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more talk on the subprime mortgage market and the out of control mortgage fraud
from todays ny post business section
http://www.nypost.com/seven/01052007/business/feds_nab_brokers_in_fraud_scheme_business_kati_cornell.htm
Ochen6 nyeprekrasnaya…
“January 5, 2007 — A ring of Russian mortgage fraudsters brokered $200 million in bogus home loans using phony buyers and identity theft, and pocketed more than $4 million in ill-gotten commissions, prosecutors charged yesterday.”
Looks like this Russian had other ideas.
http://hosted.ap.org/dynamic/stories/R/RI_ARSON_CHARGE_RIOL-?SITE=RIPRJ&SECTION=HOME&TEMPLATE=DEFAULT
Americans are going to have to get used to the fact that in other countries, the rules are different. We’ve been somewhat sheltered here for many decades. Globalization has more or less thrown out all the rules and it is like the Wild West, IMHO.
What will be th ultimate effect all this crap has on taxes. I know that for now there will be a huge runup in collected money but what about when people cant pay. Will tax sales also drive down the prices of real estate.
Thank you, Republicrats, for throwing the door open wide for fraudsters, criminals, and cheats from every corner of the globe. Tancredo for President!
You forgot to thank the Demublicans, too.
Republicans and Democrats. Both of them have Golman Sachs advisors. Let’s say the Dem are more smooth operators. The Republicans are more crude, less subtle and love war and their little buddies from the arms business.
Government itself is a criminal enterprise.
Marc says Mark is right.
Ya ponial.
This is interesting re the LI market (with pics)
http://bigpicture.typepad.com/comments/2007/01/construction_sp.html#comments
tx click on my link above, russian fraudsters? can you beleive it?
I’ve been bitching about the role of non-American citizens of all kinds in this bubble for a year now. It’s easy to target the hispanics but some of the real bad guys are Asians and Africans. This crap is rampant in Dallas too and I am sure everywhere else there was a bubble.
well in ny we have it all and i do not want to sound like a bigot but these russians are a different breed
mortgage fraud,medicaid fraud and fake car accidents
most of them are crooks plain and simple
how soon they forget about bread lines and the streets
of the usa are lined with gold
Casey is Russian. Nuff said.
” i do not want to sound like a bigot ”
You don’t sound like a bigot to me. I’m way past the point of caring how it sounds. As far as I am concerned, political correctness should have been buried in the rubble of 9/11. We are sitting ducks for all these foreign fraudsters.
Not only that. The people in power in Washington, may it be Republicans or Democrats, are fraudsters, liars and crooks themselves.
That’s a good point, Marc. Like attracts like.
Amen to that. The Republicans see immigrants (legal or otherwise) as cheap labor and a blunt instrument to weild against the unions. Dems see legions of potential social parasites and entitlement program recepients to add to their core constituency. May all of their mistresses (or interns) catch syphllis.
“mortgage fraud,medicaid fraud and fake car accident
most of them are crooks plain and simple”
We have had these types of rampant fraud and scams here in the LA illegal alien community for decades. I had contacts in the Hispanic immigration community and some deep throat sources gave me the juicy details about stolen suv rings, auto accident fraud rings,ect. This was back in the 80’s-90’s. Also worked with the LAPD on a case involving some former immigrants who were running stolen SUV’s into Mexico. Medical fraud costs the state of Cal billions each year.
The case of homes selling for $400,000-$450,000 in some of LA’s most crapped-out slumzones would indicate possible mortgage fraud running rampant in the inner LA slums. LA inner city areas operate as more or less black market areas where transactions occur outside of government controls. Something like 50% of LA economic transactions are untaxed and unreported. This is the direct result of the huge immgrant population here in LA, which often uses fake names, ID’s, stolen/borrowed ID cards,Fake SS and fed id numbers, fake addresses,ect. A shiftless roving population of illegals who can quickly flee back across the border to escape criminal indictments.
Welcome to LA, AKA banana republic, USA.
TXchick said:
Casey is Russian. Nuff said.
Not that I’m trying to defend Casy in any way, but he’s from Uzbekistan. Although, having moved here with his parents in his early teens, chances are he’s got dual citizenship, or gave up his Uzbeki passport for a US one when he turned 18.
Calling him ‘Russian’ is like calling an American ‘Canadian’, just because the USA shares a continent with Canada.
Sorry, nitpicking, I know. But as an English person, I get fed up with being called “British” or “European” (neither of which exists as country in its own right) just because of geographical proximity and/or geographical ignorance of many people in the US. For the record, there’s no such thing as a “British” accent…;-)
As I said, not defending the little snot Casey in any way - but Uzbekistan /= Russia.
In the book, “The millionare next door”, it talks about the financial success of immigrants from different countries. Accodind to the book, the Russian immigrants far out pace all other immigrant groups in speed of wealth building. When a person comes from a winner grabs all at any cost to the society as a whole (chernoble) and then operates that way in a society than values the common good, they can do really well very quickly.
