Industry “Dealing With The Fallout Of Its Creativity”
The Houston Chronicle reports from Texas. “Is Houston facing a slowdown in the condo market? One sign could be that condo converters who turn apartments into for-sale units are offering buyers valuable perks to purchase condos in their buildings.”
“The developer of Rise, a Midtown building that was converted last year is offering free association dues for a year and help with closing costs. A project near the Texas Medical Center is promoting 100 percent financing on its units, which started out as apartments and were converted before the development was completed. And the Oak Lane Garden Condominiums near River Oaks touts 100 percent financing, as well as a $2,500 incentive for Realtors.”
“Developer Mike Atlas said he’s sold about half of the 56 units in one section of the Oak Lane Garden Condominiums and sold the remaining 160 units to a company planning to build new apartments there. ‘In the condo market, you have to be patient,’ he said.”
“Houston’s had its own boomlet, and competition is mounting. Still, no one’s predicting a Florida situation, where many conversion projects are being turned back into apartments. Developments that sell best have something extra, said Sandra Gunn, a real estate agent active inside the Loop.”
“‘Absorption has slowed down some, but people still want to buy that product,’ she said.”
“A federal judge sentenced Lawrence Randall Benham Friday to a little more than eight years in prison in connection with his guilty plea to wire fraud and mail fraud. U.S. District Judge Ewing Werlein Jr. also ordered Benham to pay restitution of $412,800.”
“Benham was convicted of running a mortgage fraud scheme in which he found homes for sale and then used others with strong credit as buyers of the properties for his benefit, prosecutors said. Prosecutors said Benham found homes for sale and then used the credit and identifying information of so-called ’straw buyers’ on loan applications and also exaggerated the buyers’ incomes. He then arranged for the straw buyer to buy the home at an inflated price, prosecutors said.”
“The indictment alleged that Benham was able to take out more than $8.9 million in loans in other people’s names. Benham admitted to making between $1.5 million and $2 million via mortgage fraud since 2002 and using the money for his business and to buy a Land Rover and a plasma TV, among other things.”
The Dallas Morning News. “Thanks to relaxed lending standards, in recent years borrowers with bad credit, such as a bankruptcy or a delinquent loan on their record, found it relatively easy to get home mortgages. Such ’subprime’ borrowers generally have to fork over higher interest payments to compensate the lender for the added risk of default they represent.”
“So lots of subprime borrowers kept their house payments lower by taking out exotic mortgages such as adjustable-rate, interest-only or negative-amortization mortgages. Now, with interest rates and home foreclosures rising, the lending industry is dealing with the fallout of its creativity.”
“‘It’s tightening up a lot,’ said Eddie Carmona, branch manager at Homewood Mortgage in Carrollton, a mortgage broker that deals with subprime borrowers. ‘Almost every single subprime lender has done dramatic changes. It’s all recent.’”
“Gary Akright, a mortgage broker in Dallas, said tougher requirements for a down payment recently priced one of his credit-challenged clients out of a home purchase. ‘The loan program was going to allow for 5 percent down, and they just came down with new guidelines to require 10 percent down,’ Mr. Akright said. ‘It took him out of being able to purchase.’”
“Mr. Carmona said down payment requirements are the biggest change he’s seen. ‘Before, you didn’t have to bring a down payment,’ Mr. Carmona said.”
“Other changes: Higher credit scores. Previously, borrowers with a FICO credit score as low as 570 (out of 850) could qualify for a single loan financing 100 percent of their home purchase, Mr. Carmona said. ‘Now, across the board, it’s jumped up to a 600 FICO score for an 80/20 loan,’ Mr. Carmona said.”
“During the housing boom, borrowers and lenders took comfort in the fact that home prices rose and rose, with no signs of slowing. But with home prices falling in many parts of the country, that safety net has been eliminated.”
“Unfortunately, some lenders who made those risky loans were driven by their own self-interest, Mr. Carmona said. ‘I believe some loan officers are much more concerned with producing than with the client’s best interest,’ he said. ‘There is a big difference between the ability to qualify and the ability to afford, and there are borrowers and loan officers who ignore that simple truth.’”
