“If You Don’t Have Liquidity, You’re Gone”
Some housing bubble news from Wall Street. “Tempe-based Clear Choice Financial Inc. announced Friday that it is insolvent, in default on several obligations and has laid off 120 of its 150 workers nationwide. The company, with corporate headquarters near Southern Avenue and McClintock Drive, also announced that it closed its mortgage-lending subsidiary, Bay Capital, which has offices in Maryland and California.”
From Broker Universe. “At least two more midsized subprime firms, both non-depositories, hurt by buybacks, are considering selling their shops. (One, we’re told, is owned by a large publicly traded company.) We’re still checking out the particulars and hope to have confirmation next week. As one SoCal mortgage executive told us late last week: ‘If you don’t have liquidity, you’re gone.’”
“Also in Monday’s NMN a story about Clayton Holdings advising on $7 billion in loan buybacks and an article by Brian Collins on Congress holding hearings on the subprime industry and foreclosure. One due diligence expert told us wholesale lenders should hold their loan brokers responsible for their buybacks. He believes brokers have been getting away with too much for too long.”
“With all the cutbacks, restructurings and failures in the subprime industry, there are a ton of account executives looking for work. CMG Mortgage president Chris George told us recently that many AEs ‘are in play.’”
From Bill Fleckenstein. “A former top executive at a subprime lender told me that serious issues are developing, and that large companies like New Century Financial, Accredited Home Lenders and NovaStar Financial will, in his words, ‘hit the wall’ very soon.”
“He writes: ‘We had a loan that was FPD (first-payment default) on a home in So Cal. It is a very nice high-end town that had a section of new homes built…in the low end of town. Normal homes sold for $1 million in value. In this new seven-home development, (homes) sold for $1.3 million to $1.5 million each. The homes you had to drive through to get to this place were worth $400,000 to $500,000.”
“‘The market topped out, and now most of the seven homes are vacant, worth no more than $900,000. Thus, all the lenders are sitting on losses of $400,000 to $600,000. This is just one of many that are happening daily.’”
“‘The commentary I am getting from field and legit brokers is that fraud is an out-of-control locomotive. Stated-income loans are now finished for all the unemployed people around. We will quickly see cash-out loans curtailed. This vicious cycle has yet to play out. We are in the second inning of the unwinding.’”
National Mortgage News. “The latest statistics from the Federal Bureau of Investigation confirm that mortgage fraud is on the upswing. ‘We can’t find a chart that doesn’t show up in a big way,’ special agent Bill Stern said at the Mortgage Fraud Conference.”
“And even worse news, the FBI’s mortgage fraud coordinator in Washington said, is that the trend is moving away from rogue individuals who pull off the scams and toward members of organized crime.”
The Kansas City Star. “Mortgage fraud is being called the country’s fastest-growing white-collar crime. It costs lenders more than $1 billion a year and has turned increasing numbers of federal agents into experts on real estate paperwork. These days, they quickly crack cases that once took years to work, experts say.”
“Two Kansas City politicians recently learned just how quickly. When then-Jackson County Executive Katheryn Shields and her husband signed paperwork selling their home, an FBI agent notified them they were the targets of a criminal investigation involving the sale.”
“The documents purportedly showed that the $475,000 house they purchased in 1999 somehow was worth a $1.2 million mortgage in 2006.”
“Agents also wrapped up an investigation of City Councilwoman Saundra McFadden-Weaver just months after she unsuccessfully tried to refinance a $400,000 Lee’s Summit home. According to prosecutors, McFadden-Weaver had purchased it even though she had no plans to live there or make payments.”
“Mortgage fraud reports nearly doubled between 2003 and 2004, according to a Treasury Department study. That increase continued a longer-term trend that saw a 1,411 percent jump in reports between 1997 and 2005.”
“Testifying before a Senate committee last month, FBI director Robert S. Mueller III estimated the loss to lending institutions at more than $1 billion a year. Others called this a conservative estimate because much of the mortgage industry was not required to report fraud.”
“‘We’re in our infancy in being able to quantify the problem,’ said Corey Carlisle, senior director for government affairs at the Mortgage Bankers Association.”
The New York Times. “In recent years, borrowers have flocked to riskier mortgages that gave them the means to keep up with an overheated housing market. Now some advocacy groups say that as delinquencies and foreclosures mount, so too will lawsuits against lenders.”
“‘I think a class action is coming,’ said John Taylor, the chief executive of a Washington group that is an advocate for low-income borrowers. ‘It’s a storm cloud that’s waiting to really open up and rain on the lenders’ parade.’”
“Many of these borrowers essentially bet that the value of their houses would climb quickly enough for them to be able to use the accumulated equity to refinance with a more affordable loan. Mortgage lenders argue that if borrowers made those kinds of speculative bets, they did so willingly.”
“Ken Markison, senior director of the Mortgage Bankers Association, said lenders generally have not given payment-option ARMs to subprime borrowers and that those with better credit have used such loans successfully. ‘We don’t believe there would be a basis for such suits,’ he said.”
‘A federal judge has sentenced a Virginia man who pretended to be a licensed real estate appraiser to 46 months in prison following the defendant’s guilty pleato the charge of conspiracy to commit bank fraud and wire fraud, announced U.S. Attorney Jeffrey A. Taylor and Joseph Persichini, Jr., Assistant Director in Charge of the FBI’s Washington Field Office.’
‘The mortgages on all but one of the 32 properties defaulted and foreclosed or sold before foreclosure for a loss. After reselling the properties, the banks were left holding mortgage loans in excess of the value of the properties, a loss of over $5 million.’
‘An Upper St. Clair man was sentenced to 30 months in federal prison for using his dead father’s real estate appraisal license to perform inflated appraisals for three years. Chester Underhill pleaded guilty in July to one count of mail fraud, related to sending the fraudulent appraisals through the U.S. Postal Service.’
‘Prosecutors claim Underhill conducted more than 1,000 fraudulent appraisals from 2000 to 2003, many of them inflated by as much as 80 percent. ‘Every single reappraisal he’d done turned out to be significantly inflated,’ FBI Special Agent Joseph Bieshelt testified.’
I can’t tell how old this Reuters report is, but I believe it’s this month:
‘Many banks, including Citigroup Inc, Bank of America Corp and Washington Mutual Inc, have projected some credit deterioration in 2007. This could force some banks to set aside more reserves, cutting into profits. ‘We have passed the inflection point on credit quality,’ said Thane Bublitz, an analyst at Thrivent Financial for Lutherans in Appleton, Wisconsin, which invests $65 billion.’
‘Personally, I think the writing is on the wall,’ said Steve Scruggs at Bragg Financial Advisors Inc in Charlotte, North Carolina. ‘There’s a price for banks to pay for easier money.’
Ben, You have to keep up appearances now that your (you’re) an international blogging star! Headline needs a little attention, please.
You’re right, thanks. I thought I spelled it the way the article did, opps..
They should put in prison some of these bankers. That would help the pig farm. Unfortunately bandits and crooks at JP Morgan, Citibank, Fannie Mae, Goldman Sachs, the big sh-ts, are always protected.
I read at the brokers outpost that they broke of a fraud ring in Riverside ca that will have a loss of 1.2 billion and 5000 homes will be in forclosure in the next few months.That is 1.2 billion people and this was only one ponzi scheme out of how many?
Link?
John Doe
The law firm of Ackerman, Cowles & Lindsley filed a lawsuit against several real estate companies and professionals along with other purported investment groups. The suit alleges that some 400 or more investors were brought into a real estate “flipping” and “skimming” scheme operated by Jovane Investments, Stonewood Consulting, Inc., Pacific Wealth Management LLC (Nevada) and others. It is claimed that as many as 5000 residential home loans may go into foreclosure status within the next several months as a result of the alleged fraud.
Temecula, CA (PRWEB) January 14, 2007 — The Temecula law firm of Ackerman, Cowles & Lindsley filed a 1.2 billion dollar claim against what are alleged to be the perpetrators of a vast real estate and currency exchange scheme taking place in Southern California.
Riverside County Superior Court Case No. RIC463483 (Anonymous Investor v. Jovane Investments, et al.) was filed by an investor who claims to have suffered $3,000,000 in damages on her case alone. The plaintiff seeks to have the matter certified as a class action later this year because there are another alleged 400 investors in the alleged scheme.
The amended complaint, filed on January 12, 2007, alleges that the operators of the Jovane Investment firm of Murrieta, and related businesses, including Stonewood Consulting, Inc., Pacific Wealth Management LLC (Nevada), Oetting Enterprises, and Sunburst Financial Systems, Inc., engaged in a real estate scheme involving perhaps as many as 5000 home loans in the Southern California region. The defendants are alleged to have incited members of the general public. members of the military, and nursing staff at Rancho Springs Community Hospital in Southern California, to get involved in a real estate business whereby “investors” could each become the owners of multiple residential properties throughout the Temecula Valley and Northern San Diego County.
So it begins. Real estate market can be very cold.
Holy $hite!
Thatsalottahouses!
nobody put a gun to their head to buy into the ‘investment scheme’… the bottom fell out and so did their greedy dreams.
it would be interesting to see how this class action suit progresses, hope the appriasers have a solid paper trail of how they got their comps.
Riverside County Superior Court Case No. RIC463483 (Anonymous Investor v. Jovane Investments, et al.) was filed by an investor who claims to have suffered $3,000,000 in damages on her case alone.
ROTFLMAO. Greedy “investors” get fleeced by unscrupulous “investing” syndicates, as legions of litigators move in like pit creatures to rip the meat from the bones of RE industry miscreants. This is like the Iran-Iraq war: let ‘em both lose.
Seriously, could this BE more entertaining?
An Upper St. Clair man was sentenced to 30 months in federal prison for using his dead father’s real estate appraisal license to perform inflated appraisals for three years.
On the plus side, he didn’t attempt to get a mortgage in the name of his dead father. At least there are limits.
Y I K E S !
