February 9, 2008

Buyers Don’t Want A Deal, They Want A Steal

A report from the Washington Post. “As home prices peaked in the first half of this decade, roughly 40 percent of buyers took out two loans, often from two lenders, to cover the purchase. These loans, known as piggyback mortgages, enabled home buyers to put little or no money down and avoid paying private mortgage insurance, which is why their popularity surged in high-cost areas such as Washington. The fallout could hobble the ability of the area’s housing market to rebound by adding to the glut of homes, further dragging down property values.”

“Theresa Trainer’s Gainesville townhouse may soon add to the troubles. Trainer bought the home in mid-2006 for nearly $357,000. It has since plunged in value, and her second mortgage has made it tough for her to sell it.”

“Like many who used piggybacks, Trainer put no money down. She also did not pay mortgage insurance, which lenders require only if a loan exceeds 80 percent of the price of the house. Her first loan covered exactly 80 percent and the second covered the balance.”

“Trainer discovered that late last year when she got hit with thousands of dollars in back taxes from when she was self-employed. She also realized that the property tax on her home was not included in her monthly mortgage payments. She fell behind on both her loans.”

“A housing counselor suggested that Trainer try to sell the home for less than she owed. In October, a buyer offered $242,000. At the time, Trainer said, she owed $313,000 to the first lender and $76,000 to the second. The first lender accepted the buyer’s offer and agreed to pay $1,000 to the second lender. That lender rejected it.”

“‘I feel stuck,’ said Trainer.”

“Troy Scott, who represented Trainer in the sale, said he was flummoxed by the rejection. ‘They told us they wanted full payment on the second loan,” said Scott, chief negotiator for a Re/Max office in McLean. ‘They stopped negotiating, and the conversation was over.’”

“Trainer’s home is still on the market. Under the circumstances, it’s unlikely that it will fetch a price that satisfies both lenders. Foreclosure proceedings are under way, Scott said.”

The Free Lance Star from Virginia. “Real rays of hope do exist for the local residential construction industry, but one analyst who tracks these trends in Northern Virginia says the market’s recovery is at least a year away.”

“Dan Fulton of Fulton Research and Consulting in Fairfax County told a gathering of local government officials and building leaders Wednesday that the industry found itself in an economic utopia in the years leading to 2006.”

“‘You had a perfect storm of demographics, economics and loose lending standards,’ said Fulton.”

“That led to the region’s rampant growth. Now the region is suffering through the hangover. He estimates that the Fredericksburg area has an 18-month inventory of existing homes for sale, including foreclosures.”

“Faced with competition from national builders, land that’s scarce and expensive, and a devastating economic downturn, Fredericksburg area builders are ready for some good news in 2008.”

“‘We’re all saying the same thing: Please tell me something, anything, positive,’ said Jeff Hall of J. Hall Homes in Spotsylvania County. ‘Builders can’t go much lower [in price] and still stay afloat.’”

“The situation Hall and other builders find themselves in is reflected in plummeting building-permit figures. Spotsylvania issued only 596 residential permits last year, down from 973 in 2006 and a peak of 1,921 in 2001.”

“George Snead of Snead Custom Homes in Fredericksburg, Snead said it’s hard to attract buyers to new homes when sellers of existing homes are cutting their prices, and foreclosures are being sold for a song.”

“‘Then you have the nationals coming in and buying land and lots,’ added Snead, referring to companies such as Beazer, Ryan, Ryland and Richmond American. ‘If they have a lot valued at $200,000, they’ll cut the price in half and write off a $100,000 loss. They can afford to do that,’ said Snead. ‘Then they can sell the house for less. We can’t compete with that.’”

“Pennsylvania-based Toll Brothers, for example, which is building Chancellor Hunt on State Route 3 in Spotsylvania, is expected to take $150 million to $300 million in first-quarter pretax write-downs of land and land options, according to a published report this week. Because it stockpiled land when prices were lower, however, it is better positioned than many of its peers, the report added.”

“Hall added that given the choice, a developer will jump at the opportunity to sell a large block of lots at one time to a national builder rather than sell them piecemeal over time to smaller builders. That was precisely the scenario in 2006 at Stafford Lakes Village off U.S. 17, where local builders had been active until Beazer bought up all the remaining lots.”

“Under the current conditions, Snead said buyers know they are in the driver’s seat. ‘They don’t want a deal, they want a steal,’ he said. ‘We are willing to work with people as much as we can.’”

“Knowing it was a gamble, Snead just completed a speculative house in Spotsylvania to stay busy and keep his subs working. Now he can only hope to find a buyer. ‘My goal is to just hang on,’ he said.”

“Dan Spear of Spotsylvania-based Spear Homes of Virginia faces a similar quandary. Spear, who has been building a broad price range of homes in the area since 1987, peaked at 158 houses sold in 2003. That number has dropped every year since, to a low of 14 closings in 2007.”