“Investors who buy those bonds are among the forces creating the current backlash against lenders. ‘Investors are starting to look at their books with a more jaundiced eye and seeing loans aren’t performing the way they want,’ said Keith Gumbinger, an analyst at HSH Associates, which publishes mortgage information. ‘Investor demand for certain of the most liberal products is drying up to a degree.’”
“Locally, Sebring Capital Partners LP, a Carrollton-based subprime lender, said it was shuttering its operations. The company’s general counsel, Michael Waldron, attributed the company’s demise to ‘a combination of market conditions.’”
“Mr. Carmona said he’s often had to tell clients that he ‘personally would not help them get the loan for which they could qualify. I will instead show them how to better position themselves in the next six to 12 months to comfortably afford their home when they are truly ready,’ he said. ‘I might lose a commission here and there because of this, but I have found that the referrals I get because of this stance are really strong.’”
“Gary Akright, a mortgage broker in Dallas, said tougher requirements for a down payment recently priced one of his credit-challenged clients out of a home purchase. ‘The loan program was going to allow for 5 percent down, and they just came down with new guidelines to require 10 percent down,’ Mr. Akright said. ‘It took him out of being able to purchase.’”
“Mr. Carmona said down payment requirements are the biggest change he’s seen. ‘Before, you didn’t have to bring a down payment,’ Mr. Carmona said.”
10% down is knocking people out of the market? Awwww…
Gee… this won’t do anything to slow sales.
‘Almost every single subprime lender has done dramatic changes. It’s all recent.’”
But it won’t be enough. The implode-o-meter will get interesting.
It will be so much more sane to buy during tight credit.
Neil
And with all of the sub-prime borrowers who have bought in the last couple of years, exactly WHO makes up today’s sub-prime market? Homeless people? Recent parolees? Ex-cons on work release programs?
Its pretty much recent college (and graduate/professional school) graduates, especially if you extend the definition of “subprime” to include people with
I’m a candidate for sub-prime, considering I can’t afford a decent home for my median wage. Fortunately, for me, buying isn’t a necessity.
“Before, you didn’t have to bring a down payment ….”
Wow…. How much more amazing can the REIC comments get? Now, I know these guys might get pissed and blow off a little steam to their coworkers over lunch, because this is actually costing them business. But to publicly whine that no one will lend to your “5%-down” client…..? You’re a broker in Dallas for sh#t sakes!! If you don’t have 10% down in Dallas, you should really be looking at pull-trailers or 5th wheels.
I’m having to come up with 5k to get into my next rental in Kalifornia…..and the old landlord is still holding 4k. Isn’t that total about what your client needs Gary?
This guy should be praising the new lending requirements for keeping himself from becoming an FB, but I’m sure he’ll keep looking for a sleazy lender that will let him have his dream house for “only” $xxx per month.
Neil posts “10% down is knocking people out of the market? Awwww…”
God forbid a buyer putting any skin in the game.
That’s just it ,the borrower has to have some skin in the game and sub-prime buyers have to have more skin in the game to not walk .
Prosecutors said Benham found homes for sale and then used the credit and identifying information of so-called ’straw buyers’ on loan applications and also exaggerated the buyers’ incomes. He then arranged for the straw buyer to buy the home at an inflated price, prosecutors said.
What was in it for the straw buyer with good credit to buy a home at an inflated price? Or was the straw buyer the GF who got stuccoed?
They probably got to live in the house with no payments for a while, until it got forclosed. And they probably got a cash payment from him.
But why would someone with good credit do this? The story has me scratching my head…
I can think of at least one scenario. Let’s say the straw buyer is a single man, in his 20’s, working a lower-level service job. He’s above the level of burger flipper, not making minimum wage or anything, but he’s still just scraping by, renting an apartment and driving a 10 year old Honda. Let’s further assume he’s got a spotless credit record, since he can’t get any credit when he shows an income of $10-15/hour.