Coo curakoooo…
China to accelerate Yuan to US Dollar exchange rate rise. This should encourage the Fed to keep raising rates, and hasten the bubble deflation.
http://rubyurl.com/tTs
The question is how to fix this mess without collapsing the economy. I suspect if credit is tightened a lot, folks will stop buying, houses will not sell even if prices drop a lot and unemployment will skyrocket… If it is not … then things will just get worse and worse. At some point, the chinese will see the US as a bad investment and US consumers as burnt out. What then?
Well, our economy is China’s, and China’s is ours. And the Chinese know it too.
China has no option to turn back. They have to grow or die and their leaders know it. They have bet everything on continued 10% growth and can’t afford not to get that growth.
We discuss China and its impact on the economy all the time. Some on this blog agree that China will dominate the U.S. in the coming years. I am not a subscriber to that line of thought.
http://tinyurl.com/ujh6c
Check out the article on China. Some might read this and see an unstoppable force in the making. I read this and think of all other tyrannies. They are completely focused on foreign matters, hoping that all domestic problems will just shrivel and go away. This is the view the Soviet Union had, Cuba and North Korea still have. Totalitarian governments always see themselves as revolutionaries. They think above and beyond “the people”.
China will not cut us off. They remind me of homebuilders. They have to go all out because they know that slowing down would force them to face questions they don’t want to face. The facade of Beijing will eventually collapse, in my opinion.
There are ~1.3B people in China.
There are ~1.25B reasons why China will implode.
Any deceleration in their economy will accellerate their collapse, from inside.
Maybe any sign of a recession will put them in a panic.
China is a creditor like the USA was a creditor in 1929-32.
Both creditors and debtors will suffer together in the coming deflation. Debtor nations will default on their loans….this means the USA burns China via currency default or out right default. In the 1930’s almost all of the Latin American and European debt owed the USA was defaulted on.
The debtors should suffer worse verses the creditors since the creditors will control the cost of interest rates. The two nations with the worse balance of payments are the USA and Britian.
The other problem is that China is a lot like Singapore, in that the people by and large have accepted abridgement of freedoms and rights in exchange for rapid economic growth.
Methinks the people will be mollified only so long as growth is maintained. When the growth stops, for whatever reason… whoa boy. Domestic issues will only get worse, and China will be forced to look within much more.
Singapore is trying to transition to a more innovation/service based economy, and is slowly relaxing government controls. It may yet succeed, but an island nation the size of Atlanta is not the same as a country of 1.3 billion with a much more ossified dictatorship in place.
Check this out:
1936 Olympics in Berlin
1945 Third Reich falls
1980 Olympics in Moscow
1989 Soviet Union falls apart
I believe part of this is due to gangster regimes believing such a spectacle gives them more legitimacy than they really have. Although Berlin was awarded the Olympics before Hitler took power, the photographs of those Olympics show him acting like Lord of the World. He obviously felt like they proved his greatness. Brezhnev was burning down the future of the Soviets by the time the 1980 Olympics took place thinking, wrongly, that the Soviet Union was far stronger than it really was.
Do the Chinese Communists need to be worried that 2017 will be the year that they are swept to the dustbin of history?
Regime change follows Olympics within 10 years: Interesting thought! Are there other examples (government exchange in democratic countries doesn’t qualify)?
Seoul 1988 - South Korea democratized itself in the nineties (not in a collapse though)
Argentia Soccer World Cup 1978 - by 1987, the military dictatorship was gone.
Check this out:
1984 Olympics in Los Angeles
1996 Olympics in Atlanta
The US has hosted the Big “O” not once but twice within a period of 2O years. Look out below!
The US is certain to get the Games in 2016 or 2020 (more likely the former). It’s kinda like China; guess which country’s media and corporate sponsors are writing the IOC all the big checks.
I just like to see who is winning all the medals and bobsledding.
“Check this out:
1984 Olympics in Los Angeles
1996 Olympics in Atlanta
The US has hosted the Big “O” not once but twice within a period of 2O years. Look out below!”
Try 3 (or more?) 2002 SLC winter olympics
Lake Placid winter olympics?
The Winter Olympics are known as the Little “o” .:)
“Although Berlin was awarded the Olympics before Hitler took power, the photographs of those Olympics show him acting like Lord of the World. He obviously felt like they proved his greatness.”
Except when Jesse Owens was kicking the German’s (and everyone else’s) butts. Than he looked a little sick.
Bear, you are so right. The man stuck it to Hitler before anyone else did, and the guy had bet so much on the publicity that the Olympics gave him that he could do nothing to hide Jesse Owens and he could not take his medal away.
1984 Sarajevo
1992 Bosnia and Herzegovina’s independence
It’s not that simple. There is now a prosperous middle class in China estimated at 200 milllion people. Not bad considering that the country was runned by a crazy crakpot. . You cannot manage a country with 1,3 billion people the same way than the US. Russia made this error with Yelstin. And it litterally ruined the country. Sorry. But democracy is not a priority when you are not sure to eat at the end of the day. Yes the country is under enormous pressure. Yes it is hyper corrupt. So is the USA.
Not sure what your point is. Will the tension in China come from the middle (demanding more openness and freedoms), the bottom (who may fell left behind) or some combination/conflict between the two?
Marc,
What do you consider “prosperous”? I don’t think china’s version of the word means what you think it means.
With respect,
John Doe.
I agree with you on the resilience of the US economy, however there is an incredible advantage in being a state controlled economy. The US unfortunately looks at a quick buck and not long term goals. China sets plans for 30 years (new energy facilities), 10yrs (3rd largest stock market), etc. China has said what it is doing and why it is doing it and doesn’t care what the rest of the world (aka US) thinks.
China’s definition of a Market Economy is different from the WTO.
China Daily 2006-10-09
Criteria of Market Economy
(well worth the GS)
http://tinyurl.com/y8w4cr
“…Actually, it is a complicated and difficult task to measure “liberalization of economic entities”. …The five key factors, induced from European and American countries’ market economy criteria against anti-dumping cases, indicate that we admit there is a market economy criterion, by which we can give our verdict on any country’s status of market economy. On the other hand, however, the five-key-factor criterion on the whole is sketchy, scalable, flexible and varied, and in reality a 100 percent market economy country cannot be found….”
…there is an incredible advantage in being a state controlled economy. The US unfortunately looks at a quick buck and not long term goals.
We heard similar remarks about Japan in the ’80s.
I heard a famous statesman comment on communist Romania’s train production. The central gov’s 5-year plan was to produce a large number of locomotives: the factories created huge numbers of poor quality train engines. To combat the quality issue, the next 5-year plan called for a large tonnage to be produced. The result: Romania produced a few very heavy locomotives.
Read up on Mao’s ‘Great Leap Forward’ steel production plans for China during the 1950’s if you want to see the other side of centrally planned economies.
When it is no longer in the best interest of the US and the Eurozone to use China’s abundant and cheap labor, the regime will tumble down.
Still, by the time my kids have their own kids, China will have an important role on the world stage, not just as a low cost producer. Things will not happen as quickly as many predict. The Chinese economy will go through many gyrations to get there. A straight climb it will not be.
“When it is no longer in the best interest of the US and the Eurozone to use China’s abundant and cheap labor, the regime will tumble down. ”
I kinda agree with this except one thing… They have $1 trillion in US Bonds! When they tumble we will (or already have) tumble. For the most part the working people in China and the working people in the US will suffer.
I agree with you NYCityBoy. China may have its day of world dominance, but not before they implode and transition. Too many funky loans circulating (just like here!) and a completely unsustainable economic engine. Many of the Chinese I know also think this way.
Hey let’s all implode together !
Your post underlines the problem americans have with the rest of the world. Americans attempt to equate another country with the way america works. This has been the problem with (just one of many) of the dumb decisions made by the, “Idiot In The White House” concerning Iraq. The Iraqi culture will NEVER be the the US culture. Ever. The Afghanistan culture will NEVER be like the US culture. Ever. The Chinese culture will NEVER be like the american culture. Ever.
What’s more, the majority of americans are so brain washed into thinking the world wants to be like America, they just cannot get it into their media programmed brains that many countries DO NOT want to be like America.
These cultures run on a different set of values. I know someone who is Iranian by birth and he told me where the US is going wrong with, for instance, Iraq. He said the average Iraqi male (in a totally male dominated society as is Iran) have almost NO interest in the main Iraqi government. Too complicated to go into but basically, these countries rely on “local powers” to help. It’s the local power broker, be he a Shiite cleric or the local gangster or in some places the local war lord, who you go to to get a job or fix a problem. Not some “puppet politician” put there by the Americans. Americans, of course, say, “Why don’t you do it our way?” We have seen the results of that. The answer is, because they don’t want to live their lives “your way”.
Thus, forget trying to equate China with the US. Forget about some great democratic revolution which will take place. Ain’t gonna happen. China is very similar to where the US was after the great depression but with a far different political system and a far different culture. They don’t NEED America, They have over a billion people who want better housing, fridges, etc. China can create massive (and I do mean massive) financial liquidity and follow the pattern FDR used. That is, put Chinese money (instead of dollars) into the hands of millions of people to build roads, bridges, infra-structure, etc. Meanwhile, Chinese factories will manufacture fridges, cars, industrial equipment, etc, which can be purchased by workers who will now have spending power.
For the USA, it’s not good news. The whole of Asia is waking up. Don’t use Japan as an example because they fu*ked themselves by following the US mantra of Greed Is Good and, once again, China ain’t Japan. Different culture.
As Napoleon Bonaparte once said (Yes, Napoleon!) “When China awakes, the world needs to take notice.”
I agree with you completely Mike. We need China a heck of a lot more than China needs us. And over the past couple of years, they have been gradually awakening back to that fact.
Also, China has, at many times in its’ long history, “gone it alone”, so they have a lot of experience with that mind set. China has a lot of experience of being a COMPLETE world unto itself. The U.S., I think, has no experience of that whatsoever.