Speedingpullet,
Not to split hairs, but I think Casey Serin is actually an ethnic Russian (Slav), 25 million of whom live outside Russia proper in the “near abroad” - places like the former Soviet Central Asian Republics. Uzbeks are more Asian/Mongolian in appearance, whereas Casey looks more like a Slav. Either way, we need to slap a “return to sender” label on him and send him packing.
Sammy S - totally agree with you, Casey is most definately Slav, but a lot of the former USSR sattelite states have a minority ethnic ‘russian’ population.
As for him being sent packing - I’d hazard a guess (though I don’t know for sure) that he’s probably a US citizen due to coming here as a minor.
Anyway, I’d like him to face the consequences here. I’m sure the Uzbek govt wouldn’t know what to do with him
My post hasn’t shown up yet, but I guess great minds think alike. I’d like to examine this issue in depth.
I’m with you on this. I think it would be fascinating. Also, a question for Paladin…from your experience, how much is the FBI really doing to track down mortgage fraud?
Another question for Paladin. How can others do what you are doing? Let’s turn up the heat on fraud across the nation by replicating what you are doing in every county.
Doing research on new homes that are sitting on the market as flips, the tax records for one neighborhood indicate mostly Vietnamese or Chinese flippers, with a few African buyers. That’s in Baltimore County. Interestingly, in the neighborhoods heavily populated by foreign buyers, the majority of loans have some skin in the game, and there is a glaring absence of IO and ARM’s. Accordingly, they are dropping prices the fastest, some to below what they paid–I guess they’ve got the money to take the loss, or more sense than the rest of the flippers.
Nikki, thanks for that. It is important to also look at those foreign nationals who are indeed trying to play by the rules and I find it significant that in your area, many do have some skin in the game. This should be noted and not buried in all the negativity on foreign fraudsters.
Nikki, the other day I was talking to someone who bought her condo during the last down market in the 90’s. She bought it from a Japanese man who had payed cash for it and took the loss due to the change in the market. In that situation, I guess it makes sense to just take the loss. I’m afraid very few will have that luxury this time.
The FBs are coming home to roost. I recently learned that a close relative of mine (Bob) is in housing bubble trouble. Apparently, Bob could not pay his home owner’s insurance premium; so, he borrowed the money from another relative, Joe. Joe says Bob does not have the money to pay his annual tax bill either; it is due within 3 months. He added, Bob has an interest only ARM that resets within a year. Bob is fully employed but like all other South Floridians did not contemplate rising taxes and insurance.
I talk to Bob almost daily. Sometimes we talk about the gory housing bubble and the devastating impact on FBs. Other times we talk about his kids and grandkids and so on. I even tell him to warn his kids about seductive FB ARMs and so on. Yet, throughout the last six months Bob has not said a single word to me about his predicament.
Naturally, I am very disappointed and angry with Bob and have been avoiding our daily conversations. Honestly, I am devastated because I know how the story ends. However, before it ends I have to get past that ackward moment when Bob asks for my help. I value my relationship with Bob; he is like an older brother; so, what do I say to Bob when he asks to borrow the tax money? How do I manage this overwhelming situation without ruining my relationship with Bob?
If you can get some sort of security as collateral that is not his house, maybe. Why don’t you point him toward prosper.com now before he even asks. If he has decent credit, he’ll be able to borrow money there. http://www.prosper.com
how do you feel about that site as an investment alternative?
I’m a member of the ITulip lending group (Indexarb is my nick). We haven’t made any loans. I don’t like the idea much. Anyone you would lend money to - you can’t get enough of a return and the rest of the “borrowers” are hopeless long time losers and scammers. I wouldn’t lend any of them a dime and expect to see any of it back.
if you are a member of a lending group but dont lend any money, what is the point?
BTW, I know that you like to play day trader. I believe you may want to look at shorting HSBC (little insider tip for you
). THey have cut about 80% f the available prgrams over the past 9 months and their rates arent competitive on the remaining stuff. I am a total novice though.
Like to play? I’ve been making my living at it since 1997
Like to play? I’ve been making my living at it since 1997
Txchick, I wish I had your talent. I’d love to turn my savings into much, MUCH more savings but I’m so conservative and so inexperienced on the whole trading scene.
stay the course and very nicely tell him no
and cry poverty as well even if it
i would hate to pay for other peoples bad judgement
family or not (except mom)
“even if it pains you to do so”
What happens when insurance and tax time roll around next year OR when the ARM resets, would you lend Bob the money again and again Or would you set some conditions like selling home or part time work?
Only give the money to him if you expect to never see it repaid. If you can’t afford to give him the money as a gift, then don’t do it. If he repays it one day, then think of it as a bonus.
Well, first of all, given your conversations he may not ask you for money, especially if he’s worried about you think.
I personally would say “no” and here’s why: the sooner Bob faces the music the better for him and his family. Borrowing more money will not solve the problem. Getting out from under the albatross that is his home will. The longer he waits, the worst it will get. Explain to him why you said no - help him find resources if he asks, but let him find his own way out.
You may lose a friend - but I think if he’s worth having as a friend he’ll thank you in the end.