Now comes Benham with a get-rich-quick offer. He gets the kid to act as a straw buyer, offering him $50k in cash for his trouble. Benham tells the kid that he knows he can’t make the payments, but he also tells him that in 5-7 years (maybe less), it won’t matter that he got foreclosed on. He will be 30 years old, probably with a better job, and can always tell the next bank “I was young and didn’t understand what I was getting into.” The $50k will probably be gone by then, of course, but is the kid really any worse off than he was before? At least he gets a new BMW out of the deal.
This is purely a hypothetical situation; I don’t know anyone like this, and it seems a little too devious for a 20-something to figure out (although I’m sure Benham could have). But I can definitely see how it would be tempting to “sell” one’s good credit for cash up front, especially for younger people whose “good credit” isn’t of tangible value yet.
I’ve heard that in Norfolk they were going for poor people. I guess the poor people didn’t have much of a record of credit as they had never done much, or were somehow able to qualify. They would then buy the homes and then they would go to forclosure. The people would get $10K or more cash back. The home seller makes out, mortgage person does. Others loose on false comps, and of course the people invested in the loan. Just something I overheard from a friend who has a friend in the forclosure resale business that wasn’t a part of it and not happy that it was going on. Evidentially in some ways it did negatively effect the normal real estate agents that were competing.
I think in some cases they stole the identity of the straw buyer . In other cases they offered a buyer, who didn’t have funds but had a good credit report ,the opportunity to get into real estate ,(most likely a young person ).
I use to see these ads for a Investor looking for a apprentice. Certainly at some of these seminar people could be led to believe that they were getting in on a investment group purchase and find out later they were part of a greater scheme. The FBI needs to go to all these real estate seminars to find the predators .
Those ads are still all over Craigslist. I could probably find you five of them in minutes.
I saw a rash of those “apprentice” signs all around San Diego this past summer. They seem to be gone now.
Previous case reported in the Dallas area where a man and wife in Colorado had their identities stolen and had apparently “purchased” over $2 million in several houses. Getting that cleared up while bankers (bad enough to accept forged signatures) are hounding you is apparently very frustrating.
I have encountered what I believe to be “Mortgage” cults. People are invited to meetings, brain-washed and then used. Then they go out and find other suckers to bring to meetings. It is a lot like Amway.
Did anyone else notice that he profitted $2 million from his crimes and was ordered to pay only $412K in restitution?
Right, and 8 years meaning maybe 12 months. And they wonder why this is the ‘fastest growing white-collar crime.’
“Mr. Carmona said he’s often had to tell clients that he ‘personally would not help them get the loan for which they could qualify. I will instead show them how to better position themselves in the next six to 12 months to comfortably afford their home when they are truly ready,’ he said. ‘I might lose a commission here and there because of this, but I have found that the referrals I get because of this stance are really strong.’”
If he’s telling the truth, he’s an honorable guy and deserves the referrals.
hey, hey, hey,
It’s not “retard”, it’s “credit challenged”.
must have meant to post to CA GUY below…
The return of down payments. Even if it’s only 5-10% then that is another huge nail in the coffin for CA housing. With decent homes in CA priced at $600K and up, how many buyers can come in with $30-60K? Answer: very, very few.
I did notice that you could still get an 80/20 with a 600 FICO, and you have to be a real retard to have that kind of score. So, the crazy lending still exists, but at least they are starting to tighten.
Found a source suggesting that the typical FICO score for subprimers is in the neighborhood of 620:
http://tinyurl.com/yjdwwj
These new downpayment rules will knock quite a few buyers out of the market, fer sure.
Thanks for the link. Written by an attorney, it just goes to show the law profession is starting to circle in anticipation of what is to come. The thing that really stands out to me is the volume explosion for subprime loans. That blog only mentions the period of 98-02, and it only got worse after that.
The thing I keep hearing lately is how interest rates might be dropping soon. This aggravates me to no end. Personally, I think rates will remain steady at best, but probably rise. However, people just do not understand that the problem is not in the rates. It is the prices that were “paid”, and the people (real or strawman) that were doing the buying. Based on recent articles I would say the downwards momentum is now in full effect. See you at the bottom.
There are millions of retards out there.
Again, I will point out I talked to a loan broker last week who said he could put a sub-600 FICO into a 100% FHA loan at 8% with a 97.5% LTV and “down payment assistance” of 2.5% to make 100% if the person was a first time borrower.
