“The Exposure Is Unprecedented, The Oversight Is Lax”
The Associated Press reports on California. “California lawmakers on Wednesday began considering restrictions on unorthodox mortgage-lending practices that have allowed hundreds of thousands of Californians to buy homes they otherwise could not afford. About half of all new home loans in California are something other than the traditional 30-year fixed loan.”
“‘The exposure to these sorts of products, the growth, is unprecedented,’ Raphael Bostic, an associate professor at the University of Southern California School of Policy, Planning and Development, told a Senate committee. ‘The regulatory oversight of these types of practices is relatively lax.’”
“In September, five federal regulatory agencies issued guidelines calling on federally regulated lenders to better gauge borrowers’ ability to pay before using the nontraditional loans. California is considering similar rules for state-regulated lenders, as have 24 other states, said Sen. Michael Machado.”
“About 60 percent of sub-prime loans in California those given to the highest-risk borrowers allowed them to pay only the interest or gave them that option on an adjustable rate mortgage, the Federal Deposit Insurance Corporation estimated. Many of those borrowers are at risk of losing their homes as the market continues to stagnate, witnesses said during Wednesday’s hearing.”
“About 12.5 percent of riskier mortgages nationwide were delinquent by last fall. Nearly 1 million homeowners nationwide either lost their homes or missed monthly payments from July to September, according to the Mortgage Bankers Association.”
“‘The market did not save them,’ testified Pam Canada, executive director of Neighborhood Works Home Ownership Center in Sacramento. ‘This was a nightmare with no happy ending.’”
“‘We’ve already seen a dramatic increase in foreclosures here in California,’ said Paul Leonard, California director of the Durham, N.C.-based consumer advocacy center.”
“Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’ said Ed Smith Jr., CEO of Plaza Financial Group Inc. of San Diego.”
The Norris Group. “Those considering buying into the real estate ’soft landing’ scenario ought to think twice. There will soon be over $1 trillion of adjustable mortgage payments increasing beyond the payment capacity of the borrower. Many borrowers, upon realizing that the monthly payment is about to adjust, will go searching for loan programs similar to their original loan.”
“New ‘guidance,’ handed down by the Office of Federal Housing Enterprise Oversight Committee, requires…the borrower must now qualify as if the adjustable loan had already changed to the highest rate possible under the loan program.”
“It has been estimated that 90% of all people who obtained these ’stated’ income loans lied on their mortgage application about how much they made. On October 1, 2006, the IRS updated their capacity to respond to lenders’ requests verifying borrowers’ ’stated’ income. In short, what used to take months to respond to will now take two days. Inside of 48 hours, the ’stated’ income will be verified as false. How will these people qualify then?”
“According to RealtyTrac, lenders who foreclose on a property in Ohio get 57% of appraised value when they sell the property. That amounts to a 43% hit on principal!”
“Consider the inevitable: You have buyers in the market with a choice of inventory, which do you think they’ll buy? A lender-owned property at a big discount or one owned by a private party for near full price?”
“In California, unsold inventory has grown by over 100% in one year. Thus far, there has been limited price damage because almost all of the properties for sale have been privately owned. In 2007, that will change. The new inventory for sale will consist of lender-owned properties, builder auctions, and short sales. All of these sellers will be selling to a less motivated, smaller group of less-able-to-qualify buyers.”
The Union Tribune. “San Diego County’s economic indicators declined in December for the ninth month in a row because of sharp dips in job openings and homebuilding, the University of San Diego reported in its monthly economic forecast.”
“‘The predominant issue is the housing market,’ said USD economist Alan Gin. ‘The numbers last year were about as bad as people thought they would be. The worry is that housing is going to take the rest of the economy with it.’”
“Three of the six leading indicators were negative in December: building permits, unemployment insurance filings and help-wanted advertising. Home-building permits in December were 37 percent lower than in December 2005. The total number of residential units authorized during 2006 was the lowest annual total in a decade. Permits for single-family homes were down 40 percent for the year.”
“In the meantime, the real-estate decline appeared to have a negative effect on local employment. San Diego help-wanted advertising dropped for the fourth month in a row in December, partly because of a drop in ads from architectural firms.”
“Unemployment claims have been rising since April, reflecting layoffs in construction. About 7,400 construction workers and 900 real estate workers have lost their jobs since June.”
Feom KCAL 29. “Fears of a potential housing price collapse are greatest on the West Coast, where 52 percent of consumers believe a housing bubble burst is likely, a survey shows.”
“Nearly half of all American consumers, 47 percent, say a housing price crash is likely in their local real estate market within the next three years, according to a survey from Costa Mesa-based Experian and Gallup. This is up from the 37 percent of Americans who felt this way in May 2005 and the 42 percent voicing the opinion in April 2006.”
“Renters think that such a drop in housing prices is more likely (57 percent) than do homeowners (43 percent).”
“‘Housing market conditions may not have reached bottom at this point, with 57 percent of renters thinking there is the potential for a price collapse in their local areas over the next few years,’ Ty Taylor, president of Experian Consumer Direct said.”
‘ESCONDIDO —- Police and fire investigators have determined that the Jan. 18 Paramount condominium blaze was either ‘recklessly’ set, or caused by someone, and are recommending misdemeanor criminal charges be filed against an unnamed suspect who has not been arrested, authorities said Wednesday.’
‘A defense contractor linked to former Congressman Randy Cunningham’s bribery scandal has defaulted on a $7.5 million loan linked to two of his homes, according to notices of default dated Dec. 29, 2006. The pre-foreclosure notices on the properties, one in Poway and one in Chula Vista, represent the latest evidence of the financial trouble faced by Brent Wilkes since his name was first tied to the Cunningham case in mid-2005.’
‘Homes should be built in downtown Stockton to capitalize on area amenities and to reduce sprawl, according to a report by graduate students at the University of California. Councilwoman Susan Eggman, whose district includes downtown, said city officials should mull offering no-interest loans to developers to build in the downtown. ‘People will come if we build it,’ she said.’
Who needs an exit strategy?
As for the housing bubble- Mission Accomplished!
They say this is a soft landing? I would hate to see what a hard landing looks like.I have not heard a single piece of good news pertaining to the RE market in in many months and i love it.Now the sheeple will be lead to the slaughterhouse as there is no way they can refinance with tighter standards and declining values.I love this Shi**t.!!!
Don’t you love the timing of the politicos!!!
Almost the same week subprime MBS investors stoped buying shitty loans the Gov has grand plans to limit these loans =)
Talk about closing the barn after the horse is out. These loans are so fricking toxic that they depreciate faster than an escalade. When a 400k loan is instantly worth only 360k buyers/lenders of this shit are stopped cold. Just like the old motorcycle ad “This is the kawasaki ninja. It will go from 0-120m/h in 3 seconds. This is the California redwood, it will take the rider of the bike from 120m/h to 0m/h in 0.00 seconds”.
they’ll be OK - it will end just like all pyramid scams end.. Guys on the top come out with a shit load of cash, the gov’t will bust up the racket, and then they will raise middle class taxes to soften the blow for the suckers who were fleeced at the bottom…
‘People will come if we build it,’ she said.’
———————
Great! Ms. Eggman now thinks that downtown Stockton is like Field of Dreams. Keep dreaming!
“Those considering buying into the real estate ’soft landing’ scenario ought to think twice. There will soon be over $1 trillion of adjustable mortgage payments increasing beyond the payment capacity of the borrower.”
I wonder if the average subprime borrower could even begin to understand the magnitude of $1 trillion. that’s 10% of US GDP. what were they thinking?
Adjustables etc lending. Why can’t people remember including bloggers when the private federal reserve with the honorable Greenspan said, adjustables were a good way to buy homes just “two years ago. Just who were the dummies? Anyone take a guess. Lets get real.
But the housing market is “rebounding” just in time for spring - according to the fed!
‘People will come if we build it,’ she said.’
Yes, they are coming, but soon they have to add to their 0 down adjustable loan another $900.00 for “Green Card” application, subsequently more foreclosures…
‘People will come if we build it,’ she said.’
Yes, they are coming, but soon they have to add to their 0 down adjustable loan another $900.00 for “Green Card” application, subsequently more foreclosures…
“‘People will come if we build it,’ she said.’ ”
Dr. Evil holds pinky to mouth–”Riiiiight.”
Downtown Stockton is Flat-out creepy, period. I get the major tense creeps just driving through there on business. This idea would make sense…in a city that isn’t notorious for it’s hideous crime levels. Stockton is no joke when it comes to crime.
When I drive from my job in Stockton to home in Lodi (10 miles North), I feel myself physically relax as I get out of that hell-hole and closer to home. It’s amazing the difference in liveability between these two cities. Much, much less crime in Lodi.
Bad idea.
DOC
To the tune of “Stuck in Lodi”
Oh Lord, broke in Stockton again…..
Came in to town on a No Doc, I’ ll be walking out when I go,
I was trying a gamble, but the prices turned down low,
Ran out of Heloc money, looks like “that’s it” my friend,
Oh Lord, broke in Stockton again…
LOL
Strange,
Isn’t it funny them talking about building downtown. For the life of me I can not think of any open area. They would have to buy slums for insane prices to tear down in order to build housing that who can afford?
For years I have thought they should condem everything south of Fremont street to the water and turn that into mixed use tall buildings and nice old style victorians. All that prime waterfront is occupied with shitty light industrial crap or warhousing for scrap cars and junk. That area could be truely be a jewel, but not downtown. The area is close, but I can not see people willingly (unless your a wino or junkie) living down town.
Reader Edward J. Garrison: “You want to get tourism going? Market Stockton as the crime capital of California. You could have murder tours. Have bodies out lying on the streets where the five or six or so people a week are murdered in Stockton …
“You could have phony blood,” Garrison went on, warming to the subject. “You could have staged drive-bys and carjackings. And knee-cappings, a la the western shows they have in places like Tucson.
“Oh, I got a great one,” Garrison gnashed on. “They could have a crime museum. … They could have tours on boats — it could be called ‘Find the Floating Body’ — in the Delta around Stockton. Or they could have another game: identify the headless corpse … ”
Stockton Record
“Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’ said Ed Smith Jr., CEO of Plaza Financial Group Inc. of San Diego.”
WTF?!!!! I’m not even gonna go there. I’m going back to work…..
I was at the hearing. He was defending 2 year mortgages when this was quoted. Also he said that there are no such thing as bad loans. Only some loans are not for some people. He was speaking on behalf of the california mortgage brokers association. (camb)
How can he defend these loans? If they were for people who were planning on flipping, then they might work - but I’m sure that most FBs said they were buying the place as their primary residence. Is it the CMBA’s position that mortgage brokers have no responsibility to their customers? Because we all know that there were plenty of mortgage brokers putting people into these loans that were not right for the customer, but they certainly got the mortgage broker a nice commission.
Man, this crap pisses me off so much that I am actually torn between my libertarian leanings of letting the market sort this out or having govt impose some regulations to stop this nonsense because far too many people are just too stupid and/or lazy to protect themselves financially. Of course, IMO govt programs rarely work as intended, and usually have many unintended side effects, so I don’t really see govt regulations as a panacea, but it may help the market correct faster in the short term.
“Man, this crap pisses me off so much that I am actually torn between my libertarian leanings of letting the market sort this out or having govt impose some regulations to stop this nonsense because far too many people are just too stupid and/or lazy to protect themselves financially.”
I have been having this same internal debate. I don’t know what the answer is. I suspect the government will be looking for a solution after the crash.
Lately, I have been kicking around an idea that would limit future bubbles. Consider this: what if Sacramento passes a law that said any amount of money loaned as a first mortgage on a primary residence greater than 3 times verifiable income does not need to be repaid? Further, any other mortgage claims (2nd, 3rd, etc.) in excess of 90% property tax value does not need to be repaid? What would happen?
IMO, lenders would immediately stop loaning more than 3 times income. The only way to bid up prices further is to put in your own cash as an increased downpayment. Terms don’t matter much once the total loan is capped. Also, by limiting the size of secondary mortgages, you ensure there are downpayments and everybody has skin in the game. Since these secondary mortgages are limited to “tax value,” proposition 13 limits will prevent people from HELOCing themselves into oblivion. Do you guys think it could work?
IrvineRenter, I struggle with the same issue, but your suggestion seems reasonable. Actually, it seems so reasonable that I think no politician would even consider it. That would make the lenders look at things veeeery carefully, and home loans higher than 3 times income would be so risky they would have to carry a huge interest, so they would be out of the question for regular people. I see lots of reasons why many people would hate your idea, but in an ideal world, it would work.
