“There Is A Tsunami Coming”: Colorado
The Denver Post reports from Colorado. “With more than 18,000 foreclosures expected this year, a record for the metro area, Colorado has had the highest foreclosure rate in the country. The current foreclosure epidemic traces more to overbuilding and aggressive lending than to fundamental economic problems.”
“Fidelity Solutions sells about 1,000 foreclosed properties a month, a pace about 40 percent ahead of last year, president Chad Neel said. ‘I am turning away business,’ Neel said. ‘Every client we have says there is a tsunami coming.’”
“When REO property managers can’t sell a home, they call on auctioneers like Dallas-based Hudson & Marshall. ‘They are telling us Colorado is very heavily hit and we will be active here for the next year and a half,’ said co- owner David Webb.”
“In August, Weld County had the worst foreclosure rate in the United States. Many foreclosures came on new homes sold by aggressive builders to people who had no money for a down payment and no real estate agent representing them.”
“Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent. After Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother’s take-home pay.”
“Because she had already signed one contract, ‘I felt trapped, like I couldn’t get out of it any more,’ Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy. This year, she became one of 11 homeowners in a small Greeley neighborhood who have lost new houses in foreclosure sales.”
“On one Greeley street, seven adjacent new homes have been foreclosed.”
“Builders have been permitted to flood Weld County with a ‘terminal oversupply’ of new houses that devalued existing homes, said Lou Barnes, a Colorado mortgage bank owner.”
“‘People are being oversold today on homes,’ said David Berenbaum, executive VP of the National Community Reinvestment Coalition. ‘It’s not uncommon to see more than 50 percent of their income go to their mortgage payment. The debt-to-income ratios are very troublesome.’”
“In Gateway Lakes, new homes purchased in 2005 are being foreclosed in 2006. That caught the attention of David Kiekhaefer, a Greeley broker and builder, who is renting homes in the neighborhood that he and a partner built and were unable to sell in the $180,000 range.”
“He found that two other builders in the same neighborhood, Mark Strodtman and Duane Zeller,were selling homes to Spanish-speaking families who were not represented by a real estate agent for as much as $245,000.”
“Residents who bought houses from Strodtman, said they were lured by offers of low payments, then learned at loan closings that their monthly costs would be hundreds of dollars higher than they expected. ‘They tell me in one year you can refinance,’ said Librado Herrera, who does not read English and depended on Strodtman’s sales assistant to explain the contract.”
“When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn’t worth $245,000.”
“Foreclosure and real estate records show the prices of his Gateway Lakes houses plunged $50,000 or more after the original buyer lost them. Pedrego’s house, for one, sold for $63,000 less than the $239,000 she paid for it last year.”
“Strodtman said that happened because ‘the banks are dumping them’ and some foreclosed houses ‘are trashed.’ Zeller said his homes are not overpriced and he is not enticing buyers with false promises. ‘I’ve got six homes for sale in there’ that aren’t moving, he said. ‘I’ll sell them below cost just to get out of them.’”
“Laura Mendoza, a real estate agent who listed some of Strodtman’s homes in Gateway Lakes, said she withdrew because she could not find buyers at the builder’s price. ‘Could I get them sold? Huh-uh,’ she said. ‘I didn’t want to stay out there. I didn’t think the prices were right. Somehow they sold them. I don’t know how.’”
“The Post analysis found high foreclosure rates in several communities of one national builder, KB Home. In most cases, the loans for those homes came from KB’s mortgage branch. In a Northglenn neighborhood built by KB Home, 56 of the original buyers have been foreclosed. Fifty-one, or 91 percent, got their loans from KB’s mortgage company.”
“In Kentfield, a Thornton neighborhood, 80 of the original buyers have been foreclosed. Seventy, or 87 percent, borrowed from KB’s mortgage company. About half were foreclosed on their original loans, which KB sold to other lenders, and half refinanced before their foreclosures.”
“Nearly all the original loans were insured by the Federal Housing Administration, which collects fees from borrowers to cover losses.”
“‘Five or six years ago, this was cornfields.’ Matthew Revitte, a Greeley broker specializing in foreclosure sales, is driving through East Meadows, a neighborhood at the city’s edge. Now, he said, ‘it looks like Chernobyl.’”
“On one long block, Revitte counts 14 of 40 houses with defaulted loans. These were built by a local company, Lifestyle Homes, and sold at a time when it was easier to buy a house than rent one, Revitte said.”
“Across the street, real estate agent Mark Llamas listed a house that went for $140,707 three years ago. After a foreclosure, it recently sold for $102,580.”
“Lifestyle Homes president Brad Clarkson said he feels sorry for all the families who bought homes and lost them in East Meadows. But ‘it’s absolutely due to factors beyond our control,’ he said. ‘We had to stop building homes in East Meadows,’ he said. ‘We couldn’t compete with the foreclosures.’”
There are a lot of stupid people in this country!
The masses are supposed to be protected by lending standards, appraisals, etc… The problem is that the fox is gaurding the hen house. This will end in carnage and, as usual, the criminals who made away with the dough will have the tax payers foot the bill. The board of directors at KB homes should be the ones hanging for this! Instead they will quietly fade into the sunset, their protection money to the the DNC and RNC already having been deposited.
No doubt there is corruption at FHA but that does not abdicate the personal responsibility of the persons buying.
Many of the buyers were out and out greedy. They wanted a big windfall and now that it’s not working out for them they want to blame the “government” for their stupidity and their losses.
No greedier than the builder/sellers, but the builder/sellers are sharks. The buyers got eaten.
This reminds me of the character in “The Jungle” buying a house.
That is why I have always said never to go indebt at a rate more than one’s salary. For example, I only make thirty thousand, so I am only going to pay thirty thousand for a house. If I must do otherwise, then I will just rent with room mates and split the costs. I will then buy a home for this amount in an area where I can, just incase I need the home to live later. I will get a low lease on a good gas saver car for a year. That way I use the car but do not marry it!
Actually “there are a lot of smart people in marketing and media in this country!” they took off with the cash and the buyer is holding the bag. There are also many well paid non-finance people who just dont know any better. Its a big marketing machine out there. Its an era we live in … “all about the Benjamins”. There were too many people who didnt trust Wall Streetm, which is heavly regulated, and wrongly believed in their local realtor, least regulated, as being more trustworthy. Honest Sam the Realtor down the street wouldnt cheat on you. Well guess again! When this is all over… oh its going to get really bloody!
Oh it’s worldwide stupidity. Believe me. It’s global stupidity.
Hey we’re not stupid.
We are mathematically challenged
“With more than 18,000 foreclosures expected this year, a record for the metro area, Colorado has had the highest foreclosure rate in the country.”
A record and I still hear reports that the foreclosure market is just returning to normal thats all.
The info that second link is shocking. The only way it could have ended was disaster. Like the builder who claims he didn’t know what his own sign said in spanish. If this stuff is going on in a large way, look out.
It IS going on in a large way.
Illegal aliens who take out loans for overpriced homes with fraudulent documentation and stolen S.S.#’s NEVER file complaints, nor do the lenders who figure out they’ve been duped.
Well, if you have a stolen ss number and 100% financing, wouldn’t you just walk if things don’t work out as planned?
My husband and I are buying a manufactured home and when we signed the papers, we were both in good health. Today, my husband has Parkinson’s and may not be able to work more than a couple more years. He is 65 and I am 61. We are told that we cannot get out of this for ANYTHING! If my husband dies,I will be responsible for paying for our home which is costing us over $100,000 when its market value is less than $50,000! There are NO LAWS against ‘predatory lending’-NONE!