And they’ve got plenty of infrastructure to build, etc. There’s more than enough to keep China busy within it’s own borders for the next couple decades. And they’ve got the political will to do it.
Go ask the Russians what they think about democracy today ? Not very much. Again and again. Stop seing China and the rest of the world with american eyes. Do you think that the US would be the same place with 1,3 billion people ?
Mike is right.
Mike,
For the most part I agree with you. However, the comment, “They don’t NEED America, They have over a billion people who want better housing, fridges, etc.,” is wrong. They DO need America, for the time being. The culture in China IS different and there is insufficient real internal demand to create a self-sustaining economy. China needs the cash from the US and Europe and the wealthier countries of Asia to keep moving people from rural subsistance living to more productive jobs, create a robust infrastructure, and set up many more factories capable of repeadly creating complex assembled products. They are on the right road, but need the outside cash to continue.
If the money from US and Europe dried up (or even shrank by 15%), there would be a mighty disruption to Chinese economic life.
I would not put much stock in China taking over the US anytime soon. They have lots of problems in their infrastructures (particularly banking). When the US stops buying “Made in China” crap, all these problems will come to the forefront (like when people withdraw money from the bank and find an IOU).
There are big ecological problems that keep China from growing much more beyond its current state as well (already Die-off is in the cards). Their aquafiers are predicted to run dry in three years (an estimate before their rampant growth, so three years is probably too optomistic). And that is not considering their current polution problems either.
Our planet currently can’t support the world’s middle class. To think that it can add 1 Billion more is rediculous
Look who’s talking? Americans are pigs when it comes to ecology and the environnement. So is Canada. We North Americans invented the mess that everyone wants to imitate. Now just imagine if China and India started to consume natural resources like us ?
Common sense will prevail and interest rates won’t matter. People are no longer buying trash with hard earned money, they look at location size, maximum house for the money.
“maximum house for the money”
But the very definition of “maximum house for the money” (MHM) is vague. Is it a 4,600 sqft mansion for a family of 3? If I can afford that using an I/O ARM for 5-years, then sell it, is this MHM? One is gambling on a vague bet with the MHM concept.
I must paraphrase Heinlein:
“The phrase common sense is self-contradictory; sense is never common.”
and
“never attribute to malace that which can be explained by stupidity”
Many mortgage lenders have been reckless in the loans that they write up. The wave of foreclosures is coming ashore. The loose lending environment is deterimental to the US economy.
As a paralegal i saw this a long time ago. Its all about the FEES, everybody was pre-spending their FEES, so saying “NO” was not an option.
Amazing! Who needs the Mafia when it’s this easy to steal money!?
at least the mob will not ask for a gov’t bailout when the deal goes sour
If I owned a title company, I’d be installing surveillance cameras, including in the closing rooms.
‘We don’t believe there would be a basis for such suits,’ he said.”
I didn’t say that it was your FAULT, I said that I was going to BLAME you…
This is America. There doesn’t have to be a basis for a lawsuit. Just filing it would probably get a large settlement for the attorneys and $50-off coupons on the next mortgage for the actual plaintiffs.
How true! All it takes is having assets. Actually a forced redistribution of wealth. The defendant is forced to “buy his peace” by agreeing to pay the plaintiffs’ lawyers. Deadbeats don’t get sued. Only those that can pay.
what do you mean force redistribution, the money mostly goes to the lawyers.
I think he means the money gets redistributed to the lawyers.
reading his sentence again, i think you are right. thanks.
Well the term “judgement proof” doesn’t mean that the defendant has a great case, just that he has no money to pay.
“In this new seven-home development, (homes) sold for $1.3 million to $1.5 million each. The homes you had to drive through to get to this place were worth $400,000 to $500,000.”
Translation for those not in SoCal:
$1.3 million to $1.5 million house: Pretty nice stucco McMansion, ~3000-4000 square feet.
$400,000 to $500,000 house: 1800 square foot house with bars on the windows and the chalk outline of a dead man out front. Police tape not included.
arroyogrande;…
This statement also got my attention….All the laws of “Location,Location,Location” have been disregarded….Just put a masonary wall around it and you can sell it for what ever you want…Just bizzare…
–
Believe it or not, someone talked to me about these homes when they were sold as a proof of the fact that the downturn that I was seeing in SoCal wasn’t happening (I think that these are in Camarillo). Now, it would seem that these homes were sold with some sort of deal between the builder and the lenders and I have no idea what kind of buyers were found to take the deals offered.
It is amazing as to what can go on when people are playing with “funny money.” Funny money doesn’t last long in the real world. And what would happen to the real homes?
CA is full of empty homes! And the building continues!!
Jas
Jas — Funny you thought Camarillo and I thought 4S Ranch. Upon reflection, I realize that Everyman’s McMansion tract home development in SoCal may currently face the same straights.
–
“4S Ranch” is in San Diego Area, right?
Jas
Yes. OCRenter has reported numerous anecdotes and rechristened the area Foreclosure Ranch.
http://bubbletracking.blogspot.com/2006/12/4closure-ranch-part-vi-for-all-of-young.html
I saw on a San Diego bubble blog that some houses in 4S Ranch went from $500K in 2001 to $1M last year. There is a house in the same neighborhood for sale right now at $800K and there are no takers.
That’s another one of those issues that has been totally ignored by the press. We’ve got a $400-$500k housing development just down the street from a hoodlum trailer park, and people are saying “oh my god, little Johnny got stabbed in the school today, something must be done!”
Yeah that sentance was a shock for those of us NOT in LaLa land. Talking about 300k-400k homes like they were slums…
I checked out my 401k today, prompted by a comment by Stucco yesterday. There are 2 bond fund options in this plan. The first is mainly government backed bonds. The second lists “50.7% MBS” as its largest holding.
Can even the most pessimistic amongst us (Stucco) begin to imagine the size of the disaster this could become?
I moved mine (most of it) to Fed Treasury fund 6 months ago
You missed the last 6 months of this bull($hit) market. Does that bother you at all? I agree with you but there will be people yelling at you for trying to time the market.
Time the racket.
i did the same, and I realize that I missed out on the last 6 months. I also understand what my 401K balance was in December of 1999. Don’t want a repeat of what happened after that date again. If that means sitting out several months of gains to protect the future, so be it.
Yes, some family and friends think I am nuts, and they may be right, but I really do want to be able to retire some day, and nothing burns me more than seeing money I fought to save go up in smoke.
I am sorry if my habit of checking whether my opinions are supported by data strikes some posters as evidence of pessimism. At any rate, it sounds from your remark that you have already surpassed me in the competition for the title of “most pessimistic.”
I love your pessimism Stucco. I get unbridled, brainless optimism out of the drones at work all day long.
And you shouldn’t apologize for anything.
Agreed. With so much unsubstantiated optimism bouncing around, someone has to play devils advocate to present an alternate viewpoint. Hey, I dig being optimistic…. but only after eliminating pessimistic possibilities.
Thanks. I strive for honesty, but I also feel some need to countervail the bull case, given that only their voice is ever blasted through the MSM’s propaganda megaphone.
I’m still in shock regarding what happened in this market on this massive of a scale . I try to pinch myself and say “,It can’t be true “, but as the evidence stacks up it worse than I originally thought.
I put alot of blame on the faulty lending and the REIC /advertisers feeding the frenzy without the media questioning it . The up market wasn’t just a little froth in some areas ,it was a full-scale building and buying frenzy Nationwide .
Also a day without Getstucco is a day without brain feed ,and everyone should appreciate what a great contributor Getsttuco is to this blog ,along with others .
GS…you d man! We would be without wit without you.
I agree totally. Love to see all the viewpoints and the way they are expressed on this blog. I also like that the posters (including GS) on this blog make me do math. When someone tells me I am “throwing away my money” by renting, I like to counter with “lets do the math, shall we?”
Makes them silent EVERYTIME. It is striking, 100% of the time.
Don’t change a thing. I have learned A LOT from this blog.
kris, the other day I told a realtor friend what I was paying for rent compared with what recent buyers in our condo building are paying to own and she said: well, you are ahead of the curve. Thanks, Get Stucco…
Same here - a large portion is indeed invested in mortgage securities. These are all categorized as “guaranteed income” or “fixed income”. Unfortunately I don’t have a T-bill alternative.
Being a bear, I got a bunch in Vanguard Treasury MM Fund. I get the quarterly report, which includes the Vanguard Prime MM fund - this little baby has $73B in it as of the end of 2006.
When you page through the assets of the Prime MM fund, you are very hard pressed to find some investment that is NOT related to GSE bonds, or these other “mystery” companies, like GovCo, Inc (couple billion), Old Line Funding LLC, and $10B in “Repurchase Agreements”, all collateralized with GSE bonds.
I don’t know about you, but I only invest or put cash into something I understand, not “GovCo Inc” (with no web site or anything).
Not to pick on Vanguard, I’m sure all the big MM funds are the same…
Which is precisely why I don’t keep any of my money in a MM account anymore. A collapse of money market fund is inevitable, IMHO, because the investment instruments used to support it are greatly flawed and generally misunderstood by most people.
Several months ago I had a conversation around the water cooler with a few co-workers and none of them believed me that their MM wasn’t FDIC insured and that it didn’t function the same as a conventional demand deposit account. Unbelievable.
When the next banking crisis hits this country, I’m convinced the collapse of money markets will be at the center. Hundreds of millions in middle class savings will be wiped out in less than a month, devastating the financial health of people who thought that their money was safely tucked away.
Finally, it absolutely sickens me that so much of the US-held MBS have been packaged into “fixed income” products, targeted mostly at the retired and those approaching retirement. When this thing completely unravels, its not the Casey Serin’s of the world who will suffer the most. Idiots like that will bounce back, having lost not much more than their credit rating. Rather, it will be the less financially sophisticated who put their trust and future into what they believed to be safe, reliable investment product. Many of these people actually worked for the money that they’ll lose and are too old to recover from a significant financial loss.