“‘Everything’s relative,’ Spear said, ’so even if you go from zero to five it’s a good thing.’”

“In addition to waiting for foreclosures to drop back, the builders agree that existing inventory, both new and pre-existing homes, needs to be sold off before new home sales can pick up. Hall also finds himself carrying empty lots from month to month that he’d expected to build on.”

“The downturn’s ripple effect has taken a toll on the builders’ office employees and subcontractors. Builders need to provide steady work to keep the contractors they like and have worked with for many years.”

“‘But they have to go where the work is,’ said Hall. ‘It’s always, where’s the next house?’”

“Snead noted that many conventional lenders are now requiring 20 percent down payments for new home purchases. ‘People just don’t have that kind of money,’ he said.”

The Times Dispatch from Virginia. “The housing industry has been in a recession for the past year and it’s pulling down the rest of the economy. When will it turn? Not any time soon, said Christine Chmura of Chmura Economics & Analytics of Richmond.”

“‘The bottom line is it will be another slow year like last year,’ Chmura said at the annual meeting yesterday of the Home Building Association of Richmond in Chesterfield County. The topic was ‘Surviving Today’s Market.’ About 500 people attended.”

“In the Richmond area, ‘inventory is up by 30 percent and sales are off by 35 percent from February a year ago.’ It would take 17 months to sell all the houses on the market at the current sales rate, Chmura said. A year ago, there was an 8.8-month supply of houses on the market.”

“If people think this housing market is bad, perhaps they are too young or they have forgotten the early 1980s, said Richmond builder Lloyd Poe, who also spoke at the meeting. Mortgage interest rates were in the double digits and home prices in some areas of the country fell 20 percent, said Poe, owner of LifeStyle Builders & Developers and StyleCraft Homes Inc.”

“‘People were dropping their keys on lenders’ desks,’ he said.”

“The housing market ground to a halt. ‘Today it is working, just not nearly as well’ as it did a few years ago.”

“In the Richmond area, housing starts are down 46 percent from their peak 18 months ago. Nationwide, housing starts are down 54 percent. Builders might want to diversify and look into remodeling, Chmura said.”

“Also, they may want to cut back on house sizes, like they did during the last recession, in 2001. ‘People can’t afford larger homes,”‘ she said. ‘The economy has slowed significantly.’”

The Philadelphia Inquirer from Pennsylvania. “Frank Salamone blames himself, mostly, for his small role in the subprime-debt crisis that has helped hobble the global economy.”

“With his household debt soaring from a $123,000 mortgage in 1990 to a $425,000 mortgage on the same house by 2006, Frank and his wife, Joan, are a striking example of how the housing bubble’s easy credit allowed consumers to bury themselves in debt.”

“Now, they are struggling to avoid the worst consequence of what Frank called ‘crappy decisions.’ That would be the loss of their house in Bucks County’s Warwick Township. ‘I’m not an Oprah victim. I don’t blame anybody,’ he said.”

“Frank said a steady stream of credit-card offers and increased borrowing limits were ‘ruining this country. Ignorant people like me are what’s getting sucked into it.’”

“The Salamones have been two months behind on their $3,148 monthly mortgage payments since Frank - who comes across as a man who can eventually laugh at anything that does not kill him - took a 10 percent pay cut last summer. At that point, all the equity had been taken out of the house and the subprime-lending market had largely shut down.”

“To catch up, they took a second job in December delivering newspapers from 2:30 to 5:30 a.m. Income from the paper route has made the monthly payments on their mortgages more manageable. Those payments had represented 55 percent of their gross income; now they consume 38 percent, Frank said. But the Salamones, who have two daughters, still owe more than $50,000 on credit cards, plus medical bills.”

“Their house needed a long list of repairs when they moved there in 1990, Frank said. At first they tried to pay for repairs out of pocket, but then Frank got a real estate license in the mid-1990s. ‘I discovered the wonderful world of refinancing,’ he said.”

“Cash from the first three refinancings - $160,000 in 1997, $230,000 in 2000 and $360,000 in 2003 - went mostly into home improvements. The size of the Salamones’ refinancings outpaced the growth in average house prices in Warwick Township.”

“‘We were doing OK with the refis, but then medical problems hit,’ Frank said.”

“Frank refinanced into a $320,000 mortgage with an $80,000 piggyback loan to consolidate debt in 2005. That was his first experience with a so-called no-doc loan, which means that income was not documented. Otherwise, he said he would not have qualified.”

“Frank took it because he was desperate without his wife’s help. ‘You figure out where my head was at that point,’ he said. ‘It was basically how do I keep things running.’”

“The idea was that he eventually could refinance out of the $80,000 loan, which had a fixed rate of 9 percent. He soon could not afford the $2,800 in payments on those loans. When he called the Arizona-based lender back, the broker who had promised him help was gone.”