Hahahaha. There are no laws against stupidity either.
OMG! Those KB Homes loan default numbers are unfrigginbelievable! No wonder they were forced out of the lending business.
However, that is exactly where their pricing power originated, through their lending units. By emphasizing monthly payment using a variety of sophisticated lending products, they were able to increase prices and dupe unsuspecting feeble minded GFs into paying more for a home than it was really worth OR buying more house than they could ever realistically afford.
What’s more, they and other ‘national’ builders were/are using the same tactic. As a result, these kinds of stories are going to start popping up all across the country.
Moreover, another poster once questioned whether Colorado even had a housing bubble.
Record foreclosures will be the new normal, for the next few years anyway. Just like record appreciation was normal for the last 5. Normal is SOOO context relative.
Josh
Normal is becoming more volatile — perhaps a sign the Greenspan conundrum is in its death throes?
The problem with the volatility argument is its tough to see if its here to stay or this was a one time event caused by the credit bubble. I suppose it also is dependant on how you judge volatility.
Personally I would have said the last bubble, which this one dwarfed, involved huge volatility on the way up, stagnation on the way down. Of course I was the sun of a broker at that point and in high school, so my interest was mostly acacdemic then.
I have a feeling though that all the, “financial engineering” that occured to blow this bubble up will be its own undoing and that this time the down slope will be as volatile if not moreso than the up slope was. This is in no small part influenced by the fact that I live in SD, where everyone wants to live, but nobody can afford to.
Josh
California is so overrated. “Everyone wants to live here”. Yeah right. Hello? It isn’t what you think. I see all these tourists coming to see Hollywood. What a crack up. Hollywood is one of the worst parts of Los Angeles. The beaches are deserted. The ocean too polluted to swim in. There is no more music coming from Southern California. Neighborhoods are non-existent, no one talks to each other. The Freeways are parking lots most of the time.
It’s over. You missed the 60’s by quite a bit. When the party’s over, turn out the lights.
Capitalism at its finest!
well we have seen the denver airport can house a number of people maybe it will be the new trend in colorado
“live at the airport” shopping at your door, great transportation
and marble bathrooms
Maybe the Denver airport can also house an increasing fleet of tens of thousands of new unsold gas guzzling Dodge/Jeep/Chryslers that no dealers want, just like the airport at Detroit?
An AVALANCHE of foreclosures. Must be too much snow ?
in a previous string capitalist pig didnt seem to understand the severity of what is actually happening. He definitly doesnt live in colorado. Where do you live cp
he’s lives in a world where he’s mad that they don’t do a story on all those that haven’t been foreclosed on. he probably is the same person who said we don’t hear all the good things coming out of Iraq.
He lives in a land where 99.9% of the homeowners are in great shape. In a word, he lives in Fantasyland.
“When REO property managers can’t sell a home, they call on auctioneers like Dallas-based Hudson & Marshall. ‘They are telling us Colorado is very heavily hit and we will be active here for the next year and a half,’ said co- owner David Webb.”
What next? Move on to California? It sounds like the equity locusts will soon be supplanted by the auctioneer locusts.
At least the auctioneer locasts are actually providing a service.
Come to Daddy! I look forward to 40-50% haircut….
But sadly there are really idoits out there that think
10% is a good deal….. BAHAHAHAHAHA !!!
It will even be more fun as these turkeys bleed all over…
10% my a$$…
I think California will be hit last… and hardest!
I can’t for the life of me see how California won’t be devastated by the RE collapse.
California won’t be spared. But the pace at which this sheer drop in home prices will vary from locale to locale. Meaning that SD will see the large(r) drops first and the inland areas lastly it will LA county especially SM and west LA.
SF Bay Area Cali has the highest % of exotic loans.
Many are banking that the economy will return to
boom years of 1999. Thats not going to happen.
As prices went up local employers simple move jobs
elsewhere. Its so easy these days…
These exotic loans are prevalent all over California. It doesn’t matter who is last, they’ll all be hit in 2007. I’m curious as to the sales rate come April. By May… too many factors come into play to tolerate denial any longer (construction employment, enough ARMs resettting, employment, and scared buyers.).
Its not like people don’t know when their friends are in trouble.
Neil
I don’t know about that Neil. Pride can cause people to do many things they might not otherwise do, including hiding the real situation in the hope that things will get better.
“Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent.”
Carmen begins to doubt the equivocation of the fiend that lies like truth.
“Builders have been permitted to flood Weld County with a ‘terminal oversupply’ of new houses that devalued existing homes, said Lou Barnes, a Colorado mortgage bank owner.”
Watch for a copy-cat version of this story to hit California at some point over the next three years.
“..permitted to flood the county with an oversupply…..”
So they were capitalists that went belly up.
What is this “they were permitted…”
Blame?
When you have money and want to build and the zoning permits it, then the responsibility is on the builder.
An honest ethical appraiser/consultant could have warned people about all of the hazards noted above.
But all anybody wanted to do was listen to siren song spun by the real estate sales and financing hucksters.
As the saying goes, stupidity costs…
Only unethical lenders and stupid buyers can make deals pencil out at unaffordable costs.
LOL Just like year 2000 with Dot.coms.
They never learn….
Like flies swarming next to a big pile of pig $hit
An appraiser appraises. They don’t give market advise.
An appraiser appraises. They don’t give market advise.
By whose definition?
If I walked into a city, and didn’t know squat about the market, you can bet your sweet azz, I’d find myself the best damn appraiser around and pay him his hourly rate to give me the low-down on what was goin’ on.
Sure the f*ck wouldn’t trust any REAL A WHORE.
Stupid is as stupid does.
The appraisal IS market advice from a professional - one should be able to trust it. (HAHAHAHAHAHAHAHA)
The simple fact of giving an honest appraisal (read ’serving the best and balanced interest of the buyer and lender’), based on historical trends would be all the market advice needed.
Like all the other crap in the market, it got skewed by greed, another brick in the wall.
Many appraisal reports go straight into the mortgage brokers trash cans because the information contained in them might cause the mortgage broker to lose a deal.
The buyer rarely ever knows about or sees that report.
You are dead on. How many of these whiners had people like us around them, talking common sense, and told us we were crazy? Screw ‘em all. There is no pity left. Greed killed it, along with common sense and accountability.
So true.
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent. After Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother’s take-home pay.”
I think I am going to be sick.
Obviously not too many former Boy Scouts in the realtor business.
“Obviously not too many former Boy Scouts in the realtor business.”
Not a word was said about Realtors here, or in the article. Always good to skip over important points that don’t support your thesis:
“Many foreclosures came on new homes sold by aggressive builders to people who had no money for a down payment and no real estate agent representing them.”
And in the article:
No one was in the room except a stranger from the title company. And after Pedrego signed a first mortgage loan, the agent produced a second mortgage.
The “agent” was a title agent.
Looks to me like this article is all about builders and also associated LOs, not Realtors. I am all for deserved bashing, but let’s stick to the facts of a given article, agreed? If you comment on another article where a Realtor was shown with some shady dealing, the comment might be appropriate there.
But yes, I think I am going to be sick for this poor woman’s situation as well…
Obviously not too many former Boy Scouts in the builder business. Does that make you feel better?
Geez, the buyer is lucky he didn’t have a realtor there representing him - or he probably would have been talked into buying a couple more homes as “investments”.
(Ya know, they’re not making any more land.)
Another interesting tidbit (if you read the article referenced -
http://www.denverpost.com/business/ci_4890161):
That caught the attention of Kiekhaefer (a broker AND builder), who is renting homes in the neighborhood that he and a partner built and were unable to sell in the $180,000 range.