It would work to eliminate the next bubble, but it would never pass.
Homeowners would oppose it en masse, not to mention every public and private homebuilder and every real estate agent. Hell, the low income folks that it is designed to protect would fight it (since they are the ones who need to go above 3x income anyway).
The only people that would go for it are conservative people who are currently renting and living below their means. And we apparently are few and far between right now.
Let the free market work itself out–this smackdown will teach an entirely new generation of borrower how to not overleverage…
Hey there irvine,
I look at potential legislation but think I’d just make things more difficult for my self in the future.
So, Why do that to myself?
Most of us read the fine print. The other guys… well… they were not meant to be in the situation they are in. I’m sure you have dealt with the arrogance and stupidity of it all enough. So, stifle your feelings of sympathy.
“I look at potential legislation but think I’d just make things more difficult for my self in the future.”
I don’t know. If all home loans were effectively limited to 3 times earnings, it would level the playing field. IMO, this would make it more difficult for those who can’t save as they would be the least able to afford quality housing.
Here is a simpler one that the politicians in Sacto could swallow.
Make cashout refinancing an event that triggers a new Prop 13 tax basis.
“Make cashout refinancing an event that triggers a new Prop 13 tax basis.”
I like that one. It would certainly put a brake on the HELOC craze.
There are loads of things government could do to stop crazy lending. The problem is that just about all homeownes know that the crazy lending is supporting high house prices, and the last thing they want is for their property values to go down.
Of course the market will win out in the long run, but everyone wants to delay the inevitable.
As for your specific proposal, the whole point of Prop 13 is to let long-time homeowners benefit from increased property values while someone else gets the tax increase. IOW, it goes directly against the intent of Prop 13, and you’d might as well advocate getting rid of it.
As long as a HELOC is all other states other than CA (Prop 13) tiggered a property tax basis adjustment.
SSBG,
Not sure why a HELOC should trigger higher taxes. It’s like saying your taxes should be increased if you use your credit card. We all have to remember…debt is debt. A HELOC isn’t “free money”. It is debt. Why would we tax debt?
Now, if you wanted to tax capital gains from the sale of a house, I could go along with that (but cap gains taxes would have to be uniform among all types of cap gains — or less for RE, IMHO).
Actually, we already have the regulations in place. We just need the enforcement. If we followed the “guidance” released in Sept 2006, all borrowers would have to prove their ability to pay a mortgage based on the fully indexed (max) rate. Lots of good stuff in this guidance. Really worth going through it, IMHO.
Enforce the guidance = end of game.
http://www.federalreserve.gov/BoardDocs/Press/bcreg/2006/20060929/default.htm
A true libertarian’s stance would say get rid of fraud and then let the market play itself out. So in this case a libertarian would be in favor of banning stated income loans because they are proven tobe riddled with 90% fraud, then have the market do what ever. Also in Sacramento it is scary how well known CAMB is considering they only have about 400 mortgage broker members.
The problem seems to be the way the market continually goes through cycles of boom and bust. Each one delivers its dose of euphoria and pain.
Would that qualify it as sadomasochistic?
“Would that qualify it as sadomasochistic?”
Ask an FB three years from now.
Don’t they say that the former bottoms make the best tops? >; )
This probably wouldn’t have occured to the level that it did if interest rates were not artificially set so low for so long. There is no need for the Fed.
“Each one delivers its dose of euphoria and pain.”
“Would that qualify it as sadomasochistic?”
I think you need to feel both at the same time for it to qualify. The FB’s felt no pain when their houses were gaining $100,000 a year. And they will feel no euphoria as they prices fall almost as fast.
On the other hand, we were the masochists (spelling?) for a long time and now we get to be the sadists and carry the whip!
“…there are no such thing as bad loans.”
Bad underwriting is something entirely different than a bad loan.
However, there’s a lot of truly bad “payers” on loans.
What, if anything, are you seeing since the recent closing of some wholesale lenders?
As far as lending standards, still a lot of loose money. The difference today is the rates. The sub-primers could only hold out so long on the minimal margins of the last year. So rates on the subprime stuff is choking a lot of would be buyers. A year or so ago you could do a Stated 80/20 subprime purchase and have a combined rate in the low 7’s. That same deal today is in the mid 8’s, maybe even 9’s. So it doesn’t matter if it’s I/O anymore. At these rates it’s just not doable.
As far as what to expect in the subprime market, we ain’t seen nothing yet as far as belly-up closures. Keep your eyes open in the months ahead.
Still have teaser rates for 2-3 years and no-doc?
2 year fix, interest only with stated income and 100% financing is still available. Though the 100% is becoming more rare, 95% and 10% down programs with everything else the same is thriving here in CA.
At what teaser rates?
Maybe the lending industry should have new disclosures on “exit strategy “, you know to make sure the people know a time-bomb is ticking . I can just see a Exit Strategy disclosure :
Please be advised that you cannot afford this loan and it was taken out for short term investment purpose only ,and if you don’t have a “exit strategy ” you might suffer financial loss .Please consult your Attorney or CPA for “Exit Strategy ‘ and this disclaimer is not meant to recommand any exit strategy ,but simply to say a borrower should have one . (he he he )
Exit strategy ??? when to buy and sell LOL Sounds even more like the great equity bust of 2000. Buy in 2005 and you sold when ???? while prices are declining.!!! LOL
This is too much!
An exit strategy is what these FB’s will do after they have bent over, grabbed their ankles, and taken a pounding. That’s an exit strategy!
LOL!~
Hey NNVMortg, I was in Reno about a month ago, I noticed the old Sundowner was in a condo makeover…any reports on what will happen to these places? If they could not make it as Casinos (Sundowner, Golden Phx etc etc) and will not be able to sell the condos, then what?
Ask me that question again in 6 months…..but by that time the carnage will be all over the headlines and my response not needed.
Oh, please. I’m really sick of hearing that one.The only people these @ssholes have helped is themselves. Helping someone buy a home they have a snowball’s chance in hell of keeping is not a favor.
Agreed. The only exit strategy presented these folks was the old “Don’t worry about it. The double digit gains will take care of it for you. We’ll refi you in a year or two at 75% LTV because it’ll have appreciated that much. Or you can just sell and laugh all the way to the bank.” I absolutely reemed one of the LO’s that used to work for me after hearing something along these lines presented to a potential client.
‘The problem is that many consumers have not prepared an exit strategy,’
I couldn’t believe he said that. People buy a home to live in it. They don’t want to “exit” when the loan resets.
Exactly. Notice his wording: “Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’ said Ed Smith Jr., CEO of Plaza Financial Group Inc. of San Diego.”
If they really helped 100,000s of families “own” their homes, then they wouldn’t need an “exit strategy.” Instead, they have found a way to make a lot of money by putting people into a highly leveraged investment that is totally unsuited for them. If these guys were stock brokers instead of mortgage brokers, they would have their licenses stripped, be unemployed, and facing a mountain of lawsuits.
Of course, there were quite a few flippers who were not buying a home to live in, but these were folks who understood a little more clearly that they were actually purchasing with an investment intent. To their chagrin, they did not contemplate a Plan B in case the market slowed and lending tightened.
“If these guys were stock brokers instead of mortgage brokers, they would have their licenses stripped, be unemployed, and facing a mountain of lawsuits.”
Perhaps you just foretold the future legislation of this industry.
Amen to that! I’ve worked in the brokerage industry for the last 10yrs and am now currently working for a financial advisory firm. We know what the word regulation means. Why is it that if we misrepresent ourselves to a client we can expect at the very least to have the SEC taking a giant *hit on us, yet lending institutions apparentely can facilitate the financial suicide of an individual without having to perform anything close to “due diligence”?!
They did not “help people get into homes”, they helped themselves, pure and simple.
Prison time had better be forthcoming for a great many of these bastards! I don’t think that’s likely to happen, but ya never know cause this thing is going to be kicking a lot of voters right in the naughty bits!
I agree. This guy should be tarred and feathered!!!
In Texas we would cover him with honey and drag him behind the lawn mower until covered with fire ants!
The “exit strategy” would consist of cutting him loose so he could plunge into the local bayou…full of gators.
Gawd I miss Texas…..
They have helped hundreds of thousands of people OWE their home…..to the lender! Owing more than you can pay, owing more than the value….that is NOT owning a home.
All these bullshit problems would be solved it the Gov just closed the courts to the lenders. You loan money you take all the risk, don’t come asking the courts to do anything for you if you get f*$#d by the borrower you just chalk it up to an expensive lesson.
If the lenders were 100% responsible for the bad loans (ie. a defaulting borrower will never be forced by the gov to pay one dime back) they sure wouldn’t making any loans like this.
Putting the entire risk on the lender would crush the (borrowing fueled) consumer economy, but it will happen anyway.
I know this will never happen, but it pisses me off when the damn lenders shell out credit cards and loans to every stupid prick in America then rely on the courts (my tax dollars) for anything. Screw them! You make a loan, you deal with it! Their only recourse should be to ding the FB credit report. If the borrower quits paying to effing bad. They shouldnt be allowed into the courts under any circustances. I don’t care what kind of a contract they had. If it is a lender/borrower transaction put 100% of the risk (except the borrowers credit) on the lender.
Rich,
I agree 100% with you. Lenders need to take the brunt of this. They were fully informed about what they were doing. Buyers have an excuse for their poor decision making (lack of knowledge/experience, etc) whereas the lenders have NO excuse.
The lenders need to take 100% of the hit. If they had to lend their own money (with no derivative insurance), we never would have had a bubble like we’ve seen the past few years.
It’s the separation of true borrower & lender which caused the credit expansion. It will also be its undoing. We can only hope it happens sooner, rather than later.
Isn’t this great?? http://www.boston.com/business/personaltech/articles/2007/02/02/subprime_borrowers_facing_tougher_qualifications_for_mortgages/
Everything about this article amazes me Ben. However, I am not surprised. After reading it though, what stuck out was the same old story about putting people into homes. Yeah, homes they couldn’t afford, but you could, based on the money you made off these people. Don’t get me wrong, these FBs aren’t totally innocent. My point is that the lenders always say “We put people into homes using these new models.” What gobbledygook. Just another sh*tbag trying to cover his/her a$$ as well as the company they own/work for. What crapheads we have in this world!
No kidding. Folks that are idealogically anti-regulation, pro-market need to realize that we (the sheeple) are always at the mercy of such slimers, who will always disguise their greed as “public good.” Pure capitalism is simply too vulnerable to pure sleaze; we need a middle way.
Screw putting everyone into cages in a zoo! In order for natural selection to work, you have to let the lions run with sheep. It might not always be pretty, but it thins the herd of the unfittest.
Yeah Fester if you feel you need a babysitter for yourself hire one.
Or if you just need too feel the babysitter for yourself hire one.
So, by your thinking, we should also have warlords, organized crime bosses, and mortgage pirates “running with the herd.” After this run with big business running the government, I am just questioning our religious fervor for the free market. Too much power in corporations OR government is dangerous (i.e. U.S vs. China). I just wonder if there is a better option.
waaahoo!!!!!!!!
What’s wrong with booms and busts? What’s wrong with FBs losing their houses so we can pick up some bargains? The gov’t will surely screw it all up even more than it is now. Keep the gov’t out of this I say, and let the chips fall where they may.
Hey don’t read me wrong. I think all the FB, but especially the flippers should fry. But we should have never let the lending industry go so far. These cretins are on par with payday lenders.
Not to get back too deeply in the gold vs fiat currency argument, but one school of thought contends that booms and busts are inevitable under fiat currency systems. The RE boom/bust is just the latest incarnation.
They were inevitable under the gold standard too. Like the tulip mania and the South Seas bubble.
Not to mention the biggest boom/bust of all time, the 1920’s followed by the Great Depression. There were lots of smaller ones before that too.
One can be a libertarian and still believe that laws against fraud should be enforced.
What are we talking about here? Crime and fraud laws being enforced, or new protect-me-from-myself laws being created?
I actually agree - any borrower who lied about his income in order to qualify for a mortgage would benefit greatly from a little jail time.
In prior lending cycles (not the last 7 years ), lenders were actually concerned about the loans they made . The
lenders felt it was their duty to make prudent loans (at least when I was in the business they were that way ).
If a underwriter made a borderline loan , they would have to justify it by some strength the borrower had ,or at the very least they would go for a co-signer .