Uh oh… A few months back, I opened a Money Market account. I asked if it was FDIC insured and they answered “Yes”.
Are you saying they lied about that?
Please explain. thanks.
I should have been more specific There are generally two types of “money market accounts”. “Money market deposit accounts” function mostly like other demand deposit accounts and can be FDIC insured (although this depends on the institution–read the fine print). “Money market mutual funds” are never FDIC insured. Unfortunately, most people use the terms interchangeably, although there are significant differences (not just in terms of FDIC coverage, but potentially tax liability as well).
Most retirement accounts offer money market mutual funds as a “cash” alternative. They generally are investments in cash and near-cash equivalents, including positions in various currency markets, MBS, government bonds, etc. They generate much of their return through arbitrage of other near-cash equivalents. In theory, they are a relatively secure investment *SO LONG AS THERE ISN’T A SUDDEN, UNEXPECTED SHOCK TO ONE OF THE UNDERLINING SECURITIES*. And that’s where the MBS are so insidious.
If/when it turns out that a sizable portion of major MBS are worthless because of poorly performing loans (inevitable, IMHO), their value plummets. As subprime lenders go belly up (and cannot be compelled to buy back liar loans), those left holding the MBS will be the ones who suffer the most from the collapse of the US real estate market.
While a good portion of our MBS is currently held by Asian central banks, nearly all of domestic owners are major pension funds (think CalPERs) and money market mutual funds (mostly held in retirement accounts). There is limited insurance in place for pensioners, and essentially none who have their 401k’s and other retirement accounts.
Sadly, many people (at least that I’ve spoken with) seem to think their money market fund is the same as a hard cash position and that its FDIC insured. Its not. In the normal course of a market, it should retain its nominal value, but a shock as large as the collapse of the MBS will almost certainly wipe out a significant portion of their savings. And the real tragedy is that the people most likely to have a significant portion of their retirement savings in these funds are those already in, or close to, retirement.
Despite a lifetime of working hard and prudently saving, these people will be the true domestic victims of the mortgage fraud era. And they won’t have the time to recover and rebuild. At the same time, the value (and liquidity) of their homes will also be severely impaired.
End result? A lot of baby boomers will be working full-time well into their 70s out of financial necessity.
“80 is the new 60,” indeed.
This has been a very informative post for me. I invest through work into a 401K and don’t really have a choice given that my company provides a 12% salary match.
I have been investing primarily in a fidelity bond fund and money market fund for the last 3 months since I thought stock funds were too risky. After reading this thread I am worried about my money market fund as well. What types of funds would you suggest people invest in to be safe from this mortgage fraud?
I don’t know, to be perfectly honest, particularly since I don’t know anything about you or your financial situation. Approximately how much do you presently have in your retirement account? How old are you? What exactly are the options available to you within the 401k plan?
Unfortunately, you usually need to leave your job in order to qualify for a rollover into an IRA that you could exercise more control over. Depending on how satisfied with your job, it possibly isn’t worth resigning over (although frustrations over the management of my retirement account is one reason why I’m actively looking for another position).
In my opinion, there isn’t much point to having a large uninsured cash position in a retirement account unless you are within five years of retirement (and even then, I’m skeptical). The only real benefit of having 10% or whatever in “cash” is to be able to rebalance your portfolio without incurring significant penalties from your other funds. A well managed fund that holds top grade corporate bonds generally provide superior returns and is just as safe (possibly safer) than a money market fund. Of course, there’s absolutely no point in holding government bonds within a 401k (their income is already tax-exempt in most cases).
I understand the reluctance to place your retirement savings in stocks, even an S&P500 index fund. But under historically normal conditions the returns more than compensate for the increased risks, IMHO.
Bonds aren’t risk free. Stocks certainly aren’t. But at least you are aware of the risk and are compensated for it in the form of better returns. Money market funds have suckered a lot of people who think that they’re 100% safe, but there are significant risks that can be posed in unusual circumstances–which is precisely what I expect the fallout of the MBS market collapse will present.
it is true that mm funds are not that risk free at all, but in case of not so extreme shock which do you think will lose a lot more value, mm funds or nond funds or equities? i would bet the least to lose is mm funds. and the reason why you would opt for it is because of less risk.
There are two kinds of ‘money market’ accounts, with slightly different names. One has FDIC, the other does not.
http://www.fdic.gov/consumers/consumer/information/fdiciorn.html
Or your funds may be invested in a money market mutual fund, which may invest in short-term CDs or securities such as Treasury bills and government or corporate bonds. Do not confuse a money market mutual fund with an FDIC-insured money market deposit account (described earlier), which earns interest in an amount determined by, and paid by, the financial institution where your funds are deposited.
You can - and should - obtain definitive information about any mutual fund before investing in it by reading a prospectus, which is available at the bank or brokerage where you plan to do business. The key point to remember when you contemplate purchasing mutual funds, stocks, bonds or other investment products, whether at a bank or elsewhere, is: Funds so invested are NOT deposits, and therefore are NOT insured by the FDIC - or any other agency of the federal government.
NYCB you might want to drill down into Option 1 the “mainly government backed bonds”. It wouldn’t surprise me if you found out these bonds were issued by FNM and her kin or distant cousins (more MBS). I have also noticed that a number of “Government Bond Funds” allow for the subsitution of MBS for G Bonds.
I knew there was a reason why I never bought shares in any bond fund. If you buy single bond issues, at least you are forced to be aware of what you’re getting, also you know when it will mature, and of course are avoiding the management fees. Even a small investment like five grand is better off in a single bond issue than in a bond mutual fund. Those who have more can ladder their own maturities. Thans NYCityBoy for sharing the fact that one of your 401K’s options is a fund consisting of 50% MBSs.
Thank goodness. Yes, I knew the difference between the accounts and the mutual funds, so specifically got the one that was FDIC.
I’m going to re-check the paperwork because reading about this blatant fraud and outright stupidity in the financial world over and over again is making me paranoid.
I know that some think FDIC may not mean much when/if things really get rolling. But I’m having a hard time coming up with a scenario in which the gov. would think it’s okay to put Americans in the mindset that their money’s not safe in a bank - especially now and in the near future.
It seems , if anything, they are going to have to increase peoples’ inclination to park money in banks.
Thank goodness. Yes, I knew the difference between the accounts and the mutual funds, so specifically got the one that was FDIC.
I’m going to re-check the paperwork because reading about this blatant fraud and outright stupidity in the financial world over and over again is making me paranoid.
I know that some think FDIC may not mean much when/if things really get rolling. But I’m having a hard time coming up with a scenario in which the gov. would think it’s okay to put Americans in the mindset that their money’s not safe in a bank - especially now and in the near future.
It seems , if anything, they are going to have to increase peoples’ inclination to park money in banks.
“Prosecutors claim Underhill conducted more than 1,000 fraudulent appraisals from 2000 to 2003, many of them inflated by as much as 80 percent. ‘Every single reappraisal he’d done turned out to be significantly inflated,’ FBI Special Agent Joseph Bieshelt testified.”
why aren’t the lenders reviewing these appraisals b4 they make the loans?????
The best mortgage fraud solution I can develope:
I envision a web site with an Excel template for each reported fraud. Address, buyer, seller, broker, and market comps. As much or little info as each of you can supply. The one thing Ben’s blog has taught me is there are a great many p!ssed off people who will contribute. However, it has taken me 60 hours of work just to get where I am on the Lincoln mortgage fraud cases. I have an appointment with the FBI on Thursday and during the meeting, I am going to ask them for the resources to set up the web site. The FBI would be fools not to do this. It would make their jobs so much simpler and once a deal is reported, the fraudsters will probably be frightened off. Most of them are somewhat mainstream, being told “everyone is doing it” by the brokers and homebuilders. And 90% of all crime can be stopped if the criminal is more certain of being caught.
Additionally, if we can share the data with Fitch, S&P & Moody’s, smart RMBS buyers will demand their pools be crossed checked, and insist they toss the bad loans back to the originators IMMEDIATELY. That action will STOP FRAUD DEAD IN ITS TRACKS. The pool buyers do not need a reason to reject a specific loan; they can just refuse to take it in that specific pool. When that happens, you will see the brokers tighten up and quit F’ing us all. Immediate exclusion for tainted loans: The brokers GetStucco’d! (with all due respect to Get Stucco)
If the FBI agrees to fund it, I will be looking for a web master to take it on. I hope it happens.
Good work my friend . its guys like you that restore my faith in humans .
paladin,
Casey Serin was a webmaster before he got into real estate, maybe he needs a job.
(Kidding!)
Actually, not a bad idea. Sort of like “Catch Me if You Can”!!! I may take the FBI Special Agent to Casey’s web site on Thursday. They could offer him prison, or minimum wage (which was just raised in CA).
I hope you are collecting the materials for a book. What a (future) fascinating read - you can even use the five stages of grief for your experiences with trying to get the proper authorities to do something about this massive fraud:
Denial - leave us alone, you don’t know what you’re talking about.
Anger - why do you keep bothering us - we’re chasing real criminals.
Bargaining - we’ll look into this one case if you just shut up!
Depression - oh crap, did we miss something big?
Acceptance - you’re right. (But we’ll take all the credit anyway.)
Make sure you keep the movie rights!
Just curious, how difficult or easy was it to get an appt. with the FBI?
Depends on how you want to spend the next few weeks afterwards. One call to the White House or the office of another high ranking government official can usually get an agent’s undivided attention for a few hours.
Although he won’t really be too keen on discussing mortgage fraud.
Palladin you can count on me for a financial and non-financial contribution.
Maybe you could train a bunch of Ben’s bloggers and raise Palladin’s army?
If you have a simple checklist of what to check and where with a flowchart that would go a long way!
I am in too. I would contribute to it just because I feel that alot of these crooks deserve some pain forced on them.
Time to pay the piper.
It would be better if we could get schools on board. With the proper coaching, children can report their parents.
“In recent years, borrowers have flocked to riskier mortgages that gave them the means to keep up with an overheated housing market.”