“Meanwhile, ‘I was getting literally three dozen calls a week’ from brokers and lenders offering new deals. The latest refinancing, for $425,000, occurred in August 2006 through Mortgage Lenders Network, which went bankrupt six months later.”

“Despite all the refinancings, the Salamones still have $53,000 in credit-card debt. Help with the mortgage might be coming. A Philadelphia lawyer, Robert P. Cocco, said he found a violation of the federal Truth in Lending Act in the Salamones’ loan documentation and sent a letter this month to the current servicer demanding that the loan be rescinded.”

“The originator misstated the annual percentage rate as 10.3 percent rather than the actual 10.6 percent, according to Cocco.”

“Adjustable-rate mortgages, Cocco said, ‘are so complicated and they shoveled them out the door so quickly to investors that it was difficult even for the lenders themselves to accurately calculate and then disclose the costs of the loan.’”

“Meanwhile, the Salamones will keep plugging away - starting each day at 1:30 a.m.”




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142 Comments »

Comment by CrackerJim
2008-02-09 07:26:06

Frank Salamone enjoyed nearly $300,000 of tax-free income and now the taxpayers should be obligated to help him out in this “crisis”; oh the poor man!

Comment by NeilT
2008-02-09 07:36:12

“…documentation and sent a letter this month to the current servicer demanding that the loan be rescinded.”
“The originator misstated the annual percentage rate as 10.3 percent rather than the actual 10.6 percent, according to Cocco.”

While Frank Salamone may deserve what he is getting, I’d want the lenders to suffer a lot more than the debtors. If the lenders lose A LOT, then this housing market will crash in a hurry. That will be excellent. Then, raising conforming loan limits will do nothing to revive the prices because lenders are afraid to give easy loans.

Comment by are they crazy
2008-02-09 10:26:48

I still don’t get why the lenders should suffer more - no one forced borrowers to borrow or buy or sign documents or do anything. They may have enticed or even cajoled, but plenty of people resisted the temptation to do something wholly stupid.

Comment by NeilT
2008-02-09 11:09:07

Current borrowers’ suffering may or may not help improve the system. But if the lenders suffer huge losses, it sure will change the rules of the game in a hurry. Only those who can repay will get the loans.

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Comment by Chip
2008-02-09 16:18:56

“I still don’t get why the lenders should suffer more”

If for no other reason, to get housing prices back to the long-term mean as fast as possible, IMO.

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Comment by Sammy Schadenfreude
2008-02-09 18:01:27

“I still don’t get why the lenders should suffer more”

Lenders should suffer MOST. Their greed and failure to adhere to sound, time-tested lending practices were THE key enablers for the housing bubble. The denizens of IDIOCRACY who signed contracts they didn’t understand, and who gamed the system, deserve what they get, but the lenders, who unlike the FBs actually had real skin in the game, fully deserve the DELIVERANCE-style reaming they’ll be experiencing over the next couple of years (at least).

Chip & Neil have it right: when the badly-burned lenders cut off the easy-money spigot and start demanding solid appraisals and 20% down (for starters - also verifiable income and excellent credit), suddenly I won’t be competing with all the “HowMuchaMonth Harrys,” and there will be a lot more houses chasing a lot fewer buyers. The more brutal and deep the crash, the longer the lessons will last (and the quicker I’ll be able to get my family into a decent home at a decent price).

 
 
Comment by WaitingForREO
2008-02-09 18:50:29

“I still don’t get why the lenders should suffer more”

Putting aside the greedy and ignorant FBs for one moment, should I be punished for completing thousands of lucrative financial transactions in which I acquire an ounce of wood, paint it, and then sell it as gold?

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Comment by yogurt
2008-02-09 09:38:23

Frank Salamone enjoyed nearly $300,000 of tax-free income

No he didn’t. Borrowing is not income. A forgiven debt is income, and used to be taxable as such, until the recent change in legislation which is well known to readers of this board. But no part of the debt has been forgiven yet.

Comment by yogurt
2008-02-09 09:41:22

“…documentation and sent a letter this month to the current servicer demanding that the loan be rescinded.”

Lest anyone misunderstand, rescinding a loan means the borrower gets to pay the money back without being bound by any penalty or interest. Now just where is Frank going to get the money?

Comment by not a gator
2008-02-09 10:49:12

his two jobs, duh

this guy is at least trying to pay the bills he racked up, and has owned up to his own stupidity

actually, it’s kind of sad … he’s trying to make good at 10% interest rates (& more than that on the other bills) at a time of very low rates in general

good luck to him

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Comment by yogurt
2008-02-09 13:04:35

Rescinding the loan means paying all the money back, now. If Frank were in a position where he could refinance the home with another lender, this would be a credible strategy. But it’s not.

 
Comment by implosion
2008-02-09 13:19:12

Phrank’s phucked.

 
 
 
Comment by CrackerJim
2008-02-09 10:26:04

Frank DID get the money! The fact that he will not be paying it back means it was real $ income for him that he spent on something. He got the $, make no mistake and he did not pay any taxes on this “income”.