People would actually get fired if they made mistakes on loans to much or have a high default % . The underwriters never trusted the front line loan agent and they would check a good deal of what they submitted because that was their job to do so .If a customer called in and complained about fraud or hanky panky on a deal a entire investigation would take place immediately . If a loan agent was found to of given bad information to a loan customer ,they were called on the carpet immediately .
Lenders did not want to make bad loans in the past . It was not in lenders best interest to make bad loans ,I don’t know what happened ,( actually I do know what happened ,but it’s to bad it happened ).
What are we talking about here? Crime and fraud laws being enforced, or new protect-me-from-myself laws being created?
——————
I’d call them “protect me from the weakest link (greatest fool)” laws.
Seems too many here miss the fact that we will ALL be affected by this. I’d suggest we’d ALL be better off if none of this had ever happened.
There are very good reasons why every functioning, industrialized nation enacts and enforces laws. The most well-off societies seem to be the ones where everyone knows exactly what the rules are, and those rules are enforced.
Nothing wrong with regulations. They need to be well thought out, fair and “minimalistic” — but we do need regulations.
I’m tired, but I’m thinking that is a totally crappy analogy. Has anyone seen flocks of wild sheep recently? If you let lions loose with a bunch of sheep, they (the sheep) would be totally wiped out. As I recall, there used to be a whole profession based on sheep security, due to their, well, sheep like nature.
Please try either one of these analogies: you need to let the antelope/zebra/gazelle run with the lions and/or let the wolves live near the sheep. I have yet to figure out what either one of those have to with people getting in over their head housing/mortgage wise, but I’m willing to go with the flow.
How about letting the Christians run with the Muslims? We can sell popcorn!
“If you let lions loose with a bunch of sheep, they (the sheep) would be totally wiped out.”
Not true. Lions are lazy. As soon as they kill one or two they eat them and sleep. That’s cause lions are sane.
Not true with capitalists. They are more like wolves or wild dogs. Where a lion will sleep and eat, a wolf will kill one or two for food and, if the pickings are too easy (sheeple), will kill or maim a few dozen more for fun. That is the mentality we are dealing with here. Very few of the wealthy sleazers in America are content to have enough for their basic needs; to them it is sport and/or a way of propping up their lack of self-respect. Greed and materialism have a positive feedback, not a negative feedback relationship. Besides, our corporations are built around exponential growth in a world with limited resources. The only way that can play out is if they keep expanding their slice of the pie at everyone else’s expense.
Very astute, Mr. Fester!
“Pure capitalism is simply too vulnerable to pure sleaze; we need a middle way.”
Couldn’t agree more.
The concept of “common good” is incompatible with a system where all decisions made are based solely on “the dollar”.
You can see what happens when there is no loan regulation /underwriting ,the market gets totally out of whack . When you have unqualified buyers competing with qualified buyers the unqualified low down borrowers inflate the market prices .
That was the big problem with the lead up to the 1929 stock market crash . Everybody could buy stocks on margin, which inflated the stock market prices , stock market prices crashed ,and people could not pay their margin calls . I guess these people in 1929 didn’t have a exit strategy .
“Pure capitalism is simply too vulnerable to pure sleaze; we need a middle way. ”
We have the middle way. If we had pure capitalism, we’d have a private arbitration system (like Ireland had for 1,000 years with no government), our police would be provided through our insurance companies, and so would our defense. We would have private mints making hard currency. We’d have voluntary taxation in the real sense. Any welfare will be provided by church donations or other types of donations without someone pointing a gun at you and forcing that donation. Morris and Linda Tannehill’s “The Market for Liberty” is a classic. We do have a mixed economy now.
I like living as an adult and being responsible for myself. You want to live like a kid? Move to Venezuela, Cuba, or North Korea. Competition is what produced railroads, airplanes, cars, vaccines, computers. Did these things flourish in cradle-to-grave Sweden? Or did they flourish in a much less socialist country? The reason I love capitalism is because it produces the latest technology the fastest.
Sorry, but cradle-to-grave Sweden has a very highly advanced industrial, IT and telecom economy. They also are the 3rd largest exporter of music in the world. All done with a population of 8 million people. I’d say they’ve done pretty darn well compared to the US, with 300 million people.
Cradle-to-grave Norway (pop 4 million) brought us object-oriented programming, and cradle-to-grave finland brought us Linux and Nokia (pop 5 million).
Add to this some of the highest standards of living and life expectancies … and, well, maybe they’re on to something.
Good post Bill,
And I won’t take offence with the kid insult. I think you confuse my desire to have higher moral standards with a need for a wet nurse. A lame argument. American capitalism is simply the institutionalisation of greed. It works because it is part of our nature, but, I believe, humans are capable of higher achievements. And societies should be built around higher principles. Despite the social darminism on this blog, I believe we should set higher sites for ourselves than generating wealth from shady dealings and deception.
Have you ever been to Sweden? I lived there for two years, and I can tell you we have nothing on them in terms of quality of life, creativity, or technical know how. It is not a perfect place, but very nice.
“same old story about putting people into homes”
Exactly! It’s a bunch of B.S.. All their really interested in is making a commission. Get the fools signature, then take the commission and run.
It reminds me of the movie “Thank you for Smoking”. A great satire about industry shills. The lead characters excuse for his behavoir is that he’s “Just paying the mortgage”.
What about the people who are being crowded out of homes because they put someone in there who is irresponsible and can’t afford it.
Great point, and not said enough.
Hard to prove. How can you claim you’re “crowded out” if you too can get a no-doc stated income teaser and get into the pyramid scheme, if you even needed one? You are the reason the pyramid is collapsing so early.
Of course you’re right but no way to convince the REIC.
“You are the reason the pyramid is collapsing so early.”
I should feel guilty, shouldn’t I?
We are all the reason and we should all feel proud.
Ok enough blaming on the mortgage community!
As I recall every time I needed a mortgage / refi, I sought these people out. Then each would “attempt” to put us in a loan that they wanted to sell { made higher commish}…but at the end of the day it was my decison, it was what payment I could afford.
Remember, most of the 2005 & 2006 home buyers were deaf dumb and blind BUT mostly GREEDY!
Deaf to what everyone {friends} told them they couldn’t afford it
Dumb when they cheated on the contract about their incomes, &
Blind to ANY down side risk.
Both are guilty…but the mortgage broker provided the service, the buyers were motivated by a false premice, “they must get in now or they will never be able to buy!?”
There is plenty of blame to go around here: FBs, toxic mortgage lenders and MBs peddling the toxic mortgages, MBS buyers, Fannie, Freddie, the Fed, etc.
But just because there are many to blame, doesn’t mean that I’m going to stop blaming any one particular group that raises my ire because of their asinine comments. In this particular thread, the MBs are the ones making incendiary remarks, and so I’m focusing my venon on them in this particular thread. In another thread, I’m sure I’ll focus on others who are just as blameworthy for this mess.
Sorry, for the rant, but this article really got to me.
“Blind to ANY down side risk.”
I still ask, “What Risk”?
By definition, to be concerned about risk you need to risk something. At 100% financing there is no risk. These bozos should quietly leave the keys on the counter and the ones with something at risk, the lenders, can sort it out later.
There is no risk. Remember, real estate always goes up.
I have a friend who actually made a 20% down payment, but then took an IO ARM where the PITI takes more than half her income. I am convinced she is underwater even though the asking prices of the “comps” are still maybe 10% above the amt of her debt. So, she did risk (AND LOSE) her life’s so-called savings. I am probably the only one who told her not to, and of course she is not grateful.
“I have a friend who actually made a 20% down payment, but then took an IO ARM where the PITI takes more than half her income.”
Ouch!! Think how bad that’s gonna sting…when the folks that DID PUT 20% DOWN can only stand in shock and watch their hard earn vaporize as the market tanks and comps go down.
What a sobering kick in the head.
DOC
In December 2003 I ran into somebody that I had gone to high school with. He was talking to one of the guys that I was out with that was doing mortgage lending. He asked if my friend was doing subprime. My friend said, “I don’t touch that stuff. It’s not worth it.” This guy went on to brag about how lucrative it was. He then regaled us with tales of how badly he had screwed over various borrowers with loans he knew they should have never gotten. He said something like, “we screwed that guy in the front end and we will also get him in the back end.” He knew very well that those loans would never be repaid.
When he walked away my friend and I just shook our head. It was pretty obvious to me, at that time, that this might not be so good.
That was in a bowling alley in Minnesota. Yes, this disaster is national.
In the car business they say ,”We just buried that guy”. I knew someone in the car business that told me the same sort of stories you described NYCity Boy. Like you ,I thought the lack of ethics was sick ,but at least you expect it out of car salespeople .
“This guy went on to brag about how lucrative it was. He then regaled us with tales of how badly he had screwed over various borrowers with loans he knew they should have never gotten. He said something like, “we screwed that guy in the front end and we will also get him in the back end.” He knew very well that those loans would never be repaid. ”
That guy was just airing the truth of many, many LO’s I’d wager. Pretty sick of them to blatantly grease the path to ruin for the greedy as well as the “get in now or never” folks.
No integrity, no compassion and ultimately, no accountability. At least this morally bankrupt turd was honest to his cohort. But you can bet your bottom dollar he’d cry “just helping the American Dream become a reality” spiel if cornered by some authoritave figure(s).
Saw asshats like this guy in grad school that just made me fantasize someone taking a cricket bat to their craniums. Worthless.
DOC
Heck, we’ve got folks like that right here.
“Comment by lainvestorgirl
2007-02-01 21:38:04
What’s wrong with booms and busts? What’s wrong with FBs losing their houses so we can pick up some bargains? The gov’t will surely screw it all up even more than it is now. Keep the gov’t out of this I say, and let the chips fall where they may.”
The only difference between the Democrats and the Republicans
is that the Democrats allow the poor to be corrupt too.
– Oscar Levant
brilliant
So your saying this housing/credit bubble is very democratic in nature.
NN, funny how we saw the same thing. Great minds think alike, you know. Notice you beat me to the punch by 3 mins.
“New ‘guidance,’ handed down by the Office of Federal Housing Enterprise Oversight Committee, requires…the borrower must now qualify as if the adjustable loan had already changed to the highest rate possible under the loan program.”
Ding, ding, ding… we have a winner ! This is the pin that will prick the housing bubble ! ARMs have terrible future rates ! Usually a normal mortgage plus 2 or 3% ! So that would put them in the 9.5% ballpark right now. So a $400K home x 9.5% = $38K per year for interest alone to qualify. If the lender says 25% of your gross income can be for housing interest, you need $150K of income to buy that house ! In effect, this will limit the price of a house to about 3x the household income. AND NOW IT WILL BE VERIFIED !
Actually the guidance does not require anything. It only gives suggestions. Read the guidance; http://www.federalreserve.gov/BoardDocs/Press/bcreg/2006/20060929/attachment1.pdf
It does not say anywhere in the guidance that you can not do this or that. However it does say, these things are dangerous look out and please stop.
Yeah, except that guidance is going to be used to judge prudent practices when the lawsuits start flying around.
Any way you look at it, mortgage liquidity is drying up.
You got that right. These agencies love to give out “guidance”. It is not mandatory but you should see what happens to those that don’t follow the voluntary guidance. It can get very ugly very fast. When I am faced with such “guidance” at work I just figure that not following it can land me fired, sued or in jail. I want to see these lenders ignore the guidance and see what happens to them.
I don’t think liquidity is drying up…just the subprime. I have $55K limit on my BoA credit card and it is rising every few months without me asking.
For Short Sale homes which bank is proud owner I bet you they will overlook the requirement.
You might be right… unless the States come down hard…
The problem is the whole industry knows how to game the system. From the top down, the focus is on making tranactions happen. The Fed is impotent. Look how the Fed has been trying to jawbone inflation down for the last six months. Talk is cheap and the markets know it. Yesterdays market reaction to the Fed, is aknowledgement that the liquidity will keep flowing. Keep buying stocks and commodities, the Fed is scared to do anything meaningful about inflation, and wall street knows it.
Unfortunately, you seem to be right, Vmaxer.
Along with reading the attached letter I also would advise him to read the following article written by the editor of Forbes last month; Bet The House - Forbes.com It states that, ” In 1998 “liars’ loans” (those with little or no documentation required) amounted to 24% of mortgage originations. To date this year they account for 62%. Interest-only mortgages have vaulted in the same period from virtually no market share in the mainstream lending business to a 50% share.”