He found that two other builders in the same neighborhood, Mark Strodtman and Duane Zeller, were selling homes to Spanish-speaking families who were not represented by a real estate agent for as much as $245,000.
He gave The Post a list of 23 houses sold at prices he considered suspiciously high, all without a Realtor representing the buyer, and 31 other sales in the neighborhood listed by licensed real estate agents. The median price difference: $44,000.
Of course the “single mother” flashcard had to be used to garner sympathy.
She wasn’t responsible having a baby and now she’s not responsible again.
How do you know how she became a single mother?
Because her ex-hubby knew she was out of her gourd and divorced her before she brought him down too?
You know, at first I honestly felt a little bad for her single-motheredness but then it dawned on me that she should’ve been even more sceptical for the sake of her kid and it pissed me off that she would get into this position in the first place by allowing herself to sign the 2nd loan doc, knowing she wasn’t qualified. Where did it say someone held her down and made her sign the docs?
I felt trapped?!? Then break out dumb a$$!!
“Because she had already signed one contract, “I felt trapped, like I couldn’t get out of it any more,” Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.”
“Pedrego doubted she could get a home loan. She was divorced, her credit rating was poor, and she had been turned down before.”
Rob
It’s a common tactic among many con men to out wait a vulnerable mark. In other words, they just sit and wait until the person signs whatever they are offered. The idea is that most people are unwilling to be forceful with the con and will sign anything just to have the situation over with. Seems that the developer is employing similar tactics.
“Obviously not too many former Boy Scouts in the realtor business.”
I didn’t see any mention of Realtors in this particular article as a matter of fact it went out of the way to indicate there weren’t any. Hmmm I wonder why?
Carmen Pedrego said the builder assured her she could own a brand-new home for no more than her monthly rent. After Pedrego signed a first mortgage loan, the agent produced a second mortgage. They totaled 64 percent of the single mother’s take-home pay.”
I think I am going to be sick.
David, I’m with you brother. This story makes me sick to my stomach. I can’t stand people that prey on others. They should put a contract on this f’in a$$hole and I’m not talking about a RE contract.
“Because she had already signed one contract, ‘I felt trapped, like I couldn’t get out of it any more,’ Pedrego said. She signed the second and made two mortgage payments, she said, then filed for bankruptcy.”
AND
‘They tell me in one year you can refinance,’ said Librado Herrera, who does not read English and depended on Strodtman’s sales assistant to explain the contract.”
“When he called a lender eight months later, he said he was told his loan had a prepayment penalty and his house wasn’t worth $245,000. Herrera is unemployed. His wife sews bags for a living. They have fallen behind on their $1,500-a-month mortgage payments and fear they must abandon their new home. ”
Note to reporter - please rephrase these quotes for enhanced truthiness:
“I’m an idiot on so many levels I’m my own highrise.”
I love these spin-doctoring MSM stooges. Yes, it’s all the builder’s fault - they obviously forced these dumbarses to commit financial suicide. Sign me up for one of those ever-appreciating homes - I’ll sew my own bag, thanks.
Rob
“Yes, it’s all the builder’s fault - they obviously forced these dumbarses to commit financial suicide. Sign me up for one of those ever-appreciating homes - I’ll sew my own bag, thanks.”
Wiping away tears of laughter. What do you want to bet there’s a slew of legislation proposed that mortgage documents have to be translated into Spanish? I wouldn’t sign a contract in a language I couldn’t understand, would you?
Not to excuse lack of due diligence, but the Latin culture is built on trust and family. Once you are “in”, they trust you to help them out. It’s the way it used to be in the “white” communities years ago. My grandparents didn’t even have locks on their doors because they could count on their community to take care of them. Many Latin people are the same way today and it leads to be taken advantage of….
Baloney. Corruption is more rampant there than here. Read the scams on the current crisis in RE in Costa Rica and other places expats are going to.
Stop spreading myths about the moral superiority of their culture.
So if I stay in a no frills motel in Tijuana I can leave my door unlocked and my car doors unlocked for that matter?
“but the Latin culture is built on trust and family.”
You’re kidding right. So I guess they are overrunning our borders because they can’t deal with all that upsatnding righteousnos(sp?) going on in their respective countries.
“Not to excuse lack of due diligence, but the Latin culture is built on trust and family. Once you are “in”, they trust you to help them out”
When it comes to business contracts,RE contacts, street-level transactions no culture is immune from greed. Latinos prey on other latinos, just like asians prey on asians and whites prey on whites. I am an Italian but just because a Re agent is a fellow italiano should I base my business transactions with him on trust. I use to have dealings with Guatemalans here in Los Angeles, and let me tell you they will screw each other in business transactions quicker than you can bat an eyeball.
Not sure what Latin culture, on what planet, you’re referring to. Corruption, graft, and patronage are deeply ingrained in our southern neighbors, and more broadly in every country with a strong Catholic tradition. It never ceases to amaze me how gullible and trusting so many of these people are.
You I never thought of the Catholic angle, but you have a point. I am Catholic and my family before coming to this Country is from a very Catholic Country. I can tell you first hand from visiting my family still living there that this particular Country is very corrupt. But the corruption is very organized, but very terrible.
I suppose the next thing you would say is that Catholics aren’t Chirstains? Most of Western Europe has a strong Catholic tradition and I don’t believe that they are more corrupt than North America is. Moreover, there is plenty of corruption right here, or is Haliburton just a myth?
Corruption, graft, and patronage are deeply ingrained in our southern neighbors, and more broadly in every country with a strong Catholic tradition
You mean like Austria, and the Catholic parts of Switzerland and Germany?
How Catholic are Mississippi, Alabama, or Arkansas ?
It’s the culture, not the denomination.
Then the invasion and we all have to lock up everything. Including the truth!!
The way this mess is playing out I don’t think I will sign another contract even if it is in a language I do understand.
Legislation for taxpayers to pay for their capitalistic enterprise pursuits?
HIRE their own interpreter at their own expense, NOT my expense.
Stop eating lettuce.
Bring on all the handwringing “victims”. I can’t stand it.
numbers are the same in Spanish
no el freo dude
Uh, Free is “gratis” in Spanish. Luckily the federal government has employees who can speak the language.
As long as the exchange rate between pesos and dollars is understood.
The builders don’t care. They know that the loan can be sold away because it has a tax payer warranty attached to it. Now, how do you think that happened? Pretty convenient eh?
Yeah, obviously these people are ignorant. That doesn’t make it right for the builders to prey on them while the regulators turn a blind eye.
Someone lent these people the money and it wasn’t the builder. Who sold the loan? The builder is no angel, but he’s got a commodity to sell, and did what it took to sell it. The real fraud is in whoever sold the loan.
The root of it all, as most on this blog well know, is in the availability of cheap and easy money.
“The Post analysis found high foreclosure rates in several communities of one national builder, KB Home. In most cases, the loans for those homes came from KB’s mortgage branch. In a Northglenn neighborhood built by KB Home, 56 of the original buyers have been foreclosed. Fifty-one, or 91 percent, got their loans from KB’s mortgage company.”
“Nearly all the original loans were insured by the Federal Housing Administration, which collects fees from borrowers to cover losses.”
The point is that many builders are also selling the loans that are gauranteed by you and me (that is if you are a tax payer - I sure as heck know that I am).
Exactly.
So many posters here harp on the stupidity of the buyers and yet how many of you double check to see if the guy changing the oil in your car has done the work properly? Does the fact that you’re ignorant in the area of automotive repair excuse Jiffy Lube when they charge you for work that they haven’t done? If the mechanic puts the filter on wrong and you end up with an engine fire or an accident, you will be the first to sue. But it’s okay for builders and loan brokers to tell uneducated, non-English speaking immigrants that they “buy for the same amount as rent” or “refinance in a year.” This is financial rape and it ought to be punished as such.
