? The latter recently bought out Harbor Federal Savings and the CD interest rates Harbor offer have shot straight up.
No, I don’t know. I will say this, if you buy CDs from Countrywide, WAMU, whoever, at 5.25% interest be prepared to wait get your money back from the FDIC. Pick your banks carefully because, IMO, many are going down as this mess plays out. It isn’t worth the extra .75% to trust those scumbags with a nickel.
national city is from the god-fearing state of ohio. from my experience, they are toast in this game. my wholesale office of national city fired their entire underwriting team on one day last year (no explanation) . next month, the entire sales and support staff quit and went to gn mortgage, lots of depositions, suits, followed. they were also party to a huge fha scam just a few months ago, not a great track record, imho.
What I want to see this time around is accountibility. There are literally thousands of brokers and bankers, along with their friends the flippers, who need to be prosecuted, fined heavily, and jailed.
This needs to be taken seriously for what it is, crime. The costs have been borne by all of us who follow the rules, and the ill-gotten gains must be squeezed out of the pockets of the people who stole them . . . that is, the portion that hasn’t already been pissed away on coke, hookers, and Hummers.
I don’t think this group of 100 is even much of the problem. They have clearly committed fraud and will be prosecuted. The greater lending crisis is all the rest of the acceptable bad loans.
These clowns are like catching an auto theft ring …..
SF_Renter,
OT
Thanks for the feedback from the previous thread! Half of the reason I visit the RE blogs is to make sure I’m not losing my mind amidst the madness! Surprisingly, LV is my target market as well! We rent a very nice condo in the Portland area for about 1/2 of what buying would be and with the LV market crashing so hard so fast it just makes sense for us. (Also we have a lot of friends and clients there) so travel there can be considered a legit write off, besides if you’re from Oregon just seeing the sun looks good to you!
Don’t take this personally, but “we have a lot of friends and clients there so travel there can be considered a legit write off”, is just the kind of thing we’re talking about here. I do it too! I have NO friends, just past, current and future clients. As Jas has been saying, America is full of crooks, and we are all trained to scam the system.
“Kurt Pfotenhauer, a senior vice president at the Mortgage Bankers Association in Washington, says the pursuit of efficiency in making loans has made the industry more vulnerable to fraud.”
That is a red herring if there ever was one. There is no reason why pursuit of more efficient lending practices has to come at the expense of prudent lending standards. The industry was willing to throw underwriting standards out the window because of a widespread perception that the risk was insured with other peoples’ money.
substitute “Pusuit of Laxness because its more profitable” and we have the real truth
More like the “pursuit of Lexus” (or Hummer, or BMW….)
“‘It reminds me,’ Caldwell says, ‘of the savings and loan crisis.’”
And what ended up happening there: a federal bailout! That is why this is happening all over again. Banks know that when it comes down to it they won’t really be losing their own money, so they’ll make any loan they can just to collect the fees. As long as the government keeps subsidizing criminal activity, there will be more of it.
Remember, the banks see YOUR deposits as THEIR assets. They close and lock their doors then they apply your savings to their debts and leave it up to you to collect from FDIC. This is why we will all be hurt by this. FDIC does not have the money to cover all of this.
This time period is what I call the “grace period”. We have this grace period because housing is such an illiquid investment, it is tumbling down in slow motion. In another sense it is all happening so fast, remember in just August, comments about bank failures and comparisons to the,”savings and loan crisis”, were all tin foil hat stuff.
Tommorow is black Friday at my job, got wind of BIG layoff in non RE industry. These are truely scary times.
Don’t mean to rub it in, but I am so glad that I rent, and stood my ground and at least do not have to face losing a ton of money on a house if I need to relocate for a job.
jannifl,
Good luck tomorrow! Hope you’re not one of the folks who gets laid off. Please let us know how things turned out.
The government is the corporation. Who writes the laws? Who pays the politicians off? Who owns the government?
Answer to all questions: Global corporate lobbyists.
America is run by the golden rule. “He who has the gold makes the rules.”
IMO: To think that this nation is anything but a Fascist Kleptocracy is to be utterly naive.
