For Growing Number Of Homeowners, The Piper Has Called
The Press Gazette reports from Wisconsin. “A big part of a bank’s profit source is the difference between what it pays people to give it money and what people pay to borrow it. That difference, these days, is tiny. ‘This is probably the most difficult banking environment I’ve ever seen,’ said Paul Beideman, president and CEO of Associated Banc-Corp in Ashwaubenon.”
“Beideman said a lot of homebuyers acquired adjustable-rate mortgages, even when rates were at historic lows. ‘They are starting to suffer a little now as higher interest rates lock in,’ he said.”
“The flat yield curve is an indication of immediate concern. Flat or inverted yield curves are often followed by recessions, which may have something to do with the long-term pessimism, but Fed Governor Susan Bies said last week that outside of the automotive and housing industries, the economy seems to be running at full steam.”
“Bob Atwell, president of Nicolet National Bank, Green Bay, said the local real estate market has experienced less speculation than some areas of the country. ‘We clearly have signs of some of the excess activity here. What we didn’t have was this bubble effect of rising prices,’ he said.”
The Gazette Extra from Wisconsin. “It started innocently enough. A red-hot housing market. Attractive adjustable rate mortgages. Mailboxes overflowing with offers of easy credit from far-flung lenders.”
“But for a growing number of area homeowners, the piper has called, and the result is likely a foreclosure record in Rock County. Last year, the Rock County Sheriff’s Department auctioned off 352 properties, a 17 percent increase over those sold in 2005.”
“‘If we could point to one reason, we would attribute it to the huge interest in adjustable rate mortgages several years ago,’ said Rose Oswald Poels, senior VP of the Wisconsin Bankers Association.”
“‘It’s inexplicable to me that ARMs were so popular given that the conventional rates were so low,’ Oswald Poels said. ‘But there was exuberance in the economy and people were motivated to buy the biggest house they could at the very ends of their means.’”
“Vicki Schleisner, a Janesville attorney who concentrates a large part of her practice on bankruptcies, said many homebuyers failed to see the big picture. ‘I think some banks are now stepping back, but for a while they were pretty loose with the money,’ Schleisner said. ‘That’s not to say they were loose in a criminal way. Money was cheap.’”
“‘But a lot of the debtors who are now defendants didn’t have as much knowledge as they should have had. They were just thinking of the (initial) monthly payments, saying ‘I can afford that.’ But they weren’t thinking about what would happen when the rates go up,’ Schleisner said.”
“‘Many people were put into homes they simply can’t afford,’ said Mary Herrmann, a counselor for Consumer Credit Counseling Service. For that, Herrmann looks no further than the rapid advancement of national lenders into the local market. The sheriff’s department scheduled foreclosure auctions in October, November and December involved 36 different lenders. Only a handful involved locally based institutions.”
“‘It used to be that only the very qualified could get a mortgage,’ Herrmann said. ‘But now, so many lenders have gotten into the market, and many are offering first and second mortgages, some as high as 125 percent of the value of the home.’”
The Detroit News from Michigan. “Construction of new homes in southeast Michigan, which reached record levels just two years ago, fell dramatically in 2006. Total housing permits for the nine counties in the region fell to 9,873, a 48 percent decline from 2005 and more than 60 percent off the all-time high in 2004, according to data released Sunday.”
“Scores of homes are languishing on the market as residents flee the area for jobs in other states or take early retirement and move south. Foreclosures and personal bankruptcies are soaring.”
“As a result, home values in Metro Detroit are dropping faster than in almost any other part of the country. Some new and existing homes are being sold at auctions.”
“‘You’re clearly seeing a bit of a shakeout in the market,’ said Lee Schwartz, executive VP for government relations for the Michigan Association of Home Builders. ‘Those builders who haven’t been through something like this and built a lot of spec homes are being affected pretty severely.’”
“For the first time in nearly two decades, Metro Detroit families are seeing a significant decline in the value of their homes, according to the National Association of Realtors. The median sales price for a single-family home fell to $154,100 in the third quarter of 2006 from $172,000 in the third quarter of 2005. It was the largest drop in value of any market in the nation.”
The Chicago Sun Times from Illinois. “There’s something rotten in Chicago neighborhoods, and it looks a lot like condo fraud. ‘In the past two to three years, we’ve been looking at 97 buildings with 770 units where we feel the sales prices exceed the value, based on the condition of the units,’ said Angela Maurello, VP of a pooled-risk lender.”