There is definitely blame to go all around. At some point, we all rely on the “professionals”…be it at the oil changer, or the cardiac surgeon. These mortgage brokers should definitely shoulder a large part of the responsibility.
Yes, but being ignorant on any subject invites you to be ripped off. The last time I was at Jiffy Lube, some attendant pulled out my air filter and brought it to me with a worried expression indicating that I should change it right away because it was “falling apart” and “dirty”.
Thanks to my both my Dad’s teaching (thanks Dad!) and my own willingness to learn about how a car runs, I knew that the air filter a) wasn’t particularly dirty and b)air filters occasionally have loose gaskets. I laughed at the clerk and told her to put it back in my car knowing that at some point in the future I could change it for cheaper and that it simply wasn’t critical in that moment.
If I had in that moment succumbed to buying a new, expensive, and unneeded air filter and later regretted it, would it be Jiffy Lube’s or my fault?
In my mind, there’s no escaping that there’s a failure of both parties in the situation described in the articles. One party does have a greater responsibility because of they have the lion’s share of the knowledge. I totally agree that the lenders and the builders deceiving buyers deserve jail time.
Due diligence, however, is called for on the part of the buyer, especially when talking about such a large purchase. There is plenty of blame to go around in these types of situations.
Linda, take a class in logic first.
Ruth, take a hike first.
“”But it’s okay for builders and loan brokers to tell uneducated, non-English speaking immigrants that they “buy for the same amount as rent” or “refinance in a year.” This is financial rape and it ought to be punished as such.”"
Would that be before or after they have been deported for being here illegally??
What makes you think all immigrants are illegal?
Well telling people that they can refinance in a year without mentioning the two year prepayment penalty is certainly fraud-y. Just as the ads touting 1% mortgages in huge type. And there is enough of that sort of thing going on that I’m not without some sympathy for those who are enticed into getting in over their heads. All of this is working towards its inevitable conclusion, where the big defaults hit, the MBS market dries up and bankers are suddenly lending their own money. Buybacks are already knocking out subprime originators left and right.
Very well said, Linda!!!!
i wonder if she sews bags for gary watts?
next story will be on “poor realtors” who have to find
new jobs.
Gary and his 15% are in the bag. I’ll gladly pay her to sew it shut! -
“They tell me in one year you can refinance,’ said Librado Herrera, who does not read English and depended on Strodtman’s sales assistant to explain the contract.”
This getting Hispanic Immigrants into homes without their understanding the nature of the RE contract, and depending upon the ‘understanding and sympathy’ of RE agents/Spanish-speaking assistants, is deplorable but unfortunately is the nature of todays Fast-buck RE transactions. This has been going on In Scal in such regions as Scentral LA amd the IE. Absolutely unbelievable that the REIC is pushing $400,000 RE loans in some really crapped out LA inner city,low-income cesspools. It’s all about getting that commission, and whether the unfortunate Hispanic Buyer can actually afford to pay that loan when it resets is their problem. RE realtors/brokers/lenders are in it for the commission, and the world of business Contracting(Buying a home is a big.big business contract) is indeed brutal and unforgiving.
It’s funny that people are harping on how she ought to have known better and that it’s too bad she didn’t understand a contract if she didn’t understand English because I know most of the posters here couldn’t understand it either. It takes years of trainning to be a lawyer or accountant, but most here expect that all you have to do is read the document and you’ll magically understand it? I worked as an accountant for years and it took me a while before I was confident in my ability to read a financial instrument without double checking with a lawyer to make sure I fully understood the legal implications (and the lawyer had to check with me to make sure he understood the numbers). So is it such a surprise that non-financial/legal individuals aren’t able to fully comprehend what they are presented?
In fact, the MSM is littered with stories of ‘clever’ individuals who didn’t actually understand the implications of their ARM, or other toxic mortgage. So please, show a little compassion because one day it could be you that is shaking their head wondering how the hell they could have been taken.
Agree 100%.
It’s the lenders who should hang. FBs should not be bailed out by taxpayers, but should definitely be able to sue the lenders (and whoever is responsible for the EZ lending & fraud).
A “free market” system requires transparency and honesty. These mortgage documents (and the way they are handled) are full of traps. Many intelligent people can come away not fully aware of the risks they are taking. These uneducated and naive buyers do deserve some sympathy.
I disagree. For the capable professional, it does not take “years” to learn to read legal/financial docs. Learning to read these docs comes from law school or accounting classes. Hours or weeks, yes, but not years. If it takes someone “years” to learn to read accounting statements or financial docs, then I would respectfully submit that person, out of concern for the best interests of the client, should look for another line of work.
Having assisted hundreds of low-income Spanish speakers re law and having prepared financial/asset statements for them for the court, I can assure you that they are as tempted by greed as anyone else. Their nationality or ethnicity does not impute post facto innocence. Most of the fraud they encounter is in their own communities and from Realtors who are of Mexican descent.
Everyone, regardless of nationality or ethnicity, is responsible for their actions. Everyone has the freedom to seek a second or third opinion (or 4th or 5th, etc) from another professional or experienced friend and to take docs home to study.
Justice, in this country, is blind.
~MIsstrial
In one year, “I waste all my savings, and I have no more ways to save,” he said. “I’m paying too much. I don’t understand why the bank loaned the money. The value is not real”
Yes, it’s really the bank’s fault. Let’s rephrase this one too:
I don’t understand why I borrowed the money. The value is not real.”
Rob
This person is what is commonly known as a “smacked ass”.
I’m talking about the borrower, not you, Rob.
LOL - I didn’t even see your joke as anywhere toward me till after you pointed it out.
Maybe I’m ripe for buying a new house.
Rob
After a heated arguement with my brother in law the RE agent here is what he claims will happen. I had to eventually quit arguing to keep the peace on Christmas day.
1.Banks will stop foreclosing if they have too many forclosures to deal with. (I find this implausible)
2. Banks will cut deals with FB’s to keep them in their houses and keep making them payments that they can afford. ( he claims this is already happpening, I claim it just extends the crash)
3. Market will recover in 2007 and the worst is already over. (uh huh)
4. Prices won’t fall anymore but will remain flat for several years. (not possible to remain flat)
5. Incomes will rise to meet current prices. (gimme a break)
6. Media not helping. (didn’t go there)
7. Foreclosure specialists ready to jump in and buy therefore propping up prices. ( I’m a vulture myself and I see no rewards currently)
8. Empty houses in upscale neighborhood for rent not a good indicator of market. ( I say indication of stuck flipper and future reduced comp )
9. Sacramento area not that vulnerable to a crash since it is not expensive relative to Bay Area. (I say expensive relative to job market and known flipper heaven)
The more I think about point two the more I can’t see how it is legal to change loan terms , can any of you mortgage guys comment ?
lender can ammend the origianl mortgage anytime they like as long as all parties (borrowers) agree. All parties have to sign the docs to make the change. Very similar to refinancing, you just skip the proof process (credit,income, appraisal). I have never been a party to something like this but, have seen customers with ammended mortgage agreements.
Regarding point number 2 - “Banks will cut deals with FB’s to keep them in their houses and keep making them payments that they can afford. ( he claims this is already happpening, I claim it just extends the crash)”
Essentially he’s describing a workout situation. To oversimplify it, as many on the blog have stated, these loans are pooled and used as collateral for Mortgage Backed Securities. The MBS is tranched (or sliced) into many risk classes and the corresponding bonds collateralized by the pool are priced according to their risk ratings.