And if you do decide to give him money, don’t “loan” it to him, just make it a gift. Given the situation you describe, he doesn’t have the money to repay you. I can guarantee you that the friendship will be gone when you start hassling him for money he doesn’t have.
“…given your conversations he may not ask you for money, especially if he’s worried about you think.”
You are somewhat correct. I learned of the insurance loan through Joe and he does not expect repayment.
However, your observation about my opinion of Bob is really overwhelming. When he does ask for my help it will indicate to me his level of desperation and I cannot bear to see him grovel.
That was why I suggested you point him toward prosper now before it ever becomes an issue. You can “show” him that site in some other context, as if if never occured to you he might need it.
Thanks txchick. I will make your suggestion to preempt any groveling.
When it comes to friends and family, i abide by a simple rule. I dont lend anyone money, i give it to them. The amount is limited to the amount that i fee lcomfortable GIVING. If they ever repay it then it is just a bonus. I never expect it back so, it doesnt ruin the relationship. Of course this leads to small gift amounts. I have a saying as well that i crafted myself when it comes to lending money or cosiging. “Never try to be smarter than the bank.”. If the professionals of lending money dont want to give you a loan then, why do i? ( Although i am a professional)
“I dont lend anyone money, i give it to them.”
Shakespeare agreed with you:
Neither a borrower nor a lender be. For loan often loses both itself and friend, and borrowing dulls the edge of husbandry.
i bet you are an ace at Jeopardy
My husband pointed out one way to think about a similar situation with a relative: Hubby said that while our relative was living in a much nicer house, buying very nice new furniture, top end window coverings, etc, and taking trips in their RV, we saved money - and now we’re supposed to help support them? He said he would if I insisted, but I should think of it as making payments on this persons brand new furniture, while we were saving money by buying used most of the time. That cured my perspective because my relative redecorated all the time - it was lovely, but why should I have to foot the bill when I don’t feel I can legitimately live that way myself ?
In Bob’s case, it sounds pretty hopeless and will only extend the time till it all blows up anyway (which I think is a legitimate reason to help him, especially if he has children & needs to get situated - but he would need to be actively moving towards a sustainable solution). Secondly, Bob probably is in no hurry to ask you because of your previous conversations.
Bob is similar to your relatives with spending (new SUV instead of smaller economy car, used boat, expensive gifts for kids and grandkids, and so on) and I am probably the last person on his list for a loan. However, I want to be prepared for the day he asks. He does not know I know about the the insurance loan from Joe. As far as he knows, I think everything is hunkydory with his finances which makes our conversations very very ackward.
Yeah, not a lot of fun to be handed part of the tab for someone else’s spending binge. It is no the same as being asked for money from someone who is just trying to get by in a reasonable manner. (I’ve given money to folks like the latter without a second thought.)
I grew up in a scenario just like this. My dad was a hard working blue collar guy. His brother was a doctor. We lived very humble lifestyle in LI as my dad raised 5 kids. My uncle had all the nice things. Big house in Great Neck, new caddilacs every 2 years and all the high end crap you could think of. He was a doctor so he could afford it.We all went to state school, my cousins all went to private college.
Sadly in their retirements my rich uncle was having to borrow money from my dad. He had lent him approximatly 20k over the course of a year until he finally said no more. 60 year relationship between 2 brothers ruined. I know this sounds like some sh@t you read in a Kyosaki book but its 100% true.
Wow.
Yeah. It is a tough pickle that needs to be handled just right. That’s why I am asking your advice. I cannot solve this issue on my own.
I have no use for pride, so I let everyone think I have no money.
Little do they know…..
Never lend money to relatives, unless there is a written contract spelling out the interest rate and repayment terms.
If this won’t work, just give Bob whatever you feel comfortable with, which could be money, help or advice. Don’t let money ruin a family relationship.
You haven’t heard this morning how things are going just fine ? Plus 167,000 jobs! It’s hot hot hot out there. Another phony baloney and bs statistic from the Labour Department to prop that piece of overprinted sh-t, the US dollar. And you know the sh-t works specially on the stupid full of sh-t russian mafia.
My policy with regard to friends or family asking for loans has always been: if a bank won’t lend them the money, that means they don’t think they will pay it back. Why should I allow myself (even in the presence of emotional blackmail) to take on risk that a bank won’t touch? And if a bank WILL lend to them, then again, why should I do it?
So the answer must always be “no.”
Just wanted to relate an anecdote. Some years back, one of Warren Buffett’s relatives ran into financial difficulties and asked him for help. Buffett said no. By lending money to you, I’m not helping you, I’m helping out the bank. So tell Bob, no thanks. I treasure your friendship but there’s no need for me to help your bank.
Ask him for money first. That ought to disarm the situation for you.
mrktMaven, I guess you feel you are in a thorny situation because a. even if you lend Bob some money, his situation is not likely to improve, b. if you do lend him money, you are not going to get it back in the foreseeable future, c. if you do not lend him money, you might lose the friendship. GetStucco would call this a “conundrum” (he loves that word).
