Who Made This Mess?
Some housing bubble news from Wall Street and Washington. “A high-ranking Treasury Department official on Wednesday chastised mortgage lenders for too-often failing to verify the income of borrowers with blemished credit histories, blaming the practice for rising defaults and foreclosures.”
“‘Sound underwriting and, for that matter, simple common sense suggests that a mortgage lender would almost always want to verify the income of a riskier subprime borrower,’ Comptroller of the Currency John C. Dugan said in a speech.”
“‘But the norm appears to be just the opposite,’ said Dugan, whose agency regulates nationally chartered banks. ‘Nearly 50 percent of all subprime loans last year accepted stated income,’ meaning the underwriters did not verify the information provided by borrowers on loan applications.’”
“The head of the mortgage banking industry’s trade group claimed mortgage brokers and lenders focused only on short-term profits benefited from the housing boom, but didn’t do enough to examine whether borrowers could repay.”
From Reuters. “Dugan cited a Mortgage Asset Research Institute study that found 90 percent of borrowers reported incomes higher than those found on file with the Internal Revenue Service and almost 60 percent of the stated incomes were exaggerated by more than 50 percent.”
“Another survey of more than 2,100 mortgage brokers, reported by Inside Mortgage Finance, found that 43 percent of mortgage brokers who use low-documentation loan products know their borrowers cannot qualify under standard debt-to-income ratios.”
“‘Let’s not sugar-coat what’s going on here,’ said Dugan. ‘The practice of inflating income is at best misleading, and at worst, fraudulent.’”
The Associated Press. “The heads of trade groups representing mortgage bankers and brokers traded barbs Tuesday over who’s to blame for the housing market’s woes.”
“John Robbins, chairman of the Mortgage Bankers Association, says he is ‘mad as hell’ at ‘a few unethical actors’ that have sullied his profession’s reputation.”
“‘Who made this mess?’ Robbins asked. ‘The short-term folks. People who get a commission when the deal happens. For them, it’s the number of loans that counts. Good loan? Bad loan? Who cares? For them it’s all about their commission,’ he added.”
“In reaction, the president of the National Association of Mortgage Brokers, e-mailed a statement that said: ‘It is truly unfortunate (Robbins) has attempted to shift blame away from Wall street, federally chartered banks, state-chartered lenders and underwriters for the subprime situation we find ourselves in today.’”
“Harry Dinham, president of the brokers’ group, added that congressional hearings have shown that ‘most residential mortgage loans are quickly sold into the secondary market — in fact most lenders are really just brokering the transaction but afraid or ashamed to admit it,’ he added.”
The Palm Beach Post. “Robbins made his comments in a speech at the National Press Club, where he called for tougher licensing standards.”
“‘Frankly, it’s too easy to hang a shingle and call yourself an expert in mortgages,’ said Robbins, whose trade group represents the real estate finance industry. ‘We need licensing of brokers, with a threshold that will weed out those unwilling to be responsible.’”
“Robbins said Congress should not rush to legislate when the market already is fixing itself, driving out those who took too many risks. For example, New Century Financial Corp. and more than 30 other subprime lenders have gone bankrupt this year.”
“‘Many of those who most abused the system are already out of business,’ he said.”
The LA Times. Robbins warned against excessive regulation in response to the sub-prime mortgage crisis, saying an overreaction could prevent millions of Americans from buying homes. ‘We don’t want to revert to a time when, without perfect credit, you couldn’t buy a home,’ said Robbins. ‘Yet regulatory or legislative overreaction could prompt a return to just that — to raise the bar.’”
“‘We appreciate the industry’s stated intentions, but they guarantee nothing,’ said John Taylor, CEO of the National Community Reinvestment Coalition. ‘We must reject any superficial, tinkering-around-the-edges approach from an industry that has yet to take responsibility for a foreclosure crisis, which they have described as simply a ‘market correction.’”
From CNN Money. “The subprime mortgage meltdown has been a shock to industry insiders, but now they say it’s hitting harder and faster than expected, even to those who predicted the crisis in the first place.”
“Michael Marriott, managing director for Credit Suisse, said, ‘Last October, I predicted the subprime market would collapse and many issuers would go out of business. But the violence and speed of the market sell-off surprised people.’”
“David Lowman, CEO of JPMorgan Chase & Co.’s global mortgage business, said, ‘35 percent of what once could be done, can no longer be done,’ referring to mortgage loan products that have effectively been taken off the shelves.”
“Duane LeGate, president of House Buyer Network, a specialist in short sales and foreclosure prevention, said one of the real estate agents he works with had six deals blow up within four days because, ‘The loan originator told him, ‘We’re not offering [these products] anymore.’”
“According to LeGate, this kind of thing just started to happen in the past month or so.”
“‘Anything that smacks of no-income and no-documentation is history,’ said Allen Hardester, director of business development for mortgage broker Guaranteed Rate. ‘Anything above 85 percent to 90 percent loan-to-value, anything non-owner occupied, anything ludicrous as to value, like someone stepping up from a $1,000 a month payment to a $6,000 a month, is history.’”
“Lenders are also scrutinizing applications much more carefully, and many don’t like what they find. Lowman said he had recently looked at a low-documention application for a UPS driver who earned a quarter of a million dollars last year, or so the application stated.”
“‘If you took into account every person with a lawn care service on the side, there wouldn’t be a blade of grass left in the United States,’ he said.”
From Bloomberg. “New York Attorney General Andrew Cuomo issued a subpoena to the real estate appraisal unit of First American Corp. in his investigation of whether mortgage brokers pressured appraisers to inflate property values.”
“First American’s eAppraiseIT LLC, which values up to 15,000 homes a year in New York, was asked for information about appraisals performed throughout the state, President Anthony Merlo Jr., said in an interview.”
“‘It’s a very good thing, what the attorney general is doing,’ Merlo said. Cuomo’s office was focused on ‘who’s exerting the pressure’ on appraisers, he said.”
From Florida Today. “Troubles in the housing industry are not over, according to a leading economist with the mortgage agency Freddie Mac.”