One aspect of the securitization is a PSA, or pooling and servicing agreement. The PSA designates who will service the loans in the pool, and servicing is often broken down into the primary servicer, the master servicer, and the special servicer.
Once a loan is non-performing, the special servicer takes control of the servicing and often times the special servicer has an affiliation with the investor who bought the unrated tranches (the B-piece) of the securitization. These are the first loss pieces.
To make a long story short (if that’s possible at this point), the special servicer can take measures to maximize the value of the loan, including making revisions to the loan if that’s in the best interests of the bond holders.
So yes, it is possible that on a case by case basis, the special servicer will take some sort of a reduced payment under a forbearance or workout plan rather than foreclose in a soft market. (And yes, this does extend the crash.)
One interesting website is http://www.cmbs.org, the website for the Commercial Mortgage Securities Association. If you want to educate yourself it’s worth poking around that site.
Finally, a breath of fresh air about MBS here. I would point out that particulars in case of RMBS can be different than CMBS.
For example, many times the originating bank retains the servicing rights, and so they collect and forward payments, and they will be the ones forclosing on you.This is because of the need to have local knowledge about the housing market.
Wow, it’s all so weird (to me, since I keep every note I write). Working out terms with people who get into temporary trouble is a normal part of my life, but of course I don’t initiate business with people who don’t clearly understand their obligations, nor do I ever write ARMs, IOs, neg-ams, or similar b**ls**t. Some on this blog have suggested I will survive OK because I have continued to operate in antiquated fashion. Of course I can’t write any notes now, because the amts people want to borrow exceed my idea of what their properties are worth.
Thanks, Bubba, for the explanation.
Somebody else on this blog referred to the “unbelievable ignorance” on display here regarding these finer points, but didn’t bother to really explain the matter, leaving some … at least me … still unbelievably ignorant.
1.) True, have seen it happen 2.) True helping a client who is currently in this situation. 3.) Not gonna happen 4.) He needs to do a little more research on R.E. markets 5.) Not in his lifetime 6.) I won’t go there either 7.) Only foreclosure novice and seminar junkies jumping in now 8.) I’m leaning more towards you than him 9.) don’t know enough about the market to comment.
Loan terms are not changed but ammended. Some lenders will allow you to make up missed payments over time. When you catch up you go back to the original terms. Reducing or forgiving principle not going to happen unless it’s a short sale and you’re completely broke.
foreclosure specialists only buy houses wen a tremendous value makes it profitable. Whats the definition of a tremendous value. I am not sure but i can tell you what its not. A 250,000 house thats soon to be a 200,000 house that has a loan on it for 300,000
#4 amuses me the most. If prices remain flat, I’ll rent for 7 years, saving the difference (which is substantial).
I did see in the last downturn *many* short sales back to the original owner! The banks really had no other choice. Will we see that again? Sure. But not where mortgage fraud was involved.
This has a long way to go…
That’s three of the small campuses sold within 2 years plus warehouses and other associated lands.
Employers are getting ready to relocate. Heck, I found out in today’s paper about my employer selling off a few more office buildings that will become condos/townhomes.
If prices do remain stable, they’ll sell one of their really big campuses.
Then again, I’m not so against moving out of state. The length of the wait…
Neil
You’re spot on.
My opinions:
1.Banks have to protect their interest/position, so they will not stop. If the loan has been sold to a housing agency or into a security, it reduces the bank’s (mortgage originator’s) options– they have to follow the agreement involved in selling the loan.
2. To the extent this mitigates and helps the bank’s/mortgage owner’s position, they may help the borrower.
3. This is anyones guess, but I doubt it.
4. I doubt it.
5. In many areas, it can take incomes many years.
6. More information is always better.
7. I think the market is too efficient for there to be any good deals at this time.
8. I am seeing many over $1mm houses vacant and on the market for months.
9. Not familiar.
Regarding changing loan terms, see #1. If the bank owns the loan, they may be able to change terms subject to their written policies, which are approved and reviewed by the regulating agencies.
Where is ground zero in all this. At some point some appraiser had to say ok this is worth 200 when it was really only 150. Somebody had to push the snowball down the hill. Any thoughts
Ground zero is wherever you are. There are many overlapping circles of hell.
-
i think he means - “where does the buck stop?”
The buck doesn’t stop. You just print some more at the crooked FED. Interest rates are staying at 0% in Japan. Wonder why?
I live 4 blocks from a spot most people think of when they hear the words “Ground Zero”. Unfortunately, in the next few years there are going to be many more places that rightfully get to share that moniker. Florida will lead the way on the downside, just as they led on the upside. Palm Beach, Miami, Lee County are all good candidates for the next to be named Ground Zero.
If this is what things look like with a soft landing, I would hate to see economic recession. Oh, wait, that is coming next year too. Time to finagle the employment numbers, boys. Nothing refutes thousands of home foreclosures like getting the unemployment rate under 4%. By the way, inflation is only 2.3 per cent. Don’t worry, be happy.
diceman, I’d be willing to bet a dollar that we are in a recession right now. Could take a few months before the Gov data reflects this though. I’m looking at the extreme deceleration in the GDP over the last two quarters and there is plenty of talk about weak holiday sales - once you get past the MSM/CNBC perma-bull hype.
-
yes - it’s the end of the world as we know it. but i feel fine.
But Gekko I thought you were one of the shiny happy people?
Both of you stand in the place you belong, ok?
fha- see, the government “helped” folks
why is there HUD and the rest of this sht?
In a Northglenn neighborhood built by KB Home, 56 of the original buyers have been foreclosed. Fifty-one, or 91 percent, got their loans from KB’s mortgage company.”
91%????
Unbelievable.
Sounds like a “60 Minutes” special, followed by a couple of suicides, a class action suit, hard time for several mortgage brokers, and lots of CSPAN time.
This stinks like a 3 day old fish. Wanna bet those buyers were told that the prices were only good if they went through the “preferred” broker or somesuch?
Seriously, this is an area where a little more industry regulation might not be a bad thing.
Absolutely. Regulation isn’t bad. Too much regulation is. And none is REALLY BAD, as we are all witnessing.
People that say regulation is bad drank the koolaid.
I suggest we all go to 60 minutes web site and paste this as a recommendation for next seasons show….the more the merrier…
Who will start ?
just send them to this site and request that they follow it for a few weeks
Oh, 60 Minutes won’t be doing any specials. We might wish, but tonight I watched the sleaziest piece of dishonest reporting on the illegal immigration situation in Colorado by the biggest media shill, Tom Blowchow. Did anyone else want to reach for a barf bag? Especially listening to all the talk of a “booming economy” as a justification for Gould Construction to do their part in the bubble and screw their neighbors in Colorado. No wonder CO is having trouble. And I thought Florida was bad. Although we like to compete with CO for the title of most foreclosures. And of course they made the American worker look bad, supposedly he quit. I have my theories on why he just didn’t show up for work one day.
Does anyone know why CO is seemingly tanking faster than everywhere else?
they were in the tank from 86 till 97-98 ? it’s a weird texas type economy
The very thin air makes it hard to think straight.
More like the vast consumption of weed in CO.
Does anyone know why CO is seemingly tanking faster than everywhere else?