It’s a tough one. I wonder why Bob did not talk to you about his situation before. My guess is he hasn’t come clean because he has heard you rant about FB’s and can’t bear for you to know that he is one of them. Maybe that will stop him from asking you for the money. However, if he does ask you for a loan there’s two things you can do: 1. loan him some money ONCE and not expect to get it back any time soon (good for your karma but bad for your finances) 2. Help him get a handle on the situation with help regarding a loan, like txchick suggested, bankruptcy or selling the house at a loss. Both can be right, it just depends on your style. Hope that helps.
Agree with the many posters who suggested you:
a.) GIVE him money, and leave it at that OR
b.) HELP him find another way to get out of his situation OR
c.) tell him you DO NOT HAVE the money available to you (it’s all in long-term investments which you are not able to access.
Best of luck to you. It’s not an easy situation to be in.
Scott van Voorhis wrote another piece today.
How bad is the real estate market?
Such as this telling fact: real estate downturns have contributed to three prior recessions.
http://business.bostonherald.com/realestateNews/view.bg?articleid=175404
“Such as this telling fact: real estate downturns have contributed to three prior recessions.”
More to the point, the seven-out-of-seven times since 1955 when US residential construction dropped by over 25%, the residential construction recession overlapped with a GDP recession.
True but what was the cart and what was the horse in the past? This time is different — the real estate market drove the rest of the economy.
The way out is for a consumer boom to take hold in places like China and India. We spend too much, they spend too little. The result here would be a profits recession for companies reliant on U.S. consumer demand, continued downward wage pressures, and higher prices for a while, but no major job loss or financial catastrophy.
There are worse scenarios.
“The way out is for a consumer boom to take hold in places like China and India.”
Don’t you wish. But there is a bit of a problem on the ground, which is that the US manufacturing infrastructure happens to increasingly reside in China. When China has an adequate base of consumer demand to match their burgeoning manufacturing capacity, what will we be able to offer them that they cannot manufacture and purchase for less at home?
Good point, GS. I’m something of an isolationist. Globalization is a travesty, IMHO. Economic interdependence is just as dangerous as dependence on energy from foreign countries. As far as I am concerned, Tom Friedman is an a**hat with his happy talk about a global economy. It doesn’t work.
No “au contraire” it works wonderfully for Robert Rubin and Paulson from Goldman Sachs or Nardelli from Home Depot, or Michael Eisner from Disney. As for the ordinary shareholders, the middle class, the small entrepreneur that take 100 % of the risk, well they can go sssscccreeww
themselves or go hang themselves like Saddam.
Marc, you are right, I thought of that after I posted. This Nardelli story has really raised my blood pressure, especially after a relative explained to me how, in a very arcane way having to do with the trading of debt, etc., his “golden parachute” consists of OUR money. I had a very bad headache by the time they got through explaining it to me.
Don’t worry, be happy and smile. This week we learned again that Wal Mart is removing the little security the employees could have. From now everyone at Wal Mart will be on call. It’s OK if you are information technology charging 300$ an hour, but imagine these bastards are implementing the same model for people making 7$ an hour! Somebody should burn a couple of their stores just to give them a message. By the way I am not a communist or socialist. I am just tired really really really of reading these stories. Watch out with the mathches Wal Mart.
“It’s different this time.” We have Goldie-Locks.
Sixteen months or more for a house to move in Boston’s ‘burbs does seem a bit lengthy, no?
This may be way too hot a topic, because emotions on this subject tend to run high, and it may have been proposed before, but what has been the effect of illegal immigration on the housing market in the US and also vice-versa, the effect of the housing market on illegal immigration? And not just illegal immigration as it pertains to low end, unskilled labor, but also at the more sophisticated level of flipping and mortgage fraud. (I’m recalling a story that Ben had posted about an illegal immigrant from Turkey who was caught at a closing in Florida participating in a mortgage scam.) One of this blog’s posters, dimedropped, had a very interesting post about a development in Central Florida where almost all the homes were owned by people from England or South America and yet they were claiming homestead exemptions on the homes.
Major question: Has illegal immigration been one of the factors fueling the housing boom? I am wondering if all this overdevelopment could have taken place without the influx of illegal immigrants to the construction industry.
There are a number of aspects to this issue. For example, during this boom, have many American construction workers been deprived of some of the prosperity they could have reaped over the past five or six years? Has that money gone instead to unskilled labor from other countries working in construction? The Tom Brokaw special on NBC over the holidays featured a construction company (Gould) in Colorado that hired illegal immigrants, supposedly because they couldn’t find American workers. One of the illegal immigrants interviewed said he was taking his money back to his country of origin to buy a home and settle down. (Nice, huh? How many Americans have been priced out of the housing markets in their own areas, while this guy gets to go back to his country with his profits from the housing boom and buy a cheap place?) Also on that special program, Brokaw referred to Colorado’s “booming economy”. Booming for who? From what I’ve read on this blog, Colorado is having a large wave of foreclosures already and the major mortgage re-sets haven’t even gone into effect.