“Amy Crews Cutts, deputy chief economist with Freddie Mac, said the big problems in the industry now are the continued large supply of homes on the market and the overuse in the past year of riskier ’subprime’ mortgages, a good number of which went to homebuyers who shouldn’t have received them in the first place.”
“‘The up cycle went so long, a lot of people in the industry haven’t seen a down cycle before,’ said Emile Haddad, chief investment officer for homebuilder Lennar Corp.”
“At the conference, the most pessimistic of the panelists was Mark Kiesel, executive vice president of Pimco Funds, a bond-management firm. In a report issued this month titled ‘Still Renting,’ Kiesel said he remains convinced that he made the right decision sell his house in early-2006, after owning a home for eight years.”
“Kiesel…expressed concern that an extended downturn in the housing market likely will lead to slower job creation, softer corporate profits, tighter lending standards, and weaker consumer and business confidence. ‘We’ve been sailing downwind on this boat for the last 10 years, and now we’re sailing into the wind,’ Kiesel said.”
“A sign of continued trouble, according to Kiesel, is that the inventory of homes for sale isn’t going down that much at a time when homebuilders are offering buyers incentives to make a deal.”
“Kiesel doesn’t see a quick turnaround for the industry. ‘This thing is going to drag out longer that many people think’ — a year or more, Kiesel said.”
“There currently is turmoil in the subprime segment of the industry, and banking trade groups are pushing for reforms, something Congress is considering.”
“‘We know it’s going to be bad,’ Cutts said, referring to problems in the subprime market. ‘How bad, nobody knows.’”
“Among the problems, Cutts said, is that many borrowers lied or misrepresented their financial positions to lenders, and there has been an increase in lending fraud in the industry. ‘The sophistication of the fraud is mind-boggling, and it is very professional,’ Cutts said.”
49.9% ?
“‘But the norm appears to be just the opposite,’ said Dugan, whose agency regulates nationally chartered banks. ‘Nearly 50 percent of all subprime loans last year accepted stated income,’ meaning the underwriters did not verify the information provided by borrowers on loan applications.’”
Amazing Shocking Unbelievable this could happen right under our IVY LEAGUE nose…..
Maybe our 1/4 Million dollar PHD diplomas are not good enough anymore…we need to hire people with STREET SMARTS…
Who made this mess?
Greedy People - period
The Teaming masses (also known as ‘unwashed peasants’ a few hundred years ago) of middle and lower middle class who “deserve” a home
The Lenders greedy for commissions and fees
The Realtwhores greedy for commissions
Wall Street - eager to leave others holding the bag
The gubmint and Helicopter Ben with political interests to keep these plates in the air.
We can go on here, but these are the major ones
Don’t forget the stupid investors/savers who trust FDIC and their company 401k plan managers to cover them. I still don’k know exactly what’s in my 401k money market fund, so put me on the list too.
Foreign central banks factor highly on the list too.
My stable value fund in my 401k is 30% MBS. Now ask me if I WANT it that way - NO! But none of my other choices are any better.
Dam!
Why not take the hit and free up your ill defined future and handle it to the best of your abilities?
Have faith in yourself, you won’t cheat you.
Its Crazy Credit:
In writing, ask your HR dept to consider changing the investment profile of your Stable Value Fund from mortgage investments to high-quality corporate bonds. Much safer, imo.
In your letter (sent Certified Mail) enclose copies of various articles (preferably from the WSJ - this newspaper is accepted in courts) supporting your position and the shakiness of the mortgage investment industry. Let them know that your 401K is YOUR retirement, and if they are not willing to change, at least they could free you up to manage your own 401K investments (Lockheed Martin does this).
Most 401K plans are managed by fee-heavy companies with loads front & back, fees of various sorts, etc. Try to get them to switch to Vanguard - they manage 401K plans for employers - without the loads.
All the best to you.
~Misstrial
Well I’m a member of the middle class and I deserve a home. I just wasn’t stupid enough to commit to suicide loan to get one.
I am a member of the middle class too. But I know what sounds too good to be true always is - so I am with you. Unfortunately, too many people do not have your sensibility….
I look at it this way…
I can buy an Airplane for around 30k
I can buy a Ferrari 550 for around 60k
In San Diego I can buy a 700sqft 2bdrm house for around 400-450k
Hmmm…
I choose to rent for $1300 and buy a plane in cash. Then enjoy my plane and in 2 years buy a house in cash.
“let’s not sugar-coat what’s going on here” said Dugan who represents the comptroller of the currency bla, bla, bla,..it’s bull shit. Who was the one to “fight a law suit by the San Francisco District Attorney against Capital One on fraud charges of hidden fees, late charges for banks cover up of customers paying “on time” but bank then added late fees and automatic higher interest rates on unpaid balances and later was proved fraud and lies but bank got off with few million dollar fine [jump change] to over all profits they got to keep. Comptroller of the currency new along what was happening and looked the other way as the thieves contined. The watch dog remains “silent” and only “barks”.
Actually - it’s weird that you mention Capitol One. I have great credit (been above 750 for over 5 years). About three years ago, I had a Cap One Card. In December 2004, I sent in a full payment six business days before it was due. The payment some how posted one day late. Since it was December, some of the lateness may be due to slow Christmas mail. However, the bank was nice enough to charge me $30 for paying ONE DAY late. I was furious and have not used that card since. I even called to complain to no avail. Later on, I heard that Cap One was doing this on mass and making huge fees.
YES its a common trick……….thats why i pay everything online….they deduct my CC payment usually the next Business day from my checking account.
NEVER EVER mail anything anymore, unless you send it return receipt, so somebody has to sign for it and the date….
If they signed for it 4 business day before its due then it got posted late….i think the Attorney general would like to know why?
Not to nitpick but…. “jump change” = chump change, i.e. an amount that even a chump has.
In my career as a “Headhunter” I found P.H.D’s to be some of the narrowest of candidates. Conversely, those with ‘Street smarts” the wisest.
I plan on getting a PhD, but I grew up in the ghetto. How much is somebody worth who has both a PhD and street smarts?
Nothing. Well, the street smarts is worth something. The Ph.D. isn’t I have a Ph.D. in science. I regret it.