Joseph Heller had it right in his novel “Catch 22″. Milo Minderbinder is running the show.
Sorry for the rant and the redundancy….I feel much better now!
OT, don’t know if anyone’s posted on this:
“Mortgage Lenders Offer Savings Accounts, 5.25-5.50% APY
“With rates rising, I guess they want some more money to lend out too:
“E-LOAN Online Savings - 5.50% APY on all balances. Minimum opening deposit of $5,000, no monthly fees.
“Countrywide Bank SavingsLink - 5.25% APY on balances of $10,000 - $49,999, 5.30% APY on balances of $50,000 - $99,999. Minimum opening deposit of $1,000, no monthly fees. “
When a company needs cash to expand, that’s good, when a company needs cash to stay solvent, that’s bad.
Countrywide is regularly involved in fraud.
A Florida slum condo ‘conversion’ (units appraise at $136k, sell $156-166k) will give a cash kickback at closing of $8K+ as long as you use their financier of choice - Countrywide.
‘We aren’t asking questions, and we aren’t verifying like we used to,’ says Bob Simpson, (who) helps lenders recover losses from fraud. ‘For legitimate, honest consumers, that’s a good thing,’ but it creates opportunities for crooks, Mr. Simpson says.”
Occassionally, a poster will mention how Orwellian the spin is with regard to the economy, housing, etc. What I’m beginning to realize is that the average person has become trained to spit out the same nonsense. The comment above is a perfect example. How in the world does relaxed lending standards benefit the honest person? As those on this board know, if it weren’t for people speculating out of greed, lenders ignoring fraud, and the fed opening the money floodgates, the honest person who is also prudent and saves money could probably purchase a home in a desirable location for an affordable amount. Obviously that is not the case, as it is precisely the loose lending and speculation that has priced the honest person out.
I sometimes think I’m losing my mind when friends and relatives over the past two years constantly urged me to get into real estate before it is too late. I really wanted to tell those people to shut up with the drivel and spend five minutes looking at data before opening their mouths again!! Just five minutes. Most haven’t even thought about it for more than ten seconds.
Rant over.
Premature you asking waaaaay to much of the average Joe 6pack. Doing any amount of homework would require diligence, responsibility, and some amount of character. Most people don’t have the attention span of a gnat, therefore no diligence. Many only want a quick buk, therefore again, no diligence/work ethic/saving plan. Many are also criminals (lied about salaries), meaning no character. Therefore, what do you expect of those who talk to you? My old neighbor still thinks he can sell his 1400 sq. ft. home in Fontucky for 480K, which he bought for 186K just 4 years ago. Man, he is in for a rude awakening, but this is the type of thinking us, who really think, are running into.
Yep, I know, you’re right. Maybe in the second half of my life (assuming I don’t get run over by a dump truck on the way home) I can stop expecting people to think. It is a bad habit that I just can’t seem to shake
By the way, to afford a $480,000 home with a 5% downpayment, you need to make $120,000 a year (http://cgi.money.cnn.com/tools/houseafford/houseafford.html). What percentage of the Fontucky purchasing population do you think has that kind of cash? Anyone know of a book that describes the best strategy for surviving through a country’s fiscal meltdown?
Personally, I think that you should make more than $120K in order to afford a $480K home, probably closer to $150K. Especially if, like most folks, they have other debts to consider (CCs, student loans, auto loans, etc.). How many people buying in Fontucky make that kind of money? I’m guessing not many.
Posted “By the way, to afford a $480,000 home with a 5% downpayment, you need to make $120,000 a year (http://cgi.money.cnn.com/tools/houseafford/houseafford.html). What percentage of the Fontucky purchasing population do you think has that kind of cash?”
I would say between 0 and 1% at best. Fontucky and Chino etc. could prove to be 100% busted out. It will be the Lenders…. STALINGRAD!
Savers may still come out behind in the War on Savers, if the govt succeeds in getting the REIC price appreciation machine back up and running before things get too out of hand. Look no further than nhz’s posts, or the continued high rate of appreciation off of very low affordability levels in the UK to see how this might occur.