Sickening, isn’t it? Joe Six Pack is in for a real financial a$$ whooping. So reassuring that the federal government is all for helping folks commit financial suicide.
CA Guy posts “Sickening, isn’t it? Joe Six Pack is in for a real financial a$$ whooping. So reassuring that the federal government is all for helping folks commit financial suicide.”
Lets not beat up poor Joe SixPack too much. We all know poor Joe block’s em’ all with his face.
I have a real feeling this is going to move up the food chain real quick! By the time this has played out the “wiseguys” will be road kill too!
sub-600 FICO
Local liquor store won’t even let a guy run a tab under 600FICO. Course he likes getting paid back.
He should package up his accounts receivables with other liquor stores’, and sell the resulting securities to investors. Then he wouldn’t have to worry.
I would like to know who are the investors who are buying these packaged loans. I hope it is the Chinese because it seems that these people are going to get screwed. Next big news will be about these investors.
the ass-sistance will come from the taxpayers
This system is based on immoral responsability from the banks. And what about the fuc-ers that made the loans ? And what about some responsability from the bastards that made the loan in the first place ? CREATIVE = CROOK
DAVID posts “There are millions of retards out there.”
That does not count the one’s working for GWBush. He got first pick of the cream of the crop.
Oh, and there’s that little death plunge going on in the price of oil right now.
Remember what happened to Houston real estate last time around?
Found a P.T. Barnum quote that I think applies here
I like that, hard to believe Barnum wrote it.. but I like it none the less…
“I believe some loan officers are much more concerned with producing than with the client’s best interest,”
Some? …. optimist.
“Investor demand for certain of the most liberal products is drying up to a degree.”
Yea, no matter how hard you try, investors will eventually tire of getting kicked in the nuts. I mean, yea, I’m sure it was a lot of fun the first 20 times, but after a while the novelty wears off and besides it gets really hard to walk and all.
I read the rest of the HoustonChronicle report. With all the land in Houston, the market for condos in Houston in limited. Here is quote from 7575 Kirby condos that see sales problems.
Reminiscent of a French Riviera villa, 7575 Kirby is an intimate community of 176 residences with an elegant clubhouse, luxurious health club & spa, executive business center and lavish resident party room. Outside, the ambiance is that of a classic Mediterranean resort. Inside, each condominium is a refined home.
French Riviera indeed. The only reminscance of the French Riveria is the smell ! 7575 Kirby is near to a sewage outlet on N.Breaswood. that dumps into the Bayou.
LOL. French Riviera, that’s great. As last I recall, Houston was known as “Baghdad on the Bayou”
Dunno. Maybe the ‘Reminiscent of a French Riviera villa’ part refers to Algerians with automatic weapons driving up and down the streets outside. And let’s not forget the party overflow from Westheimer most evenings.
Are you talking about Kirby Road over by Seabrook? My sister and her family have lived in a four bedroom ranch in an older development off Kirby for 15 years. The most amazing thing is that she paid about $110,000 for it and it’s worth maybe $150,000. This is a very decent area to live in (supported by NASA), but very little price appreciation.
SusieQ - They’re talking about the Kirby that runs north/south through Rice Village and cuts across 59 and Westheimer. Seabrook is about 30 miles or so from there.
Houston smells aweful and is full of giant cockroaches. It’s kind of like being in LA, but without the glitz and glamour and good weather.
Jerry posts “Houston smells aweful and is full of giant cockroaches. It’s kind of like being in LA, but without the glitz and glamour and good weather.”
Better known as Hell.
Every commodity has a floor of support where buyers start jumping in as that commodity drops. Nasdaq went from 5000 to 1100, and then buyers brought it up to what it is today. The problem with bubbles is that the support level does not follow nearly as fast as the price of the commodity goes up. The floor on real estate prices was probably set somewhere around 2001-2002, and that is where it stood while prices kept going up; absolutely no fundamentals after that point. Just like Nasdaq when it hit 2500-3000. Take that with new(actually old) restrictions that loan companies will have for new buyers (good credit, down payment, and actual income), and the floor just got lower then the 2001-2002 support level/floor. This baby is going to undershoot almost by as much as it overshot in 2005. Yikes, this is going to be ugly. Thank you all you idiots who joined the bandwagon to play in the real estate market, and good riddance!