I also read a very interesting post on the FAIR website by a Mexican American fellow whose brother is a union electrician in the US. He stated that the resorts in places like Cancun and Cozumel hire and import American workers at extremely high wages to work on their projects because they want the work to be done properly in order to avoid issues of liability (gee, I guess there are some things Americans can do well after all. But reading his post, I recalled a couple of fellows that I knew a few years back who used to go down to the Caribbean to work construction.) He said he was fearful what would happen to people in the US when they purchase a new home built during the boom, especially since much of the illegal immigrant labor has been poorly supervised and builders were doing their own inspections.
And now that the boom has gone bust, what happens to the illegal immigrants who participated in the boom?
“… but what has been the effect of illegal immigration on the housing market in the US and also vice-versa, the effect of the housing market on illegal immigration?”
no doc = catalyst
I agree, GS. No doc has been a big contributor. And for illegal immigrants, there is no downside. No credit score to mess up and just go back to country of origin to escape the long arm of the law.
The cost of this will be borne by homeowners in areas where no doc lending to illegal immigrants was a significant factor in the bubble price runup.
“The cost of this will be borne by homeowners in areas where no doc lending to illegal immigrants was a significant factor in the bubble price runup.”
How so, GS? My thought was that the cost would be borne by (who else?) the American taxpayer in the coming national bailout. Are you saying it will be more isolated, as local taxpayers bear the cost of services to illegal immigrants? Because this is already happening.
What I am saying is that lending no doc money to illegal immigrants who buy homes they can’t afford inevitably will lead to said immigrants cutting and running back to their home countries when they can’t make good on payments. At that point, the property will become REO and sell at auction, screwing up the comps.
Illegal immigration gave us the warm bodies to put in substandard homebuilder homes. It gave us the undocumented labor to build those homes. It gave us the crime that surrounded those homes. And it will give us the homeless that can no longer afford those homes. Period, end of story.
Quirk –
You told a great economic growth story there.
It absolutely has. I’ve raised this multiple times and have been called a bigot, racist, etc.
Remember the Forbes story on this blog in early ‘05 - the guy with the 23 houses in Phoenix he’d never seen - styling around town in a limo w/50K watch, etc. He was in his early 20s and was foreign of some kind (don’t remember the nationality). I’d like to see his financial situation right now.
txchick, excuse my indelicate language, but screw those who have called you a racist and a bigot. I like to say, if asking illegal immigrants to observe the rule of law that supposedly exists in this country makes me a bigot, then I’m a bigot and proud of it.
And count me as a rule of law-respecting “bigot” and “racist” as well.
BTW, I’ve had the race card played against me in Tucson, and ya know what? All it does is lower my opinion of the card-players even further.
Arizona, I’ve had that race card attempted to be played against me as well. Eff ‘em. The people who do that are the lowest of the low and it is mostly a political tactic.
Most of us here on the blog believe in playing by the rules, both written and unspoken. Those who don’t, are enemies of ours. Treat them as such. They care nothing for your survival, only the survival of themselves and their families at our expense. And I do mean expense.
“He said he was fearful what would happen to people in the US when they purchase a new home built during the boom”. One recent result was a new homeowner being electrocuted and dying when he touched some of the plumbing in his new home (SouthWest Florida). Faulty wiring by shoddy sub-contractors. Story was on this blog last year.
Yes, someone posted a link to Mish’s blog (Mike Shedlock) where Mike Morgan of the real estate firm Morgan Florida had posted the story. The builder was Lennar and the home was in Clermont, Florida. It wasn’t the homeowner who was electrocuted, but another contractor who was installing a washer and dryer. As I recall, the main power switch had been turned off, but current was still running through the home, due to the fact that wiring had been nailed into the steel support beams.
This is why resorts in Mexico and Caribbean are very careful who does the electrical work on their hotels.
Many will go home. This happened in the 1930’s. Many will increase the US crime rate .
I’ve never been robbed by an immigrant, but every time I am forced to pay taxes by native-born Americans, I feel like I am being robbed.
I’ve sold a couple of houses to immigrants; their money was as good as anyone’s.
I don’t think many immigrants would give free money to Israel or invade the Parthans…er, Iraqis (same people, different century, same result).
We’re talking about ILLEGAL immigration. I realize some people would like to blur the line and just call everyone an immigrant without distinction as to whether they were legal or illegal immigrants. Oh, and by the way, I completely understand that “free money to Israel” is code for something a whole lot nastier.
Anyway, the main point is the effect on the housing bubble. If this is taken up as a topic, we’ll have to try to limit it to that and keep it clean.
Are you familiar with the term “goy cattle”?
Like I said, Mark, best we limit this topic to its effect on the housing bubble.
Must agree with you Palmetto. You are out of order Mark.
Housing will be hurt by a weakening economy. Sending money abroad via foreign aid weakens the US economy. The largest recipient of US foreign aid is a country of 7 million middle class people. That is just immoral on so many levels. Plus, that is why they hate us.
Last year I was in northern Wisconsin, and saw a construction crew putting up a new house. The reason I noticed them was that all of them looked like native-born Midwestern Americans. I did a double-take and thought, “That’s ethnicly impossible!” Wonder if they’ve been replaced by now with low-wage Hispanics.