 
Comment by tuxedo_junction
2008-02-09 12:53:32

He enjoyed a $300k, tax-free gift (less debt service paid).

 
Comment by Emmi
2008-02-09 15:53:53

I understood “enjoy” to mean, he did something enjoyable with that money he cashed out of the refi. Hope that Vegas party was fun for him. He can dream of it while sitting in a cardboard box under a bridge.

 
 
 
Comment by palmetto
2008-02-09 07:27:47

“To catch up, they took a second job in December delivering newspapers from 2:30 to 5:30 a.m. Income from the paper route has made the monthly payments on their mortgages more manageable.”

There it is. If I remember correctly, Ben mentioned once on this blog that in Texas during the 1980s, grown men were fighting over paper routes.

Comment by Faster Pussycat, Sell Sell
2008-02-09 07:58:11

Wait till even that meagre income disappears (which it will!)

 
Comment by Fuzzy Bear
2008-02-09 08:08:55

the 1980s, grown men were fighting over paper routes.

In Tampa 2008, they are now standing on street corners begging for a job. I was in the Citris mall last weekend and same department store employees were asking me if I knew of any jobs because they were going to lose their job because the consumer was not spending. Most of them were realtors.

My response, now is a good time to buy, so you should be very busy in your realtors job! I also mention that since it is a good time to buy, they can go out and buy the properties and flip them to make money just like they did during the housing boom.

Comment by Bye FL
2008-02-09 08:53:19

What if they actually take your advice?

Comment by GotRocks
2008-02-09 09:04:11

They can’t. A new trend has emerged, TOTALLY out of nowhere. Now, lenders are interested in whether borrows have any chance of paying back loans…and these people don’t.

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Comment by JP
2008-02-09 09:01:13

My response, now is a good time to buy, so you should be very busy in your realtors job!

LOL! You are a baaaad fuzzy bear.

Comment by Faster Pussycat, Sell Sell
2008-02-09 09:11:53

Bravo, Fuzzy Bear, bravo!

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Comment by implosion
2008-02-09 13:17:01

Excellent, and I’m sure they understand. They are after all, “real estate professionals”.

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Comment by aladinsane
2008-02-09 07:30:31

“ViolatioNation”

“Despite all the refinancings, the Salamones still have $53,000 in credit-card debt. Help with the mortgage might be coming. A Philadelphia lawyer, Robert P. Cocco, said he found a violation of the federal Truth in Lending Act in the Salamones’ loan documentation and sent a letter this month to the current servicer demanding that the loan be rescinded.”

“The originator misstated the annual percentage rate as 10.3 percent rather than the actual 10.6 percent, according to Cocco.”

Comment by Chip
2008-02-09 19:12:41

Hopefully, “materiality” will matter. 0.3% is not material, in the scheme of things and relative to this case.

 
 
Comment by WT Economist
2008-02-09 07:31:40

I think this man’s story explains the entire consumption-based American economy of the past 25 years. Growing debts. Multiple jobs to offset falling real wages. All to offset an unsustainable level of spending. And now, nothing left and no way to borrow more.

“With his household debt soaring from a $123,000 mortgage in 1990 to a $425,000 mortgage on the same house by 2006…despite all the refinancings, the Salamones still have $53,000 in credit-card debt… The Salamones have been two months behind on their $3,148 monthly mortgage payments since Frank…took a 10 percent pay cut last summer. At that point, all the equity had been taken out of the house and the subprime-lending market had largely shut down…To catch up, they took a second job in December delivering newspapers from 2:30 to 5:30 a.m…payments had represented 55 percent of their gross income; now they consume 38 percent.”

Comment by flatffplan
2008-02-09 07:42:50

state and local taxes went from 6% to18% of gdp since 1940’s
mothers working full time has been the “progress” the progressives have delivered so far

Comment by not a gator
2008-02-09 10:52:32

costs go up due to car culture … we let developers do as they please, we kept gas prices low

now we reap a harvest of high infrastructure costs

funny how Europeans visiting our country head straight to national parks in the desert. not much demand to go sight-seeing in our grand suburban sprawl-o-topia.

Comment by dude
2008-02-09 15:46:25

…and when I’m in Europe I’m pretty much not interested in seeing anything built in the last 100 years either.

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Comment by GH
2008-02-09 07:44:48

We have a “work ethic” based society, where our job is who we are. I am a software engineer, you may be a car mechanic or a doctor etc… What happens when we are forced to compete as has been the case with much cheaper third world labor, especially in areas where serious education is needed? It is not like we can keep moving up the food scale, so the short term answer is debt. But debt is a “non renewable” resource, and once used up leaves a really bad hangover. It really does not take a great deal of math to figure out that barring wage increases on a very big scale or a serious new bubble, most debts will end up having to be cancelled. I really do not think anyone has given much thought to the ramifications of large scale defaults on credit cards and other forms of unsecured debt moving forward, but that money had to come from somewhere right? Well, sort of, but it is clear there is far more debt that there is (or ever has been) real earned cash money, so where did it all come from? and when it is not repaid where will it all go?