The main difficulty in applying standard commodity floor models to real estate that lies mostly in real estate’s relative illiquidity as compared to most other commodities. All other things being equal, the inertia surrounding an illiquid markets exacerbates both the booms and the busts. So much so that I don’t know if its really feasible to try to calculate a floor for any particular real estate market.
The closest thing would be to extrapolate a market price for the property based on local rents (minus all other holding costs). At such a price, presumably real, big-time investors would re-enter the residential housing market and start buying up income-producing properties. And the inflows of their capital would help stabilize housing prices. The problem is that in Sacramento, for example, median housing prices would have to fall about 60% in order to attract this type of investment, which even with the imminent flood of REOs is probably at least 3-4 years away.
Another problem is that “rents” can fluctuate quite a bit in the short term during a recession. What rents out at $1000/month in January 2006 might very well only be able to get $850/month in January 2008 shoud the local economy grind to a halt (which in Sacramento, I’m nearly sure it will in the coming months). Any decrease in the expected rent requires a further corresponding decrease in the price of the home, which propels our floor down even further. If professional investment is required to rescue a housing market, a home that sold for $500k in mid-05 may very well sell at $150-200k at the trough some time in 2010-11 (real, not nominal prices of course–if this comes to pass, the Fed will obfuscate as much of the market correction as it can through inflation).
Like I said……..
Geez, now my attorney is going to charge me a couple of hours for clarifying my point….
Thank you walt526
He maybe a SOB, but he’s my SOB….
It is interesting what you say but I just moved into a new rental (completed last month) that the owner is loosing money on. It costs me just $1,350 per month to rent but the owner must pay at least $2,000 mortgage. Interestingly, it seems that the owner is of the Seek religion and my experience is that Seeks tend to be very good in business. The owner must have some plan for making money. Is the owner just wrong about the market or is there some strategy that will make things work for her.
Ben, I realize its (it’s) MLK day but sheesh… deux faux pas in 1 afternoon? Story Line needs attention!
I drop by this clown’s web site from time to time and now I know it’s different in Fort Lauderdale…..LOL
http://www.andyweiser.com/real_estate_news.htm
“Ft Lauderdale will not be impacted by a condo oversupply. On August 20, 2006 the South Florida Sun-Sentinel reported that overdevelopment and speculative buying could lead to serious downturns in the condo market in Miami and West Palm Beach, but that good government in Fort Lauderdale will minimize the impact. Buying in Ft Lauderdale is still a great investment and it’s a great place to live and work.”
yeah, right…. and the earth is flat, we never landed on the moon and the Income tax was temporary.
put down the pipe Andy.
Wow, what a credible website
That guy will soon be back to selling used cars.
A DOJ suite against realtors!!!!!!
from Inman.
If the antitrust lawsuit filed by the U.S. Justice Department against the National Association of Realtors proceeds to trial, the United States plans to call the Realtor association’s general counsel, ZipRealty’s CFO, the former president and CEO for eRealty, and the CEO for Home Buyers Marketing II among its witnesses, according to court documents.
The federal government has also identified 20 multiple listing service areas from which it has requested or obtained detailed data and 16 additional MLS areas from which it has collected evidence or will draw evidence.
RICO?
Not sure, trying to find more information, I had the “pleasure” of dealing with the DOJ as an object of inquiry, not pleasant, but I was actually fairly impressed with the level of competence and diligence exhibited by them, far better than most regulatory bodies I have dealt with…
Racketeer Influenced and Corrupt Organizations Act
1985 I believe.
RICO was from the early 1970’s by some law professor from Notre Dame. Frank “Funzi” Tieri was the first Mafioso to be convicted on RICO charges in 1982. He still beat the govt by dropping dead of a heart attack before they could send him to prison.
I hope they bust the mls wide open- no monopolies allowed ,dude
Gosh flatffplan. Maybe these particular government parasites are earning their paychecks, naw couldn’t be.