Get an MBA.
I have an MBA. An old MBA. Be careful what you wish for. You just might get it! I am involuntarily retired.
Nothing. Well, the street smarts is worth something. The Ph.D. isn’t. I have a Ph.D. in science. I regret it.
Get an MBA.
And Paulson yesterday said that sub-prime was contained and the housing market is recovering…
So far as I am aware, the subprime implosion was not even on the radar screen last fall, and it appears to be continuing with great vigor. It seems highly implausible that anyone on the planet could predict the fallout of 74 home mortgage lenders (and counting) going bust in the span of less than five months.
Nonetheless top policymakers blithely insist the situation is “contained.” And their remarks never seem to be supported by any hard evidence. What do they know that the rest of the world does not that makes them so confident (or is it just a bluff)?
==========================================================
Latest count of major US mortgage lenders that have croaked since late 2006:
74 lenders have now gone kaput
http://ml-implode.com/
If you go to the oldest news posted on implode-o-meter, you learn that the short interest ratio in NovaStar, LEND, and NEW at the end of last year was something like 32%, 26%, 23% respectively. So, SOMEONE was expecting trouble. Just not admitting it.
It seems that Paulson claims that housing is recovering once a month before the actual, usually very bad numbers of sales/permits/starts etc. come out. This is a signal for someone (maybe hedge funds and Goldman traders) to buy the builders and lenders, especially those with high short interest. When I learned that so many SPF (Standard Pacific) June calls were being sold yesterday, I bought a few myself, in case the buyers really know what they are doing.
I didnt know bears had a herding instinc:->
There’s been a problem with bear poaching, for quite some time now…
It seems the gall bladder has certain aphrodisiac qualities, for those that believe, in Asia.
I wouldn’t mind a few getting poached for their gall, real or imagined…
Paulson and Bernanke is following Greenspan’s advice: Keep saying it (housing problem is contained), and eventually people will believe it.
Did Paulson offer any evidence to show that subprime is contained and housing is recovering? Slow down in the FB default rate ? Increasing home sale?
It is beginning to look suspicious these “private equity” funds. Is the Fed or the Chinese hiding behind them?
“…a UPS driver who earned a quarter of a million dollars last year,…”
LMAO.
$250K! I’m closing my shop and applying at UPS right now. AND opening a lan care service on the side. LMAO from atop the highest mountain I can find.
“‘If you took into account every person with a lawn care service on the side, there wouldn’t be a blade of grass left in the United States,’ he said.”
LMAO. Credit Lowman with the quote of the day.
Betcha a lot of those lawn services are in AZ where many people have gravel as their “lawn”.
Eff college, I’m sending the kids over to UPS
To be fair, they probably would make more as a UPS driver than as a college grad.
certainly when you offset the cost of the education. Payback period has to be at least 20 years - more or less depending on the jobs they get post-college….
My kids attend Mesa at 20 bucks a unit and will transfer to SDSU. There will be no pay back period as we pay as you go.
Maybe for private college… I paid $6k/yr in-state tuition at Georgia Tech. Now, that 5 yrs tuition is how much I put in the bank every year. I agree that some people overpay for what they get, but it would be foolish to generalize.
But who knows? Maybe I’m the fool for putting money in the bank…
nah, i made the mistake of paying for a private education with loans. I do have a good salary as a result, but 6 years later, i’m only 2/3 paid off. On the other hand, that may be what kept me from buying a house, knowing how hard it is to pay off debt.
I wonder how long until their union is busted?
Bust that union, I don’t think so. I’m sure if they did go out on strike again that would make Fred Smith’s day. That strike cost UPS over a half billion dollars.
From what I have heard, you have to work your way up to delivery driver. Again, from what I have heard the career path at UPS starts at being a part-time, seasonal package sorter, and that few work their way to the coveted driver position. It must be nice to be paid for overtime.
Yes (working their way up). UPS drivers start at $50k/yr.
However, $50k is not enough to qualify for anything more than a $150k-$200k home.
~Misstrial
Ask any post doc in the UC system, they get paid crap. But then so do lecturers and new faculty.
I don’t know, lecturers do all right. I had a secondary appointment as a lecturer and it worked out to about $75 an hour including prep time, grading, and instruction.
Most lecturers (I’m assuming you mean an adjunct professor) earns from $2-5000 a course. With a full load, that comes out to less than what a busboy makes (http://tinyurl.com/yrkccq).
All of us made this mess. We elected the government that created the Fed that manipulated monetary policy which allowed the lenders to give money to greedy speculators. You and I didn’t directly set interest rates or make the decision to create asset bubbles and debase the currency, but in a way we did. It’s a fundamental flaw in democracy. When you allow people to vote themselves bread and circuses they will do it every time. We should have stayed a republic.
I blame myself, no it was Wall Street, No the FED, WAIT Mortgage Brokers are to blame…..
The blame game, everybody is a winner!!!
Absolutely correct. We created and participated in a society that rewarded short-term thinking (see post below) and rewarded those with the most unstustainable behaviors.
unsustainable
“We elected the government that created the Fed that…”
How old are you, watcher? Were you voting back in 1913?
No, but we continue to vote the same Parties into office that gave us this mess in the first place. Just as big of an event, was the removal of the partial gold standard in 1971. That party is still in office today.
VOTE WHIG!!!!!
More Know Nothings out there than I can shake a stick @…
Seems you have a selective memory, and “forgot” which party banned private ownership of gold.
Private ownership was never banned from 1933 to 1975, only coins struck during that time period and in ingot form…
There were oh so many Plan B’s, to get around this barely enforced law.
Yes - interesting why Shaun would blame the party that eliminated the partial standard to foreign countries and let the party that eliminated the standard to its own citizens and made gold ownership illegal. Maybe Shaun should brush up on his history
What? I am blaming both parties (notice the plural in the original post) for this mess, and more specifically the people that continue to elect them. I was just using that particular example. I didn’t talk about banning the private ownership of gold.
R O N P A U L ! ! !
R U P A U L ? I don’t think I could take -that- in office, and the conservatives would never go for it.