I continue to argue that “no doc” would not be a problem if large down payments were required. I make this argument because I require no documentation from my own clientele when I lend MOM (my own money). However, I do not lend 110% or 100% or 90% of anything, and the growth of the absolute maximum I will lend on a particular type of property has been modest (less than 50% increase since 1998).
No doc is not the problem- it is the fraud with stated income loans that is the problem.
I question that 24% of loans issued in 1998 were stated-income loans. 2003 I can believe, but 1998? Not likely.
Stated income loans have been around for a long time HARM but you had to put 25% down or more to get one prior to 1999.
Hard money lenders have been making stated income loans for a long time because they would only go on a low loan to value ratio .
Where the new age lending is different is that these sub-prime lenders were giving stated income loans as well as allowing them to be low down loan (talk about high risk ).
Lenders found out a long time ago if the borrower puts alot down or if the loan to vlaue on the loan was low (under 70%),not only would a borrower not likely walk ,if they did walk there was a whole lot of margin of equity to sell and not lose any money in foreclosure as a lender ,(low risk )
People that lenders use to give low down loans to had to be gold as well as the loan insured .
Now does it make sense that a lender would give a low down loan to a sub-prime borrower ……NO
I can’t help but think that the secondary market did not have the correct risk ratings on these loans (in large part because of alot of fraud ).
The part that I don’t understand is why would the secondary market fund these loans if they actually knew the risk ? Something went wrong here ,very wrong .
I’m sorry ,but I just can’t get it out of my head that the secondary market would fund loans based on” real estate always goes up” . I can’t wait to find out what the secondary market has to say about this .
I’m sorry ,but I just can’t get it out of my head that the secondary market would fund loans based on” real estate always goes up”
————————
How about, “the Fed will always bail us out”?
You’re right, Wiz. I anticipate so much legal wrangling WRT the ratings agencies, etc. to come out of this bubble.
Totally insane, and no plausible explanation for the lending standards of recent years.
‘Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes.The problem is that many consumers have not prepared an exit strategy,’ Since when does the average homeowner prepare an ‘exit strategy’ (ES)? The RE industry prided itself on getting the underprivileged into a house, so why would you even expect this class of people to have an ES.
I think the dude that made this quote is planning a exit strategy because he knows the sh-it is going to hit the fan . Really the sub-prime lenders got to start planning a” exit strategy ‘ because there aint no way they can buy back all their “nuclear waste “loan paper.
Unfortunately, there won’t be much of an exit strategy for the sub-prime lenders. Implode-o-meter at 18 and rising fast:
http://ml-implode.com
The S&L crises will never be mentioned again after this fallout.
Who will be the next Keating I meant cheating
The exit strategy for the subprime lenders is to close up shop and move on, with a trail of suckers behind. Sure they’d like it to continue, but they made a pile of money and can afford to move on.
Let us hope that sub-prime lenders have more liability and can not just escape by closing .
HAHHAHAHAHAHAH,
LMAO
Housing Wizard,
Your surely are the last one with any hope.
Well ,believe it or not I always retain a little bit of hope in hopeless situations .Sometimes weird things happen that you don’t expect . Legally there might be some liability that lawyers think of that make people pay that should . But, if that doesn’t get the bad guys …Instant Karma is going get them …..he he he
I was actually on my way to an appointment in Rancho Bernanrdo (VERY close to Escondido) the day the fire at the condo development broke out (messed up traffic on the 15 something awful) and would you believe it? The FIRST thing that occurred to me was ARSON. I’m sure everyone else here had the same thought. In fact, I would have been VERY SURPRISED if it had turned out NOT to be arson! Let the bonfires of FB’s begin!! (I’ll bring the marshmallows!)
Now we need marshmellows ? First it was popcorn and now marshmellows. What’s next ? Beer ? Champagne ? Beans ?
I’ll bring the marshmallows!
I think you mean popcorn!
“On October 1, 2006, the IRS updated their capacity to respond to lenders’ requests verifying borrowers’ ’stated’ income. In short, what used to take months to respond to will now take two days.”
Think of the possibilities here folks. The IRS needs to go back an review past mortgages to see just what income these people had and then audit their tax bills to collect taxes on the underreported income! What a hoot that’d be.
lol “It has been estimated that 90% of all people who obtained these ’stated’ income loans lied on their mortgage application about how much they made.”
lots of people who cough underpaid their taxes lol hahahahahaahahah ok I think this is a bit much but still.
ron very very sharp I’m still laughing
if the people lied their commiting fraud…
if they didn’t lie their evading taxes…
its a looze — looze scenario. Because if
they are able to pay the bubble mortgage the gov’t
will request unpaid taxes… and if they aren’t able
there is proof of fraud…
And there are a lot of underutilized housing subcontractors available to build prisons. A perfect storm for convictions.
Will this ability to prove fraud (by the borrower lying about income level or primary residence, etc) allow lenders/banks to nullify the protections of the “non-recourse” statutes for purchase money loans? This would allow for imposition of the most draconian aspects of the new BK law. We would see a new class of indentured servants working off equity that doesn’t exist on homes they don’t have an ownership position in.
Any attorney bloggers out there have an opinion on the impact of lying about the income level on a stated loan?
I’m no attorney, but I imagine if there is any area where the FB’s can count on government bailout it will probably be here. The tsunami of bankruptcies coming is probably going to cause a reform of our new bankruptcy reform.
Hmmm….great point. Something else I heard the other day (I think Quincy K on Mish’s blog) is that the non-recourse statute in Ca, and presumably other states as well, is void after ANY re-fi due to it nullifying the primary deed trust that only applies to the initial 1st mortgage. Also, we know anybody with a 2nd is screwed automatically, so there goes all of the 80/20 crowd. Given the large amount of re-fi activity, the entire no-money-down crew, and your point above about fraud, will there be any FB protected from debt serfdom in the end?
I mean, seriously. These FBs with no assets to chase are basically judgement proof. How much energy will the lenders spend chasing deadbeats around a courtroom, paying legal fees, to get nothing. There are going to be a lot of tax losses written off by lenders… until the RTC takes over and absorbs them so we can all pay them off together.
Not sure about whether fraud would nullify the non-recourse nature of the loan. Darth Toll is correct that any re-fi will make the subsequent loan recourse as it is no longer purchase money; however, I don’t think he is correct concerning the fact that anyone with a 2nd is screwed automatically. If the 2nd was taken as part of the purchase (i.e., the typical 80/20), then it is technically purchase money and would be non-recourse. I could be wrong on this analysis of the 80/20 scenario (I haven’t acutally researched it).
But, before everyone gets too lathered up about all of this, remember a couple of things (at least for California borrowers): 1. The FB would need to have some assets to go after (I don’t see lenders taking the time and money to get judgments that they will have a hard time enforcing). 2. In order to get a deficiency judgment in California, a lender must go through judicial foreclosure (file a lawsuit, go to trial, prove the value of the house, etc.) rather than the typical non-judicial foreclosure (trustee sale).
Judicial foreclosure costs lots of money, as attorneys and expert witnesses are required, and typically take about one year to get to the point of judgment (when they can actually take possession and get their judgment).
In contrast, non-judicial foreclosure is fairly cheap and typically only takes a couple of months (but any lender using non-judicial foreclosure automatically waives their right to a deficiency judgment, assuming the loan was recourse).
So, lenders will have to decide up front whether they want to use judicial or non-judicial foreclosure, and that decision must be made fairly early. I trust that most banks will continue to use non-judicial foreclosure in the vast majority of cases, but certainly there may be cases where they think it makes sense to go after the FB for a deficiency judgment.
Correct me if I am wrong, but the whole judicial or non-judicial foreclosure is really only an issue on the first mortgage and thereby only an issue of the house sells for less than 80% of purchase price? The second mortgages, HELOCs, etc., are not limited to the real estate, and these mortgage holders can go after everything the FB owns. It seems to me the real problem FB’s have is not with thier first mortgage, it is with the other claims to both their house and personal property.
Irvine, I agree. And if a FB did in fact lie on a loan app, there is recourse for all loans (1st/2nd doesn’t matter). Further, the debt won’t be discharged in BK. Fraud is not dischargeable in BK. So if a lender wants to go after a borrower, they can do so and they have more than one avenue, judicially speaking.
I imagine this might drive many immigrants back to their home country
IrvineRenter: OK, this is a bit tricky, and I’ll try to keep it short. Technically, the judicial v. non-judicial foreclosure is an issue for ANY lender that is foreclosing, whether they be in first, second, third, or any other position. For instance, if the holder of the 2nd mortgage cures the default on the first and then forecloses, it is subject to the anti-deficiency statutes.
In California, in addition to the anti-deficiency statutes, there is also the one-action rule, which requires ALL lenders whose loans are secured by real estate to first foreclose (either judicially or non-judicially, and subject to the anti-deficiency rules if they choose non-judicial) on the real estate before going after any other assets (and they would be barred from going after other assets if they choose non-judicial foreclosure). However, one of the two exceptions to the one-action rule is that if a lender with a junior lien on real estate has its lien wiped out because of the foreclosure of a senior lien, then it can go after the other assets without having to first go after the real estate.
So, if I was an FB (I’m not, I’m renting) with a huge 2nd, HELOC, or whatever, I would let the most junior lien go into default and foreclosure (while still paying the senior liens) so that the creditor would have to choose judicial or non-judicial foreclosure. They would likely choose non-judicial for speed and cost, and that would let me off the hook for that deficiency, and presumably the lender in the first position would be a non-recourse purchase loan. It obviously would get trickier with more than two loans, but I’m sure that there would be a way to limit the damage.
Now, will the average FB figure all of this out? Doubtful, since they didn’t do any research in the first place. So, yes, I could see quite a few FBs having judgments against them for their unpaid HELOCs.
For anyone whose interested in the California laws, the anti-deficiency statutes are Civil Code sections 580a-d (with 580b and 580d the most relevant), and the one-action rule is Code of Civil Procedure section 726.
WaitingInOC,
If I understand you correctly, if the house value drops 20% or more so that the HELOC or second is completely naked and the FB decides to simply quit paying on it, the holder of the HELOC or second must go through a judicial foreclosure to have any hope of collecting any of that money? It sounds like these junior mortgage holders are screwed. I suppose these guys will evaluate FB’s on a case-by-case basis and see if they have enough personal assets to go after to make a judicial foreclosure worth while. I have to imagine walking away from a HELOC is still a substantial credit ding.
IrvineRenter: Yes, as long as the 2nd or HELOC is still secured by real property, the one action rule requires the lender to foreclose on the property before going after other assets. And if they do foreclose, then they need to go through judicial foreclosure if they want a deficiency judgment. Now, how many FBs will figure this out and be able to service the first while letting the 2nd go into foreclosure? Not sure. You’re right, banks will look at the FBs on a case-by-case basis because judicial foreclosure is time-consuming and costly, and they will want to make sure that they have a debtor with assets that they can actually go after. As for the FB, yeah, any foreclosure will be a huge ding on his credit rating. Finally, I’m still not sure how the fraud aspect of this will play out, but I’m thinking that it could give lenders another avenue to pursue; again, though, proving fraud would require a lawsuit, which is costly so they would need to look at these on a case-by-case basis, too.
You certainly sound like you know what you are talking about with regard to this BK/default stuff. I would like an opinion on a couple of thoughts I have that may or may not be relevant.
1). Would lenders have attorneys on staff/payroll that could essentially boilerplate/streamline lots and lots of cases so that costs were alleviated on a per case basis?
2). It costs money to defend oneself as well and we know the debtors don’t have deep pockets.
3). With the BK law so draconian it would seem that a fraud charge would bring years of having one’s wages attached.
4). Fraud should be relatively easy to prove with a stated income case and perhaps not be defended against very vigorously by the FB?
I guess what I’m alluding too is that with a vast amount of foreclosures piling up due to “fraud” it may become a political decision to pursue and it may also become a mass produced procedure depending on whether it is clear cut fraud or not. The courts are going to be clogged for decades.
Auger: I’ve got some (professional) experience with real estate, not much with BK. I’ll do my best to answer your questions:
1. Banks have both in-house counsel and outside counsel. Their in-house counsel would be overwhelmed by a flood of cases, but they could probably hire a team of paralegals to handle a lot of the grunt work (outside counsel would be far too expensive). This would help on the cost of attorneys per case. Actual out of pocket costs per case (e.g., filing fees, service of process fees, expert fees, etc.) they can’t really do anything about. At least in California, fraud must be plead with specificity (i.e., you must state who said what, to whom, when it was said, etc.); this means that the complaint must be pretty detailed. (Normal cases you can get away with just giving more generalities - usually referred to as notice pleading, as it puts the person on notice as to generally what your case is about). Because of the pleading requirements for fraud, some time will need to be spent here by paralegals and/or attorneys.