“Our crooked developer doesn’t need a loan of any kind. He buys a 6-flat for $300,000 and he pays cash. He doesn’t bother with a construction loan because he’s not going to replace the plumbing, roof or mechanicals, or make any structural changes to the building. Instead he’ll spend maybe $5,000 per unit skim-coating the building, putting in cheap new windows or redoing the porches so from the outside, the building looks like something’s been done.”
“Our crooked developer is now ready to sell each condo at the market rate of $280,000, but he’s invested only $55,000, the purchase price, plus rehab, in each unit ‘conversion.’ Who’s going to buy a condo for $280,000 that from the inside looks like an unimproved Chicago apartment unit? A phoney buyer, of course.”
“And who is going to arrange for a mortgage for this phoney buyer? You guessed it, a crooked mortgage broker. And who is going to see a $280,000 condo where there is really a an unimproved Chicago apartment, an appraiser tending toward criminal overstatement.”
“Let’s see, $280,000 per unit, minus $55,000 equals $225,000. Multiply that by 6 units, and you have $1.35 million, or a profit of about 300 percent!”
“Our real estate boom has complicated this matter even more. These days it’s quite usual for the mortgage lenders to be in other states, and it’s quite usual for each unit to be attached to a different lender. As the mortgages foreclose, the lenders look at the state of things from a remote location. Assessing the worth of the condos online and through databases, they figure they will sell the foreclosed properties at a loss, for say, $200,000 each at the Sheriff’s fire sale.”
“That’s the minimum bid accepted. When neighborhood people show up to bid and get a deal on what they know to be an unimproved unit in an eyesore building, they walk away when they realize they’d have to pay $200,000 for the unit. Nothing sells.”
“‘Because multiple lenders are involved and they are often out of state, it’s difficult to bring these buildings to fruition,’ Maurello said.”
‘It’s inexplicable to me that ARMs were so popular given that the conventional rates were so low,’ Oswald Poels said. ‘But there was exuberance in the economy and people were motivated to buy the biggest house they could at the very ends of their means.’
‘Total housing permits for the nine counties in the region fell to 9,873, a 48 percent decline from 2005 and more than 60 percent off the all-time high in 2004′
‘Exuberance’ and an ‘all time high’ for starts in 2004. But the bubble is only on the coasts?
People are only now starting to notice that the psycology of the real estate market was not normal over the last 5 years. I think this “exuberance” is one of the major things all the stats on housing leave out. People look at the stats while housing is going up and think that all those big numbers are built on a solid foundation of fundamental economics. This is going to be real scary once the exuberance turns to fear as people finally realize that all the massive gains they’ve seen over the last few years were not as economically sound as they thought they were.
‘It’s inexplicable to me that ARMs were so popular given that the conventional rates were so low,’ Oswald Poels said.
Is it because Alan Greenspan told everyone to run out and get one (right as he was cutting short rates to 1%)?
Someone will eventually ask how can cutting rates increase the “Value” of an asset ?
It’s true. Simplified; at very high interest rates you could maybe afford 1 house. At very low rates you can afford two. Thus you own two houses for the price of one or viceversa each house is worth twice as much. And that’s what we saw.
Hi Robert, any news on the Ventura bubble front?
“At very low rates you can afford two.”
And if real home equity gains are over 10% per year forever, you can afford 28, like that Canadian woman who was recently reported trying to auction off her Florida real estate empire. The influx of speculators coupled with the massive oversupply of new homes are evidently two of the principle repurcussions of holding real Fed funds rate to a negative level over a protracted period in the early 2000s.
These homeowners wanted to use their equity, it was dead money just sitting in their primary residence. So they borrowed and bought another house. I saw this way back in early 2000 at a model home in Ventura CA explained to me by a couple from Santa Barabra. This was before the crazy started and I didn’t know what to think about that type of investing? I still remember it though. Figures from Santa Barabra. By 2005 renters in Simi valley were buying speculation homes in Phoenix. I knew that good idea had gone “public” and like all successful investing ideas it was over. I wonder if that Santa Barabra couple got out in time?
My blog has a little on Ventura. Remember we are #1 in yoy declines in the median. It will be weird because the numbers are not going to tell the story. The overpriced crap will crush the median prices. The majority will shrug and go on. A truly bifurcated market.
So when GM cuts their rates to zero, should they be selling their cars for 2X the original price?
So when GM cuts their rates to zero, should they be selling their cars for 2X the original price?
Exactly! Im glad someone got it right. If prices went 2x but the value didnt change. For whats it worth rental income in my neck of the woods actually declined by 30-35%.