Not to mention the confiscation of private gold. That party too is still in power today.
The Federal Reserve, creation of and support of Fannie Mae, American dollar dominance, and foreign government mercantilism are the primary drivers of the credit and housing bubble. I do not blame “us” as the American people. A very few bamboozled us into creating the Fed. But you are right, we should have stayed a republic with strong state rights.
“But you are right, we should have stayed a republic with strong state rights.”
Why? Because we could follow the housing bubble with a slave bubble? I can see it now: “Buy a slave now before you are priced out of the market! Slave prices never go down!”
I put the blame squarely at the foot of the MBS bond purchasers. Chasing yeild without appropriately pricing in risk is what opened the liquidity floodgates. The inherent risks in these securities may have been understated- but it didn’t take a genius to realize that things were out of whack (we’ve been talking about it here for years), and I fault them for not taking basic steps to ensure the mortgages they were purchasing were not fraudulent ($250K UPS drivers). If it’s too good to be true (yield vs. risk), well then…
Brokers are at fault too; but put in that situation (high fees for high risk loans, with nobody doing real underwriting, and people lined up to buy the crap) should we have expected anything different?
Flash $1M in front of J6P, and I think that behavior was easy to predict too.
The best experience is always bought. The market will eventually correct itself; investors finally seem to be taking some long overdue steps- that’s where the real tightening will come from, not the fed, government, or lenders (I gave up on J6P a long time ago). I’m just hoping investors are forced to take their lumps for this idiocy. The real sob stories will be Grandma’s eating dog food, because of massive MBS failures in their pension funds. That’s where I think the real bail-out efforts will eventually be targeted.
When you allow people to vote themselves bread and circuses they will do it every time.
I forget who said it, but IIRC the quote is: “When a people lose the ability to govern themselves, they will end up governed by tyrants”
learned this in a newspaper puzzle when I was 13 - 20 years ago:
“If money be not thy servant, it will be thy master” - Francis Bacon
Too easy an answer, Watcher. “We” did everything…defeated the Germans in WWII, eradicated smallpox, slaughtered the buffalo, went to the Moon, poisoned our air & water, invented baseball…..
The specifics of this situation were created and fostered outside of our ability to see what was going on. Even if we could see what was happening, we could not have stopped it.
The beauty of a democracy is that change takes time because it take consensus. The great flaw of a democracy is that change takes time because it take consensus.
Stop with the incorrect “democracy.” The Constitution guarantees and republic, not a “democracy.” Please, for the republic’s sake, find out the difference, and spread that word. Stop spreading the “democracy” piece. It isn’t even the system of governance we have, yet we want to spread it to the rest of the world. Absolutely stunning.
Testify, kerk! This “democracy” business really frosts my patootie and unfortunately, that’s the form of government most people think we have!!!! Some compromise and call it a “representative democracy”. It’s a REPUBLIC!!
“Kiesel doesn’t see a quick turnaround for the industry. ‘This thing is going to drag out longer that many people think’ — a year or more, Kiesel said.”
“A year or more” - if this is long-term to people, well I just won’t go there
Lordy, I laughed at that one too… A year or more is wildly optimistic and this is coming from the one self declared pessimist. Get REAL folks.
Kiesel and the whole PIMCO gang think this thing could go on a lot longer - he just wasn’t putting their opinion down on paper. He was right on the sale of his house, and for that, and he gets credit, BUT… PIMCO has been big wrong on the credit market for over a year. They thought the “slopover” from the mortgage mess to the “real” economy would have happened by now, and that the economy would have slowed dramatically and the Fed would have been forced to lower rates. They’ve been wrong and have underperformed their universe in a big way. And continue to do so…
But the same could be said for most of us here.
Truth is, IMHO, “someone” is trying desperately to contain the “subprime mess”. It SHOULD have corrected a long time ago.
Just think…we could all be here three years from now saying the same things we’ve been saying all along. I’m beginning to worry that we are wrong, not because of fundamentals, but because the PTB will throw a wrench in the works in the form of various expensive & failed attempts to prop up the market.
Maybe his is a real pessimist. How far down does he think things will go in a year?
Here’s the link to his latest comments from the PIMCO website. Looks like he’s talking another couple years.
http://www.pimco.com/LeftNav/Global+Markets/Global+Credit+Perspectives/2007/U.S.+Credit+Perspectives-+5-2007.htm
From CNN Money. “The subprime mortgage meltdown has been a shock to industry insiders, but now they say it’s hitting harder and faster than expected, even to those who predicted the crisis in the first place.”
Oh come on. They didn’t want to believe it.
Credit to Ben. He saw it.
Today, I am sick and tired of everything. I’ve HAD it and this article just put the icing on the cake.
Grumpy novasold
I’ve had it, too. I am deeply disturbed that the Treasury Secretary has taken up an active role as a cheerleader for the home building and home lending sectors.
I’v had it too. I’m not buying any more condos or spec homes until the next bubble.
Most people who post this blog regularly (I’ve been here for over 1 1/2 years) are all pi$$ed off and completely put out when we read this sh!t.
What scares me is that I now trust no one. I really feel that we are fed propaganda all day, every day. I never used to be this cynical (I am not at 100%), but I wonder if we were always fed this BS - at least to this deterimental degree - or this is just specially egregious….
Nauseously submitted,
M.B.A.
noW at 100%
I completely give in AS OF TODAY - to cynicism.
Let the vomiting begin.
Don’t be cynical, be sarcastic…
Crazycredit - I just posted the same thing on another string. The shame is that a lot of people buy into the propaganda, but I guess that’s the point, isn’t it. Ever listen to right-wing talk radio? Quite scary.
Aladinsane, why can’t I be both?
IMO, it’s always been this way. It’s just much easier to see through the BS now that information is not controlled by a few powerful individuals.
I used to think NEWS was suppposed to be unbiased, reporting of facts.
I am not sure how anyone can say that they think that this is still the case (if it ever was). Take the blinders off sheeple and wake up!
Fair and balanced my fat a$$….