2. You’re right, it costs a lot to hire a lawyer to defend them, and the FBs likely don’t have the money. However, they can defend themselves. This would actually be a nightmare for the banks. First, their hope would be that the FBs don’t respond to the lawsuit and the banks could just get a default judgment; having to take cases all the way to trial is very expensive. Second, dealing with pro pers (people representing themselves) is a hassle because they often do weird things that don’t make sense, and make the lawyers have to do a lot of extra work.
3. Judgments resulting from fraud are not dischargeable in BK (I do at least know this much). However, the bank would have to object to the dischargeability of the debt in BK court. Not too difficult if they already have a judgment from the state court. But if they don’t, then they actually have to go through a mini-trial in BK court to determine if there was fraud. Again, this is very expensive for banks if they are trying to do this on a large scale.
4. Fraud is rarely “relatively easy to prove.” The burden of proof for a fraud case is higher than a typical civil case. In your average civil case, the plaintiff must prove by a preponderence of the evidence (i.e., anything more than 50%). In a criminal trial, the govt must prove beyond a reasonable doubt (very high level). Fraud requires proof by “clear and convincing evidence” (sort of a middle ground between the two). Now, think about all of the stories we’ve heard about mortgage brokers coaching FBs on how to fill out their applications, or actually filling out applications for the FBs, or even changing the numbers that the FB wrote. I’m sure quite a few people will claim that they were tricked or the documents were forged or whatever. So, it won’t be quite as easy as it would first appear.
Now, there are other aspects to consider in this. For example, who is deciding on whether to foreclose? So many loans have been packaged and sold. I have no idea who makes this decision for loans that have been sold into MBS. Also, what effect will bank regulations and examiners have in this? If a bank is pursuing a judicial foreclosure (typically about a one year process), does that mean that the bank has to keep the non-performing loan on its books for that whole time? What will this do to their reserve requirements, and how will examiners feel about this? How many banks are going to want to do the due diligence on each FB to see if they are worth pursuing (i.e., to see if they truly have other assets - not just more RE - that they could go after)? There are plenty of other considerations, too, but these are just some of the concerns off the top of my head.
I’ve got far more questions than answers, but eventually most of my questions will be answered as this thing plays to its inevitable conclusion. Hope that helps.
Auger: I did reply, but it was pretty long and it looks like it’s held up by the moderator. Hopefully, it will post soon. If not, I’ll post again tomorrow.
Nice!
As it was stated before CASH IS AND WILL BE KING !
On the IRS:
What the hell business is it of theirs!
Who died and left them in charge of regulating bank lending?
This very regulation alone will be sufficent to destroy the housing industry!
What % of real estate rental property buyers are reporting 100% of the income the IRS thinks is income?
my guess less than 25%…….Have the reciepts, records, and no “under the table collections”!
The idea that the I_S should be involved is antithema to me! The Purto Rican corporation known should be made accountable for their illegal acts, not given the opportunity to “called call $’s”
They got “Gifts” which are taxable. You know.. Buy this home and get a BMW free. Thats a taxable gift in the eyes of the IRS. Add penalty and late fees to that.
Actually, gifts are not taxable to the recipient (they are excluded from income under Section 102 of the Internal Revenue Code). The person making the gift may incur a gift tax under Section 2501 et seq. of the IRC.
The question is whether these would actually qualify as “gifts” under the IRC.
Isnt’ there a $11,000 cap annually on gifts?
I think that the IRS should announce that they are going to audit every person who has filed for a no-doc loan in the past 2 years. They are either lying to the lender or to the IRS.
Can you see the auditor facing each one of these guys in 3 months? “Now let me get this straight, you told me (IRS) that you make $75,000 per year, but you told the bank you made $100,000 per year. We’re going to have to tax you on that additional $25,000 that you claim you made in 2006. And by the way, we’re going to have to audit all your previous tax returns for the past 7 years.”
“Oh what a tangled web we weave
When first we practice to deceive.” - Sir Walter Scott
Yes, there is an $11,000 annual cap on gifts, but that cap relates to the maximum gift a person can give to an individual without making the gift giver subject to the gift tax (ignoring, for the moment, the lifetime exemption). It’s odd, but the govt taxes the person GIVING the gift, not the recipient of the gift. The apparent rationale is that the person giving a gift is thereby lowering the value of their future estate (which will be taxed upon their death), so they tax the gift since it won’t be part of the decedent’s estate. Likewise, since inheritence is not taxed, the recipient of the gift is not taxed.
The cap is $12,000 for 2006.
You know.. Buy this home and get a BMW free. Thats a taxable gift in the eyes of the IRS
Nonsense. The BMW is not free, and the IRS knows this perfectly well. You are just getting the house and the BMW for one package price.
Vendors have been doing this sort of thing for ages. Buy a car, get a year’s “free” gas. Buy a DVD player, get a “free” DVD. Buy a McHappy meal, get a “free” toy. It’s not free. You’re paying for it.
“Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’
This is what people don’t get. I have a pretty good 30 year loan for a $300K house bought in 2003. We make a little over $100K a year. Our payment for the house is $2000 month. So for a standard loan for a ‘typical’ $500K home, the payment should be $4500 min., we are in the top 5-10% and we cannot afford that payment.
So how do/did you ‘help’ someone ‘buy’ a $500K home with an ARM or option ARM? These people realistically only had two options:
1. Sell for a profit, to buy an even more expensive home now, or simply save the money.
2. Win the lottery to afford the new payment
3. Am I missing another option?
These loans CANNOT be made affordable to someone who cannot make the normal 30 yr payment. Unless they take out another ARM, and keep doing so.
But I think my friend that the whole idea with the sub-prime lenders was constant business . The sub-prime slime figured they would get three refinances or a quick pay-off out of the poor sap that went on one of these toxic loans by the time the FB had to sell the property . Course these lenders expected that real estate would continue to go up so they would have equity to rip off .
But even if these FBs refied, what would they refi into? If they used a normal 30 year loan their payments could easily double, since now they would be paying principal. And if they took money out, they would only dig themselves into a deeper hole.
In other words, there is/was no good exit strategy for these people.
Well ,when you go on a loan ,that you really can’t afford long term ,you have put yourself at the mercy of the market,not a good position to be in or a good exit strategy .
How did these borrowers know they would be able to refinance or be able to sell the property ? The REIC told the borrowers that real estate always goes up and they could get a loan anytime they wanted because they would be equity rich .
Moral of the story : Protect yourself ,salespeople will tell you anything to make a deal ,even what you can do in the future .(again ,I’m not attacking good agents or lenders and not everybody is bad ).
Oh , in answer to you question ,the slime lenders told the borrowers that once they got enough equity they could get a better loan ,even a fixed . They might of told the borrower that when their income went up they could get rid of the toxic loan . I think the lenders and realtors just told them anything to make them feel comfortable with going on a loan they didn’t even understand . Some agents were such slime they lied about the loan features ,but the borrowers made a mistake in not reading what they were signing . Some loan agent encouraged borrowers to commit fraud on the loan application and some I think might of took that liberty themselves . Every case is different .
The whole hype and spin of the mania market made alot of people foolish .
I think lenders/agents try to rush people at key moments .
I remember one time a agent tried to rush me by looking at their watch all the time . I stopped the meeting and said ,”You better go home because I’m not going to rush this meeting “. In fact ,at that point I refused to deal and figured I needed extra time to sort out what everybody was trying to pull on me .
But Suzanne researched this!
Housing Wizard - what you said is SPOT ON. I was personally given this spiel many a time by realtors / LO’s here in LA.
For you non-Californians, this is absolute truth.
Another common marketing ploy was to tell people that “30 year loans are irrelevant because the average person moves every 3-5 years”. This ties in with the “real estate always goes up” slogan in that it doesn’t matter what loan you get if you will sell your house in 3 years and pocket the juicy appreciation. A lot of FB’s never considered Plan B if Plan A didn’t pan out.
I just don’t get the line of “it doesn’t matter what kind of loan you go on” . Could a borrowers actually think that a 6 month teaser rate could offset the much higher interest rate they were buying into ?
Lenders use to think that they would get a certain % of loans turn every 7 to 10 years ,and some loans would go the full 30 years .So, I guess the new age lending changed it to every 3 to 5 years . I guess nobody could last on those loans for more than 3 years .
You know the more I hear about what the sales pitches were by the REIC ,the more pissed I get . Real estate is to big of a purchase for the REIC to be telling lies like they did . The spinners were more or less promising that “real estate would go up “. No one can ever make a promise like that .
New acronym. SPS = sub-prime slime
BayQT~
But I think my friend that the whole idea with the sub-prime lenders was constant business.
Exactly! Just like stock brokers’ account “churning”.
I have a way to help the damn people in foreclosure.
Change the laws so that they can get a deferral on the credit report for up to 3 years. That will let them rent or buy within their means without their credit counting against them as they get their life back on track. Of course when they buy, 20% down and a regular loan needed and it has to be in that 3X income range. So they dont repeat it.
Heck for that matter, allow banks to rent houses and they can sit on them while being rented out.
That will accelerate a crash, but almost overnight solve the slow mo crash we will be having and get the economy moving. Again it will also promote home ownership and it will let people sit in the same house as a renter instead of being a foreclosure. Of course flippers will get torched cos they cant live in 10 houses at the same time.
Cool.
Cow_tipping.
If I were a landlord and had the choice between two tenants, one who furnished a decent credit report and another who told me that he had a three-year deferment and that I was not permitted to examine his credit, I can say with near certainty which one I would NOT rent to.
I would’nt want to be a landlord now.In the not so distant future there will be a short supply of tenants with a decent credit rating.
“Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes.”
Revised: “they have helped hundreds of thousands of families get ‘owned’ by their homes.”
lol
100,000’s ??? much more than that i would say…Close to 1,000,000
The blood will not run on the streets of Paris.. it will run on the streets for Sactromento, San Francisco, San Jose, LA and SD…
Pretty much once your neighbors home looses value each markets home value will decline (reverse of tainting for home prices due)
LOL! Kind of picture the great biblical tribulation. Your neighbor disapears but their home is left empty. Keys left with the bank!
Re-revised: “they have helped hundreds of thousands of families get
‘owned’eaten alive by their homes.”http://www.sonypictures.com/homevideo/monsterhouse/index.html
I would like to see how many stupid quotes of these foolish people how have been caught with their pants down at their ankles and now trying to get sympathy or realt whores trying to keep the bubble party going. Here are some I remember.
Most famous - “15% is in the bag” - Gary ‘where did you go” Watts.
The lady in Reno saying that she shouldn’t be penalized by her POS dropping in value because the builders overbuilt.
The fool that said prices can’t go down because then too many people will be upside down.
Our Marco Island friend who was lamenting his fate and bought “because the salesperson guaranteed it would appreciate 20% in the next twelve months”.
The idiot professor in Minneapolis who was now a bagholder on 2 mortgages because “the realtor guaranteed the first POS would sell immediately” and the realtor was wrong.
Please list more -
John Law used to maintain a top 30 bubble articles post.
I haven’t seen him in a while.
I love that they are talking about regulating (offering new guidelines at least) now…talk about closing the barn door after the livestock escapes!
I used a no-doc loan to buy my first house (in 2001 in Ohio) because I am self-employed. However, I also figured out how much I could really afford (considerably less than I was offered, btw) and bought with that in mind. Out here in CA (I now live in SD–unplanned and “forced” move), no docs have been fraudulently used by just about anyone who doesn’t make enough money to buy out here.
Me? I rent. There’s no way I could bring myself to pay $400K+ for a house that would have cost $65K back home. No friggin’ way. I have over an 800 credit score and could definitely get a loan, but I know I couldn’t afford it. These people who used the no doc system to get what they couldn’t afford, well, they get no pity from me. It’s called being a responsible grown-up, Sparky.
