The Housing Bubble

Where is this, Danni? I don’t mean a specific address, just a state or region of a state.

I get the impression that “former employees” will be poping out of the woodwork to give their take on how the evil machine was run.
I can’t help but roll my eyes.

Awesome story, wmbz. The only thing that Countrywide is missing are the guys who call up and threaten to break your legs if you don’t pay.

what do you think commissions will be in the future .5% max ,if that

No 1099’s - SLAM!!!!!

The IRS better go after this. Penalties equal 100% of what was not reported.

A different broker supplied an e-mail message from a Countrywide official stating that it was not company practice to submit 1099s?

reminds me of many cuban businesses that operate in miami//

‘But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.’

I am so glad our Fed went to bat to save this upstanding lending institution.

‘“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”

Started as Countrywide Credit Industries in New York 38 years ago by Angelo R. Mozilo, a butcher’s son from the Bronx,…’

Like father, like son.

Can you say ‘class action lawsuit?’ Plenty of angry borrowers and hungry lawyers to feed this one. I am sure the attack plans are already being formulated.

Good Morning everyone:

Here is what i don’t get:

Everything in the article about the job being geared to getting the most commissions and spending all day telemarketing could have been found years ago by just answering a few ads on Craigslist and maybe taking a Loan officer job for a few days.

Some brokers even state in their ads you will be spending all day on the phone making 100-150 calls, to introduce people to our products.

Here is maybe the new scam:

Timberline Capital is seeking Team Leaders, Team Managers, Full Teams, and natural sales people for our new office located 1 block from Grand central Station in the heart of Manhattan. Mortgage brokers and experienced salesman are a perfect match for this new and exciting industry. Teams, Closers and experience in telemarketing is looked highly upon.

As we can all agree the mortgage industry is crumbling and now would be the best time to get in on the ground level of a new industry.

What we offer is every mortgage brokers / salesman’s dream: huge commission payouts for providing struggling businesses with the working capital they need to thrive. No licenses, No long training programs, No expenses… We provide everything…
All you need to do is SELL!

We offer the best payouts in the business with an oppturtunity at over $150k per year and a great working environment located in the heart of midtown Manhattan.

OUR INDUSTRY: To provide working capital through credit card sales (Visa, Master Card,) to a variety of business’s at any size across America. This is a fast-growing, Billion-dollar industry in the U.S.

This article detailed what you knew had to be the case- that off “projections” of 28 years of mortgage payments @12 or 13% after re-set, Countrywide and brokers working with them were each getting fees of $20 plus thousand dollars per loan provided they could target the borrower low enough on the totem pole.

I feel especially bad for the elderly that were taken advantage of in all of this. With the fees being paid no wonder , there were so many stories of elderly harassment until they mortgaged up

From the NY Times article on Countrywide

A few weeks ago, the former sales representative priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620. While a F.H.A. loan on the same terms would have carried a 7 percent rate and 0.125 percentage points, Countrywide’s subprime loan for the same borrower carried a rate of 9.875 percent and three additional percentage points.
The monthly payment on the F.H.A. loan would have been $1,829, while Countrywide’s subprime loan generated a $2,387 monthly payment. That amounts to a difference of $558 a month, or $6,696 a year — no small sum for a low-income homeowner.

Since when does a low income homebuyer buy a house for over 290k?

This is a very damning article. With these kind of business practices, CFC will have a lot of fingers pointed at it and lose a lot of good will with its customers and, more imortantly, creditors. On top of all of CFC’s other problems, this taint of scandal could be the straw that broke the proverbial camel’s back.

I am rendered speechless — yet again!

Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.

As the subprime mortgage debacle began to unfold this year, Mr. Mozilo’s selling accelerated. Filings show that he made $129 million from stock sales during the last 12 months, or almost one-third of the entire amount he has reaped over the last 23 years. He still holds 1.4 million shares in Countrywide, a 0.24 percent stake that is worth $29.4 million.

hi. long time lurker, first time poster. while countrywide may have been heavy-handed or even unethical, since when do businesses have to tell you what their markup is? is there some constitutional right to get the lowest possible price?