Think they got an early start. I was there until 2001 and Boulder was nuts then Lucent closed up shop and jobs disappeared. Don’t know why they have held up as well as they have for so long actually. Probably HELOC’s, so they’re a bit ahead of the curve. My SIL has a place just out of Boulder that she was asking $530k for… now $480k and soon to be desperation time. Beautiful place but nobody’s buying. She took it off the market for the holidays and to freshen the listing. Great lady but right now just another CO FB.
last december my brother and his wife moved to atlanta w/o selling there englewood/ denver home. still not sold. nice area, no buyers.
I have only some speculation based on personal observation (husband’s family is from CO) that CO has a traditional “boom” and “bust” economy. (welcome to the bust…)
My CO native parents-in-law have very “boom” and “bust” mentalities. For several years running they gave us several hundred dollars at Christmas. This year’s gift - drum roll, please: towels. Honestly, I prefer the towels because large gifts of any sort make me uncomfortable. (Okay, we did spend the money of previous years.
)
Our income is slowly rising relative to our relatives (tee hee), but we choose to give modestly because we know that at some point we may have a few years of zero and we don’t want to raise expectations. That type of long term reasoning seems to be totally alien to my in-laws.
They are “poor” this year in part because I would guess that 90% of their retirement money is now invested in CO Springs rental properties. (My MIL, however, still has a $60K+ a year job.)
Some other reasons for the CO bust that are less “touchy-feely”:
-Less regulation of mortgage brokers (I think it’s none.)
-Higher % of hispanic population that might be prayed upon for exotic mortgages as in the articles.
-Lower wage base to begin with
-Practically no oversight of development or developers
Suicide lending plus much lower appreciation than CA is a toxic brew. Of course, now that CA is seeing negative appreciation, I don’t think we have to wait much longer to catch up with CO.
Sounds like CO is a good candidate for those on this board that have been looking to bail out of CA or other high-priced markets.
Ugh, Texaschick will rip you a new one on that subject.
Dude, is txchick your girlfriend or something?
Bwwwwaaahhhhhaaaa
But then you have to live there.
Now, now. Some of us rather like Colorado, tsunami notwithstanding.
Someone needs to tell Casey Serin about CO.
CA central valley/IE will sound similar to CO in 2 years. There is endless land in central valley and jobs dont pay much so median price should be around 100k like in CO?
It will known as California’s ‘Forclosure Valley’.
Good one Tinfoil_Hat,
‘Forclosure Valley’
“Grapes of Wealth” for up north.
Forclosure Valley. That’s a good one. I will use that a lot.
“CA central valley/IE will sound similar to CO in 2 years. There is endless land in central valley and jobs dont pay much so median price should be around 100k like in CO? ”
The IE region of Riverside/San Bernardino Counties Mirrors Ca Central Valley in every aspect except that IE does not even have agribusiness. An economy based entirely on contruction and warehousing/trucking. Lots of overbuilding of new Tract housing. Lots of hispanic immigrants buying RE. Sometime in 2007 and no later than 2008 IE will rival or exceed CO in foreclosure rates and will be a RE burn’t over wasteland.
How about Foreclosure Valley/In-debt Empire?
More illegal immgration than Detroit, Cleveland, Omaha?
Does anyone know why CO is seemingly tanking faster than everywhere else?
It’s CO, its different there.
Can’t speak to CO as a whole, but in Colorado Springs most of the jobs are service or retail-type jobs that don’t pay very well. Compound that with a populace that tends to be socially but not fiscally conservative. Virtually everybody we know here tends to live just a bit (or more) beyond their means - gotta have the new SUVs, dirt bike with trailer, hot tub, expensive vacations, etc. They live paycheck to paycheck and don’t save for a rainy day. Plus there was massive imbibing of the NAR-peddled “it’s different here/prices only go up” kool-aid, aided and abetted by a Biblical plague of California equity locusts. Now reality is imposing itself, and a lot of FBs are realizing some painful truths about their true financial predicament.
Because of the weather évidemment.
I’m in Northern Colorado and can see it all over. From July to Nov. 2006, new home sales are down 42% (in 7 markets combined) compared to same period in 2005. Plenty of Specuvestors, kool-aid drinkers, etc. But hearing the same stories - #1 place to live, jobs being created, prices are holding up, good time to buy, blah, blah, blah. Problem is builders have no other means of income - must keep building, lenders have to grow to meet budgets - must keep lending. Land prices are starting to fall, some builders are failing - will be plenty more in 2007 IMO.
Can anyone with knowledge lay these CO foreclosures out geographically (roughly)?
With knowledge? . . . hmmm . . . I’ll try. Greeley is 45 minutes NE of Denver, not even close to the foothills, town of about 70,000, home of Univ. of No. Colorado, Swift meat packing, some other Ag/Feedlots in the area (town stinks 90% of time). Lots of immigrant workers, stressed school system as a result. Starter home market ($140M to $200M) is now toast due to # of foreclosures and oversupply. New home sales down 59.88% in 5 months ended Nov. 2006 vs. same period last year. Virtually no new starts in past couple of months, but still a lot of developed lots on the market - the discounting has begun!! Most regional and national builders have fled canceling contracts as they go. Bottom line - you don’t want to move there.
Denver and surrounding cities are not far behind Greeley as far as foreclosures - still mostly in the $200M range. # of listings in Denver area is all time high. Boulder, Fort Collins and Co. Springs are a little stronger. Mountain towns are reportedly still strong.
“It was hard for me to leave that home,” Marguerite said tearfully. “The biggest thing is, it was our home. Our home. Our kids’ home. Our grandkids’ home.”
A quick correction here also:
“It was the lender’s home - I should’ve realized I couldn’t afford it”.
Blame can fall on either side of the fence regarding fault for these lending abortions. Some will say it’s the lender’s fault. Some will say it’s the borrower’s fault. I’m of the mind that there will always be someone willing to take/steal someone else’s money, legally/morally or not, and it’s my responsibility to ensure I’m not the one getting the short end. Like the victims of those great 419 emails from “rich South African widows” wanting to donate millions of dollars with my help, I can only laugh at the gullible people who get taken for the rides of their lives.
Rob
Problem is that most of these people have nothing to lose because they didn’t put anything down on the house and they have no savings. All they have to do is walk away. Not so stupid afterall, eh? The real losers are the tax payers who end up baling out the financial institutions.
Speaking of Financial Institutions, now that the worm has turned and these companies are going to lose their asses, are any of them giving back those big bonus checks over the past few years.
Of course not. Just taking the money and running.
Welcome to America.
“Problem is that most of these people have nothing to lose because they didn’t put anything down on the house and they have no savings. All they have to do is walk away”
This is essentially what will happen with all those no doc, stated, neg am. 100% financing made to the low-income immigrants. They will simply walk away. The subsequent 7-yr Bad credit record is a joke in the immigrant community. These people are used to dealing in a cash-only or even barter economy. Alway have, alway will. Have witnessed immigrants in LA paying several thousand dollars cold cash for good used salvage vehicles, spend a couple hundred $’s for parts, and
have a perfectly running good used vehicle.
Another scenario is for immigrants to take these POS inner city claphouses and subdivide them into mulit-units, including turning the garage into a furnished unit. Then the original purchaser becomes in effect a landlord. This might be the scenario played out in 10’s of thousands of LA inner city RE purchases, especially given the laxity of LA housing code enforcement in the Scentral blighted areas.
“Homeownership” is the most misused and misunderstood word by most Americans. Like the line from the Spaniard in the “Princess Bride”; “You keep using that word….I do not think it means what you think it means.”
Inconceivable!!!
lol nyccityboy
i saw wallace shawn in washington square park years ago
walking his dog and was saying that to him, he just laughed
I’ve seen a lot of guys talking to dogs in Washington Square Park. I saw Alan Colmes on Waverly Place one day. I’d much rather see Wallace Shawn. I can’t wait until some of that property deflates. I love the park and that area (used to live on Charles Street) but the prices are still outrageous.