“In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.
This is the shabby secret of the welfare statists’ tirades against gold. Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism toward the gold standard.”
Alan Greenspan
[written in 1966]
http://www.321gold.com/fed/greenspan/1966.html
From the first article:
“(They) didn’t know they were applying for loans. Instead, they thought they were joining a risk-free “investment group.”"
I think that statement is very telling. When you can get a bunch of people to believe the are being asked to join a “risk-free” investment group its not hard to understand why there is a housing bubble. Apparently these folks thought they were worthy of risk free investments with cash simply handed to them for their good names.
I’m getting a little sick of people being this dumb . All these dumb people think we should bail them out , all the speculator people think we should bail them out because they made a poor investment ,all the people who have only been living in their house for 18 months think they are entitled to a profit so the lender better give them a short sale instead so they don’t lose any money .
The world has gone mad , I hope the world can recover ,but don’t ask me to pay.
and since when do you believe everything you read? there’s more to the story than what they printed. those people aren’t that dumb … but now they want to be treated as ‘victims’.
Bill Fleckenstein wrote “Loose mortgage loans that prolonged the boom will worsen the bust. Homebuyers are now going to pay the price for their ‘buy now, worry later’ spending spree. … With market manias, self-feeding greed on the way up turns into self-feeding fear on the way down. That time is near.”
This is gonna hurt folks.
Today on CNN, around 12:25 pm, there was a short blurb about mortgage fraud. The talking heads said the FBI thinks there could be a billion dollars in mortgage fraud last year, double that of 2004.
Sounds like a lot, huh? Let’s see… a billion, divided by $400,000 per house… 2500 loans.
California is about 1/6 the population of the US. So 416 loans, or about 800 borrowers, would be in CA.
Sounds to me the FBI is underestimating this, by a factor of ten. Or maybe even a hundred.
SoCalMtgGuy… NNevMtgBroker… others in the biz… Whay say you? What’s a realistic estimate of the amount of mortgage fraud last year?
Weren’t something like 40% of all houses in bubble areas sold to “investors”, ie geniuses like our favorite 24-yr-old real estate mogul? I could be wrong, but per NAR something like 7 million homes were sold in 2005. Let’s say, oh, only 25% of those, or 1.75 million homes, were sold to “investors” and of those only 10% were bad loans. That’d be 175,000 bad loans x $229,000 median = $40,075,000,000
I personally know of one California woman who has three liar loans (stated income, second home rider). Two are 30 year arm, one is a 50 year arm - two rented at negative cash flow (but a generous kickback from the developer at closing for paying more than what an honest appraisal would have been), one sitting empty with no takers.
Odd that I would have personal knowledge of three out of 2500.
RE:On certain Portland streets, housing prices are doubling in a matter of months. And when there’s this kind of temptation to make quick money, greed can’t be far behind.”
Yeah right I live in Portland moving back to CA in 2 weeks fortunately cuz there aint no jobs here either. I’m very lucky to have found a buyer for my home…I had to fire my realtor and reduced the price 15K on craigslist to get interest. Inventory has doubled since summer 2005 and many homes reduced and sitting
I live in Portland and there is going to be a tidal wave hit this town in the next year. There is a ton of properties for sale and the summer selling season is over. Add to the fire there is a rush of construction of Condos, and new homes currently to be finished Jan/Feb 07. Finally, due not underestimate how much California overflow has effected Portland. Just look at median household income, household dept and you can see Portland is in for a rude awakening.
“One church secretary, who says she heard about the investment group from her pastor”
Geez, you mean even the clergy are scamming now?
Lace up those ice skates because you can now skate in Hell…
“Geez, you mean even the clergy are scamming now?
Lace up those ice skates because you can now skate in Hell… ”
Clergy have been scamming for as long as there have been clergy. The long-term, effective con artists have always taken positions where they can abuse people’s trust–religion works better than politics, and often allows you to continue to get away with it even after you’ve been caught (e.g., Peter Popoff, Robert Tilton, etc.)