Chad…
go ahead
Baghdad Paulson…
Re: Paulson cheerleading
Much as “Easy” Al Greenspan promoted the use of interest only loans (Feb ‘04) just a few months before raising the FFR off the 1% floor (Jun ‘04), Paulson’s comments could produce similar unwanted consequences.
In other words, the latter is perhaps going to create a whole new class of knifecatchers here in 2007, should anyone take what he’s saying seriously (I suppose knifecatchers, of a sort, could include lenders; for certainly, he’s signaling to the remaining ones that he thinks it is “OK” to keep lending).
And as mentioned by others, the Street’s Pig Men may know this as a signal of another kind (helicopter drops) and, of course, will have the opportunity to profit greatly from it.
Real Goldmen stay away from the likes of goldman sachs and their agents of zoom…
This credit bubble and its natural conclusion reminds me most closely of Charles Southwick’s experiments of rats in a cage with unlimited food.
Substitute easy credit for rat feed, and the resulting orgy of loan-feeding and unsustainable housing growth ends in cannabalism and territorial protection. Seems all very normal.
Not rats, more like frightened winged insects…
As in Lord of the Flies
While we are at it, how about we ask the question of why the folks asking for these loans were not able to do a little policing of themselves?
I am all for getting rid of the morons that were in the predatory lending gig. I would also like to hear calls for personal responsiblility in these articles. Not everyone was hoodwinked by corrupt loan officers. The majority (imo) went into this with eyes wide shut because RE was a sure bet (emphasis on bet) and lied their ass off on everything from owner-occupancy to income. BK and jail the whole lot of them.
The majority (imo) went into this with eyes wide shut because RE was a sure bet
And “everyone” was doing it. I imagine that for some it became discouraging to see their “friends” buying luxury cars, taking expensive vacations, etc. with their real estate “gains”, and no doubt they believed that they were missing the boat.
As I mentioned some time ago, my sister had been browbeating me into house flipping in Dallas, because “its easy money and everyone is doing it”. She hasn’t bugged me about this lately.
So true auger -inn. I have never seen borrowers act like they did during this boom . I can’t help but think that in most cases the borrowers knew exactly what they were doing ,especially when they lied to the degree they did on the loan applications . As the boom went onward borrowers began to believe that buying a higher priced property would net them even more short term profit to the point where you were seeing million dollar flips .I really think the borrowers ,for the most part ,were willing horses in this investment scheme that was sold by the industry .
The zero down no skin in the game made it even easier for borrowers to feel they had nothing to lose . Now these same borrowers are playing the victim card and a few have even said that the lender should not of given them the loan .Borrowers are starting to cry foul because real estate didn’t go up and in many areas it’s crashing . People are just walking from their loan obligations ,especially since they now are getting reset rates up to twice the amount of the street prime rate. Borrowers are finding out they can’t refinance in a tight money market like they were promised by the industry . I guess the borrowers never knew that money can dry up and one would have to live with that toxic loan they bought into .
Do you let everyone off the hook because it was a housing mania ? If the Industry just keeps making bad loans to new falling knife catchers ,the same problems will repeat .IMO ,its better to get back to good lending standards now and let the correction take its course as bad as it’s going to get . I am also going to lose money on my current house but thats the way it has to be .
I agree auger inn.
I know a few different couples who have recently refinanced their way out of scary financial situations instead of cutting back on any spending. In CNY, refinancing my modest home would cost me about $6500 in fees. These people are more in the $8000 range.
So they’re afraid of what’s happening to them financially…
and the answer is to add $8k to the overwhelming debt they already have?
Let’s also add the 5-6 years of interest on their (hopefully 30 yr fixed) first mortgage that they just threw away when they started over.
These people are certainly intelligent enough to understand their choices. They just can’t bring themselves to fall off their imagined social platform and admit they’re really just one of the little people. So instead, the screws get turned a little tighter….
Great post!
~Misstrial
The majority (imo) went into this with eyes wide shut because RE was a sure bet
Let’s not forget this twist either - people “talked” into loans by fast-talking loan officers and then trying to claim victim because they didn’t read the paperwork
“Michael Marriott, managing director for Credit Suisse, said, ‘Last October, I predicted the subprime market would collapse and many issuers would go out of business. But the violence and speed of the market sell-off surprised people.’”
Really? You were surprised? Major financial publications predicted the sharp sell-off for years.
Let’s take these quotes from The Economist magazine:
*
2002: “The Economist’s new global house-price index confirms that spring is in the air. But will the housing booms in America, Britain and elsewhere end in bust?”
*
2003: “Is another bubble about to burst?”
*
2004: “Spending is increasingly being driven by higher asset values rather than higher incomes.”
*
2005: “The worldwide rise in house prices is the biggest bubble in history. Prepare for the economic pain when it pops.”
*
2006: “Homebuyers can lose money even if house prices do not fall.”
—
But when it finally burst you were “surprised”? This halfwit should be fired for ineptitude and a total lack of awareness. This reminds me of that Woody Allen routine:
“Your mother went so quickly”
“No, she was sick for months”
“Yes, but at the end when she finally died… that part was quick”.
“lenders focused only on short-term profits benefited from the housing boom”
By short term you mean 6 -9 months. Reason being is that, with most of these notes, once you bundled these babies and sold them off, all you needed was them to stay in tact for 6 - 9 months so you wouldn’t have to buy it back. Fund the money, sell the note, and then cross your fingers the borrower doesn’t default right away. With a system like this in palce who gives a crap about the long term.
What a travesty. How am I supposed to buy a home when I’m limited to borrowing only what I can realistically expect to repay?
Next month, I’m closing on a Ferrari. I’m getting a 2/28 interest only loan. It’s only $1500/month. After that, I plan to flip it.
–
Who Made This Mess?
Always look at the source, or root causes, not miles downstream.
Extreme involvement of the USG in housing for the past several decades. Fannie and Freddie are just part of that.
The Federal Reserve’s “emergency rates” policy and lax supervision.
Wall Street firms and bankers that packaged toxic loans with the rest.
The most important component this time around was Pushing of Debt with all of the above involved in the game.
Jas
Careful… the next logical leap would suggest collusion among all parties before the fact.
–
Certain corruption is systemic and no overt collusion is needed.