My husband and I are originally from Ohio too and we can’t fathom the prices people in LA want for homes!! It’s insane! People here seem to have absolutely NO financial sense! They are gamblers! It makes us SICK!! We too have a similar credit score and want to keep it! We were brought up not to “borrow” against your house unless it was an absolute emergency (medical emergency, etc.) not to finance dinners at Olive Garden!! The stupidity of these people amazes me. And they look at us as if we are nuts! I refuse to pay over 25% of my gross income for a monthly payment. Some of these nutballs are paying upwards of 50% or more. Who in their right minds would do something like this? Even Hugh Laurie (Dr. House) has said the following of Los Angeles, “LA runs on optimism, enthusiasm and flattery. I think you can go a little bit crazy. I’ve heard people say there’s a limit to the number of years you can stay in this city without going slightly mad. It’s just too damn sunny in every dimension - weather-wise, socially and professionally.” And he is Cambridge educated!! I couldn’t have said it better myself!
“He is Cambridge educated”???
He is a tv character.
HUGH Laurie is Cambridge educated, jock…not Dr. House.
BayQT~
Yes, please do not confuse the two. Dr. House is an American. High Laurie is a Brit.
I grew up in southern california and agree with your opinions. People in LA are disconnected from reality. I just try to ignore it, although that can be tough when it is someone in your family.
Ditto. Having lived in Southern California for most of my life, and in L.A. for fifteen years, Hugh Laurie nailed it. The comedian David Cross also had one bit where he described Los Angeles as a parade of delusion…and said something to the effect of “get out your lawn chairs and watch the parade of delusion pass by…” He’s absolutely right. Though I live, work and investED (back in the day when a cap rate didn’t mean how many people were getting shot) here, it’s just stupefying to meet THIS MANY delusional people out here.
My sister told me the other day, “But the appraiser said it was worth this much.” Enough said. In three years, I have become a premature curmudgeon too, disgusted with most TV shows, movies, music, and nursing a odd addiction to World of Warcraft (aka heroin for geeks) while waiting for this necessary storm to blow over.
LA Renter;
This is reafirminig just how bad it is getting - 2006 savings were negative!
AP Yahoo News
By MARTIN CRUTSINGER, AP Economics Writer
Who the hell in LA eats at Olive Garden?
No one. Try spago or Urth Cafe.
(she’s from Ohio, cut her some slack).
Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’ said Ed Smith Jr., CEO of Plaza Financial Group Inc. of San Diego.”
Hey, Ed. Did you approve of any families where the wage earners make $13/hr and they got an $850,000. And where they were told and actually believed it was a 1% fixed with a $2000 pymt for 30 years? Well, I saw that. And I educated them. And they weren’t pleased with what they learned. But I was just the messenger. Not the message. This was in San Jose. Now multiply this by 100K + and we now know what CA is going to look like. Foreclosure City, rampant crime from desperate FBers, etc.
“lacking an exit strategy” = 21st century euphanism for being retarded and incompetent. It’s all the rage.
The other shoe (regulatory) is dropping fast. The consumer has already fallen and if loans are based on income, prices will be based on income again within a couple of years!
Euphanism = “Euphemism typed during a period of cultural euthanasia.”
people are forgeting one thing very very important…
Basil II regulations… this little peace of … will allow banks
to set their own ratings system on a per loan basis to expand
leverage… I think it will be implemented just in time to provide
liquidity for the banks not to fail all over the world while letting
them own the people who they lent to.
Local Observation:
Last night while checking out the LA MLS I checked on condos in Hollywood. Much to my amazement, there were 42 listed. The average since 2001 is about 8 or 9. When I sold my condo in Hollywood in 2002 there were only 1 or 2 other condos listed.
Now there are 42. 12 are from two apartment conversions and one is an 18 unit new construction. The new construction on a not so great street is running in the mid to high $600,000s. Think about it, this is Hollywood - granted, getting better than the pit it used to be, but not wonderful.
Now, the kicker is that there are three office/former department store buildings on Vine which are being converted to luxury condo/lofts. Occupancy - Summer of 2007. And these are the buildings that I know about.
Let’s see… 42 + over 100 = condo glut.
“Unemployment claims have been rising since April, reflecting layoffs in construction. About 7,400 construction workers and 900 real estate workers have lost their jobs since June.”
I just took a drive through some new SFH residential areas being constructed today. Central Valley California. One neighborhood after another going up. There were two streets out of about 5 with I’d say 20 or so houses going up. Man the illegals were like ants either nailing on shingles or finishing concrete. They looked at me like I was imigration as I drove through and I’m sure had I stopped to get out they would have bolted. The streets that were finished had some occupants with the usual brand new 4X4 and sport utes in the driveways. No trees or shrubs in the yards just grass. 2800 SqFt shacks on 5500 SQFt lots. Man it is sick, truly sick. I’m looking to rent in town and talked with a guy yesterday that has either bought these POS’s or has something worked out with the builders. He is trying to rent quite a few of these homes and as I sounded disinterested in renting any of them he asked me what I’d be willing to pay and If I’d except a shorter lease. Indescrible desperation unlike anything I have ever witnessed, almost like the carnie’s “hey buddy win one for the lady right here” I wish I’d been face -to-face with this guy to slap him out of it cause he was scaring me. I can see it coming, the property management companies sitting on milk crates outside Walmart with sign “Will rent for food”
“One neighborhood after another going up.”
The builders know the jig is up. Their throwing up everything they can to grab every possible sucker before the sunani wave of inventory and foreclosures hit.
Throwing up is an apt way of describing the construction quality of these insta-neighborhoods.
Desperation indeed.
Meeting between broker and borrower this morning. Some of the highlights from the broker:
Referral due to Trustee sale in about a month.
Borrower inherited home from parents, but has over $ 900,000 in mortgages. (Do not know if it was inherited F&C.)
Borrower has not worked in months.
Old appraisal (~3-4 mo) suggests value @ 1.25 mil. Broker privately disputes value — old comps, stagnant market — but still believes sufficient equity to try for a sale.
Borrower absolutely refused to discuss selling the home.
Borrower repeatedly stated (3-4x) that if he lost the home thru foreclosure or sale that he was going to leap off the bridge! (Sale means listing the home and selling it.)
The reason I knew the meeting was progressing poorly was because the borrower stood up, opened the door, and made angry comments at the broker. The problem? The broker was trying to “walk him down 3 separate paths” none of which the borrower wanted to entertain: trustee sale outcomes, private money with no (viable) exit strategy = no loan, and best bet selling the property. As soon as borrower figured out where each conversation was leading, he would announce his departure.
Broker asked me what to do about threatened suicide? Did some research and broker ended up calling person who referred file to inform of possible suicide.
Sounds like the borrower wanted to save his parents house, only it wasn’t so much his parent’s house as the bank’s.
Holy sh!t.
I just said a prayer over that post.
So did I. I hope the bastard actually goes through with the suicide.
me too
FOUL.
There really are some innocents in all of this. This poor guy might be one of them.
Perhaps an innocent, but I’m not sure inheriting a home you can’t afford qualifies for great sympathy when it sounds like the sale would still net a profit. People like that need to grow up.
I am with NYCboy, too many damn people gotta thin the herd, hopefully the stupid ones.
Innocent or not it seems to me that wishing for another persons death is way over the line of common decency.
No one with zero equity in a $1million+ home is “innocent”.
He can’t afford the house, for whatever reason. If he pulled money out of it then he shouldn’t have any complaints as he was already paid off. Regardless, why would someone be so emotionally attached to a house? I have great memories from the house I grew up in as well but I sure wouldn’t jump off a bridge over it. Tell the guy to pony up the monthly nut if he wants to keep it. Otherwise, get the fu*k out, just like how the rest of the world works. What world does this guy live in, anyway?
“Consider the inevitable: You have buyers in the market with a choice of inventory, which do you think they’ll buy? A lender-owned property at a big discount or one owned by a private party for near full price?”
So there it is as plain as day. By the end of this year and into 2008 resale values will drop to the foreclose value - A 40% haircut. Holy sh***t. Notice also that the IRS will be preventing BS income self-declarations. It’s butt-pucker time! AND the bad loans will revert back to the original lender!
Consider the inevitable.
Note the word “inevitable” in the MSM. Lereah’s 40million ad campaign is not working.
“In California, unsold inventory has grown by over 100% in one year. Thus far, there has been limited price damage because almost all of the properties for sale have been privately owned. In 2007, that will change. The new inventory for sale will consist of lender-owned properties, builder auctions, and short sales. All of these sellers will be selling to a less motivated, smaller group of less-able-to-qualify buyers.”
This is the scenario I have been anticipating, as the walls close in. There will be a point however when the hedge funds step in and start buying. That’s my only fear now. It depends on overall liquidity, interest rates and how equities are performing. If evrything goes into the crapper at once RE could stabilize quickly, before we see a 50% haircut…
I went to the office of a local hedge fund a few months ago. The office was very nice. They had all of the latest technology. And there were hardly any employees. I’m no hedge fund expert but they are not set up to be property managers. They will not buy “investments” that have to be fed every month. Foreclosure properties are too much work for these guys. They are used to much easier money. I think your scenario is very unlikely.
I see it working like this.
Lender calls hedge fund and says you take this bundle of properties off my REO list because regulators are breathing down my neck and you get a bargain price 30% off appraisal. They decide what to sell and what to keep under management with a mangement firm they work with…
What were the entities Enron used to hide losses (Jedi, etc)?
Hedge funds live and breathe liquidity. The managers sit in front of computer screens all day and try to profit from blips in the market.
NFW are they interested in illiquid assets like SFH, not to mention anything else that requires care and feeding. They don’t want anything they can’t sell at a touch of a button.
SFH will end up being bought, as traditionally, by Joe Handyman types who can make a buck renting them out with the help of some elbow grease. When the prices fall enough so that renting out becomes profitable.
” A lender-owned property at a big discount or one owned by a private party for near full price?”
I call that the killing field! I will be seeing lots of sad glum faces of sellers. Dont worry Mr former-Homeowner I may let you come by once a month an feed the squirls.
The news on Ben’s blog has been overwhelming today…so I turned on the evening news on NBC and Abc, flipping back and forth to see if they had anything. Both had 2 minute pieces on the neg. savings rate–and both used “correspondents” to explain why this was no problem. On NBC, they pointed out the huge balances most Americans have in their retirement acccounts and the rising stock market and on ABC they did a visual of smug homeowners in mcmansions, whose “house is my retirement plan”. No mention at all of falling prices or stalled sales, no suggestion of any problems. Even if you watch the nightly national news, already a minority of Americans, there is no chance of getting any kind of heads-up. They are all pushing the goldilocks economy–with the caveat that maybe, just maybe, in a few years, there might be an issue. It’s really beyond belief.
If you ever get a chance, watch CNBC. Lots has been spoken time and time again by their guests, much more bears than bulls. Even the FOX Sat morning investing programs cover the housing bubble issues each week. ABC/NBC/CBS bearly scratch the surface on the issues.
This lack of information/awareness amazes me. Sigh…
So when everything starts to fall apart in April its somehow going to be a suprise? sigh… By June even Joe six-pack will know we’re in a recession.
Got popcorn?
Neil
The abundance of disinformation astounds me!
Huh?
rotfl
Dang nabit, I’m having to clean another keyboard!
BS all of it Spike. They use every damned excuse to pardon the lack of savings in this country. Rather than look at what is a core problem in America, savings rate, the excuse it with more BS. They do that to make their masters happy, keep the masses believing the BS, and kid themselves into thinking their own behavior will be okay. That’s all fine, but we are going to have an older and older workforce as time goes by. Either that, or a lot more homeless or gov’t ass’t.
If they pointed out that people actual don’t have the money they think, the Adman and sponsors might not like that.
And they say the MSM has no spin or agenda .
People really do think they have their wealth in real estate and they think that they are making a higher yield yearly by appreciation than saving accounts/CD’s .So if you tell these people that saving rates are down ,they feel they are holding their money in house equity . This isn’t a very balanced investment plan if you ask me ,but the whole globe went real estate crazy .
Hi all,
Does anyone have any stats on the number or $ value of “exotic mtges” written over the last few years in MASS?
Thanks.
J
Here’s an option arm chart for the country that was in Business week a few months ago.
http://www.businessweek.com/common_ssi/map_of_misery.htm
Thanks.
I remember that map, now that I think of it.
Mass. doesn’t look all that bad off - relatively speaking, of course.
It is still very expensive here.
Not that bad off?
http://www.auctionsri.com/
My sister just got married 2 month ago. They started looking for a home to purchase around the Natic area in Mass. Spoke with bil and sis and talked them into renting for at least another year.