This part of the article really cracked me up…

“We’re returning to the lending style of the olden days — before the late ’90s at least — when borrowers had to actually convince a lender that they were able and willing to pay back a couple of hundred thousand dollars, profitably, over two or three decades. Be prepared to make at least a 5 percent down payment . . . . You’ll need a FICO credit score of 680 now.”

Oh yeah, those are really tight lending standards.

“One quick way to shore up your score is to rein in credit card balances . . . . Connelly recommends keeping the outstanding balance on each credit card account to less than half of the credit line available to you.”

That’s what they regard as reining in balances? Ahahahaha!

probably need a loan above the jombo threshold? arrrgh!!!
tick tock…. like watching paint dry. i want more action - and soon!

“The recovery has arrived for the District and close-in suburbs. ”

Oh really? Elizabeth Razzi, the author of this biased piece, lives in Northern Virginia and is a veteran of two major home remodelings. I wonder if she has any money on this wave, that may have influenced her writing in the Washington Post that led her to the conclusion that we are in a recovery?

http://www.rightonthemoney.org/experts/razzi.html

I think its funny that perma-bull Elizabeth Razzi has declared the housing bust over and done when in truth we are just at the beginning stages of the bust. I literally burst out laughing when I read her quote “The recovery has arrived for the District and close-in suburbs.” Ms. Razzi obviously doesn’t understand how busts work - they start in outlying, less desirable areas and slowly work their way to the center of the region. The fact that we had one month of increased prices and volume is an aberation, not a sign of good times ahead.

I’m one of the 45 people who toured that Edgewood Street house. I’m a neighbor and I’d guess that 2/3’s of the people who toured the house that day were neighbors also. So, unlike the article’s suggestion, I don’t think there are throngs of buyers out on the hunt for overpriced houses these days. People have gotten smart and realize that houses, including the subject property, are seriously overpriced.

This house is listed as a 3 bedroom, but the downstairs bedroom doesn’t have a closet, so technically it’s a 2 bedroom. The house is decent overall. The kitchen and baths have been nicely updated in recent years. The yard is quite small and there is no driveway or off street parking, which is a bummer. In addition, there is no basement for storage space. Some of the rooms are dark.

I’d guess the proper price for this house is about $675,000 based on current comps and it’s true non-bubble value is about $450,000.

The proof will be in the pudding - we’ll see how much it sells for.

And I don’t think the owners “chose” to list it for sale, I think they “had” to list it for sale (as they are already on the hook for another, even more expensive property). Two alligators chomping at their wallet each and every month.

A question not being asked is “why should the Midwest and less expensive areas of the country agree to any bailout that will only allow the coasts to live their overbloated lifestyle?”

Expansion of Fannie and Freddie and the jumbo limit above $417,000 can only be done on the backs of citizens from Arkansas, Nebraska, Iowa, North Dakota, South Dakota, Tennessee, Alabama, etc. The so-called leaders of those states should be yelling “hell no” at any raising of the limits that continues to allow Florida, California, New Jersey, etc. to overinflate their ridiculous home prices at the expense of others.

The system is broken.

The biggest financial meltdowns seem to occur in October, every 50 years or so. Otherwise, October is a great month for steady income earnings and stock prices! Helpful?

take whatever she can get without any strings or contingencies.

If she has a strong cash buyer, I’d get em signed up, get the movers in and closed so fast the buyers heads would be spinning. Tell to grab the money and run like she stole it.

I helped my mother sell her house in 2005. We had a cash buyer that was a little lower than another buyer that had to sell their house. We took the cash buyer, and that was in 2005, when the market was strong. It wasn’t worth the risk, aggravation or time, worrying about the other buyer.