Jas
“The head of the mortgage banking industry’s trade group claimed mortgage brokers and lenders focused only on short-term profits benefited from the housing boom, but didn’t do enough to examine whether borrowers could repay.”
Who would have been stupid enough to willingly purchase these loans and repackage them for sale to MBS investers?
–
Gee, if you can make money by doing stupid things why wouldn’t some do it?
How about limiting lending to private companies and partnerships, i.e., one shouldn’t be allowed to lend OPM with no consequences to him, or her. There should be no more than one intermediary, a person and not an entity, between the real owner of the capital and the borrower. Banking, especially, lending, can’t be handed over to salesmen!
Jas
“Gee, if you can make money by doing stupid things why wouldn’t some do it?”
Agreed. And the problem at the moment for the MBS packaging industry is that if you no longer can make money doing stupid things (like buying toxic MBS), then most will no longer do it.
–
Perverse incentives never fail to produce results! Unlike sound incentives the perverse ones spread like wildfire.
Jas
“The head of the mortgage banking industry’s trade group claimed mortgage brokers and lenders focused only on short-term profits benefited from the housing boom, but didn’t do enough to examine whether borrowers could repay.”
Fast food restaurants focus only on short-term profits benefit from the fact that Americans love greasy food, but don’t do enough to examine whether they are cutting short the lives of their customers.
“Robbins said Congress should not rush to legislate when the market already is fixing itself, driving out those who took too many risks. For example, New Century Financial Corp. and more than 30 other subprime lenders have gone bankrupt this year.”
“‘Many of those who most abused the system are already out of business,’ he said.”
So the new punishment for fraud is “going out of business”? Let’s see, borrowers who lie on loan applications file bk and walk away, and lenders who make impossible-to-repay loans (sold to other fools) go out of business. Now that’s what I call justice.
…and then watch them get right back into business using another name…
A fly on the wall @ Pimpko(rporate)
“At the conference, the most pessimistic of the panelists was Mark Kiesel, executive vice president of Pimco Funds, a bond-management firm. In a report issued this month titled ‘Still Renting,’ Kiesel said he remains convinced that he made the right decision sell his house in early-2006, after owning a home for eight years.”
Seems like the investors got a little too clever and the financiers were too happy to oblige them.
I’ll bet the yield calculations for mortgage securities worked with non-exotic mortgages, with truly qualified lenders. Then, brokers started making commissions, and investors stopped being able to differentiate (either through fraud or self deception) between products that had 30 year fixed mortgages, and subprime. I’ll bet they were all sold as ‘mortgage backed securities’.
But please, don’t regulate the market. Don’t prevent the irresponsible and stupid from getting loans they will default on. Because as long as those people get loans, brokers make money.
The rest is between the faceless investors and the FB. As long as the public (somewhere) is willing to buy very risky/fraudulent securities, the industry will continue to provide them and make money off of them.
Lets Cutts to the chase…
“‘We know it’s going to be bad,’ Cutts said, referring to problems in the subprime market. ‘How bad, nobody knows.’”
“Among the problems, Cutts said, is that many borrowers lied or misrepresented their financial positions to lenders, and there has been an increase in lending fraud in the industry. ‘The sophistication of the fraud is mind-boggling, and it is very professional,’ Cutts said.”
Fraud was the rule, not the exception…
Indeed. Corner-shaving and winking deceptions became ‘normal’. Just the way business was done in the early 2000’s REIC.
Death by a thousand Cutts?
“The sophistication of the fraud is mind-boggling, and it is very professional”
Actually, it was fairly amateurish and easy to ferret out, if anyone had cared. Many bloggers have been ‘outing’ straw buyers and corrupt appraisals for ages. How ’sophisticated’ is claiming that you have $50k in undocumented income when you can’t speak English and are clearly earning minimum wage. Sherlock would not have broken a sweat. They are calling it ’sophisticated’ and ‘professional’ as a lame excuse as to why they did nothing about it.
J6P is known for his financial sophistication. I’m not surprised that he was behind the design of the financial instruments that then allowed him to fleece the idiots on Wall Street, I’m just surprised that they fell for it. I won’t be satisfied until I see J6P doing the perp walk and spending some time in Club Fed.
“‘Let’s not sugar-coat what’s going on here,’ said Dugan. ‘The practice of inflating income is at best misleading, and at worst, fraudulent.’”
Just wait ’til they realize inflating income wasn’t unique to Subprime borrowers. I bettcha a lot of that was going on under the AltA umbrella as well.
But what about Prime? Is there such a thing as a Prime borrower being allowed to go stated income? I know 100% financing was available for Prime, not sure about the “no doc” though. Anyone?
I have always had to provide documentation up the wazoo: 1040s, W2s, paycheck stubs, bank statements, 401(k) statements…
Of course no doc, stated, 100% was available to us in the prime category. My wife and I were constantly finding this. The bank figured that if our credit was good enough, we must be doing something right. Besides, prime could call foul if the lousy credit, low income crowd was getting “better treatment” than we were. Oh, wait, that already happens with education, healthcare, welfare, I could go on.
The NAR is the scum culprits along with the entire REIC clan
“Lenders are also scrutinizing applications much more carefully, and many don’t like what they find. Lowman said he had recently looked at a low-documention application for a UPS driver who earned a quarter of a million dollars last year, or so the application stated.”
“‘If you took into account every person with a lawn care service on the side, there wouldn’t be a blade of grass left in the United States,’ he said.”
Wait…Wait…DON’T FORGET the Strawberry Pickers!
What about the Strawberry Pickers in YOUR Grand Lending Coalition of the Shilling?
Who’s to blame.
One word!
Ben Jones!!!!!
After Tom Lehrer:
“One man deserves the credit!
One man deserves the blame!
And Nikolai Ivanovitch Lobachevsky is his name!”
Oy!
My wife and I did a kind of flip this last run. We rented out our current residence and put 20% down on a SFR in Long Beach in July ‘03. We held it for 18 months and dumped it before George Junior was re-elected. I swear we are gonna wait until the bulls are running again (maybe 5 years, maybe 15, maybe never) but we are gonna spread it out thin. Circus here we come.