Comment by Faster Pussycat, Sell Sell
2008-02-09 08:00:32

AKA deflation.

Let’s get the inflation/hyperinflation crowd chiming in. C’mon, c’mon, put your money where your mouth is.

How are wages going to “inflate” with Chindia online?

Comment by GH
2008-02-09 08:52:36

Right, I have estimated I have as many as 10 full time Chinese people working for me at any time, and I am told that my value as a software engineer is now established by Indian developers who work for a fraction of what I make. So if as a society our value is determined by our work, and our work is no longer needed, then indeed why the work ethic BS from yesteryear at all? Point is we continue to think our economy works the same way it did in the 50’s but the rules have changed and new variables have been introduced. Thus perhaps the introduction of massive amounts of money is not inflationary, specifically because of the imbalance of western to third world salaries, since there is an unlimited supply of cheap labor and increased demand is absorbed, rather than causing shortage and thus price inflation as would be the case if everything was made here. Also we have extensive automation today. Not the same world - not the same rules.

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Comment by WT Economist
2008-02-09 09:16:25

Chindia do not have an unlimited supply of educated or even semi-skilled people with access to infrastructure. At some point, their consumptions will rise to match the increase in their productivity. I think it is starting to happen.

 
Comment by lars39
2008-02-09 09:17:15

GH is correct…”Not the same world - not the same rules.” However the spending, expectation game also changed from a modest house, car, clothing, etc. to extravagance beyond comprehension from the standards of the ’50s and ’60s for the “average” family. I’d like to see a return to smaller, more efficient houses, and more pay as you go spending instead of “no money, no problem” credit buying. We may be in for culture shock of reversals in income and expectations. Needs vs wants may be reconciled one way or the other. Need to rethink “entitlements” IMO

 
Comment by Brian in Chicago
2008-02-09 09:52:21

and I am told that my value as a software engineer is now established by Indian developers who work for a fraction of what I make

I hope your boss isn’t the person telling you that! There is a serious shortage of talented software engineers in both China and India. If your boss thinks he can start outsourcing now to save a lot of cash he is going to put himself out of business now that he can’t finance a fix to the disaster that is in store for him.

I used to work for a major company that had offices in China and India, in addition to offices in Europe. Such a system allowed for a 24 hour development cycle. When I left work the people in the Asian offices were just starting and when they left the people in the European offices were just starting. It worked very well for this company for more than a decade, until a few years ago when cost-cutting to help the share price became a major trend. Hiring at the Asian offices picked up, and the work output started going DOWN. Since so many companies were throwing money at “programmers”, a new work trend emerged. A new employee would come in and deflect and delay as much work as possible until they had been there a few months. Someone else would offer them a higher salary now that they were more experienced. And they would go repeat the cycle at the new place.

I can remember a specific instance in which a task I had was reassigned to a developer in China. 4 months later I got an email from his replacement asking me to complete the task. I wrote back that I couldn’t do it, I don’t have permissions to access that system anymore, and outlined the simple steps to complete the task (would take no more than 5 hours). 4 months later a new employee in China asked me to do it… This went on for more than 2 years until I left.

There are a lot of talented software developers all over Asia, but good luck finding them. If you do, you aren’t going to save much money hiring them. The two main advantages to having an office in Asia are:
1) Having a local presence in a large and growing market
2) They work while you sleep, and you work while they sleep

Saving money is never going to be part of it.

 
Comment by skip
2008-02-09 12:40:06

My company is outsourcing to Argentina & Brazil now. Same timezone, same low wages.

 
 
Comment by WaitingForREO
2008-02-09 19:24:34

I’m also a software consultant in Silicon valley - those who find comfort in the argument that there’s no real long-term economic benefit for out-sourcing development to Chindia. There’s only one ill-informed opinion that matters in this regard, and that is the opinion of the investor-class. If they get it in their collective heads, as they obviously have (see INFOSYS past 5 years), that immediate profits are to be made by moving your job abroad then it will be done - period - regardless of how inefficient it makes software development.

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Comment by SEng
2008-02-09 22:19:37

I’m a software engineer in the US. The software I’ve seen coming from outsourcing companies is abysmal garbage, considerably worse than what fresh-out-of-college American graduates write. Creativity and problem-solving are not valued, fostered or taught in Indian universities. The rule is rote application of standard solutions to very detailed specifications coming from the boss. The problem with that is that very detailed boss-driven specs (the waterfall model) has been shown to, erm, suck. Software is too complicated to expect you can account for everything at the spec level, and iterative development is by and large a much better model. This is where talented in-house software engineers who actively participate in the design and development are key to writing quality and/or innovative software. You can’t do that with rote-learning developers in a different time zone with serious communication issues. I’m all for immigration and foreign workers, don’t get me wrong–but the idea that high-end, fast-turnaround software development can be outsourced successfully is not something I’m worried about.