Could these be the same “riskier mortgages” that CREATED the overheated housing market in the first place???? Without exotic financing, prices could never have risen so high, as they have completed disconnected from income.
I was thinking that at first too - however I think not really. What got the ball rolling was the insanely-low interest rates to bail us out of the last recession, courtesy of Mr. G. We’re now finding out that all that was doing was borrowing from a future recession, very possibly causing it to become a depression.
In general terms, the huge drop of rates in 2001-2002 caused home prices to start increasing inordinately about at that same time, at first due to increased demand due to a lower entry level for standard mortgages. However the price increases then triggered speculation-driven demand, then fueled by the riskier mortgages; all ramping up about 2003-2004 and getting ridiculous by 2005.
It all gets back to the poor decision(s) of AG, as a trigger at least. The fuel was American greed and stupidity.
“In general terms, the huge drop of rates in 2001-2002 caused home prices to start increasing inordinately about at that same time, at first due to increased demand due to a lower entry level for standard mortgages.”
Yes, initially it was absolutely pent up demand (I live in the SF Bay Area) because so many people were shut out during the Dot.com money madness. When that disappeared, rock bottom interest rates re-started the party. But then prices just kept going up, and exotic mortgages became the norm in order to “afford” these prices. Low interest rates weren’t enough.
In general terms, the huge drop of rates in 2001-2002 caused home prices to start increasing inordinately about at that same time, at first due to increased demand due to a lower entry level for standard mortgages. However the price increases then triggered speculation-driven demand, then fueled by the riskier mortgages; all ramping up about 2003-2004 and getting ridiculous by 2005.
This is the part i never got when i considered buying a new home during the last few years. Yeah interest rates were lower than they have ever been but, that just made the builders charge more per sq/ft. The low rates were never buying you any more house than you could afford in other years where rates were higher and selling prices were lower. All this is gambling, pure and simple. Joe Dorkwad put his money into the mania of the stock market (as did i). WHen he watched his life savings evaporate, he doubled down on housing to try and get back to even. Novice bettors do it all the time.
Thankfully, i had little money to invest in the stock bubble so, my losses were small. But in hindsight the expereince was invaluable. It taught me to be much more responsible with my money.
I agree with this but I think the following are more significant - because this boom started way back in 1997-98:
1.Exuberant buyers from California’s Silicon valley that cashed out and moved out of state, making the people in the state they moved into think everyone was as stupid with their money - I believe ground zero for the boom was the silicon valley. When I moved here in 1996, no one was buying a house; in 1997-98 things all of a sudden changed as many people poured in and then wanted to get something for their sudden new wealth.
2.The 250,000/500,000 profit that is not taxed as capitol gains - this regulation was put into place shortly after Bush took office in 2000. Try lining up the housing bubble with this timeline - it seems to me this was a key component of the start of the nationwide bubble.
3. Taxing capital gains from houses at 15% instead of normal income taxes
4. Fear of the stock market causing people to put their money into an alternative source.
5. maturation of the Baby boom - start of the boom in California at least started when most boomers turned 40 (in 1997-98) which is supposed to be prime - home buying time.
6. Consolidation in the real estate industry, leading to realtors with conflicts of interest and better ability to control the nature of the sale - I firmly believe but cannot prove the bidding wars we started seeing in 1998 were “manufactured” by the realtors and perpetuated by naive newcomers to California that thought this was how California real estate was done, when it wasn’t.
7. A period of no significant earthquakes in SF bay area - wait until we get another good one - all the housing values will shake down to undreamed - of low levels.
IIRC, the tax exclusion on sale of personal residence was part of 1997 tax changes.
I do not think it came from American’s ignorance and greed. Ignorance maybe but mainly I believe it came from the manipulation of people’s propensity to save. I am old enough to remember hearing the phrase “sound money”. The reason money had to be sound is avoid speculation excesses. Speculation eras are classic signs of unsound money. There has to be positive feedback in order for people to continue in their endeavors. If people are getting further and further behind by saving in the commodity that is designed for saving they will look for other avenues.
In order to stimulate the economy the powers that be had to erode the sheeple’s belief in saving money. In other words they had to make the dollar more unsound. What did they do after Volker? They kept dropping the interest rates and pumping the liquidity so the average sheeple said to himself I am losing money in my CD’s or savings account what do I do now? Then the Monetary elite opened the gate to the stock market mutual fund corral and we all went grazing over there and saying to ourselves how smart we were to be investor’s. Then the Dot com episode blew up so they again had to decrease the propensity to save in money to stimulate the economy and then they opened gate to the housing corral. Most of us went running over there and started grazing congratulating ourselves on how smart we are get into real estate because every sheeple knew real estate never went down.
The problem with this approach by the monetary elite powers is that the market does not get to determine whether this is an appropriate allocation of resources. There are usually tremendous excesses built up in the area of the speculating asset class. It may seem like a good idea from the powers that be but in the end “what the flock do they know”. The monetary powers will try keep us running from asset class to asset class but each time they do they become less and less effective with a greater and greater chance of major catasphrose.
Give me a minute to get down from my high horse…. Thanks
Yikes grammar no good!
Should caveat that actually - two markets in paricular were driven by other factors. Tech areas like northern CA already had seen inordinate price increases by 2001 due to the tech bubble (incidentally SF bay area prices actually started back *down* for a brief period before heading back up), and FL and AZ were also fueled by speculation of boomer-driven demand.
Is there a way to compare the subprime failures to other busts? I am old enough to remember the late 80’s, (I think this will be much worse) but I don’t recall this many lenders closing in such a short period?
I am guessing this one might uniquely enter the history books as the Subprime Lending Panic of 2007.
Good call.
It probably is going to force more regulatory oversight of the industry.
Bye-bye subprimes. Oh, I know the loans will survive in some form or another. But good luck selling the bonds for the next 3 to 5 years.
Neil
The only bust I can compare this current sub-prime lending with is the 1926 real estate bust in Florida ,and you can compare this market with the 1929 stock market bust regarding stocks because of the buying on margin aspect.
Way too much liquidity then, way too much now. THAT’S what the gold bugs don’t understand. The huge inflationary jump in the money supply came BEFORE FDR stopped gold exchange, not after. They closed the gold window because if they didn’t, they would have been likely to run out of gold. A bank panic is bad, a currency panic is very, very bad.
The scary thing is that like today the inflation in the money/credit supply was affecting mainly financial markets, and not the prices of everyday goods. When the stock market crashed, most people were “Oh well, all those Rockefellers and margin idiots got their wings clipped, the stock market doesn’t affect me.” THIS is the problem with the schadenfreude that I see here sometimes. It’s unlikely that it will only be the Countrywides and the Caseys to suffer.
I remember the day the market tanked in ‘87 but that turned out not to be that big of a deal. It didn’t drag down the whole economy.
I remember the late ’70s and early ’80s. That was awful. I’m not just talking the political stuff such as hostages in Iran and the Soviets in Afghanistan. I’m referring to the high unemployment. There were a lot of kids in school with out of work parents. We had friends of the family in their 40s and 50s that couldn’t find any job that paid a decent wage.
I still think that we have seen nothing like that since about 1983. Anybody that can’t remember that time can’t remember bad times. There was a dark mood over the country. I fear that the next several years could be like that. It is not something to look forward to. My memories of the early ’80s still scare me to this day.
I have the same recollection, and I sincerely home it isn’t going to be that bad, but I am worried.
“I remember the day the market tanked in ‘87 but that turned out not to be that big of a deal. It didn’t drag down the whole economy.”
I recall the recently-appointed Fed chair explaining how the market was saved through liquidity injections. That was the day the Greenspan put was born.
Not as bad as the early 80’s or 70’s? This is the greatest drunken liquidity, lending party in history. You better get ready for a lot worse.
“So Bye, Bye Miss American Refi,
Took my mortgage to the Subprime,
but the Subprime was dry,
And the Brokers were locked out and drunk on Wiskey and Rye, crying…
this will be the day that we die,
this will be the day that we die
LOL. How true!
that’s the period when people started to confuse greenspan’s brain with a bull market.
I think you guys are a bit too bearish. Housing prices will tank, and it will have a dampening effect on the economy, but I don’t see any global economic depression or even an early 80’s type recession coming on. The FED used housing to prop up the economy for a few years, and now other parts of the economy are doing well, and they will pick up the slack. At worst we are probably looking at something like the early 90’s recession or the 2001 slowdown. I might be wrong, but I don’t see the sky as falling.
True. We are too bearish. Ben will have to become bullish on real estate. Then it will crash.
Or GetStucco ?:)
I’m bullish on affordable housing for anyone with the patience to wait for it.
Irvine - I am not sure anyone has any reliable math that can project how this unwinds, both on the bear and bull side. This is one of these periods of history where we get to watch something new happen.
I agree. This will be very interesting to watch. I am very bearish on housing; the rest of the economy: not so much.
wait a minute… there is a portion of the economy not associated with housing? Please share.
Financial services, manufacturing, retail: all doing well. Personally, I am surprised at the strength of retail. I thought the loss of HELOC spending would doom retailers, but they all are reporting great earnings. The S&P continues to report double digit earnings growth even with the increase in interest rates.
you forgot *real* inflation. the increase are in dollar terms, you how valuable your dollar compared to last year. gee, i used to eat lunch for about $6 last year, it now cost me about $7.50. 3% inflation. even computer stuffs whic used to go down in price by about a third to half a year are now staying the same since the middle of last year. i used to be able to build a decent computer for $300, now i cannot build the with *median* feature for less than $500. give me a break.
Irvine Renter …I actually hope your right ,but it seems to me that we have a greater potential for a more severe crash than the ones in the late 70’s or early 90″s because this baby went nationwide .In almost every town and city the locals are priced out of the market based on real qualifying .
I certainly agree the housing market will crash, perhaps severely. I just don’t think it will be a complete economic catastrophe. Since I don’t own, I don’t see it hurting me much.