I rented on Spring Street for 10 years.
*sigh* I’ll never have a deal like that again.
This has also been bothering me for some time now. I propose that henceforth we in this blog replace the term “homeowner” with “homedebtor,” unless it is clearly known that the mortgage has been (or is nearly) paid off.
It is revolting to me to have to listen to people who are still in the first few years of a mortgage talk of themselves as a “homeowner.” They have in fact anywhere from 98% to 114% of the principal to pay off.
Imprudent, fraud skating lenders and stupid buyers are BOTH necessary.
when did CO quit the last bk cycle ?
99 -2001 ?
it is different this time as speculation is retreating while no fundamentals are weak -yet
“Nearly all the original loans were insured by the Federal Housing Administration, which collects fees from borrowers to cover losses.”
Glad to hear the losses will be entirely covered by those fees.
Glad to hear the losses will be entirely covered by those fees.
Yeah Right.
And the PBGC’s fees will cover the cost of indemnifying the retirees whose pension plans are relying on REITs and MBSs.
If a society is judged by how well it takes care of its weakest members then I fear we are in trouble. Like the stock market before it, the mortgage industry is heading towards some type of SEC-style oversight in the future (thank god!).
The only regulation that is needed is to force the lenders to eat their own dog food (i.e., no selling of the loans).
Badger boy, you are right. What’s with all the “let’s add new rules & laws”? Enforce the rules and laws we already have and we would be fine. This is true of real estate or society in general. Too bad the politicos seldom have the nads to enforce laws. Too many lobbyists and sob stories encourage them not to enforce anything. Real estate doesn’t need its own version of Sarbanes-Oxley. It just needs enforcement of the rules that are in place.
Sarbanes-Oaxley is sort of self regulation with responsibility. It tells the CFO and CEO that you can no longer say “oh I did not know what was going on.” They are held responsible by ensuring proper internal controls are in place. So if builders are doing this and they are an SEC companies then a set of checks should be in place to ensure that fraud is not being committed. Now if this is not fraud then they have nothing to worry about. Right now I think all we know is that the builder sold to a bunch of idiots. However, selling to idiots does not make this right.
So is the builder supposed to take their IQ test first?
Selling to idiots does not make it illegal either.
The lendor has a responsibility to verify the ability of the creditor to repay the loan. In this case the builder and the lendor are part of the same organization. Clearly many of these buyers were not qualified nor was the property worth the assessed value. I think that there will be many lawsuits between bond holders and the mortgage industry over this negligence/fraud whatever you want to call it.
Of course the building/RE/mortgage broker executives already have their money stashed away in the Caymen Islands so it will be mostly fighting over scraps - and the lawyers will get most of it anyway.
Meanwhile, taxpayers will be baling out the S&Ls, insurance companyies, pension funds, etc… The American Corporate Republic at its finest.
“mortgage industry”
how about the whole realtor industry. In california appling for real estate license is as easy as being a barber. They are lowest on the list with Lawyers and Accountants being at the top.
Yet we have $Millions flowing from buyers/sellers/financing/constructions. The whole realtor industry is well to connected with politicians in Congress. Im talking about Democrats mainly.
“how about the whole realtor industry. In california appling for real estate license is as easy as being a barber.”
I still have the old 1987-88 Cal dept of RE Reference book, the 800 page RE bible which i doubt even a small % of Cal licensed Realtors even bother to reference(The updated current yr version of course). Every Cal newly-licensed realtor who really is seriously dedicated to their newly-chosen ‘profession’ should read this tough, dry textbook frontwards and backwards at least 3 times before they consider themselves qualified to practice selling RE to the public. Does the Cal dept of RE still issue such a book?
Yeah but the Democrats haven’t controlled Congress during the housing bubble have they? Who has? Why would the realtor industry back a party that is out of power?
Once this happens, prices will be driven much lower, since a home is only worth what a person can borrow.
There is as much pain to follow heading down as there was joy heading up. Shopping San Diego this last week, I found the stores empty, where the year before I looked at the parking lots and just went home. This is the wealth factor in reverse, as folks start to take stock of their losses.
Regardless, regulation is needed, payments should not exceed 25% of gross pay. 20% down must come back etc etc etc. With those restrictions, I cannot see homes selling for more than $250K in upscale areas and 125K in poorer areas or less, which means regulation will in effect devalue the fixed asset portion of a banks holding greatly causing yet more pain. But hey, what ever made anyone think that properties which had just a few years earlier sold at one price were over night worth two, three and in some cases four times more? People just don’t think!
I hope these builders/Mortgage brokers do go to jail. 51 our ot 57 foreclosed and the builder didn’t know, what a joke! BTW Rob, I hope we never get to a day where everyone is as cynical as you and I. I hope I don’t blame the victim too much, these people are striving to get ahead like anyone else, They don’t understand finance and they a relying on the fact that for years, the mortgage market was relatively clean. When the builder/mortgage guy says “go on, we can get you in there”, they really believe that someone has checked them out and is working off of better knowledge. when these people lose faith, and they will, then goodbye consumer. Credit cycles are long and extreme, and I for one don’t want to live in a perma-recession because nobody trusts that the system encourages honesty. When attitudes change, forget growth of +1% or more for a generation!! Maybe the politicians can bail everyone out, but they are all completely corrupt and useless (both sides). If I were into conspiracy theories, I would say that this is the work of the upper upper classes that want to send us back to the 19th century.
Hopefully a set of simple disclosures could solve the problem. Here is a shot at possible check box format. I am sure it could be better, but then again the more jargon that gets put into these things, the more confused the borrower gets. I read a study once that 1/5 of our population cannot read.
1) This is length of your loan.
2) This is the rate of your loan.
3) Your loan is either fixed rate amortizing, fixed rate interest only, an ARM, or a Neg Am loan. Or a combination thereof.
3) If you have an ARM it is indexed to this and it could go up substantially.
4) Seconds would need to be disclosed also ofcourse.
5) This is your payment in relation to your household income. Traditionally this should not go over 28%. Yours appears higher than this. If you lose your job you are screwed. If you get sick you are screwed. If you have any new monthly bills you are screwed.
In fact the loan officer should have to say you are screwed to the potential borrower at least ten times so that they understand their is a chance that may be screwed.
Now I hope there is an article about realtors so I can talk a bunch of crap about them. Can’t now because FBnolonger gave me a rash of crap. Although per his comment name I think he wishes his loan officer had told him that he was getting screwed. If he did not get a bad loan in his eyes then by him using the term FB in his sign on name is incorrect and an insult to all FB’s the world wide.
Your check list minus the -you’re screwed part is already in the documents problem is no one bothers to read them.
That is not the problem. People were getting price out from housing. At one time you could save up for a down payment, but because of monetary policy housing prices took off at what >10% while you were getting 2-3% max in the bank. People said if I do not buy now I will never be able to buy. Sure the speculators at the margin were in it for the greed but the majority (IMO) were saying this might be my last chance plus the yadda yadda yadda about RE being a great investment. The housing bubble was a designed economic policy by the Fed and politicos to bail out the blowup of the internet bubble. I do not know what is plan B after this but it is feeling more and more like we are New Orleans and we know Katrina is coming
You are correct, IMHO, tg.
Haha…good post - but maybe rash is too strong of a word?