I really don’t think they even had a clue about the real estate market at all.
notice the “relatively speaking” qualifer..it was in reference to the bright red coloring of CA..:)
Click on Real Estate , shows Mass and RI .
“According to RealtyTrac, lenders who foreclose on a property in Ohio get 57% of appraised value when they sell the property.”
Wow! We figure we paid around 66% of normal market value on the foreclosure we bought in 2005. Guess we shoulda low-balled the offer even more.
Seriously, a foreclosed home is the only type of property anyone should consider buying for at least the rest of 2007. Set your offer at no more than 70% of what other homes are selling for (not the current wishing prices) in the development, then subtract any needed fixing-up costs. In your offer, list all the things you or the home inspector found wrong with the house. All that can happen is the lender/owner might turn you down.
Good advice. If you are going to buy in 2007…
With inventory at the level its at with as few qualilfied buyers as there are out there… Don’t be afraid they’ll say no! Don’t be afraid to insult the seller. If they are “offended,” go to the home down the street. Or the next one… or the next one (etc.)
Got popcorn?
Neil
In real “bubbly” areas like CA, NV and AZ, I would say go back to 1996 and then use 1 or 2% above the “official” CPI and then make that the offer. Then keep offering until one of the following bites:
1. Homeowner(s)
2. Bank
3. RTC jr
3. RTC jr
Comming to a bubble town near you real soon!
Nitpick: It would be jr for more than a quarter or two…
Got popcorn?
Neil
Set your offer at no more than 70% of what other homes are selling for
The price that other homes are actually selling for is the market price. So why would the bank sell the property for less than that? They want their money back you know.
““In California, unsold inventory has grown by over 100% in one year. Thus far, there has been limited price damage because almost all of the properties for sale have been privately owned. In 2007, that will change. The new inventory for sale will consist of lender-owned properties, builder auctions, and short sales. All of these sellers will be selling to a less motivated, smaller group of less-able-to-qualify buyers.”
Makes you want to cry! Im so over joyed!
All of these sellers will be selling to a less motivated
I prefer better educated and less emotional.
Got popcorn?
Neil
Beautiful!
The Associated Press reports on California. “California lawmakers on Wednesday began considering restrictions on unorthodox mortgage-lending practices that have allowed hundreds of thousands of Californians to buy homes they otherwise could not afford.
Ha,ha,ha,ha! I’m about to bust a gut laughing, please save the idoits from themselves. Yea the Gubment can fix it, they caused it!
Hell, Ahnie can’t even go one year without more bond initiatives (debts). How the heck will he fix this mess? There is no more money and he can’t print his own.
Write to your your Rep in Sactromento.
Get to him before the CAAR sways their decision.
Make sure this doesnt get pigeon holed.
Make sure govt puts this into law and not killed off
by CAR PAC.
Some regulations should be in place. I think many finance bloggers and readers are tempted to say let people fend for themselves but the actions of ‘idiots’ affect us all. People who get these creative loans bid responsible borrowers out of the market and the fall-out affects us all.
“‘The predominant issue is the housing market,’ said USD economist Alan Gin. ‘The numbers last year were about as bad as people thought they would be. The worry is that housing is going to take the rest of the economy with it.’”
Does anyone have evidence on what he said last year? Because this smacks of retrospectively revising his predictions, if memory serves…
Come to think of it, Ben’s blog would be a great place to start a comparison between what Gin actually predicted last year and what he now says he predicted last year.
I’m to lazy to look up his past quotes stucco but I do recall he was a big “good job growth, unlikely to happen here in San Diego” guy. The most he’d cop to is stagnating prices. He’s begining to change his tune lately though.
Okay, I looked one up.
July 2006
“Home prices across San Diego will plateau, (economist) Alan Gin predicted. ‘The conditions aren’t there for a big rebound in prices or for a big drop,’ he said. ‘We would need a big drop in interest rates to get any significant movement on prices on the upside. We would need to see some significant job losses, a recession at the national level, to get a big drop in prices.’”
I think there was a major debate about him on Piggingtons and he actually posted (but it might have been another economissed. People were pretty harsh.
Screw these talking heads, if they get hurt feelings when they get into the trenches and fight it out, they need to grow a spine.
It is fundamentally about accountability.
I sense the tide has turned, definitely - Finally. I’ve been waiting for 3-4 yrs. But, eventually the data is overwhelming and the inherent logic of skeptics have been proven right. This chart from Mish’s site is brilliant, an explosion of vacant homes and more being added every day.
http://bp2.blogger.com/_nSTO-vZpSgc/Rb6JSplgCmI/AAAAAAAAAP8/wG9E0OHpRVI/s1600-h/vacancies.png
One thing I’ve been thinking about for sometime, will this be a Wall St./Main St. recession or will just one party suffer like main St. USA? or will it be just Wall St? or both?
About 60 percent of sub-prime loans in California those given to the highest-risk borrowers allowed them to pay only the interest or gave them that option on an adjustable rate mortgage
Absolute insanity. These loans were once reserved for only the most affluent — people who had ample means to pay, but wanted to manage cash flow; such as business owners, and people on large bonuns or commission plans. It is the height of irresponsibility that these exotic financial instruments morphed into “affordability products” for $60K earners to buy $500K houses with no money down — with nary a peep from regulators who are supposed to prevent this kind of thing. And the most incredible thing is that it’s still going on!
Good post ,well said .
“Lenders and brokers defended the creative loans, noting that they have helped hundreds of thousands of families own their own homes. ‘The problem is that many consumers have not prepared an exit strategy,’ said Ed Smith Jr., CEO of Plaza Financial Group Inc. of San Diego.”
This attitude is short sighted and incredibly dangerous. It makes my blood boil. Getting these people into a house was not a generous act, it was a SELFISH one.
Finding a creative financing solution through grants and donations to get a family off the street and into any residence (rental or otherwise) with four walls and a roof is a wonderful thing that I would define as generous and generally good (done correctly).
Pushing a family from renting into a house that there is not a chance in hell that they can afford long-term so that you can earn your commission is among the most selfish things you can do, and the worst thing you could do to these folks. Especially when the end result is predictably default, foreclosure, and a worse credit record than when they started. These FBs will now be back to renting with an even worse chance of ever owning their own place.
It makes me sick to my stomach.
Peer pressure is a powerful force
On this one even the gubment is looking for someone to blame. It is a whirling pool of sucking slime and at the top are the regulators and their lack of due diligence. If they were in private industry they would be raided and led away in handcuffs.
Some big dudes are going to take a hit in this as there will have to be a spreading of the pain. The little rats will rat out the big rats and so on. Ultimately I expect the trail will lead right to Big Al as the mainstream media will ultimately want heads to roll on the high plains too. Raines, hell he ain’t gonna be in just a civil fight as I am sure they will try to use the losses at FNMA to hang some people. ENRON in drag.
The real ugliness is timed perfectly for the coming political battles. Hearing, indictments, etc in order to placate the unhoused masses. I tell you it is going to be of Herculian proportions as people are put out of their homes in droves and the international money flees.
As much as I am lookin forward to it I am also fearful of the breadth and depth of the social disarray we are going to witness. In my heart I am dreading the comeupance as my home and neighbors are going to be caught up in it. On the other hand we are long overdue.
Let’s get ready to rumble.
“I tell you it is going to be of Herculian proportions as people are put out of their homes in droves and the international money flees.”
And I am looking for lawmakers to float policy initiatives to prevent your dire scenario from ever playing out. There must be some plan to ensure the soft landing will come to pass, right?
How about this scenario: you get foreclosed on your house because you lied on your app and can’t make the payments, so you go next door to the ‘investor’s’ house and offer to live there and pay utilities and mow the front lawn just so it’s not vacant and keep the vandals away. Give a tax break to the flipper for housing an otherwise homeless person. Pretty soon he gets a community award, too. LOL!!!! Not saying I advocate this, just saying never underestimate the creativity and cunning of people when they are truly desperate.
GS- I have considered it as a possibility but here in Florida it is too late. The world is slamming shut here as lenders are pulling in their horns. Without fresh dollars we are doomed.
How bad is it gonna get? Few people realized that Florida had a building boom but we also had a 5 billion dollar infusion from FEMA over the past 3 years. Folks seem to have forgotten that little tidbit.
The losses we will face in monetary terms is beyond belief. It is like the draining out of a year of work overnight.
In fact, a hurricane or two may be our only hope. Blow out the sh*tboxes and bring on the FEMA bucks. I imagine a few builders are doing a hurricane dance even now.
In fact, a hurricane or two may be our only hope. Blow out the sh*tboxes and bring on the FEMA bucks. I imagine a few builders are doing a hurricane dance even now.
For Florida, that is the unfortunate truth. Destroy the “surplus” and stimulate the economy via reconstruction.
Its bury St. Joeseph to sell a home.
What does one due to bring on a monster of a hurricane? Have Casey do a speaking tour in Florida?
Got popcorn?
Neil
I am waiting for the democrats to propose government guaranteed low interest rate loans for FBs a la student loans to bail them out. Tax payer will get stuck with the defaults.
This only gets better. So I buy gold. I defer my taxes until the Theftocrats and their leader Hillary SocialSiss get booted out in 2013.
“The new inventory for sale will consist of lender-owned properties, builder auctions, and short sales. All of these sellers will be selling to a less motivated, smaller group of less-able-to-qualify buyers.”
And all these sellers will be more motivated, more financially astute and more realistic about how to price a home to quickly get it off your unwanted declining asset column. The comps are toast, unless the REIC succeeds in hiding these sales results from public view.
Does anyone know what it takes to get a mortgage brokers license and make million dollar loans?
A one weekend class and an exam that 95% of the numbskulls pass.
I took it and after 20 years in the appraisal business and had not clue what I just heard in the class. I could have taken the state exam and been in business. Thank God it scared me so much I did not take the exam for fear of being held culpable for participating negligently in a lawful business. Truly, I was afraid that being a part of the industry was questionable at best.
Let me know when you get your license, I live in a small apartment on Social Security and work weekends at Costco handing out finger food. I’d like to move up to million dollar home and need someone who can fudge my income.
call me.
Sorry STanley, you can only qualify for $500,000…oh wait….in 6 months your million will be about there.
mortgage-lending practices that have allowed hundreds of thousands of Californians to buy homes they otherwise could not afford.
Otherwise? Lets be honest here - Homes they could not and can not afford! This is truly rediculous to the nth degree.
Well, what about the situation where the lenders agent helped the borrower commit fraud ? These are going to be interesting court cases.
I do know that if a borrower have a fraudulent loan application that they have given away some of their rights under the law . I think they have clauses in the loan contracts that state this concept . But who has been reading their loan contracts during the mania ?
Lenders have alot of rights under the loan contracts (usually this stuff is in very small print ).
Also there is a concept of “voidable contract” if fraud or committing a crime was involved somehow ,so these cases are going to get interesting .
“But who has been reading their loan contracts during the mania ?”
Hard to believe that this would be a legal excuse. I could see this if the borrower were somehow prevented from reading the paperwork.
But, chose to skip reading and just signed on the dotted line–that can’t be right. I bet yahoos do that with car loans too–does it void those deals as well?
We paid off our mortgage and are arranging a HELOC for emergency. I have, in front of me, 31 pages of documents, and one of them has a list of 25 things I need to do…..in size 7 font. I can see how people get numb trying to make their way thru the paperwork. No excuse, just an observation.
Well ,maybe some of the agents of the lenders changed documents or the borrowers didn’t get disclosures ,or the loan agent committed fraud on the documents without the knowledge of the borrower .Some of this evil stuff that happened might not be proveable . I just think that every case is different, but it’s going to be hard for the legal system to sort this out . What about those investors that were set up by the investment company on that Coast Bank deal . Those contract might end up being void because of the fraud involved or misrepresentation on the part of that investment company .
I think what stands out for me is that people didn’t seem to care very much what they were getting loan wise if they could get into the real estate market during the mania .It’s just not the way people usually would act when it comes to loans ,at least not in prior lending cycles that I have been involved in .
I wonder if a lawyer will use the defense that their client was under duress because of the mania or that their client was told that “real estate always goes up “. Remember that lady that sued the lottery board because she didn’t win a lottery after she took out the equity from her house and purchased 200k tickets,(or something like that ) ? I think she loss the case if I remember right .
I
burn baby burn
I sue dishonest lenders and brokers.