I worry more about all the hedge funds and what they have leveraged. I think cheap money from Japan and china if it was to become more expensive would crash the stock market. If this were to happen now when the housing market is in such bad shape then it could get as bad as some think. Iets hope the housing bubble crash is contained.
The collateral damage of the housing market correction won’t be foreclosures (although the immediate pain and suffering they create will be significant). Rather, it will come from the reverberations across all credit markets.
Up above, I posited my thoughts on what fate awaits domestic holders of MBS (pension funds and individual retirement accounts, mostly). But that’s just a small piece of the pie. Nearly all of the MBS are held overseas in Asian central banks. Although a popular sentiment is “screw the Chinese,” IMHO its provincial to think that their pain won’t be felt back in the US.
Without the flow of easy credit from Asia, the US cannot sustain the present standard of living that we all enjoy and have become accustomed to. When they stop assuming our private and public debt at below market rates, this country is headed into a severe, prolonged recession.
One might argue that the housing market crash is only the proximate cause and that the ultimate cause was an unsustainably large trade deficit. And I wouldn’t disagree with this statement. But it seems pretty clear to me that the full ramifications of the housing market will be strong enough to finally collapse the house of cards that we’ve called the post-Bretton Woods global economy. And the results will not be pretty.
I think you guys are a bit too bearish.
No, you’re not nearly bearish enough. Start reading…
America’s Bubble Economy
We’re due for a depression. Just because it has not happened in the last ten years does not mean it’s not going to happen. Same thing about “the big one” in California. It’s overdue for that quake.
in terms of total dollars involved, the s&l crisis was in the hundreds of billions of dollars, clustered primarily in commerical and land development deals. the banks failed, portfolios were purchased and renegotiated and real estate sagged. the current subprime crisis is in the trillions dollars and involves millions of households and fraud at every level of the feeding chain. it’s also occurring at all time high in household leverage and historical lows in savings. gonna be ugly imho.
I actually can remember a few going under in the early 90’s:
American Savings (stock went to 0, remainder got bought out by WAMU)
Columbia S&L
Valley Federal
Yes and I remember that Columbia S&L use to make all the big
loans when other banks had their limits .
Lincoln Savings was another Savings and Loan that went down .
I predict that the next thing we are going to see is Banks and S$L’s are going to start charging for checking accounts instead of free checking . You heard this from the Housing Wizard first .
“Ken Markison, senior director of the Mortgage Bankers Association, said lenders generally have not given payment-option ARMs to subprime borrowers and that those with better credit have used such loans successfully. ‘We don’t believe there would be a basis for such suits,’ he said.”
Keep whistling as you walk past the graveyard, Kenny Boy.
BwaHaHaHaHAAA!
“At least two more midsized subprime firms, both non-depositories, hurt by buybacks, are considering selling their shops. (One, we’re told, is owned by a large publicly traded company.) We’re still checking out the particulars and hope to have confirmation next week. As one SoCal mortgage executive told us late last week: ‘If you don’t have liquidity, you’re gone.’”
His liquidity remark is targeted at lenders. But soon enough it will also pertain to buyers.
“His liquidity remark is targeted at lenders. But soon enough it will also pertain to buyers.”
Dead on, and once it hits buyers, it will make things even worse for the cash-strapped lenders who own the defaulted upon loans.
And thus the vicious cycle plays itself out.
“‘The market topped out, and now most of the seven homes are vacant, worth no more than $900,000. Thus, all the lenders are sitting on losses of $400,000 to $600,000. This is just one of many that are happening daily.’”
These numbers are simply staggaring in isolation. Add them and up multiply out, holy sh!t .
The disconnect between price and the reasonable ability for average people to afford average homes is shocking. Imagine actually working and saving $600,000.00???? Sums like that will get wiped off the books over and over and over again across the entire state of CA.
2007-2008 — DO-OVER for the RE sector.
If all the homes are sitting empty, how do they know each are worth $900K? The final selling price could be $500K, meaning a loss of $1M per house.
Amazing to me that after my 30 years in the home loan business, I am seeing the same things as in last cycles. Some comments:
Subprime Lenders selling. They are “selling” because they need cash to stay alive. Greed and ignorance. The smart companies sell near the top of the market at top prices. The owners cash out and minimize risk during the inevitable drop in business.
Buybacks. They always kill companies in downturns. This and having loans they have to sell at a loss because yields rise or prices drop.Of course liquidity iis an issue. It is important for every well run company.
Losses on $1mm+ homes. When you make loans this large, you need to get a decent down payment, not 90-100% financing. If someone supposedly makes the money to qualify for a loan this big they should be well established in a career with substantial savings. In addition to the down payment, they should have at least 6 months of housing expenses in verifiable liquid assets. When you make big loans you should not be dealing with first time buyers, nor treat the loans as if you are.
Crooked, unlicensed appraiser. This person would have been caught by the banks I know that have an approval and ongoing review process for appraisers on their approved list. In the quest for volume, lenders threw out these procedures that would have protected themselves. The other major problem is that of brokers choosing their appraiser. If you want secuure, safe appraisals that benefit the borrower/consumer and protect the lender, the lender has to be in charge of the process. Yes, more cost, and fewer loans get done. But the final outcome will be different that that we will see in te next few years.
I like your posts, sensible.
“Losses on $1mm+ homes. When you make loans this large, you need to get a decent down payment, not 90-100% financing. If someone supposedly makes the money to qualify for a loan this big they should be well established in a career with substantial savings. In addition to the down payment, they should have at least 6 months of housing expenses in verifiable liquid assets. When you make big loans you should not be dealing with first time buyers, nor treat the loans as if you are.”
On what planet does the lending sector operate this way? Certainly not on Planet San Diego.
Good post sensible lender .
All appraisals should be done from an approved “appraisal pool”, run by third parties, where the broker, lender and client do not even know who it is. That would stop most of these fraudulent appraisals. The appraiser would feel free to call out real values, using comps, reproduction costs and income cap rates.
It would probably be more efficent and the cost of appraisals would decrease. Take the lender out of the equation, hell half the appraisals in California are really the lenders anyway. Between the brokers opinion and either strong arm the appraisar or find a yes man appraisar.
paladin,
I don’t see how your recommendation can be avoided in the future. Having a lender select the appraiser is rife with problems. Your suggestion is the easiest work around to the problem. The appraiser should be anonymous. A lender could request a second, anonymous, appraisal but that should be it.
Frankly, I don’t see why the industry itself doesn’t back this idea. If they don’t go this route, who in their right mind is going to by a mortgage “backed” security in the future?
Closing the door to the appraisal gaming is the key. If the appraisers don’t know the lender and the lender doesn’t know the appraiser how can fraud proliferate (not to say it can’t still occur but it has to be incredibly more difficult).
Yup, you should never write a loan that you’re unwilling to buy back. Again, it turns out that bad loans ARE bad business. Surprise surprise.
“The documents purportedly showed that the $475,000 house they purchased in 1999 somehow was worth a $1.2 million mortgage in 2006.”
This has caused an FBI investigation? That kind of “appreciation” is par for the course in California. No one would bat an eye.
And in FL, and VA, and NY, etc.
Not in KC though.
I always thought that was a standard method of bribing your local officials. I was surprised that the FBI would look at this as fraud and not bribery.
Interesting timing on this post. I was on a date last night with a Mortgage Broker. She works in what we call the East bay or the cities just to the East of San Francisco. This is an area with a very strong economy. Silicon valley is just to the south and the money is flowing there like beer at Ocktoberfest. Jobs are plentiful.
In talking she mentioned that her primary title company made her come to a seminar because they are mostly inundated these days with properties in Foreclosure.
Then she went on to say that the majority of calls they get these days are from people in trouble, which means they are telling her about their finances and she has to look up all the data on the property etc. She said that she is lucky if she can help 1 in 100 of these folks. Regular loans, specialty loans, subprime. I mean she really wants to sell them a loan and these folks just don’t qualify anymore. No one will give them any means to restructure the deal to save their asses. Which means that foreclosures can only be on the rise.
This was quite a surprise. I follow real estate fairly closely and I had no idea that there is this underbelly of trouble brewing.
n’ for those of you who are wondering the date went very well
Kind of a grim topic for a date. How does taking about lots of people drifting into bankruptcy and despair set the stage for a good date? Like taking a date to a film about rape and murder.
Maybe the subject changed to global warming?
Ohhh, Boom boom!!… dis make me so hoorrrny..
Date went well……uuummmm, does that me you got laid at its conclusion? lol I’m wondering.
lol…you guys are killing me!
Maybe she was screaming “Foreclose me big boy”……
That interest rate you have is pretty big and it’s really growing. Come into my ARMs.
Wha? Great,… another “Sub-Prime”!!!!
Did you widen her margins?
You guys scared Ralph out of the blog.
Right here.
I know, aren’t roofies great!
My date was with a school teacher. She told me that two of her friends who are involved in RE called her on Saturday and were having financial troubles and needed loans. She told them she would have to think about it and asked my advice. I suggested, “no way.” This is because (1) there is no better way to end a friendship, and (2) many real estate investors are in a “world of hurt,” given what is going on here in California.
I’m waiting for people who got burned in RE to start asking me for loans. And to them I’ll repeat Ben Franklin’s advice about being neither a lender nor borrower.
Polonius in Hamlet:
Neither a borrower nor a lender be;
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry.
This above all: to thine ownself be true,
And it must follow, as the night the day,
Thou canst not then be false to any man.
Polonius was a fool - reread your Shakespeare. LOL
3)Loaning them money is not going to fix their problem, only postpone it for another month.
The information on the mortgage market is interesting…
Well, since real estate never goes down… they’ll obviously be able to seel themselves out of the problem. What you say…
Good luck on the dates.
Obviously you like her for the inside info you can pass on to us. 
Neil
n’ for those of you who are wondering the date went very well
So her clients weren’t the only ones who were getting screwed?
So did she broker a front end deal, or did she prefer to take her commission at the back end?