Palmetto, illegals are a huge part of the housing bubble because they are a huge part of this country’s economy, for better and for worse. I’ve been interested in many aspects of illegal immigration for years and I swear I still can’t get my arms around the whole thing. My guess is at first illegals supplied the labor to keep construction costs low for the builders and contractors. As time went on, builders got greedier and started building more and more sh#tboxes for buyers blinded by appreciation. A side effect of that was to promote more illegal immigration. More people to work in construction but also in the restaurants and grocery stores sprouting in the new developments. Another side effect was the decline in quality that you mention, but what the heck, buyers didn’t care and the builders are not in the business of illuminating buyers regarding the more subtle aspects of home building. So now you have tens of thousands of illegals flush with money and constant work, so in come the lenders (mostly more sophisticated Mexicans, or Russians or whatever ethnicity predominates in that area) to offer them a piece of the dream. So there you have the whole inland empire “owned” by FB who are illegals to boot. I don’t even want to think of the possible legal ramifications of this. As with everything re illegal immigration, it seems to me that it is so intertwined with the process itself (in this case, the bubble) that it is almost impossible to separate them. To me the only solution is to let things play out so that everyone is going to be more careful next time.
In the mid-late 80s, I dated a fellow who was a journeyman carpenter — very skilled and talented. He used to make (in the 1980s, mind you) between $18-$23/hour, which was a lot at the time.
Not sure what the “carpenters” of today make, but I’m sure it’s quite a bit less, inflation-adjusted. Interesting that the “savings” on hiring illegal workers is not reflected in the price of housing.
On the buying side, illegals who are willing to live in SFHs with multiple families are pushing out the families who live one family per house — both because these “one family” types don’t want to live in overcrowded neighborhoods with loud music, cars lining the streets, etc. and because they are priced out because one or two wage-earner families cannot compete with five or six wage-earner “families”.
Illegal immigration is a lose-lose deal.
“To me the only solution is to let things play out so that everyone is going to be more careful next time.”
cassiopeia, I’m thinking the same thing. It was observed above by Patriotic Bear that illegal immigrants left during the 1930s, which would have been after the spectacular real estate bubble of those days and during the Depression. Perhaps a similar scenario will be playing out.
“On the buying side, illegals who are willing to live in SFHs with multiple families are pushing out the families who live one family per house — both because these “one family” types don’t want to live in overcrowded neighborhoods with loud music, cars lining the streets, etc. and because they are priced out because one or two wage-earner families cannot compete with five or six wage-earner “families”.
Illegal immigration is a lose-lose deal.”
This is one of the aspects of the situation that drove me wild when I was watching the Tom Brokaw special, the number of people to house. First of all, Brokaw’s program was one of the sleaziest pieces of slanted journalism I have ever witnessed. Because of this blog, I was well aware of his phony propaganda about a booming economy in Colorado. IMHO, he was making a virtue of the fact that illegal construction workers were living with so many people in a residence. It was almost as if he was exhorting Americans to be thrifty just like the illegals, and to accept low wages and crowded living conditions. I believe this propaganda will be widespread by the media as the housing bust continues.
(Already posted at the tail end of yesterday’s bits bucket, but I would be interested in hearing further thoughts if anyone else can offer them…)
Question for anyone who remembers and is willing to answer:
Has there ever been a similar “credit quality inversion” before, where lending standards slipped so far that those with good credit and bank were better off letting subprime money have free reign with the bids while prime customers watched and waited in the wings?
(DAVID’s response):
My understanding is that subprime has only really been around since 1992. So if that is the case there is no way lending standards have previously slipped this far, except for maybe in the 1920’s.
Margin call gentlemen. Too bad it will be a FB with a couple of kids now instead of the monopoly man.
Monopoly Money?
When I travel to Europe, one thing I always buy before a trip there, is a brand new bundle of 100 banknotes from the latest group of countries that allowed themselves to become redundant, vis a vis hyper-inflation. I buy them from paper money dealers for $6 to 8 per 100, @ a coin show before going and being a watcher of human nature and having train stations galore to ply my trade, i’d drop a few Peruvian 100 Inti banknotes, or perhaps a smattering of Bolivia 10,000 Bolivianos banknotes on the floor, or let 1/2 a dozen fly out the window, as the train was leaving and watch people scurry for them. I also kept about 10 of these banknotes in my “go ahead and pickpocket me” wallet that worked like a charm once in a subway in Prague, where a team of 4 of these modern day Olivers made off with approximently 16 Cents each, for their trouble.
Getting back to the bigger point, I always had a choice of many different countries currency to be my foil and in the 1980’s and 1990’s, Latin America and Africa gave me dozens to choose from, their common ground being that they were all failed economic states,
ruined by hyper-inflation. We sit in our ivory tower of a country and say it could never happen here, but what makes us so different, really?
“We sit in our ivory tower of a country and say it could never happen here, but what makes us so different, really? ”
Great post. Nothing makes us different, if we as a people allow our economy to be collapsed.
Well you can always attack a third world country full of oil and plunder it to pay for the bills ? Sounds familiar ? Rings a bell ?