 
Comment by WaitingForREO
2008-02-10 10:11:57

SEng
My experience has me in agreement with your observations. That is, out-sourcing software development is impossibly burdened by: time-zone, language and logistical issues - slow turn-around cycles, poor quality, non-iterative development and boss-driven-design dependent on boss-psychic-ability. All that is true, there’s only one distinction I’m attempting to draw.

There’s a difference between what you and I see and what the market wants. My experience, the market is driven mainly by desire for profits in the short term -even just the appearance of profits. It doesn’t matter that there’s no efficacy in that choice - witness the subject of this blog. The competitive model takes care of the rest. Development jobs will be outsourced and product quality will simply become inferior to past product quality. This is not only something to worry about - it’s already happening.

 
 
 
Comment by combotechie
2008-02-09 08:09:10

” … but it is clear there is far more debt that there is (or ever has been) real earned cash money, so where did it all come from? and when it is not repaid where will it all go?”

The borrowed money came out of thin air and back into thin air it will go. However, the assets purchased by this thin air money will remain.
Cash money will not disappear into thin air; cash will remain in existence and will be available, for those who have it, to purchase cheaply those assets financed into existence by the thin air money.

Comment by GH
2008-02-09 08:29:42

So my question then, if we establish for the sake of arguement the IRS policy of unpaid debt being considered income, from an inflationary standpoint, what is the difference between giving everyone - say $50,000 from the same thin air source the credit money came from and allowing the money to be racked up in the form of unpaid consumer debt? I always her debt is not inflationary because it is repaid and thus not “printed”, but what about when it is not repaid?

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Comment by combotechie
2008-02-09 08:57:12

“I always he(a)r debt is not inflationary because it is repaid and thus not “printed”, but what about when it is not repaid?”

Debt IS inflationary because the creation of debt translates into a creation of money which adds to buying power. More money than the goods it represents results in rising prices.
When this debt is not repaid then the lenders have to eat the loss. The loan is written down, meaning the uncollectable money is written out of existence - it reverts back into thin air.
Money that disappears makes the remaining money more scarce, which makes it more valuable, which makes one able to buy more things with it.
This is a good thing if one has money, a bad thing if they don’t.

 
Comment by VaBeyatch
2008-02-09 17:25:27

I have a hard time comprehending this. If you take out a loan and buy a McMansion, 100% CLTV. Say it’s $500K. You write a check to the builder for $500K that came from your bank. The $500K is still with the builder when you bought the house. The bank says they won’t be repaid, and they will loose the interest. But the builder still has that $500K. That $500K isn’t really destroyed when you default, the bank just looses it (And the interest payments).

 
Comment by Carlsbad Renter
2008-02-09 18:48:03

Remember, the bank really didn’t have $500k either.

 
 
 
Comment by Emmi
2008-02-09 16:09:15

Personal debt isn’t always bad. Sometimes you have to make an investment in yourself, either by starting a small business or going back for another degree to increase your earning potential, or to just make a move to a more livable place where you expend less of your psychic energy getting by day to day. These people just blew the money and now it’s gone. A few truly sympathy-deserving ones spent it in medical bill but most of them probably have no clue where the money went.

 
 
Comment by Fuzzy Bear
2008-02-09 07:58:20

I wonder if this guy when he is out delivering papers in the early morning hours can hear the bubble poping noises as he passes each house where the consumer has been caught up in the asset and credit bubbles.

 
Comment by Ted
2008-02-09 09:00:44

What can you possibly say about a family like this? They take out $300,000 from their house and still have 50,000 in new credit card debt? People like this need a psychologists help.

Comment by JoJo
2008-02-09 09:14:41

Ted, they spent the money on essential repairs such as granite countertops, stainless steel appliances, travertine tiles and a jumbo master bathroom. You know, the bare necessities.

“Frank said a steady stream of credit-card offers and increased borrowing limits were ‘ruining this country. Ignorant people like me are what’s getting sucked into it.’”

Sucked into it? I get those offers all the time and they go straight into the round file. For once, I’d love to hear one of these idiots admit that they were stupid and greedy and that no one forced them to open up a dozen credit cards and spend money like a drunken sailor.

Comment by not a gator
2008-02-09 10:56:26

I thought he did admit that he was stupid. And implication of greed was hanging in the air, although this isn’t a would be Trump or Casey Serin here… he’s still living in the same house and intends to stay.

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Comment by NoVa RE Supernova
2008-02-09 14:45:37

Frank said “No one is to blame.” Not quite the same as saying, “I have only myself to blame.”

 
 
 
 
 
Comment by SFC
2008-02-09 07:32:06

“At the time, Trainer said, she owed $313,000 to the first lender and $76,000 to the second. The first lender accepted the buyer’s offer and agreed to pay $1,000 to the second lender. That lender rejected it.”