Enjoy your day off?
self employed- only march when I want to
“So lots of subprime borrowers kept their house payments lower by taking out exotic mortgages such as adjustable-rate, interest-only or negative-amortization mortgages. Now, with interest rates and home foreclosures rising, the lending industry is dealing with the fallout of its creativity.”
Creativity? I can think of a lot of words to describe the sleazy, stupid, and self-serving crap that went on with lenders, but creativity is not one of them.
Really ingenious is what I call it.
How else could rich people legally extract (extort) a lot of money from poor people that don’t have any to begin with by definition?
Strictly speaking, some rich people extracted a lot of money from other reach people. This a very exciting game and it has been going on for year. It is quite possible the rich people in question got back some or all of their money that they lost to other rich people during dot-com boom. New round is ready to begin.
“Unfortunately, some lenders who made those risky loans were driven by their own self-interest, Mr. Carmona said. ‘I believe some loan officers are much more concerned with producing than with the client’s best interest,’ he said. ‘There is a big difference between the ability to qualify and the ability to afford, and there are borrowers and loan officers who ignore that simple truth.’”
You’re kidding!! A REIC shill who has his own self interest at heart and whose motives are not completely altruistic. I’m so disillusioned.
“Mr. Carmona said down payment requirements are the biggest change he’s seen. ‘Before, you didn’t have to bring a down payment,’ Mr. Carmona said.”
Perhaps Ohio is the first state to “get it”. We shall see…
http://forum.brokeroutpost.com/loans/forum/2/85819.htm
Slightly off-topic, but I cannot help wondering what would happen to our federal budget deficit if the IRS had a look at some of these stated-income loans, and then compared them to the W2’s and 1040’s from these people. Seems to me if someone is willing to claim an income of 100k to take out a loan, they should then have to pay taxes on that income - (real or fictious). (p.s., one takes a heck of a risk by trying to cheat the IRS - one takes an incredible risk by then telling a lender about it)
how bout this: if they lied and told the lenders they were going to have 20+ owner-occupied residences, then no tax deduction for the losses..
No, that’s perfectly reasonable. They just wanted to live everywhere.
Not good enough. I like my idea better - if you present two sets of books (one to the IRS, one to the loan officer), then the IRS gets “interested”, and then uses the set of books most in its interest to determine tax owed.
I’m not much of an IRS fan, but the gall of these “investors” to leave two completely traceable sets of numbers, figure they can get away with it, is astounding.
GotRocks posts “Slightly off-topic”
No GR you nailed it. This the center peice of topic or trouble. It is the beginning, the middle, and the end, of the story.
The stated “income loan” lie on the App go to jail. Cheat the IRS go to jail. Yet the app taker makes all the money along with the lender.
Lead me not into….
While in the course of my “new life” here in S FL, I thought I’d try to make the best of it by getting to know the area as well as I can. Even if it doesn’t last, at least I know one more place in this large and baffling country.
Because I speak near fluent French, and because there are lots of Haitians here, I’ve been tuning into AM Haitian radio, trying to learn the culture and dialect. It’s fascinating. This afternoon, they had a guy on telling a very long, very detailed history of the life of Martin Luther King, JR. It was the sort of thing that I wish they did on other stations. Someone put a lot of time into it (or plagarized from somewhere, but I’ll extend the principle of charity here).
Right after that, they had a financial show. Immediately, I knew that something was up. The announcer was speaking in a french with only a very distant Creole accent, but was otherwise Parisian. He was pretty clearly educated in an eleite private school in Haiti - Upper class gone to america, I think. The content of his talk: How to buy a $500,000 home on illegal immigrant wages, with no documentation and no money down. Unbelievable.
Isn’t this an old american tradition? Stick it to the immigrant?
I’ll bet the Fed’s translators aren’t working on these cases.
But with home prices falling in many parts of the country, that safety net has been eliminated
Umm… safety net? WTF!?
Did people really think that inflated prices were somehow a safety net?
“…Benham admitted to … using the money for his business and to buy a Land Rover and a plasma TV, among other things.”
LMAO when I saw the plasma quote.