Once I had such an offer and the potential buyer wanted out. So, they held out until the last day and we lost out on all of the other potential buyers. Then the Holidays and winter set in.

Yes, a few thousand less in the pocket is better than waiting unless she’s sure they absolutely have to have her house.

I’d say “Take the ready money and run”.

Take cash buyer with min.10% deposit held in her attorney’s escrow.

IMHO . If she has a contract offer at full price ,to close in about 60 days from a buyer who has a sale not subject to a house selling ,and her agent has determined that the buyer can qualify at new lending terms ,go for it .I think I would want to find out how solid that sale is that is due to close in Oct and what the terms are ,(ask for a copy of the escrow instructions on that other sale ).

Why, in this environment, would anybody even think of waiting if they don’t have to? With things deteriorating so quickly, the time between now and Halloween is an eternity.

Here risk/reward is skewed heavily towards risk if she waits until the Jack-o-lanterns are glowing. I would take less and get the heck out now. There is no question in my mind.

I used to be a realtor and lower price or not, cash sales should be your first choice. That other buyer with the contingency could have 5 other contingencies beneath theirs. Anything could go wrong. Cash buyers can back out too, but it’s still a little less risky. Also by Oct prices could fall and that buyer could back out anyway, or they could lose their job. Better to take what’s in front of you in the here and now. That realtor is only looking at her larger commission and maybe she’s tied to the other sale also.

Maybe your friend can ask to see the buyer’s contract. That way she can see where the possible risks are. For instance, if their buyer has a contingency for getting their financing or selling their house, then your friend may consider taking a lower offer.

CarrieAnn: How nice that you have a friend who values your advice. Tell her that she should accept the offer with the highest down payment from buyers with excellent credit and good jobs. If she can pull off a sale before the fall, she will have dodged a bullet. She will thank you next spring.

It seems to have been pretty bad. Flew into O’Hare from SFO Friday night after a delayed departure and when we taxied to the gate there were a lot of planes just leaving. The departure lounges were full, 4-hour delays. I worked in travel for 20 years. Something looked really wrong to me. It should have been winding down at that late hour. Said to the son–my ride–Gee, when I called A___ to tell her we were delayed she said you’d had some bad weather. O’Hare looks like the End of Days and everybody decided they wanted to be with family. He says Oh, she always understates everything except bugs, then it’s “There’s a great BIG spider in here.” A lot of trees down in the NW exurbs, rumor of a tornado touchdown in Aurora, SW. His wife later told me there were so many trees down along the Fox River in West Dundee they closed the street; if you drove around one you just came to another one that fell down the other way. Drove back to Iowa–doing the caucuses–and my shortcut through DeKalb to the Interstate turned into an hour; flooded-out streets, traffice jams. Sitting on Lincoln Highway by NIU, noticing a lot of water coming down the drive of one of the houses there, thinking they were washing their car, then the next house, thinking they were washing their car too, how odd, then–doh! They were pumping out their basements. Stopped at Dixon–the dog likes Lowell Park–and the Rock River was completely out of its banks, up to the top of the bridge supports in town. Mississippi was not terrible at I-80, just quite high. All the other rivers looked over their banks. Kind of funny to see, after coming from a wildfire in Sonora, firetrucks lining the playhouse parking lot, chuck wagon and all, when we got there for a performance Thursday night. They had closed the little mining town in the park and were watching the wind so they could evacuate the theater if it shifted. A lot of dead trees around there, severe drought.

Findley OH had severe to total loss of 700 homes and their main downtown streets were still part way underwater a couple of days later because their river was so high.