Excuse me, Marc, but it wasn’t the American people who did that, nor is it the American people who are benefitting. It was an insane boy emperor supported by multinational corporate interests and that’s who is benefitting.
Easier said than done, apparently.
We botched that one up big time financially. Way over capitalized.
Well said Popper!
I have read several times in several places that there has never been a single fiat currency that has survived. Good reason to own gold. It has held its value for 5,000 years.
Except for that King Midas incident, when there was too much supply.
employment data- are ALL construction workers illegal and off tyhe books?
(Posted to yesterday’s bits bucket, but possibly worth a weekend discussion):
What “premiums” need to pop out of the price froth in order to restore affordability? Here is a partial list:
1. Appraisal fraud premium (needed, for instance, to pay for builder incentives plus the current market value of a new home out of loan proceeds, or cash-back deals, etc.)
2. Subprime premium (due to money loaned on very loose terms — e.g. no money down w/ backloaded debt repayment schedule — to those who will be unable to repay it)
3. Irrational exuberance premium (due to buyers who truly believed real 10%+ YOY home equity gains forever were a realistic possibility)
4. Flipper squeeze premium (due to flipper encroachment into segments of the housing market, like SFRs, which were traditionally far less commonly used as investment vehicles)
5. Move-up premium (buyers from other locales throwing massive amounts of recent home equity gains into a supersized down payment)
6. McMansion incentive premium (comps reflect the market value of new McMansions + cars, vacations or cash back deals which are included in the purchase price and financed on the mortgage loan)
Any more to add to this list?
The retard premium( The one where people who ar legally mentally retarded are allowed to buy a home. It doesnt say retarded on a credit report) No sarcasm intended.
I guess we should add the homeless premium to the list (some readers will recall the story last year about the homeless fellow in FL who managed to qualify for loans to purchase several homes…).
7. “Dead Man Walking” premium (property sits because owner insists on a price which gives them a profit {or, these days, which leaves them above water})?
Commodity and labor premium (abnoramlly high lumber, copper, and labor prices (etc…) due to irrational housing demand (new houses and home improvements).
I’ll recast a comment I made in an earlier post as a question.
As this thing gets worse, what sorts of thing will be done to keep most banks from going under? In a large sense, in exchange for FDIC insurance of borrowers deposits, banks put up with bank regulators. Their job it is to make sure that banks close their doors when they become insolvent, instead of waiting until they can no longer meet their cashflow, as with most busineses and individuals. This works fine when they “cull the heard” of a few financial instutions. But they’re going to avoid at almost all costs closing a large proportion of the financial instutions in this country. What can they do to avoid the appearance of a banking crisis. I’d bet that one of the first steps will be to become much more lenient about getting REO off of the banks balance sheets. What else can they do to allow banks, many of whom may be “technically insolvent” to remain in business.
Have the federal government just put it on their tab? Seems to work for everything else.
Oh, the question isn’t who’s name is on the bill, just how they’re going to itemize the charges.
Ooohhh…you’ve got that right. Ouch!
Banks should be a topic for discussion. Clearly the government will try to rescue them when the S H T F. But why should the taxpayers pay for the massive mis-lending of banks who clearly knew better? How can we find a way to avoid massive bailouts at tax payer expense?
What have you learned from this blog? Although it’s not a college degree, I feel that I’ve learned so much I’d never have learned in any other place. I feel like I have an edge on most investors, even those with degrees and who work on wall street.
Read the international press, especially the international business press, if you want to find out what’s up in the US.
There are more people who are “like me” than I ever imagined prior to reading this blog.
There are *way* more people than I ever imaged who are “not like me” than I ever imagined prior to reading this blog.
(Thanks for opening me to the World, Ben and fellow posters.)
Mostly that I’m not the only person who’s looked at the insanly high appreciation of the last few years and said to myself…”Something’s wrong, that can’t be right.”
What have I learned from this blog?
That I was not insane for not joining in the house buying spree.
That the American spirit is alive and well with people free to constantly question what is going on around them without blindly following the media, government or experts.
To tie into the Russian dialog. During the cold war the Russian spies were very good at stealing all of our manuals and “rule books”. But the Russians were constantly perplexed and their plans sabatoged, because no one told them that we don’t follow our rule books. We are constantly amending and adapting and improving. Similarly the American colonists a group of mostly volunteers did not play by the rules with the English.
What have I learned from this blog?
1. I’m not stupid, I’m sensible. Next time, if something does not sound right, I will trust my gut more.
2. A lot of my friends are leveraged to the hilt.
3. People that I thought were rich only have a rich debt.
4. I should have bought that little house in Westwood for $339,000 in 1995. Housing bubble or not, I would still be OK.
Manhattan’s Housing Market
Starts to Show Some Cracks
By Janet Morrissey
From The Wall Street Journal Online
New York City’s residential market perhaps has started to crack. The average sales price of a Manhattan apartment fell 5.7% between the third quarter and the fourth quarter of 2006, the second consecutive quarter that prices have fallen, according to a new study.
Prices slipped 2.2% between the second and third quarters.