Just looking for love and acceptance….?
What every happened to the sub-prime lenders and real estate agents saying “you can refinance the loan later if you don’t like your loan because real estate always goes up “.
I contend that most people that went on these toxic loan products expected to sell or refinance out of their teaser rate mortage and that is how they were sold this toxic product .
In Florida in 1926 the up RE market abruptly stopped in all ways . I believe our current RE market would of abruptly stopped also in late 2006 had it not been for the PR machine and lack of media questioning . As it was ,the sales volume went down abruptly in 2006 even if the prices have been sticky going down in some areas because of sellers expecting a 2007 RE up market and FB trying to hold on .
Ralph, thanks for the info. I’m in the east bay and have been wondering when was going to happen. Sounds like things have started to roll. In the condos and townhomes around here there was heavy speculation, evident at night with all the dark units. Saturday and Sunday brought a surge of open houses. I wish I had my camera with me because there were realtor signs galore at all the surrounding intersections. I’m thinking the liquidity crunch is finally starting to hit these folks. Rents will not come close to carrying costs. Builders are still going full bore. I don’t see how this can end well, but most are still in denial.
Ralphsf, Your comments from the mortgage broker are exactly what worries me. People that had the liquidity kept buying higher to a point where it put them in the same situation as those with poor credit. With downward prices many people will get hurt. Even those who thought they were being conservative. My grandmother passed away earlier this year and she went through the great depression. Interesting that this potential bubble could lead to a replay of history, exactly at the time the generation that last experienced this is disappearing. Raplhsf, what did she think of your viewpoint? Very interested in your response…..
This is similar to 2000 where everyone margined their account to the max to maximize profit….but as equity goes down, they are being forced to liquidate at big losses. Stock account only allows 50% leverage and for stocks over $5…and in RE, you can leverage 100%. Can you imagine the outcome of this disaster?
LTCM on steroids. The USG stepped in to prevent LTCM from spiralling the entire economy into collapse.
While it would make they should have learned not to permit systemic risk to the ecomomy by allowing excessive leverage, less than 10 years later the ecomony faces a far greater peril, without a simple fix. The FED & USG enabled this one…
Bankruptcies; a lot of them.
This i really just the beginning. I do pre-forclosure work for a large and reputable portfolio lender. I no longer do regular appraisals as there is a complete lack of legit clients who actually want the market value. Calls by brokers to comit fraud are a daily occurence. Scary thing is that after they call me, they just call someone else, who will eventually ablidge. I would say that 80% of licensed appraisers in Orange County are either totally incompotent, which means they actually think its their duty to give the broker the value that he wants, or are total fraudsters, which means they know how to pump value to make deals work, and still get past the review process. I do foreclosures all over OC and now am finding multiple REO properties within the same devopments. From San Clemente, Dana Point, Laguna Niguel, to Fullerton, Orange, Santa Ana, and Newport Beach. There are tons in Coto de Caza and the whole 241 corridor, Lake Forest and Laguna Hills. Its always the same: House purchased in 2004 or 2005, with zero down, lender is usually an OC subprime outfit. This is happening real fast, and its scary to think what the bottom will look like. I guarentee however, that the bottom will not be reached for several years. In the end, I think we are very likely to see 2002-2003 price points all across the county.
you have 04 prices in several areas already
03 can’t be far behind
I hope you are right. Everyone I know thinks I am nuts for believing prices will decline that far.
This post by OC Appraiser is very significant and important. It is just as I suspected and what I saw in the last cycle. In that cycle, houses purchased just before the peak with 100% financing (FHA and VA loans back them) were the big problem. People stretched and when they could not afford the payments or saw that they could rent for half the housing cost when equity turns negative and continues down, people walk away form the house/loan. 100% financing for houses bought in 2004-2006 is the single biggest problem facing the market here in SoCalif. And of course these were to people who overstated their income and whose loan payments are adjusting upward.
I am seeing these problems in my local area when I look at the increasing number of listings with short-sale contingencies. I search on sale date and see that they were often purchased in 2005. Borrowers are also coming to my bank and we cannot help them refinance due to lack of equity. The bank where I work has not done any 100% financing or subprime loans and has not one REO in its multiple billion dollar retained home loan portfolio of California loans……
“The bank where I work has not done any 100% financing or subprime loans and has not one REO in its multiple billion dollar retained home loan portfolio of California loans…… ” YET.
Just because your loans were not the cause of the mess won’t mean you won’t get swept up in the aftermath of consequences.
“I would say that 80% of licensed appraisers in Orange County are either totally incompotent, which means they actually think its their duty to give the broker the value that he wants, or are total fraudsters, which means they know how to pump value to make deals work, and still get past the review process.”
as a fellow appraiser and Orange County resident, I think your statement may be a little over the top. How bout we remove our cloaks of secrecy??? you show me yours and i’ll show you mine.
i’m sure you’re very qualified, experienced and honest, just like MANY other Orange County appraisers are.
Callpaul- I dont know how long you’ve been appraising in this county or what kind of clients you have, but if you think I’m over-stating, you must be one of those appraisers who actually does “comp checks” and thinks they are ethical. Cloaks of secrecy? I have no secrets, other than not giving my name on a public blog. I am very qualified and very honest. I dont give predetermined value opinions or ball-park figures. These practices are unethical, and a violation of USPAP. These practices are conducted by more than 80% of licensed appraisers in this county. Yes, there are competent and honest appraisers in Orange County, but not very many, when compared to the total number of appraisers with licenses in this county. Dont kid yourself callpaul, in the past 5 years, “skippy” appraisers have flourished. Why do you think everyone and their grandma wants to be an appraiser? Because they think that its just about finding the “value” for the clients, taking some pictures, getting some drop-out to type the report and collect $350. I dont work for brokers and I dont work for subprime lenders, who want nothing more than a rubber stamp and value guarantee before they even order the appraisal. I work for clients who actually want to know the fair market value of properties, nothing more, nothing less. They hire me as a subject matter expert and pay my fees no matter what. I get an address with the order, along with the type of assignment. No comments that say: “please call me if you dont think the value is there”, or “we need $800k for the deal to work”. Those statements sound familiar?? The entire industry lacks ethics, from appraisers, to brokers, to agents. Not to say they are all bad, but the VAST majority are either shaddy or complete hacks. I never met a mortgage broker that did not want a value guarantee before ordering an appraisal. And if he was new and didnt know to ask for the guarantee, I would never get another order from them if “the value wasnt there”. Bunch of slime bags. Along with the appraisers who play the game. The sad part is that most of the newer appraisers dont even know that they have no idea what they are doing, and most of what they do, is in complete violation of Federal Appraisal Standards. I guess that’s why they are sooooo busy. So busy that they in-turn hire a new appraiser and “train” them. Its a never ending cycle of the dumb leading the dumber. Kudos for you callpaul if you are honest and ethical, appraisers like you sadly are an acception, not the rule.
OC Appraiser, thanks for the insights. I know nothing about appraising, but what you say makes sense. I realize that, like in every profession there must be some people who do a good job and a good number of others who ruin their colleagues reputation. However, I don’t see how appraisers can be held to a certain standard if they don’t have any responsibilty to the buyer. Do they? What happens to an appraiser who inflates prices because the broker asked him/her to?
I totally understand. As it stands today, the appraisers who are hired as contractors by local banks, mortage brokers or national lenders are hired because it is the law for “federally related transactions over 250k”. As a result, the lender is the client, and under the law can only communicate results to the “client”. So if a client pressures the appraiser to inflate value and he happily does, the borrower has little recourse. What we are seeing nationally today is class action suits by borrowers who feel they were defrauded by lenders, under predatory lending laws. When these suits get to court, appraisals are scrutinized, and the appraisers are also being implacated in the fraud. So have already been sentenced to prison and many others are still awaiting trial. It is very easy to make the appraiser the scape goat in a declining market environment, rought with fraud. Afterall they carry errors and omitions insurance that people can go after. I am VERY happy to see appraisers going to prison and awaiting trial. This was unheard of just 3 years ago. The government is starting to wake up and is looking to role some heads. The appraiser profession has a VERY weak lobby.
OC Appraiser please continue to keep us up to date as the months continue to roll by. We absolutely appreciate your observations as to what is actually happening, from your perspective.
‘Weakness in the housing market should continue in 2007, as issues of affordability, oversupply and poor buyer psychology dominate, and housing starts and home sales are weaker than expected entering the year, Fitch Ratings analysts noted in the latest “Chalk Line” report.’
‘Though not likely, the housing downturn “could easily extend another year” if an economic recession develops before the housing downturn hits bottom, Fitch Ratings reported. “Housing continues to contract rather sharply,” the report states. “It is difficult to judge the length and ultimate severity of the correction.’
“It is difficult to judge the length and ultimate severity of the correction.”
Given uncertainty regarding the length and ultimate severity of the looming correction, wouldn’t it make sense to use recent history as a guide to the unknown? Seven out of seven times since 1955 when residential construction contracted by 25% or more, the rest of the macroeconomy went into a recession as well.
And for those who claim “this time is different,” would it be too much trouble for you to provide a single reason to support this view? Or are you simply relying on a complacent MSM which is all too eager to quote verbatim the first REIC “expert” they can get to talk with them on the telephone to convince a brain-dead population to accept their opinions as truth?
I think it’s the horror of facing the truth that makes people agree with the BS optimists. I’ll bet there are some physiological biochemical mechanisms at work here–something to avoid the stress response.
If you convince yourself no to believe it, then it’s not true.
Pain is coming, regardless.
“And for those who claim “this time is different,” would it be too much trouble for you to provide a single reason to support this view?”
You may very well be right. History is on your side. I can only come up with one reason that could make it “different this time.” In the past, when the FED made things more liquid, this money didn’t tend to flow into the housing market in any direct way. I believe this is the first time the FED propped up the economy through home lending and HELOC spending. We are now in the time in the economic cycle where growing business earnings and high profits would ordinarily be flowing into the housing markets through higher salaries and increased spending power; however, since housing is already inflated, this money is flowing elsewhere: right now the stock market. This may be the first housing decline in an expanding economy because the housing market cycle was thrown off by FED policy. Housing should not have boomed for the previous 5 years, it should be gaining strength now.