Yeah Mister Bubbles. Easy Al that creep.
posted in thread coment “‘This is probably the most difficult banking environment I’ve ever seen,’ said Paul Beideman, president and CEO of Associated Banc-Corp in Ashwaubenon.”
Now I an really crying. Can we pass the hat guys? How about a Bank-Aid Concert?
Bank-Aid, hehehe I love it.
Bank-Aid… thanks
Go and get Bono to help the pigs in banking. That’s what will happen eventually. The taxpayer will be paying and bailing out these pigs in banking.
My relatives that are holding two ‘Vacation Rentals’ ask me constantly when the bubble burst will be ‘Over’. It’s hard for me to tell them the truth: “‘We’re in the second inning, there’s a way to go”. They think it’s going to ‘turn around’ in spring. I had to tell them, thats when the inventories are really going to swell. They were not happy….
If you knew home prices would generate annual real equity gains of over 10% forever, as many caught up in the speculative euphoria were convinced would be the case, then the smartest possible financial move would have been to stretch your household finances as far as possible to buy the biggest, most expensive home your lender was willing and able to get you into. And the way to do this would have been to use every trick in the subprime lender’s play book: finance the purchase with a stated income, interest only, zero-downpayment option ARM and make the minimum required payment.
They never thought the builders would keep building millions more houses and slash their prices. LOL
“But they not making any more land!”
Most people don’t understand how zoning works and how much land in the USA could still be devoleped as housing. Funniest thing in Seattle is the blank looks I get from locals (including Realtors) when I talk about the potential of someone building on one of our many level parking lots, they just see a parking lot - not a future building site.
“‘It’s inexplicable to me that ARMs were so popular given that the conventional rates were so low,’ Oswald Poels said….”
No, it is not. ARMs are what the doctor (Greenie) ordered.
During the S&L debacle a lot of banks went under becuase they held unhedged assets (home loans) with low fixed rates (~10 pct). As interest rates rose to record levels (15 pct +), a lot of banks became insolvent. Greenie wanted to avoid a similar debacle in the banking indsutry so he encouraged consumers and bankers to use ARMs. We all know what happened as a result.
Come on. Wall street may have been hanging on his every syllable, but I don’t think that the imprudent borrowers who got ARMs and Option Payment loans were paying much attention. It’s that monthly payment consumer, swimming in an ocean of liquidity. It’s fine until they get tired and realize how far away the shore is.
From the post:
The Gazette Extra from Wisconsin. “It started innocently enough. A red-hot housing market. Attractive adjustable rate mortgages. Mailboxes overflowing with offers of easy credit from far-flung lenders.”
Arizona Slim checking in from Tucson:
I can recall getting a flurry of such GREAT OFFERS!!! offers shortly after I moved into my house in late 2004. The avalanche of GREAT OFFERS!!! started to taper off last year. Last summer, it dried up. Never has restarted.
Anyone else care to share their junk mail report?
Still coming in every single day. More than 1 most days.
Suburban Maryland apartment: I used to get “don’t throw away your rent” flyers from banks with fly-by-night names, but that stopped. Now, every 10 days or so I get a glossy 1-page flyer touting the newest luxury condo from Toll Brothers or Ryan homes. Lots of fine print but no hard humbers.
I rent so I do not get any mortgage credit offers. But I have a credit card with Citibank that has a zero balance. Every two weeks they send me an offer to borrow on this credit card (with a 3% transaction fee) in the mail in an envelope marked “LAST CHANCE” in bold letters. Also, the new car dealers must really be hurting for sales, their “coupons for $1,000 off” and “Easy credit, nobody is refused” circulars come in once a week. The new car dealers are also printing a small spanish language section in their circulars.
I rent and I get HELOC and mortgage offers everyday in the mail (not just e-mail).
I get 2 -3 offers a week to refinance from Countrywide alone. Which is strange because I am NOT a homeowner. Have things become so crazy that you can get a mortgage without a house?
That would be great, then all us renters can get on the equity gravy train like the rest of the smart people!
Stupid secured assets; that was always a stupid idea. We should just allow morgages on anything; it does not matter. That’s the old way of thinking!
the Mortgage is all you really want anyway…. It’s such a great tax write off!
Why burden yourself with the burdensome chores of house upkeep?
Yeah, if “home equity” is a bad thing nowadays, every other kind of equity should be too! You can already take loans against retirement accounts and life insurance policies. What about… car equity loans! Stock equity loans! Liberate the equity in your clothing, your furniture, your teevee or your refigerator! That gallon of milk ain’t doing you much good sitting there. I bought a bunch of bananas for 86 cents yesterday… at 115% LTV I can get a whole dollar! And the great thing about banana equity is, when I decide to eat the loan, the bank has to too. Sure, you can have my “collateral” back once my body’s done with it.