The report, released by appraisal firm Mitchell, Maxwell & Jackson Inc., showed the average price paid for a condominium or cooperative apartment in the fourth quarter fell to $1,079,363 from $1,144,024 in the third quarter and was down 4.4% from the same period a year earlier.
The average price of an apartment in full year 2006 was down 7.7% from the market’s peak in the second quarter of 2006, the report said.
However, Jeffrey Jackson, co-founder and chief economist at Mitchell, Maxwell & Jackson, said it isn’t clear how much further prices may fall.
http://www.realestatejournal.com/buysell/regionalnews/20070105-morrissey.html?rejpartner=mktw
Gross to Wall Street cargo cult: “Keep the faith!”
———————————————————————————–
PIMCO’s Gross sees fed funds at 4.25% by year-end
Despite jobs growth, Gross thinks the Fed’s biggest need is stoking GDP
By Leslie Wines, MarketWatch
Last Update: 1:03 PM ET Jan 5, 2007
NEW YORK (MarketWatch) — Even as Treasurys sold off on Friday on worries that surprisingly robust jobs creation in December will make it hard for the Federal Reserve to cut interest rates anytime soon, a top fixed-income strategist predicted the Fed will lower rates by a full 100 basis points this year.
Rate cuts totaling 100 points will reduce the fed funds rate from its current level of 5.25% to 4.25% by late 2007, predicted Bill Gross, manager of PIMCO, the world’s largest bond fund.
Gross, in an essay on the PIMCO website, said the Fed will be driven this year by a need to cheapen money sufficiently to jumpstart gross domestic product growth.
http://tinyurl.com/yldxwh
Gross is right. The stupid russians and the brain dead Saudis will give you the oil free. And the stupid chineese morons will give you the labour for free. Believe me GetStucco, Chineese, stupid Russkis and fat brain dead Saudi Ariabians pigs will give you another free ride for the next ten years! It’s time to buy real estate!
Kruschov long ago announced his intention to “bury us.” The details are just now beginning to take shape — the plan is apparently to bury the US in tract homes!
Marx was wrong. We’re BUYING the rope, not selling it.
I am dead serious. I really believe that Russsians, Saudi Arabians and Chineese are dumb f–ks! They are. And If you are russian, saudi ariabian and chineese? Shame on the morons in power in your stupid and corrupt countries. Ok you can alson include Algeria, Libya, Zimbabwe, Columbia, Philippines, Mexico and many of these stupid mucho stupid sh-t places. You see I am not racist at all.
Jeez, Marc, tell us how you REALLY feel, LOL!
No, you just hate everybody. =)
Sorry, couldn’t resist. My husband is always saying he’s not racist, he just hates everybody.
Topic Suggestion - way to end the political BS that is leaking into this Blog and making it a pain to read.
FWIW, housing bubble = economics = politics. It’s why politics, immigration, regulations, division of wealth, etc. are brought up over and over again.
The housing bubble is a manifestation of a corrupt political system, IMHO.
We need to do research on lending requirements now versus a year ago. My understanding is that subprime programs are much tighter now, in fact a year ago a person could a loan at 80% LTV with FICO under 500. That is no longer the case.
Plus Fannie has tightened and I do not think anybody is really aware of how that is going to impact the market.
Weekend Topics I’d Like to See:
We keep reading and hearing that the demand for workers in commercial real estate is ameliorating the drop in employment in the residential sector. I have yet to see any numbers or charts which document this phenomena. It causes me to wonder about the percentage of illegals (unreported) laid off in the residential sector compared to the (often unionized and documented) workers in the commercial sector. Is it truly a “softer landing” due to this offset?
Second subject. Also a dearth of documentation here. What percentage of homes (more interesting if estimated by region) is the demand for, and use of, homes (condos don’t afford the necessary privacy) for growing pot or cooking methamphetamine.
The former seems to be holding up property prices in Eureka, California, and the latter seems to be moving from the privacy of the desert to the suburbs.
I raise my glass to Paladin and his tireless efforts to ferret out mortgage fraud in the Sacramento area. He deserves much credit, and I hope he is rewarded, financially and/or emotionally for his work. His actions have inspired me to think about ways in which we can assist in this effort.
Would anyone else be willing to commit time and money to organizing a mortgage fraud investigative “entity” where we find and filter potential mortgage fraud cases around the country?
I have no idea what it would take, but think we would need a core group of people who are willing and able to cull through reported cases of suspected mortgage fraud. We would also need access to sales and mortgage information (via title company or??).
We could put up a blog (sister to Ben’s blog?) where people from around the country could report suspicious sales/financing. In cases where we believe fraud to be involved, we could get direct links and send this information to designated people (why we should se this up, so we have designated contacts & know who the real players are) in the FBI, ratings agencies, atty general’s offices, mortgage lenders, banks, financial companies (likely MBS & CDS investors), etc.
We should work off-line (via e-mail, phone & fax), but could keep a blog detailing what we are doing and how people can report additional cases.
This would not be intended to make money. We would do it just for the sake of “doing the right thing”.
Anybody interested?
I would join such an effort.