No, actually I have a full time IT job, but I am also a Realtor and licensed MB. I was full time RE for a few years before going into IT. In dealing with any buyer, I let them know that I think our RE numbers are out of line, but everyone needs a place to live, so I can see owning one house. I also recommend only getting a 30-year fixed at worst. If you can’t afford or qualify at that, you perhaps should reconsider purchasing a house at this point. I have been saying the numbers were out of whack for over 2 years, and the 30-year fixed bit the entire time I have been in RE.
I sold my own house a few months back, and now am paying $250/month more to rent about the same size in a TH. I also sold for 10-15K less than I really could have, but I just wanted to get out (of the house, and soon, this state of Florida). I could have gotten 25-35K more if I had sold last year like I wanted, but just convinced the MRS. this year. And no, the 5.5% 15-year fixed did not really come into play in the decision.
I generally agree with the caveats that are posted on this blog, but the one possible exception could be if we have a dollar collapse and hyperinflation to try to bail out debtors. Then a mortgage balance (if you have a fixed rate) might seem like a quaint annoyance, much like a guy I worked with who in 1987 who was paying a house payment of $130. In the mid 60’s when he got that loan, that probably seemed like a lot of money.
And even if I was not a Realtor, I still would have made my comment. There can be good and bad in any group of people. And besides, the Realtor’s job is to get the highest price for his seller or lowest price/best deal for his buyer. Is getting a high price for his seller wrong, if no lies or misleading statements are made? Personally, I think anyone, anywhere who has bought a condo for (possible rent - 40%/monthly payment) is just plain dumb. Does that make it so? This would apply to almost any condo buyer in the USA since 1994. A guy who works with my father-in-law just bought a condo as an “investment”. He thought about it for over a year, and everyone around him told him not to do it, but he just closed on one anyway. He paid just north of 200K, and now is asking everyone around him to help him find a renter at $950/month. I don’t know any other details about it, but I figure with a 30-year fixed and all the fees, he would be looking at around 2k/month. Maybe he feels smarter with a payment-option, but this guy is truly a FB. I guarantee you that by 8-years old, my daughter will be making better decisions than some of these “grown-ups”. I think people with little financial understanding are the cause of the bubble more than Realtors (although many people seem to think these groups overlap
) But, what do I know? I have been a gold bug for about 15 years too!
We are looking in the Smokies area, and I have found about twice as much house (and newer!) for the same price that we sold ours for. I have told my wife that I do not want to buy for at least 2 more years, regardless of what we see. She has agreed we can rent for a while, as long as we get out of this state. Whew!
No lie bklynrenter! I’m just a naturally financially untrusting sort (thanks Dad!) but I admit I do have a small place in my heart for people who get taken because they didn’t know any better. But then I use a smidge of uncommon sense, unlike what many head-nodding zombies can muster, to realize that you can’t trust anyone trying to sell you something to tell you the whole truth the whole time they’re trying to sell something. That’s the nature of sales - they should teach this in school because too many people just don’t get it.
And while I’ve only harped on the buyers’ idiocy I fully agree this wouldn’t happen if lenders were held to a shorter leash. Regulation to stop these predatory tactics would help keep these sheeple from getting fleeced - I look forward to this happening in later years. Till then I agree wholeheartedly with what GetStucco said —
“Only unethical lenders and stupid buyers can make deals pencil out at unaffordable costs.”
Beautifully put.
Rob
“I hope I don’t blame the victim too much,”
Please define “victim”. The only victim in this whole 5 years of real estate madness is the people that didn’t participate and will have to pay to clean up the mess. I don’t see anybody in this story that fits that bill.
Thank you. The victim will be the tax payer. Me. I am the victim of their stupidity and greed.
yes you are right about that, plus I expect another tax- inflation for all the dollar savers out there.
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“I no speaka English!”
hey gekko it worked for sammy sosa
It is really sad that these deals happened and it seems like there should be enough of a disclosed paper trail to bring some to answer to fraud charges. The scale of what happened completely amazes me, however. I wonder what I would do in this position, and I think I would take the documents for the two loans to a lawyer and squeeze enough for a house and then some from the builder.
What they were doing was fraud, and the Colorado courts may be slow about this stuff, but they have no record of being forgiving.
Agree that the victim in the end is the taxpayer, and I guess that’s me since I’m a renter. That what was behind the useless politician comment. My point was that these sharks relied on years of a relatively clean market (only in 2000 it was virtually impossible to get these neg am’s, ARMS etc if you were in a regular job) that allowed people that work hard to commit financial suicide. The sharks are the fed (Greenspan used to say that excessive housing price increases were destabilizing and then he allows this to happen!), the banks, the hedgefunds, the mortgage brokers, the realtors, the appraisers and then the FB’s that got sucked in. Who’ll pay? the renters and the FB’s, because they need to work and that means they’ll have to pay taxes. That’s it! no comeback for the Fed, there’ll be bailout for the banks and hedgies, the Mortgage brokers will shut up shop when the sh*t they placed comes back at them and the appraisers and brokers will carry with lower incomes, but they’ll say who knew!! In the meantime they are destroying American optimism pushing us into long, long recession. That’s a crime and we’re all going to pay for it in lost jobs, higher taxes, lower pensions, more crime and on and on. Rant over
From the Colorado article, the new growth industry of foreclosure property management seems to be attracting the RE agents who can no longer sell non-distressed properties. e.g.: Foreclosure “counselor”/agent hiding his business cards when he drops off his “I can help you” notes so that the other vultures won’t see them.
Over time, the best and brightest on this blog have convinced me of the true value of a real-estate attorney (lawyer) at about $175 per hour. Have an MBA and held a RE license for 12 years long ago and only sold 1 house to a friend at 50% commission. More out of interest than greed, obviously.
How many hours are we talking about? If it’s 10 hours on a $600,000 purchase, it seems worth it to hire an attorney for the largest purchase in your life. I am not one, nor do I know any. Relying solely on the representations of real-estate agents in this day where qualifications and experience run the gamut, seems like cheap insurance to me. Thoughts?
I’m a former RE attorney, and my $.02 is I really don’t think you need one for the purchase of a house. Just read your CAR form carefully and watch out for all the deadlines/contingency periods, especially re when your deposit becomes nonrefundable. Good luck.
robin,
We bought and sold our house “by owner”. Used a RE attorney both times, cost us about $350 each transaction. Seemed well worth it for peace of mind. Also hired an inspector when we were the buyer. I think it is good idea to have a competent professional look things over before doing such a large transaction.
We’ll be sure to have a RE atty look over our docs. An independent (you find him/her, NOT the realtor) inspector should be a given, if you’re a buyer.
“Nearly all the original loans were insured by the Federal Housing Administration, which collects fees from borrowers to cover losses.”
This housing bubble has got to be one of the greatest scam of all time. Make ludicrious amounts of money, lie, cheat, steal, and get rid of all resposibility leaving a sucker holding the bill and Uncle Sam to foot the bill. The best part it was done out in the open appearing totally legal and lines of people throwing their money at you for 20% returns!! Go figure.
And all the bond buyers were the stupid chineese, russians, africans, arabs, canadians, english, french, german, koreans. These guys are genuises. Don’t worry soo much. It’s the stupid, very very very, mucho, mucho, mucho, très, très, très, stupid morons from the rest of the world that they swindled! There must be a little of Golman Sachs in the plan. Your guys in New York are real good crooks. Meyer Lansky and Charles Ponzi would be proud.
Well, I stopped in again after a long hiatus. Sorry I did. The rampant racisim, arrogance, and cruelty of far too many commenters says a lot about this country today, and it ain’t pretty. Hard to imagine what kinds of families and communities are being built in this context. Gives me the cold shivers.
We’re all in this together. Until we stop blaming “others,” we’ll never understand ourselves.
ditto