Car equity loans do exist; they’re called Title Loans and they are a terribly bad deal. Obscene interest rates, and if you miss one payment you no longer have a car.
Furniture and appliance loans exist too, from pawn shops. People had to do more of this stuff back before it was so easy to get a credit card, and when consumer goods were durable enough to actually have a resale value.
How could I forget. I enjoy browsing pawnshops, actually. That’s where my next teevee, deeveedee player, or other similar consumer electronic device will come from. Picking up the pieces of others’ misfortunes… that’s me.
We get postcards from realtors at least 3-4 times per week. A year ago there were only a few. Clearly their business has slowed and they’re reaching out to everyone for potential clients. Good luck with that. Just for fun we should start a glamour shot contest here. See who can come up with the cheesiest realtor photo.
Rate them and keep the 10 hottest RE babes.
CA Guy, I feel left out. I don’t get ANY real estate cards. None! (Do they sense that I’m neither buying nor selling?)
“Our crooked developer is now ready to sell each condo at the market rate of $280,000, but he’s invested only $55,000, the purchase price, plus rehab, in each unit ‘conversion.’ Who’s going to buy a condo for $280,000 that from the inside looks like an unimproved Chicago apartment unit? A phoney buyer, of course.”
America, land of opportunities.
If lenders are willing to give money away sight-unseen,
they have no one to blame but themselves.
they have no one to blame but themselves.
But they will end up socializing the costs of their foolishness. Perhaps a bail out, higher rates, ad nauseum.
This business model of a lender operating from far away works in an honest society, but we are far from being honest. This business model may never be profitable again. The lending may only work again if the local lenders do some leg work of their own.
It worked pretty well when the person lending the money hired the appraiser and actually WANTED and accurate estimate of the value of the property being used as security for the loan. Once the “lenders” could repackage the loan for the MBS market based on whatever the appraiser writes down on the paperwork, it was only a matter of time until the poo hit the air circulator.
‘It’s inexplicable to me that ARMs were so popular given that the conventional rates were so low,’ –Banker
I”ll explain:
1)ARM products are exceptionally lucrative, particularly in eliminating PMI issues by having a 1st and 2nd mortgage (HELOC or other 2nd’s).
2) People could not qualify for regular 30 yr fixed scenarios (debt issues)or many LO’s would not offer 30 yr fixed loans as a top tier product due to lower loan profits and in escalating home price environments.
3) fill in your own….
Having an ARM and having a first/second to eliminate PMI are two completely unrelated things. I bought my house with 80/10/10 financing using a 30-year fixed first and a 30/15 fixed second (the amortization schedule is 30 years, but there is a balloon payment after 15 years).
I’m sure many on this blog would poo-poo the use of this kind of financing, but compared to an ARM it is not particularly risky. Writing two checks instead of one to avoid PMI doesn’t increase risk (for the borrower) — unlike increasing interest rates.
Regarding the balloon payment, which is a bit more risky than a traditional 30-year mortgage, we know exactly how much and when our balloon payment is. That is much easier than predicting interest rates, and 15-years is a long time to erode at the required balloon it with regular prepayments or to refinance it.
Balloon mortgages and the people swallowing them - the true sign of a market top.
Actually balloon payments were common in the 80s when mortgage rates were closing in on 18% and prices were quite low.
The thing about PMI that most people don’t know is that you can usually pay a .5% - 1% one-time fee to the bank when you get the loan and not pay monthly PMI. It’s not deductible, but I would rather take care of it at the start than carry a 12% second mortgage with a balloon in 15 years. But I guess that would be a problem for the “no money down” crew.
They carry hefty fees so mortgage pimps work doubly hard to push them.
BINGO!
“‘It used to be that only the very qualified could get a mortgage,’ Herrmann said.”
When a qualified buyer has to bid against someone with no savings, mediocre credit and employment history, armed with a 0% downpayment and interest-only 1st and 2nd mortgages, then the market is one big disconnect–exactly what we’ve seen over the past few years.
And it was greed, pure & simple, that got people to stretch their finances to the max. The bigger the leverage, the bigger the potential for easy riches.
Lisa, just yesterday someone commented on that in one of the threads. It’s not only that qualified buyers were competing against no credit people armed with ARMs. They were losing the bids…
Yes this is the lending pool bubble. Easy lending places everybody in the same boat. Greed caused its rise and greed will cause its fall.