“‘I feel stuck,’ said Trainer.” Troy Scott, who represented Trainer in the sale, said he was flummoxed by the rejection.”

She owes $76,000, offers them $1,000, and then is SURPRISED when they reject that generous offer? Hey Mr. Lender, I’m giving you over 1% of your money back!

Comment by CrackerJim
2008-02-09 07:39:46

Please note she has $389k of debt for the house she purchased for $357k.

Comment by Sniggle
2008-02-09 09:08:17

I picked that up to…sloppy reporting…how did the mortgage debt grow to $25000 above the purchase price? Cash back at closing or a negam loan?

For her and many, many like her, the best COA is to stop paying the mortgage and plan for the eventual eviction.

 
 
Comment by skip
2008-02-09 12:41:44

$1000 is better than $0.

 
Comment by Matt_in_TX
2008-02-09 14:21:08

If I was a banker I would include a small questionaire like:

1. If you are self employed, you do know that you have to pay a lot of taxes yourself on income, don’t you, huh?

2. Do you understand that if you tell us not to include your property tax costs in your payment, then you will have to pay them yourself every year. You do, right?

Any no answers and I would give them “Mikey’s” phone number down at Countrywide.

 
 
Comment by garrison
2008-02-09 07:47:17

I know of a family in the SW side of Chicago that has a 700K house and a 2 later model BMW’s, the wife doesn’t work and the husband’s job is get this…..drum roll please ….a truck driver. yep, all real estate is local, but the stupidity is nationwide

Comment by Ol'Bubba
2008-02-09 09:13:30

Years ago many people would have made the assumption that a lifestyle like that had to be financed through some sort of illegal enterprise, like drug trafficking or organized crime. It’s amazing how the loose credit has gone out of control.

 
Comment by edgewaterjohn
2008-02-09 09:22:38

The outer neighborhoods of Chicago, NW and SW sides, are filled with stories like that. When visiting the old neighborhood I am aghast at all the MBs, BMWs, Lexi, etc. It was a blue collar neighborhood - a Caddie was a HUGE deal just twenty five years ago.

And no, that’s not progess - it is “liberated” equity from the labor of previous generations!

 
Comment by Evil Capitalist
2008-02-09 09:45:13

Truck drivers make a lot more money than most of people who “qualified” and “bought” multiple 350k 1 bedroom condos in brownstones in Philadelphia area.

 
Comment by not a gator
2008-02-09 10:58:04

wow… Class A’s OTR make about $60-70K a year. I doubt you can get that much more, but it’s possible. Local routes pay MUCH less. So let’s assume $70K. That house is 10x income. Whatever!

 
 
Comment by Fuzzy Bear
2008-02-09 07:50:38

“Trainer’s home is still on the market.

A good example of how in dept people are today and just how quickly it can all crumble and put you in financial ruin. Experience is such a good teacher!

 
Comment by aladinsane
2008-02-09 07:58:39

Old Fulton’s Folly: Steamboat

New Fulton’s Folly: Ship of Fools

“Dan Fulton of Fulton Research and Consulting in Fairfax County told a gathering of local government officials and building leaders Wednesday that the industry found itself in an economic utopia in the years leading to 2006.”

“‘You had a perfect storm of demographics, economics and loose lending standards,’ said Fulton.”

“That led to the region’s rampant growth. Now the region is suffering through the hangover. He estimates that the Fredericksburg area has an 18-month inventory of existing homes for sale, including foreclosures.”

http://www.gutenberg.org/files/17823/17823-h/images/008.jpg

 
Comment by Hoz
2008-02-09 08:02:16

“A housing counselor suggested that Trainer try to sell the home for less than she owed. In October, a buyer offered $242,000. At the time, Trainer said, she owed $313,000 to the first lender and $76,000 to the second. The first lender accepted the buyer’s offer and agreed to pay $1,000 to the second lender. That lender rejected it.”

I do not believe a word of this paragraph. There is something that is missing in the story. Sorry

Comment by Blano
2008-02-09 08:55:24

I cannot verify the truthfulness of this particular story, but I’ve run across similar scenarios a number of times where the 2nd mortgage will just take their chances, even if they end up with nothing.

I’m surprised the 1st even offered anything to the 2nd; often the 1st mortgage won’t even settle if the 2nd is getting anything.

Comment by Groundhogday
2008-02-09 11:57:31

The second lender was offered essentially nothing. What incentive do they have to play ball?

At the very least they will just wait and hold this loan on the books in the hope of getting a few more partial payments from the borrower. They can also wait and write off the loss a year from now when the house forecloses and resells for less than the first loan.