Northern Cook county got hit a bit hard. A co-worker in Mount Prospect had his basement flooded after the heavy rains blew out a basement window. Quite a mess for him, ouch! Ended up bailing water with the juice out (did have a battery powered pump & it helped). In the end not too much damage & they did manage to restore the power ~ 8 hours later. There were lots of trees down, flooded roads, stalled cars & tons of other problems. The strange thing was the beast missed us in Lake county (~ 15 miles north). The mess has been mostly cleaned up, and the forecast is for sunny skies for the rest of the week

At least 200 miles inland and at least 50 feet of elevation above the nearest stream, river or lake.

Flood insurance? We don’t need no stinkin’ flood insurance.

I sent a nice photo of a home builder using the construction water truck to spray the lawns of all the foreclosed houses in his subdivision. You know, the ones right next to the builders for-sale inventory. Why…….why, it is hard to see that 14 houses are bank owned, abandoned with no utilities turned on. Why, why…..they look just like regular houses……right next to the builders for sale inventory……

It is so nice of the builder to keep up the neighborhood like that.

Ben never posted the photo, so I sent it in to this site:

http://tinyurl.com/yrhjqs

Got Water?

I know some Bob Brinker fans. I object to market timing, which is what Brinker is into. Once I looked up on google for some critical opinions of Brinker. There was an issue of QQQ (or is it QQQQ?) where Brinker advised to hold onto it after the 2000 crash. A lot of people lost money. Brinker censors anyone to this day who brings it up.

My friends do say that I am following Brinker’s advice to some degree by buying up Series I savings bonds and being into Vanguard stock index funds. But I tell them I do not time the market. I’m now getting into TIPS, by the way. Although they don’t immunize me from the AMT, I have far more Series I bonds than TIPS. But the ten year TIPS have a higher fixed rate than series I.

Your brother may be right about the P/E ratios. The P/E of the S & P 500 is not out of whack. People here are in denial of the fact that many stocks and indices are still well below their values in the year 2000.

Umm…4th quarter earnings reports may be a disappointment. Scratch that…First quarter earnings in 2008 may be a disappointment. Scratch that…Second quarter…See what I’m saying? Lots of pundits here predicted a severe stock collapse soon. 15 months ago someone on HBB said he pulled out all the money from stocks and put it in cash. OUCH!

Don’t you love it when your parents admit you’re right? Especially when your brother is wrong!!!

And the hits just keep on coming. We’ve had at least one similar story (although it didn’t involve a stripper, that’s a nice touch) here in the Tampa Bay area. I wish there were some way, when all is said and told, to know how many people in the US ran schemes like this.

“But when the homes passed to the straw buyer, Metropolitan would borrow as much as possible against the value, effectively siphoning out the equity and increasing the cost of the house, according to the suit.”

From stripping off clothing to stripping out equity — that seems like a fairly natural career transition. Maybe her next career move should be over to Wall Street, as she seems to have an intuitive grasp for the corporate raider concept.

“Last month, the (their) house went into foreclosure.”

Justice is swift!

What about their son riding in a limo to school. Idiots!

I’ll bet they spent every last dime….. and their “home” is not even in their names

Plus I seriously doubt they would have thought to keep a mill or two in gold coins for their escape.

Ochoa suddenly closed down the Solco branch in early June…Ochoa suddenly cancelled his listings for 24 of the houses, which he had been trying to sell.

But, but,…he already found a new line of work. Look…

Ochoa started this month as an agent with a Temecula-based real estate brokerage that specializes in selling bank-owned properties, including several in the same neighborhoods where he once operated.

Man, he didn’t even feel it was necessary to get the Heck-outta-Dodge.

Now you know why all the MBS paper with 92% tranches rated AAA is hardly worth 50% of face value. $450,000 houses financed at $650,000! If the lenders foreclose, they will be lucky to clear $350,000 after holding and selling costs. Pass what is left over to your pension fund who bought the paper in 2006 and WHAMO….$598,000 turns into $350,000. A 41% loss of capital over a 2 or 3 years period, not to mention the promised loan payments of 6%/yr or $108,000 that the fund will never see.