DAVID posts “Yes this is the lending pool bubble.”
Well said and right to the point.
Thanks just doing my job.
“Greed caused its rise and greed will cause its fall.”
Agreed that greed caused its rise, but I think it will be FEAR that will cause its fall.
And IMHO fear was instrumental in the rise. Fear of being “priced out forever” or being outbid on ones dream home motivated many.
It also used to be back in early 90’s when
interest rates declined
so did prices of homes !!!
3) You can buy a bigger, more expensive house on the same family income than the chump saver who wants to use traditional fixed-rate financing.
4) You will capture bigger home equity gains — 10% of $1m is twice as much home equity income as 10% of $500K.
What do you expect from this daytrader/pokerchamp society of ours? Most Americans want fast easy money.
Anyone ever use Google Trends (www.google.com/trends)? When you get a chance, visit there and type in “Florida real estate” or “Arizona real estate” and see where the direction of the search traffic is heading.
Look up “Housing Bubble”. No one seems to care right now…they did last year.
OT:
Wait-and-see for home sellers
Many prospective home sellers have a wait-and-see attitude toward the housing market, according to a national poll by Golden-based ServiceMagic.com.
Thirty-six percent of the 1,300 respondents said they’d like to sell their homes but are holding off until the market regains its strength.
Eight percent said they’d like to sell their homes now but can’t because the mortgage balance is too high.
Whether they plan to sell or not, 69 percent say they intend to make home improvements this year. Sixty percent of those respondents plan to spend more than $5,000, and 20 percent will spend more than $20,000.
“Fed Governor Susan Bies said last week that outside of the automotive and housing industries, the economy seems to be running at full steam.”
McCoy: I managed to limit the organ failures to just his brain and heart, but there’s nothing more I can do. These machines are the only thing keeping this poor red shirt alive.
Kirk: But his kidneys. And lungs. And liver. They. All. Still. Function? Then the rest of him. Is. Alive?
McCoy: Yes, but he cannot live without a functioning brain and heart.
Kirk: I. See. But. Could you keep him alive. Until. We rendezvous. With the Yorktown.
McCoy: Well sure. But Jim, I don’t see how that changes–
Kirk: Bones. I’ve lost. So many. Crewman. If there’s a chance. That I could. Transfer him. Before he actually. Dies. Then. He wouldn’t be. Another casualty. Of mine.
McCoy: You want to try to flip a dying crewman?!? Damn it Jim, he’s a human being, not a duplex!
Spock: I have observed a stunning loss of morality and rationality since you attended that real estate seminar, Captain.
McCoy: I hate to say it, but Spock is right. You’ve lost sight of what’s important ever since you realized the profit potential of flipping planets after deploying the Genesis device.
Kirk: I know. You are. Both. Probably. Right. But still. If I could. Only. Unload. This one dead crewman. And get a fully functioning one back. Then I could realize. A profit!
Spock: Illogical.
That’s a work of art, walt.
I sent it to a couple of real estate bubble-popping friends. They LOVE this stuff.
“‘Many people were put into homes they simply can’t afford,’ said Mary Herrmann
what do ya mean, ‘PUT’ into homes?
and related article:
Five auctions were scheduled Wednesday. Two, however, were canceled, which can happen for a variety of reasons. Perhaps the owners caught up on their payments or filed bankruptcy. Maybe the bank couldn’t get its paperwork in order for the sale.
Three properties were sold back to the lenders in a process that took all of six or seven minutes.
On most Wednesday mornings, DeRemer’s auction list is much longer.
“I’m certainly not an expert on it, but in my own opinion it’s because of the way banks were lending money,” DeRemer says. “The economy was good; there were lots of offers for low-interest loans of up to and more than the value of the home.
In the vast majority of sales, the winning bidder is the original lender, which typically makes a bid equal to the amount owed on the first mortgage, Schleisner says.
Sometimes, DeRemer says, bids will come in from attorneys representing lenders who may have made a second mortgage on the property.
http://www.gazetteextra.com/rockcoforeclose_side011507.asp
It may be a technicality but it wasn’t the home they couldn’t afford. It was the loan. The home was fine, with a lower loan amount.
Absolutely true. Just a few years back many of those homes were priced to be way more affordable. Even so, it is also true that a lot of folks buying homes nowdays couldn’t afford the house with no loan. Just a simple roof replacement, new furnace or paint job would wipe out a lot of the most recent “buyers”. If you can’t manage to put away a fair bit of cash you’re not a good candidate for homeownership. My house has cost me $10k above the PITI that all the agents and brokers like to talk about. And, it’s a small house.