Having watched this slowly unfold for a couple of years now I believe the ‘goldilocks’ scenario for now at least. Housing is toast, but Wall Street seems to understand this to a point, it’s just that the world economy is so large that US housing will simply be a ‘drag’ on the econnomy and not a death blow. That and it is always the paniced disorderly unwinding that destroys things, if they can slowly unwind the losses from housing, not much is going to change. Look for the unplanned for event out of left field that disrupts liquidity - that will be painful.
…it’s just that the world economy is so large that US housing will simply be a ‘drag’ on the econnomy…
HAHAHAHAHAHAHAHA… you’re hilarious! Go drink your Koolaid.
“poor buyer psychology”
Here we go again…
The old “renters can’t make a committment” and buyers are mental angle.
Oh no, buyer psychology is the best it’s ever been, now that all the nutcase buyers already own houses they can’t afford.
True, I walked through some open houses yesterday and you could feel the sea change in buyer’s psychology. The only buyers left are the tough ones (from a realtor’s point of view). I’ve been waiting in the sidelines to see those people have their turn in the sun. Now the time is coming and I have popcorn.
“Fitch Ratings analysts” Yeah, another Johnny-come-lately to the real estate bust. Check out Fitch ratings last January, 2006. Not a word of caution. Just trying to Cover their A** from a ratings fiasco.
Let’s consider for a moment whether the estimate of $1 billion of fraud damage per year is anywhere near realistic. Assume for the sake of discussion that the average fraud damage might be between $100k and $250k per house. It could be higher, could be lower, but we’re just exploring the concept here. I’ll stick with the low-end $100k for discussion, but please remember the goal of this kind of fraud is to rake in big bucks. Each of the examples of the politicos being arrested above was for waaayyy north of $500k per incident.
We have a nation of 300 million people, approximately 73.8 million of whom were homeowners in 2004. http://www.google.com/search?hl=en&q=number+of+homeowners+in+US That number is probably much higher going into 2007. Nevertheless, that’s what I’ll use here.
At $100k per hit, it would only take 10,000 instances of fraud to hit a billion in damage. This would be a fraud instance of 0.0001355 percent for all homeowners. This is a ridiculously low fraud percentage in the current environment. It would be a rate of 1.3 per million homeowners. Our murder rate is higher than that.
Let’s work this from a different angle. Assume that only one in a hundred homeowners indulged in a little fictitious income or other fraud which will cause a $100k ding to a lender. That would be 738,000 instances, which would be… get this… $73,800,000,000 in damages. That’s $73.8 billion in damage. If the average damage per instance is higher, say $250k, that would be $184,500,000,000 - $184 billion in damage. If the instances of damage are higher, say one in fifty, and the average damage is higher, at $250k, that would be 1,476,000 incidents of fraud times $250k or $369,000,000,000 (three hundred and sixty-nine billion dollars).
Pretty soon we’ll be talking about real money here.
It’s plain to see that there is plenty of room for truly massive damage to the entire economy if the fraud has been as rampant as it appears. The kicker is that homes which might have sold, or at least appraised, for double their 2002 value in 2006 will fall and will appear to be fraudulent if the market falls below a certain point. The lenders will all take absolutely savage amounts of damage if this occurs, and nobody knows what will happen then.
You’re counting the total number of households owning a residence when you should be counting the number of RE + Refi transactions per year to get that number. I do agree that it is way above $1B. My guess would be $10B/yr with a butterfly effect of $50B/yr.
12 of the last 17 sales on Hillwood Loop in Lincoln CA have been mortgage fruad at over $187,000 average over encumbrance. $2.25 million on one little street in a subdivision in the Sacramento foothills. This stuff is pervasive.
If I did that from, say 2004-2006, the percentages of losses would not be one in a hundred nor one in fifty. It would be more like one in fifteen or twenty. Maybe one in ten. Smaller pool, higher fraud levels. No way to tell how that comes out.
60b/year, that is not that much to drag the economy to recession. at about 0.4% of the total us economy, that can easily be *rounded off*.
They just arrested a fraud ring in Riverside Ca that commited fraud on 5000 homes and they estimate 1.2 Biliion in losses from only one fraud ring.Houston i think we have a problem.
$1 billion of fraud number is complete crap. I say $100 billion at least. With all the loan doc fraud going on, 50% of loan officers out there commit fraud and most don’t even know it.
I never considered that the fraud transactions create comps which the non-fraudulent appraisals have factored in. I guess A little fraud goes a long way.
The mafia used to charge a little bread tax. For every loaf of bread sold the baker would pay two cents. The mafia would say instead of charging 40 cents a loaf, just charge 42 cents a loaf, that way nobody gets hurt. Areas that were under mafia control do not prosper and people cannot live to their full potential. Unfortuantely I have seen what the mob can do and it is a terrible thing, however this is in another Country.
What is going on in the loan business is the same thing. People have to pay extra for a house, because loan crooks have somehow conned our society that this acceptable form of business, it causes people to have less money to spend on there future and thier childrens future. I would rather pay more for education that would help our society than pay six percent commision and points on a loan on some over priced stucco crap box, which is more like twelve percent due to fraudently inflated prices to some loan crook or realtwhore who are just money people who only take from society.
“Mortgage fraud reports nearly doubled between 2003 and 2004, according to a Treasury Department study. That increase continued a longer-term trend that saw a 1,411 percent jump in reports between 1997 and 2005.”
Wanna know the really sick part of this? NOTHING was being done about it. I have the exact stat buried somewhere around here, but for all of 2005, the total number of convictions obtained in Federal courts on mortgage fraud was 170-something.
I think it is by no accident that the democratic convention for 2008 is going to be held in Denver. Making a big deal about CA would have been looked at as “there goes CA again” with the majority of people. Having the bubble and its impact focused on denver is going to be the news around the next election. It is in the middle of the country, not a costal area…Not by chance if you ask me.
never by chance- same w gop in minn
kinda swing states……..
I think Denver has more to do with winning middle America than the RE disaster looming. I don’t think politicians are that smart.
I think it’s more evidence the Democratic Party moving to the right, and is trying to signal this to swing voters. There are other factors, such as the sizeable Hispanic population around Denver and the fact that a few Dem issues, such as environmental/growth concerns, resonate well there. But when you consider what the new Congress wants now it’s nowhere near as left as it was just 12-14 years ago the last time Democrats were a majority.
This is kind of lame, but it’s a slow news day…
Builder, Martha Stewart bringing it home
http://tinyurl.com/w6bhz
Did you read? $4k deposit for a $400K house? Gee, do you think they could bail out by the time it gets built? No wonder cancellations run so freakin’ high!
400k for 2900sf? haven’t seen anything like that in san diego for a while.
Is everybody here familiar with the Mortgage Lender Implode-O-Meter?
http://www.ml-implode.com/
I would like to collectively thank everyone on this post for some good reading. Thank you for that!
Yep, this thread has gone some distance to restoring my faith in the HBBs weekday posters.
Thanks.
Even if there were a class action suit of home-owners against lenders, do the lenders even make enough off of the loans to cover the lost “value” of all these homes if they were to lose such a case? We’re talking about imaginary value/equity.
Not a chance.
Besides, most subprime lenders will be in some stage of bankruptcy by late 2008, well before the litigation parade can get into full swing. Same with many homebuilders, leaving a lot of McMansion owners (the ones that don’t get repossessed) with poorly constructed homes and worthless warranties. Its difficult to sue an entity that ceases to exist.
Well, just as some FBs are trying to steal a march on the spring “bounce” by listing early, I predict that lawyers will be trying to get judgements before their targets become insolvent.
I think from a market standpoint, the abundance of fraud in a market does more harm to the perception of a stable market. Which is to say, if a potential home buyer is looking to buy a home in a $500k neighborhood, and his wife just read a story about how “this” fraud ring has been artificially inflating prices, that couple is less likely to sign a contract for $500k. They will require some discount off the list, which is probably already a reduced list price. Currently in Laguna Niguel (Orange County), list to sale price ratios for 800k+ sfr’s is running at about 7-10%. On Balboa Island (Newport Beach, Ca), they are running some 15%. Keep in mind, these are percentages off the list price, not decline from previous sales, which are running flat to negative 7% for these products in these 2 specific markets. Its worse for higher end condos, not so much for low end starter condos, unless we are talking about the Crystal Cay condo project in Laguna Niguel, which is foreclosure central. My point is that as we analyze potential affects of all this fraud, I think we will find that the affect was largely felt by a reluctance of buyers to “pull” the trigger without insisting on a discount for the added risk. This is how markets work. From an appraisal perspective, in markets that are experiencing fraud or foreclosure activity, it is imperative that the appraiser NOT use comparables were data cannot be verified with certainty to be valid and accurate. This means calling around and talking to agents, asking questions regarding financing and the buyer’s motivation. If the agents are reluctant to devulge this information, there is a good chance that some funny business took place, in which case that sale should not be used in the report, rather commented on why that particular sale was not used, as it is not a TRUE indication of market value. I’m looking for the fraud story that came out in Murrietta as well as the litigation going in Garden Grove, regarding the first phase owners of the now discounted new development, to gain some traction. There are more news story coming as well. These stories play a huge role in the public’s perception, and the public will give the final say as to the required discount. Couple negative perception with higher rates, tighter lending standards and 7 months worth of inventory (and growing), and the stage is set for continued price declines in Orange County and all of So Cal in general. At least, this is what my market analysis is telling me.
Good post OC appraiser . Wish you the best
OC Appraiser: I am a national reviewer and concur with everything you say. I personally verify every sale I use!! Also Cal has more trainee appraisers than most states have appraisers. Trained by whom? The last crooked appraiser You bet.