Don’t worry, Chip, there will be plenty more auctions. There are some good pickings in the Sarasota area right now and it will only get better.

SFO to O’Hare Friday. Posted on the storms, but it hasn’t shown up yet. Delayed departure, death of a thousand cuts, 20-minute increments. Arrival at 9 p.m. many planes leaving gates, departure lounges full, very unusual–worked in travel for 20 years; 9 p.m. does not look like that. Chicago had 4-hour delays. Rivers over their banks all the way out to Iowa, here just for the caucuses, but the Mississippi not too bad. Airlines get slammed by fuel costs, ergo they’ve been really pushing their load factors by attrition, not replacing retired equipment. I had stopped traveling for quite a while, was shocked and disgusted by the whole experience, geeze, it’s …it’s disgusting, truly 3rd world. Used to just be uncomfortable. It’ll be kind of nice when the recession thins things out, except it’ll be hard to find a carrier with a healthy balance sheet, and that goes to maintenance, shaving standards and reporting.

Flew for a week to Charlotte via Phoenix and back via LV. All flights were at 100% capacity. While waiting to board in Charlotte for return flight home they announced that they needed two people to give up their seats on a Dallas bound flight for free tickets. Air travel is cheap, ticket to Charlotte $259 plus taxes for round trip. My wife leaves next week for Hawaii and round trip ticket is $400 to the big island (Kona).

Yes all the time. Flights 100% full 100% of the time and late 100%.

I fly from Tucson to LV for fairly regularly on business. Flight attentants announce almost always “we have a full flight today so….”. There are no shortage of people going ot and from LV fom Tucson. On weekends it is hard or impossible to book a day in advance on Southwest and htey run about 7 flights a day each way.

desertfox

No haven’t flown recently, but once again went to a half full restaurant. This place always has people lined up out the door on Fridays. We walked right in, got seated and the dining room was half full. This is the 2nd time this has happened to us in the last month. We were the only ones in the dining room in the other one. It also always had a 45-60 min wait at dinner time.

New HBB terminology: Teaser rate = “Taser rate”.

You have to think, given how light the volume is in August, anyone who reads a chart can see how little effort it takes the big money to boost stocks. We’re being set up. If you’re left holding the bag while these guys slip out the back, it’s your own fault.

NICE POST BEAR……..

Such a jump is easily within the realm of possibility. He could have been paying interest-only up to now, or had a really low teaser rate. Now the “taser rate” (love it!) is kicking in and he is indeed stunned.

Will he be in “Denial” when the “Denali” gets towed away?

Actually, to me, that increase seems to be on the low side - but it’s just the first. He may want to review his note and see just how high it may go. If it happens to be an Option ARM, and he’s paying the minimum, look for tripling of that payment, when the resets are through ratcheting up.

I’m not surprised. In the last 10 years any houses in our neighborhood that have been foreclosed on were financed or heloc’d thru Countrywide. Our neighbors up the street had borrowed 110% of the value thru them. Yep, they’re gone too. Foreclosed on about 3 years ago.

“Dead End w/Fenced in yard.”

Sounds about right.

This is really overpriced, even by HGTV standards.

If we apply some HGTV math to the house, it’s still expensive:
According to HGTV,
1. a new bath costs 25k to put in, but can add 65k to the value of the home.
2. He probably did some painting. A new coat of paint for the interior costs $2,000, but adds $15,000 in value.
3. After adding some shrubs and sod for $3,000, that adds another $20k in value.

He’s still about 30k over what the price should be.

NAR has all along claimed that there was never a national median price decline (YOY) in the last 50 or so years - no matter what happened to the rest of the economy. But the moment they remove the mortgage tax deduction for McMansions, the median prices for all houses will decline by a whopping 4%! Makes sense, doesn’t it?
Of all the trade organizations, NAR probably has the most selfish bunch of people.