True, but even truer, many people who got caught up in the REIC promoted frenzy of harvesting equity find themslves no longer able to afford the very same house that they could easily afford a couple of years ago… without even moving.
The lender obviously PUT a gun to their head and forced them to sign the loan papers.
Ya, I picked up on that word too.
I have a mental picture of ordinary folks strolling down the street, being accosted from behind and waking up realizing they are in a Mcmansion with an 80/10/10, 2 yearn no-qual, ARM.
Actually, I think it’s the writer just protraying the homeowner (opps, FB) as a .
VICTIM
Italics off
http://www.snopes.com/horrors/robbery/kidney.asp
LOL. Remember the urban legend about travelers being drugged and waking up in an ice-filled bathtub to find their kidneys had been stolen? I expect the 2007 variation to be the hapless FB, hypnotised by subliminal messages from a Century 21 ad, waking up in an obscenely overpriced McMansion clutching a sweat-drenched copy of a mortage they can’t possibly afford, for a property that’s plunging in value.
The horror…the horror….
Actually, Scotty beamed them there.
“‘Because multiple lenders are involved and they are often out of state, it’s difficult to bring these buildings to fruition,’ Maurello said.”
Lets not forget to add sellers create a group of phony (aka Phantom Bidders) to provide an illusion of huge demand and push other real bidders to eventually over pay.
I actually once tried the Phantom Bid scheme where I had a friend lowball 40% below ask so my 25% lowball might look good in comparison. Didn’t work in a price escalating market. Later this year, maybe?
AZ - your missing the point. Realtors tell the buyer there are multiple offers, some real and most i suspect are illusion.
How often have you heard, “Can you go 10% above asking?”.
Realtors just repeat the cycle in the same neighborhood.
Do you ever get confirmation this is actually even true?
Who are the biders and what is the bids. There is lack of transparency and honesty here. In the business world the realtor and seller would have been walked out the door and never asked to return. You dont make deals without confirmation. Its like idiot investor buying a gold mine stock without even confirming it exists.
Get rid of phantorm bids and you get rid of the bubble.
John Doe commented about this on the previous thread.
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.
FBI estimates one billion in mortgage fraud across the whole Country. BAHAHAHAHAHAHHAHAHBBBBABHHA, they don’t have 1% of the agents needed to stop this crap. However class actions are the way to go.
It is alleged in the complaint that defendants allegedly involved in the scheme would artificially inflate the values of the homes, complete 125% loan to value mortgages in certain cases, give escrow kickbacks to sellers who received as much as $100,000 more than an asking price, and sell the investors on the idea of giving up excess proceeds out of the sale to investment companies for a great profit over a period of years. In some cases, $50-60k-a-year salaried employees had mortgage obligations that were more than $20,000.00 a month because they “owned” 5-8 homes. The defendant companies are alleged to have taken money from other investors to pay the mortgages on behalf of plaintiff and others. The scheme is alleged to be a traditional Ponzi scheme.
Sorry it was Bottomfeeder who commented.
In some cases, $50-60k-a-year salaried employees had mortgage obligations that were more than $20,000.00 a month because they “owned” 5-8 homes.
BAHAHBABHAHAAAHAAHHABAHAHAHHHAHHABBA, LMAO, LMAO, LMAO. I’m glad I don’t have to work today.
The spring rebound will save them. Not.
http://prweb.com/releases/2007/1/prweb497285.htm
“The flat yield curve is an indication of immediate concern. Flat or inverted yield curves are often followed by recessions, which may have something to do with the long-term pessimism, but Fed Governor Susan Bies said last week that outside of the automotive and housing industries, the economy seems to be running at full steam.”
Economic busts usually occur just when the economy seems to be roaring along at “full steam”. That’s why the call them “busts” and not “gradual predictable slowdowns that don’t take everybody by surprise”.
Right. For one thing, it is hard to justify dropping interest rates back down to hyperstimulative levels when the economy is already running with the alcohol from earlier punchbowl spiking operations still in the bloodstream. The Fed cannot see bubbles while they are in progress, and hence only mops up in their aftermath.
Home prices end year on high note
Median price in L.A. County jumped 6.5%, recovering five months of lost appreciation.
http://tinyurl.com/y6j7lu
That should be “five months of depreciation”
If you check housing tracker it shows that the MLS on the top 25% is off 18% from its peak in 2005 in Los Angeles
Beideman said a lot of homebuyers acquired adjustable-rate mortgages, even when rates were at historic lows. ‘They are starting to suffer a little now as higher interest rates lock in,’ he said.