“Kiesel doesn’t see a quick turnaround for the industry. ‘This thing is going to drag out longer that many people think’ — a year or more, Kiesel said.”
Haha! He made a funny! How many did really think this would only last a few months???
knifecatcher supply is still strong, sheeple are easily convinced that the worst is over . . . besides, the NAR told us so
I say the meltdown really begins when Seattle sinks (oh, wait. It is different there…) Should be about a month before things get ugly. Then the sheeple will run for the cliffs.
Comment by Curt
2007-05-23 09:52:17
U got that sinking feeling curt.
If it wasn’t for bloggers like him and others that exposed the scumsters many more dopes would have been sucked into this fraud ponzi RE scheme.
Just kidding.
Ben is aces!
Ben is a Royal Flush
The REIC is all in with 7-2 offsuit, and they’re desperate for a 772 flop. Let’s make sure the government doesn’t help them stack the deck.
“First American’s eAppraiseIT LLC, which values up to 15,000 homes a year in New York, was asked for information about appraisals performed throughout the state, President Anthony Merlo Jr., said in an interview.”
Ah…so that’s the deal.
This POS operator’s appraisal division in MA consisted primarily of a collection of cubicle dweller telemarkeers cold calling prospective borrowers to “sell” their implied services of appraisal “number hitting” which could then be utilized to cross-sell a “guaranteed” secondary market conforming mortgage.
I used to see their “Help Wanted” ads in the local rag every week.
Never could quite understand why an “appraisal” operation would want a phalanx of telemarketers.
Now it all makes sense.
The bottom of the mortgage lending cesspool knows no depth.
And his comment about the investigation being ‘welcomed’ says he’s either totally clueless or a seasoned perp. My guess is his next move is the hands-behind-you-back type, with the obligitory ‘I welcome this opprotunity to clear my name.’
Who is to blame? Of course many brokers are incompetent, unethical or criminal. There is very little to no training or licensing. So blame the regulators. However, the mortgage bankers/lenders knew this, so blame them. If you put a gallon of ice cream in front of a 5 year old, he/she will eat too much.
Ultimately, blame Wall Street for creating products that defied the wisdom of 50 years of mortgage lending standards. Those standards were there for a reason, because they were proven over time in various market conditions.
It is very simple. Sufficient income and reserves to cover the mortgage, taxes, insurance and maintenance. And some equity in the house to give incentive to pay in periods of dropping prices.
I talk with and see people every week who bought in the last 2 years and cannot afford the payment. They think they can refinance and lower payment or rate. And, like the woman I talked with yesterday, think that the price has increased since purchasing last August and wants to take out 10,000 (she bought with 100% financing with housing expense over 60% of her true gross income.) And her rate/payment has not even adjusted upward….yet.
Based on what I see every day here in SoCalif, things can get much worse……if prices do not start increasing soon….and I do not see how they can.
But wouldn’t you agree Senible Lender that in many cases the borrowers had to commit fraud in order to even qualify on the easy to qualify loans ?
Yes , the fact that the loan investors were even offering no down stated income loans for sub-prime borrowers was stupid ,but still the income statements were so fraudulent that it was a joke .There was a serious breach of the lenders duty to prevent fraud and actually underwrite the loans/appraisals they where passing on to the secondary market . Didn’t the Wallstreet investors pay the lenders a big commission to screen the loan applications ? Certainly the average joe who had investments in MBS’s was not aware of just how high the risk was, based on the ratings .To rate this junk paper higher just because the foreclosures hadn’t come in yet was wrong ,especially when your dealing with a adjustable loan . So what if a borrower was able to pay a teaser rate for a short while .
My point is that the fraud factor with lack of sound underwriting with loan applications was the biggest single factor that kept the party going ,IMO .
lack of sound underwriting
Hard to get sound underwriting when you have a bunch of originator thugs beating on your desk with baseball bats.
Goon Squad
Yes, many borrowers committed fraud. They lied about their income, jobs and assets. Often greedy, coached by their broker, and observing that no one gets prosecuted for it. So this goes back to the lenders for eliminating guidelines that would have prevented it.
Agree 100% Sensible Lender!
Another condo complex under construction in San Diego torched this morning in Point Loma:
http://www.signonsandiego.com/news/metro/20070523-0650-bn23fire.html
A couple of the reader comments alluded to enviromentalists doing the deed, shows you how clueless diego de los angelenos, are…
Of more serious consequence, is that these fires need an awful lot of water, to put them out.
Water that won’t be there, come the fall.
I didnt think Arson Season started till September, WTF?
Perhaps all those previously in the stock fraud business and more recently in mortgage fraud will move onto insurance fraud. The demand is clearly there.
I guess the good news is the markets forces are clearly working. Thank God we dont have a missallocation of resources.
Omaha’s started LAST September.
“‘Let’s not sugar-coat what’s going on here,’ said Dugan. ‘The practice of inflating income is at best misleading, and at worst, fraudulent.’”
What an amazing way to sugar-coat it, while pretending not to! He implies that doing so is sometimes only “misleading”. Inflating income on a mortgage app is ALWAYS fraudulent!
“‘Let’s not sugar-coat what’s going on here,’ said Dugan. ‘The practice of inflating income is at best misleading, and at worst, fraudulent.’”
Excuse me Mr. Comptroller of the Currency, you just sugar-coated it. At best, all of this income inflation is fraud.
fraud (frod) n. A deception deliberately practiced in order to secure unfair or unlawful gain.
Look’s like Jon beat me to the punch on that one in the post right above mine.
big gov luv
w their subidies ,yo
OT but this is thrue
Retirement for Gens X and Y: What Will It Be Like?
SmartMoney.com
From 80-year career spans - you will have to work till you’re over 100 yrs old !
The manner in which the Boomers are to blame is, that in the Vietnam period when Boomers were socialists, they teamed up with their own parents and grandparents to Empower Senior Citizens. Who, ever since then, have been collectively controlling and spending most of the money in the system. We all know quite well the Boomers’ retirement will be worse, and agree Gens X-Y have little hope in USA.