Incredible sense of timing on the part of this Dingbat. 90% of the reason people overpay for a house is so that they can “screw” the IRS out of tax money (never mind that they wind up paying 3x that amount to the lender in interest, and that the standard deduction often covers much of the “savings”).

Kill off that “benefit” and housing, particularly high-end housing is ABSOLUTELY TOAST. The only other significant reason then to buy a house becomes appreciation, and, finally, the MSM is starting to let people know our little secret here.

From the article:
“So why is the real estate collapse a good thing? First, because the collapse of any financial bubble can be interpreted as a morality play: greed gets its comeuppance.”

Beautiful! Well-said.

I like this quote:

But when we do not even guarantee basic health care, it would be nuts to think about making protection against real estate losses part of the social safety net.
No kidding. I’d give up our mortgage interest deduction, and the capital gains exemption we get when we sell, to see National Healthcare finally become a reality. To say nothing of the war in Iraq and tax-breaks for oil company research…

Finally the mainstream media prints what Ben’s bloggers have been telling us for years. Falling house prices are a blessing.

Let’s not act too surprised…a contractor recently got in trouble for charging hundreds of thousands of dollars of shipping on a 20 cent bolt, multiple times. They were taking advantage of an automated billing system that the military had, getting paid these outrageous shipping charges for years until they were recently caught.

“We will have to live within our means. I know it’s a troubling phenomenon.”

BWAH HA HA HA HA HA HA HA HA!

Awwwwwwwww, we will actually have to live within our means. Can you imagine what life would be like?

And now for a toned-down version of the incendiary invective:

Why should financially conservative red state residents have to funnel welfare to rich left coasters in the form of an implicit interest rate subsidy on GSE-supported lending to buy McMansions priced above $417,000? I have never agreed more strongly with the CIC on any issue than this one.

How tragic for Enron that the FASB was several years too late with this rule change.

Officially blessed fudging

Kudos to the Financial Accounting Standards Board (FASB) for creating this fiasco last September, when “it approved a new, three-level hierarchy for measuring ‘fair values’ of assets and liabilities, under a pronouncement called FASB Statement No. 157, which Wells Fargo (WFC, news, msgs) adopted in January,” as Weil reported.
…
“Then there’s Level 3. Under Statement 157, this means fair value is measured using ‘unobservable inputs.’ While companies can’t actually see the changes in the fair values of their assets and liabilities, they’re allowed to book them through earnings anyway, based on their own subjective assumptions. Call this mark-to-make-believe.“

Does the Fed accept collateral valued under the mark-to-make-believe accounting standard?

As usual, Fleck hit lots of “bull’s eyes” with this piece.

As for those folks who might quibble by saying that the Fed only cut the discount rate, the truth is that the liquidity it provided has had Fed funds trading below its target for nearly two weeks. So it has been a de facto ease. In any case, the Fed’s rate cuts cannot solve the bad-debt problem left in the wake of the real-estate/credit bubble.

Macho men crying ‘Mommy’

One final comment about the financial world: It’s populated with rich, hypocritical whiners. Wall Street, the hedge-fund community and their lap dogs in the news media continually brag about how much they love capitalism and free markets.

Yet when the creative-destruction component of capitalism rears its ugly head, they want the central planners to bail them out immediately, before they take any pain. And the ones clamoring the loudest are the very same folks who behaved the most irresponsibly.

I like that Fleckenstein.

Goodbye cable TV, with highspeed i’net.
Goodbye Ipod.
Goodbye Xbox.
Goodbye Cell phone.
Hello taking care of your aging parents.

Yet the supply side criminals insist wages are up….. and some people still believe it!

Good for you, Ghostwriter.

I don’t know if the MSM has made that connection, but folks on this blog are all over it. It’s the entire credit industry (a.k.a. “financial market”) that is collapsing.

Short-term treasuries dropped because the treasury announced mass sales for next week. Supply and demand… Huge demand with low supply, prices climb. Treasury will flood the market to bring the price back down.