Would he call it “a little suffering” if a recent buyer had incurred a 20% unrealized capital loss (over $100K) on a home whose purchase price exceeded $600K? Because that is the situation in my hood.
Los Angeles Times article: median home prices up 8.5% 2006; sales down 12.9%; up5.6% just in December, erasing past months’ decline: http://www.latimes.com/business/la-fi-homes16jan16,0,7844716.story?coll=la-home-headlines
I’m surprised and can only think that the fraud continues.
“I’m surprised and can only think that the fraud continues.”
Fake multiple bids ! How else do you justify current price increase. Buyer is told there are other higher biders without confirmation. Therefor you increase their offer (which may be the only offer given)
How do you trust if you cant verify!
I got a flat tire in Rock County, Wisconsin, while I was driving cross-county, and I stopped in Janesville to get a new tire and spend the night. There are a bunch of good folks there, and I hate to see this bubble mess hurting them; but I guess it really is hitting everyone
“‘It used to be that only the very qualified could get a mortgage,’ Herrmann said. ‘But now, so many lenders have gotten into the market, and many are offering first and second mortgages, some as high as 125 percent of the value of the home.’”
Is she referring to the case of lender-provided financing to cover builder incentives such as new automobiles worth 25% of the purchase price?
I said it a long time ago that you can’t have computer appraisals and they must be on site appraisals .All appraisals at this point must be double checked because of the fraud going on . If the fraud started a few years back ,it doesn’t surprise me that this helped in inflating the overall market .
When are the regulators and lawmakers going to realize that you can’t make 100 to 125 % loans along with them being adjustables .
Adjustables loans have a potential for going negative on the equity ,so all the more reason for requiring a down payment .
Again I say that sub-prime or stated loans are high risk so you should require 25 to 30 % down . People who took out adjustables in the old lending cycles had to qualify and put down payments .
These sub-prime loans messed up the entire market comps .
Right now the lenders should stop lending for awhile . Yes you heard me right . As a prudent lender why would I go forward with lending when a high % of the comps are from sub-prime lenders who will hit any purchase and put any crook or unqualified buyer on a loan .
Look , the sub-prime lenders have proven that they won’t exercise due dilligence on loans or appraisals so they have to be outlawed . You can’t mix good with bad , sub-prime with qualified ,crooks with real buyers etc. etc. etc. .
I propose that the lenders must admit the mistakes of recent years and correct instead of trying to keep the party going . The NAR should not be allowed the “Time2Buy ” campaign ,as long as it is dependant on sub-prime lending that needs to die .
So I propose that the regular lenders just stop lending until all areas can be screened for fraud and the appraisal data banks can be changed to strike sub=prime lenders .
“So I propose that the regular lenders just stop lending until all areas can be screened for fraud and the appraisal data banks can be changed to strike sub=prime lenders.”
Great post. The same comment applies to “regular buyers”: If you have savings and a credit rating worth protecting, then it is time to find and execute an effective capital preservation strategy, then wait for the subprime lending and fraudulent appraisals to get drummed out of the market by a combination of market forces and reinstitution of regulatory standards.
I think we have all forgotten what the original intent of the refi was, we did one in 2002 and this is what we did.
Had the house with an ARM set at 7.5% that year. Refi to a 15 YEAR LOAN, and took 15K out to redo roof, dual pane windows, and repair the facade. The payment was HIGHER, but it was at 15 years.
Then others started to take cash out for other purposes, and lowered their payment by using ARMs.
Even in 2002, we had a broker who tried to screw us. If it wasn’t for my wife, I would have never caught the way he tried to f*** us. There are some people, like I, who can be easily fooled into making mistakes, simply by not taking a goooooooood look at the paperwork. And even then, my wife spent time trying to figure out what was up, and she is a math major.
You know, I’d almost like to agree to a REFI, show up for closing, read the loan documents, say “These aren’t the terms I agreed to,” and walk back out.
Oh, oh
can someone pls explain to me what an inverted yeild curve means, for dummies. Dont let my profession full you i pay no attention to the bond market or how it relates to mortgages.
An inverted yield curve means the long term treasuries (10 yr, 30 yr) are yielding less than a short term 6 month T-bill. This usually indicates a slowdown or recession ahead for the economy. The bond investors are willing to buy long term treasuries at a lower yield since they think the yield for both the long and the short term fixed income markets will be even lower in the future. They try to lock in a yield and/or profit when rates drop due to recession.