100 years ago, J.P. Morgan saved wall street in the midst of the panic of 07′, by showing up with tons of cash to buy stocks and show confidence in the face of a disaster.
It worked.
“David Lowman, CEO of JPMorgan Chase & Co.’s global mortgage business, said, ‘35 percent of what once could be done, can no longer be done,’ referring to mortgage loan products that have effectively been taken off the shelves.”
Not so much confidence is being exhibited with his newer hires…
Blame? Blame Ben Jones, I say!
Kill the messengers!
“Who created this mess?”
A big part of the story is the feedback loop between the subprime lending industry and the politicians whose puppet strings they control through campaign contributions.
———————————————————————————
California slow to curb subprime home lenders
Industry contributes millions to politicians of both parties
Matthew Yi, Chronicle Sacramento Bureau
Wednesday, May 23, 2007
(05-23) 04:00 PDT Sacramento — As other states adopt stricter regulations on subprime lending practices, California has not rushed to restrict an industry that spent $17.9 million in campaign contributions and on lobbying in the state during the past four years.
A Chronicle analysis of spending by top subprime lenders shows that 65 Democratic and 49 Republican lawmakers in the state have received $1.2 million since 2003. The companies also donated $1.3 million to Gov. Arnold Schwarzenegger and spent $5.8 million on lobbying, according to records on file with the secretary of state. Other state political candidates, political parties and ballot measure committees also received hefty sums.
Regulators and lawmakers across the nation have scrambled in recent months to stem the tide of foreclosures prompted by the crisis in the subprime lending market. But in California, consumer groups say the response among regulators and lawmakers to try to prevent future subprime meltdowns has been timid at best.
http://www.sfgate.com/cgi-bin/article.cgi?file=/c/a/2007/05/23/MNGTFPVVP31.DTL
‘Nearly 50 percent of all subprime loans last year accepted stated income,’ meaning the underwriters did not verify the information provided by borrowers on loan applications.’
This mess cannot get started without this crap. Everything else is secondary.
Chinese must of forgot to invite Greenspan to lunch. Hope they they don’t freak out tommorrow in Shanghai…
Former U.S. Federal Reserve Chairman Alan Greenspan said on Wednesday he feared a “dramatic contraction” in Chinese stocks but said the global economy may be able to shrug off a drop in asset prices.
Addressing a meeting in Madrid via teleconference, Greenspan said the recent boom in Chinese stocks could not last.
“It is clearly unsustainable,” he said “There’s going to be a dramatic contraction at some point.”
Reuters
http://tinyurl.com/2dybbs
heckova backseat driver, greenie…
Oh man.
I think that watching CNBC try to spin this tonight ought to bring me out of my bad mood.
Oh man.
“I think that watching CNBC try to spin this tonight ought to bring me out of my bad mood”.
that is so funny and it is so true
It will be interesting to see how much gravitas Greenspan currently enjoys. Will markets react, or shrug him off?
“the global economy”
Screw the global economy, it can fall off a cliff for all I care, Greenspan. Who wants to listen to that lying old bag of wind?
It’s a shame he could’nt exhibit similar foresight in this country when he could do somethimg.
A few years ago, he was rambling on about how you can’t spot a bubble until it has popped (as an excuse for why he didn’t prevent the U.S. stock bubble). Now he says there’s one in China. What a friggin douchebag he is.
Im not sure that a conference call to Madrid garners the same type of attention as Humphey Hawkins testimony on Capitol Hill…
Chinese sleep right through it, in fact, go long on pork fried rice.
NO “must of”
YES “must have”
Ya think????!!!!!!!!!!!!!!!!!!!!!
What took you so long Al?
Continuing my post above: Since all parties are to blame: Borrowers, brokers, lenders, wall street, and regulators, they all deserve the outcome:
Borrowers deserve to loose their homes due to greed, and fraud, and lack of homework. Brokers deserve to lose their gravy train…the far-out subprime products because of their greed, incompetent and criminal behavior. Lenders deserve to go bankrupt and lose the crazy subprime products because they did not watch the brokers, and did not manage the appraisal process appropriately. Wall Street deserves to loose money and their credibility for providing these vehicles to enable. And regulators/elected lawmakers deserve to lose their jobs for blindly taking donations and not protecting people from themselves….
I think you just about summed it up Sensible Lender .
Sensible Lender,
Thanks for your most sensible posts. I moved to Sacramento in ‘04 in the runup in the housing market. The Sacramento Bee did a story about the housing boom and profiled a gardener who made $40K a year and bought a $400K home in Elk Grove. I don’t think he made a substantial downpayment. All I could think was, “How in the he** can a gardener making $40K buy a $400k house?” Funny thing was, the article didn’t seem to raise any eyebrows. Everyone told me then that I couldn’t expect to get anything decent in the Sacramento area for UNDER $400K.
I’m so thankful I didn’t drink the purple real estate Kool-Aid. Then I discovered blogs like Ben’s, and I realized that there are a whole bunch of us who didn’t drink the purple real estate Kool-Aid, don the Hale-Bobb no-doc subprime mortgage triangle, and commit mass financial suicide.
Never have so many owed so much to so many.
“The LA Times. Robbins warned against excessive regulation in response to the sub-prime mortgage crisis, saying an overreaction could prevent millions of Americans from buying homes. ‘We don’t want to revert to a time when, without perfect credit, you couldn’t buy a home,’ said Robbins. ‘Yet regulatory or legislative overreaction could prompt a return to just that — to raise the bar.’”
What would be so wrong about having to have perfect credit to purchase a home?
What about this idea:
Taking a few years to work on creating perfect credit?
As long as you have no State Tax liens or Judgments against you, your credit fix for “perfect” will only take 7 years, almost as long as the credit bubble lasted.
Gee, what a concept waiting and working towards something.
This Robbins makes it sound like a death sentence that can never re resolved.
Millions of Americans purchased homes with perfect credit for years, in fact this system seemed to work very nicely until all of the people this topic is geared towards stepped in and screwed it up.
Robbins, you are a selfish little pig.
Welcome to the new United States of America, where having any type of standard that may actually beneficially discriminatory is verboten.