Joe,
that’s nice, why not. But these asshat buyers will largely dump their mistakes on the rest of us…and you know the drill, if houses were going up, there are no dishonest lenders and brokers. Only now, when the lumpen are finding out their easy- does- it road to riches is a ditch,
does the concept “dishonest lenders and brokers” flutter into their empty heads. Some investment scheme–keep all your winnings on the upside, but sue everybody on the downside.
If you can’t pass a 6th grade arithmetic test–working with fractions and percentages–you should be barred legally from mortgages and car loans. Cash only for the innumerate.
How any intelligent can make derogatory comments about Hillary and Democrats when we have lived for six years under this Republican totalitarism is beyond me. Bush and his cronies have essentially spent all of our money and given Exxon historical profits. They inflated this housing bubble because they needed to make people feel that they were “rich” so that no one would question this pathetic war of choice in Iraq….
What’s so socialist about Hillary wanting to have universal health care for Americans? I’m in L.A. and my family’s health care premiums have increased from $375 per month to approx $800 for a crappy Blue Cross HMO (which we get through work).
First, I’m no fan of Bush and his policies to trample on civil liberties. But I don’t know how he gave Exxon historic profits. They made their profits because they produce oil and the price of oil went up dramatically. Bush didn’t drive up the price of oil - the worlwide market did that. And, is it actually bad for a company to make a profit? Don’t the shareholders enjoy that wealth? Why is fine if Microsoft or GM (admittedly, not recently) make billions, but somehow it’s bad for an oil company to make a large profit? I’ve just never understood this line of reasoning. And, while I blame lots of people for the housing bubble, I’m just not seeing how Bush is responsible (unless you want to go through his appointment of Greenspan, but that was widely endorsed on both sides of the aisle).
But how can you ask “What’s so socialist about HIllary wanting to have universal health care for Americans?” The very essence of a socialist govt is to provide (through taxpayer money) services like health care. How much do you think providing universal health care coverage would cost? And you’re complaining that Bush and his cronies spent all of our money, but you want Hillary to go and spend a lot more of our money on universal health care? Bush clearly can’t say no to a spending bill (he hasn’t yet), but all of those bills come from Congress. Republicans have been in charge, and they were spending like drunken sailors. We’ll see if the Democrats can do any better. But adding universal health care would cost a huge amount of money (much more than Bush’s Medicare drug plan).
How much do you think providing universal health care coverage would cost?
Like some real numbers? Canada, France, Germany spend about 10% of GDP. UK, about 7%. All of which have better health statistics than the US. Japan also spends about 7% and has the world’s healthiest people.
The US currently spends 15% of GDP on health care, by far the highest of any country in the world.
Sorry to let the facts get in the way of your argument.
I think we also need to throw lifestyle into the mix. Ignoring it leaves out an important set of variables…
The US is not relatively unhealthy solely because of healthcare. A HUGE part of the problem is how people live in the US–unhealthy eating habits, lack of exercise, overweight people, etc.
Until you control all the variables, you can’t draw any conclusions from looking at spending vs. “health” to determine how good the system is or isn’t.
In other words, adopting the Japanese (or French, Canadian, or German) system of healthcare won’t necessarily make us any healthier.
What a tool. Run for the office if you know it all. Dem or Rep doesn’t matter… Democrats and Hillary are going to fix your mental health problems for free, give me a break you tool.
What is ‘tool’? Some kind of ghetto slang for….what?
Tool is man-slang for penile digit.
Oops, I meant to say…
“How any intelligent person…”
I should proofread before I post next time!!!!
Socialism is excellent at equally dividing up all the poverty it creates
No doubt a President Hillary would end up bailing out all these idiots who overpaid for property during the bubble
The Canadian single payer system which Hillary so admires has a very clever strategy, one where people are forced to wait so long for their treatments and operations - most drop dead waiting in line - thus keeping costs low
That isn’t true. I’m Canadian. Our health care here is very good.
So why does Canada have a higher life expectancy than the US?
Kool Aid, Kool Aid, tastes great…..
BWA HA HA HA HA!
Because looser pays when you sue frivolously… As the US already spends 15% of its GNP on “medical” costs, 1% of which are genuinely for healthcare, the rest of marketing/attorneys, etc…
Don’t forget when people were scared, they became efficient in socialism i.e the russian space program which costs 1/50th of the american one, and the Soyuz has the last laugh on the shuttle bondoogle.
Need Help,
Can anyone tell me what % of ARM, IO, NegAmrt, exotics etc… we have in cali over say the last 3 years and that dollar amount. Also, Cali vs the nationwide total number or value as a % of all outstanding loans of the same.
i.e. - 80% of all loans in Cali were ARM, IO etc… and this represents only 10% of the total $ market nationwide etc…
Trying to settle a dispute that Cali is a big % of the problem and without Cali and a few others we all know about, the bubble might not seem so big. Just trying to gage how much of this bubble is Cali, but other markets would be interesting as well. Thanks in advance for any imput.
“There will be growth in the spring!” Chance the Gardener (BEING THERE , 1979)
No need to worry
However to be on the safe side, it woud be advisable for certain real estate brokers, lenders, appraisers and other assorted shady characters to prepare their passports and disguises now, to ease their escapes across the border later this spring should the worst occur - and keep one step ahead of the authorities
The stock market is simply not getting this… when 57% of the people believe theres going to be a housing crash in CA, there WILL be a housing crash. These would be the people going out and mopping up some of this supply..but instead, they will make it a self-fulfilling. The difference between stocks and RE when they begin to slide is the time it takes to happen. RE will be a slow motion version of the nasdaq pop. Usually you only see one bubble per generation… now all the people that lived thru the nasdaq freefall will not want to be fooled twice.
I personally believe the #$%^ hits the fan in early summer when the inventory keeps building and the ARM’s reset. Seller’s will be between a rock and a hard place with buyers just waiting it out.
The market will start pricing it in around tax time as usual and unlike last years May selloff, this one will stick.
another dagger in the housing bubble. Especially CA, where is Arnold when he is needed?
WASHINGTON - One hundred twenty-two levees from Maryland to California are at risk of failing, according to a list released Thursday by the Army Corps of Engineers.
ADVERTISEMENT
There could be danger to people who live in communities near some of the levees as well as a chance that they will have to pay more for insurance, said Butch Kinerney of the Federal Emergency Management Agency’s national flood insurance program.
The list was released in response to Freedom of Information Act requests filed by news organizations, including The Associated Press.
If the Corps of Engineers determines a levee to be at risk of failing, homeowners in the area could be required to purchase flood insurance, though exceptions can be made.
Communities near the levees have been notified that they have received an “unacceptable maintenance inspection rating.” That means a levee has one or more problems, which can include movement of floodwalls, faulty culverts, animal burrows, erosion or tree growth, according to a statement released by the Corps.
California, with 37 suspect levees, and Washington state, with 19, led the list.
FEMA’s Kinerney said he was concerned that the levees present not only a chance of higher insurance costs but a danger to those living nearby. FEMA maps flood plains and helps determine the flood risks that communities face.
Kinerney said people living near the levees should have an evacuation plan, a family emergency plan, and a disaster supply kit, along with flood insurance.
The Corps has been warning communities they need to take care of routine levee maintenance, said Larry Larson, director of the Association of State Floodplain Managers. Larson said he was glad the Corps was putting out the word on the levees.
“The feds are saying, ‘Wait a minute, we haven’t been doing our job,’” Larson said. “‘We better get on top of this. Your people are at risk. You need to get something done.’”
The Corps historically has constructed the levees and has turned most of them over to local communities for operations and maintenance. Some communities may not have kept up with needed repairs, while others may merely lack the documentation, Kinerney said.
As the Corps decertifies the adequacy of a particular levee, it also notifies FEMA, which can take away the credit communities get on their flood insurance rate for having a levee.
Kinerney added that if residents of the communities at risk were to purchase flood insurance now, before the community’s designation changes, they can still pay the cheaper rate.
The Corps can give communities 12 months to make corrections — sometimes it’s just a matter of “filling gopher holes,” Kinerney said.
Also, FEMA can issue for up to 24 months a provisional accreditation if a community requests it, giving it up to two years to correct the problems or contest the finding that the levee is not sound. During that period, residents are not required to purchase flood insurance.
___
On the Net:
The list: http://www.hq.usace.army.mil/cepa/releases/leveelist.pdf
Just want to take a minute to thank all of the regular posters and Ben- I have been reading this since March 2005, and it has been a key tool in keeping me from following the herd over the cliff. New work precludes posting, but believe me- this baby is going to blow badly.
Please limit OT political flaming if possible- I love to reccommend this site, but political comments take away from the central economic work.
NYC mortgage and RE market on the ground is going to be ugly, but the fraud is SO systemic that it may stay hidden. We are working on models to “adjust” staff when the downturn hits.
$$$ volume charts for the Los Angeles LAX South Bay area are published for January. Enjoy!
Read about John Laing Homes False Advertising, Poor service and Criminal intent to lower home values Ripoff Newport Beach California.
I posted this here yesterday and on the ocregister. Jon didn’t accept this post. I think this guy has a very valid comment. The builder is full of crap.
Chip, I have been super busy as of late. If we were supposed to have a party on New Year’s - I apologize.
We can have a get together whenever you want…. just let me know at m_og@hotmail.com.
I will provide a villa and they will come
From what I read he sounds like a FB whinner. I will repeat for the cheap seats, nobody is going to give you money. If you are stupid enough to believe that a home builder is going to give you something they can sell for more later, you are stupid and deserve to lose your money.
Come on, the guy is going to sue because they lowered the price of the house next to his, give me a break. I just bought a Cannondale Rush on sale $500.00 off. Can the person that bought the non sale bike sue the bike shop? NO… and I cannot sue when they lower the price again. The guy is probably making it a PITA for the repair guy to work on his “list” as well.
These kind of morons are what makes everyone hate americans. When I was in the hospital in New Zealand they were more concerned that I would sue them then me paying the bill because of a$$holes like that.
Here’s a tale from around 25 years ago…
I arrived in Auckland, sick as could be. I’d got on the airplane with a cold, and flying for 13 hours isn’t chicken soup, let me tell you…
I was in a hotel, in bed, either sweating like crazy or cold as could be for 3 days, afraid to call for a doctor to come and see me, because I knew how expensive it would be back in the states, but finally, I realized I needed somebody to see me and called the front desk and asked if they could get somebody to come over?
About an hour later, a doctor arrives, (complete with black doctor’s bag, my 1st and probably last such visit) takes a look at me and tells me I have an awful flu and need medicine, and he tells me i’m in no condition to leave the room, so he says he’ll go out to the chemist and get it for me.
He leaves and comes back with it and we are all done, except for the do re mi, part.
He says “Medical care in New Zealand isn’t free, but it’s not dear, either, and it will be $5.00 for the visit and $2.00 for the medicine”
Easily overall, the friendliest 1st world country, New Zealand. I urge a visit.
I don’t think only Americans are guilty of this. When a Shanghai building boom went bust a few years ago, there were stories in the paper about angry condo buyers lining up to get their money back for their condos.
Nice article about savings; but mayber posted before.
“Low interest rates helped to fuel a boom in housing purchases, which in turn helped to drive home prices higher. That led to a surge in mortgage refinancings with people using their higher home values to get money to spend on other things.”
Check the phrase, “…to get money to spend on other things.”
I love when I “get” money, don’t you???
http://news.yahoo.com/s/ap/20070202/ap_on_bi_go_ec_fi/low_savings
Article in Ohio’s paper today about lawmakers cracking down on predatory lending. They were supposed to do this 5 years ago, but nothing was ever done. Now that Ohio’s foreclosure rate is going to be 37% higher this year than last, someone’s finally looking at it. That means in about 10 years they’ll propose legislation and in another 5 years of sqabbling and wrangling they’ll finally put something together.
Lenders are definately tightening lending standards. Chase just bailed out of the sub-prime market and other lenders are going belly up being forced to buy back crappy loans.
The lenders have been riding a wave of astronimical home appreciation. Their lax standards might have fueled more problematic loans but it was a means to an end to cash in on the housing boom. The FED saw this coming a long time ago. It is going to be the “post bubble” fix. They are going to whiplash lenders, going on a massive witch hunt and prosecute a lot of shady people. But still it will be the average consumer who pays the price. The Feds will give the appearance of cleaning it up but it will be too little to late.
There is going to be a lot of carnage this year. It will take a minumum of 1 year to get back to normal. Whatever normal is.
Builders, lenders, banks, construction and manufacturers are going to be under a lot of pressure. Their is going to be a lot of belt tightening or total starvation.
A year? Try 10.