In short, the bond market is buying long term bonds at below short term bond rates putting the yield of long term bonds beneath the yield of short term bonds.
Why would they do this?
They think the Short term rates are going down sometime in the near to mid-term and want to lock in the current yield on the long term debt for the long term.
Thanks to both of you, i think i get it now. Though i had to read it 7 times. Let me test myh interpretation. When you speak of yeild that essentially means interest or return on my investment. So, like a cd in a bank if you are willing to commit to a longer period, you get a higher rate of return. Right now, short term rates are offering a better rate of return but, rather than put the money there, they are still opting for long term investments, analagous to the tortoise and the hair.
How did i do?
The bond market is buying. Who is exactly Mister Bond Market ?
I smell a rat somewhere. I smell somebody that is trying to keep long term interest rates ridiculously low. I smell Central Banks trying to hide the fact that the real mega bubble is residing in the long bonds.
> Central Banks trying to hide the fact that the real mega bubble is residing in the long bonds
How would this hidden bubble look like? I have difficulties to see how the normal bubble psychology would apply to the bond market.
I just got off the phone with the Piper.
He just got out of prison. He is feeling good and strong. (nothing to do but lift weights)
He tells me he is looking forward to pounding some of the pasty, overweight with the muscle tone of bubblegum FBs.
MD:
The yield curve represents the interest rates on various durations of borrowing. Normally, investors require a higher rate of interest on longer-duration bonds because it ties their money up for longer periods. Therefore, the interest rate on the short term lending is lower than on long term lending.
An inverted yield curve is the exact opposite of this situation and is rare. Yields (interest rates) at the longer end (say 10 years) are currently about 75 basis points (three quarters of one percent) lower than at the shorter end (say two years).
I won’t bore you with why this is a really bad thing for the economy, plenty of discussion on that subject and can be googled. In short (no pun intended) inverted yield curves almost always lead to nasty recessions and I see no reason why this time would be any diffierent.
In fact, it’s easy to make the case that this time will be much worse.
Hope that’s clear.
ty for clarifying, i seem to have been heariung the term inverted yeild curve for the last few years. How long does it typically take for the recession to be recognized from the point of the curves inseption?
IMHO yield curve inversion doesn’t CAUSE a recession. However it reflects the bond market’s belief that the FED will soon try to stop a recession by lowering rates.
“If lenders are willing to give money away sight-unseen,
they have no one to blame but themselves”
this says it all. if lenders hadn’t abdicated their appraisal review responsibility to licensing, we wouldn’t be in this mess.
Why not after all ? It’s not their money. It’s yours.
The recession won’t be recognized from the perspective of the inverted yield curve. I think the actual definition of a recession is three consecutive quarters of declining economic “growth”.
The yield curve itself was inverted for a time in early mid “06, went back to normal for a few weeks in late summer/early fall, then became severely inverted to where it stands today.
It’s hard to be optimistic about the overall macro economic picture here in the US (or elsewhere, for that matter). I believe it’s really impossible to pinpoint when the severity of the downturn will become known, but it seems highly unlikely we can get through ‘08 without a major correction in all markets.
I know this will seem like a long timeline to many on this board, but don’t underestimate the ability of the politicians and bankers to cover this up for a long time yet.
Sooner or later though, we will discover that, as always, the emperor has no clothes.
Better later than sooner.
That way that can pass the buck to someone else.
“…but don’t underestimate the ability of the politicians and bankers to cover this up for a long time yet.”
Totally agree. While this is folly in the extreme, many of the “players” understand the implications as well or better than any of us. There are plenty of tricks to come. I also agree that eventually the market will overpower any and all tricks, but we should not assume that the evil-doers will just throw in the towel.
My own guess, and it’s obviously just taking a punt, is that the stock markets will rise quite a bit yet until maybe this Summer. It will take either a cascade of crappy earnings and/or some real in-your-face banking problems that would trigger a major correction, but just because it seems obvious does not mean that it won’t take time to play out. Someone pointed out about two weeks ago a prediction that the S&P500 would be 50% down at the end of 2007 based upon the historical predictive value of some important industry sentiment measure (It was somewhere on CNN Money I think). Hard to imagine, but who knows?
“Someone pointed out about two weeks ago a prediction that the S&P500 would be 50% down at the end of 2007 based upon the historical predictive value of some important industry sentiment measure (It was somewhere on CNN Money I think). Hard to imagine, but who knows?”
That would be the home builders sentiment index I think.
I’m probably just an idiot, but 50% seems extreeme. But 30% doesn’t.