 
 
Comment by virginian
2008-02-09 12:23:26

What is hard to believe in this story? PW County is toasted. They have hundreds of houses on sale. Two years ago, new buildings were erected everywhere, far into rural area where access is provided with single lane road and every imaginable civic services lack. There are a lot of trailer homes and mobile home parks as well. This area is way too far from DC and virtually impossible to commute. Even in Sunday morning, it can take you about 1.5 hours to get you into downtown of Washington. During rush hours, it is nightmare. Not many people are interested to live there. The bank was realistic enough to accept the buyer’s offer. It will be too costly for the bank to hold this foreclosure house, paying taxes and waits for years before they can recover any money on it; they could get at least get 242K and write off the rest. Now they will have no money at all, since Theresa does not pay mortgage. And townhouse in hellhole like Gainesville is not worth 200K, so they bank lost, and will be happy to sell it for bellow that price.

 
 
Comment by PeonInChief
2008-02-09 08:10:59

Frequently the holder of the second mortgage will reject a short sale, as the second mortgage holder gets almost nothing. The second mortgage holder is being asked to write off $75,000. In a short sale, the first mortgage holder is paid off first, with any remainder going to pay off the second mortgage. Because most short sales don’t even raise enough to pay off the first mortgage, the second mortgage has to be written off.

And in California, if the second mortgage holder agrees to the short sale, that lender cannot later sue the borrower for the money under what’s called the “one action” rule.

Comment by spike66
2008-02-09 08:31:39

Of course, the second mortgage holder can deny the short sale, but if the FB just walks, the holder of the first mortgage gets the house, and has to sell it, for what they can get. It might cover some portion of the first mortgage, but is unlikely to bring enough to help the second mortgage holder, who is probably screwed in any case.
However, in Cali, for example, an FB who refied now has a recourse loan. I guess the first mortgage holder could go after his other assets…his underwater car loan, his jet skis, his non-existent bank account or the $44 dollars in his retirement account.

Comment by Bye FL
2008-02-09 09:07:45

LOL $44 is gonna help. NOT! debt isn’t wealth!

 
Comment by implosion
2008-02-09 13:50:36

I thought most retirement accounts were untouchable in BK and other lawsuits?

 
Comment by PeonInChief
2008-02-09 15:04:49

Even though lenders could launch judicial foreclosure in many cases (when the loan is a refi, for instance), they generally take the property through non-judicial foreclosure. It’s much cheaper and faster. The second mortgage holder could then take the borrower to court for the amount of the second mortgage, as that lender has taken no action to that point. But the second mortgage holders seem to have figured out that most of the borrowers don’t have any assets worth taking.

 
 
 
Comment by aladinsane
2008-02-09 08:11:36

‘I’m not an Oprah victim”

 
Comment by GotRocks
2008-02-09 08:16:50

“Buyers Don’t Want A Deal, They Want A Steal”

No problem then, just don’t sell to us…that’s how it works in EVERY other business.

Comment by edgewaterjohn
2008-02-09 09:33:42

2006 - pay too much for a dwelling and you’re a savvy investor, a real go-getter, one of Trump’s disciples.

2008 -want to pay fair value for a dwelling and you’re unrealistic, bitter, subversive, and - dare I say it? an economic terrorist.

Comment by Emmi
2008-02-09 16:19:59

Nicely played. Who starts these memes and where can I go to mock them as they so richly deserve?

 
 
Comment by MD_Renter
2008-02-09 09:37:02

If by “steal” you mean a reasonable price, based on fundamental, normal price appreciation and not bubble-induced hysteria, then yes. That’s what I want. A normal price.

 
Comment by implosion
2008-02-09 13:54:33

A steal is not enough, I want a squeal as well.

Comment by Matt_in_TX
2008-02-09 14:26:39

ROFL.

 
 
 
Comment by CAsellerCOrenter
2008-02-09 08:44:46

How much can I make on a paper route?

I need to stop spending my Qualcomm
stock option money and get a real job.

Comment by edgewaterjohn
2008-02-09 09:25:32

Correct me if I am wrong, but doesn’t the Horatio Alger - bootstraps B.S. spewed by the MSM and our glorious and heroic politicians - stipulate that one should BEGIN their career with a paper route - NOT END their career with one?

Progress - yeah baby!

Comment by Lost in Utah
2008-02-09 14:41:11

A friend was complaining about her newspaper in a small Oregon town, it was often not delivered. Seems like the kids get the job as a carrier and the parents haul their little arses around, the parents finally get tired of it and the kids quit.

 
 
 
Comment by teufelhunden
2008-02-09 08:48:10

Well now that I know i can post I can give a small update (sorry, OT I know). I am the artist formerly known as devildog, whatever…

Thank God I’m finally out of the housing industry. In the last month I quit my job at David Weekley Homes (an industry “leader” that is more innept than any other builder I’ve had experience with) and we moved from Houston, TX to Kansas City. We got a sweet deal renting a 3 story townhome with all maintenance included for way less than we were paying for rent in Houston.

While it was a little painful to leave Houston where we’ve lived most of our lives since getting married (and about the only place our girls have ever known), it was becoming increasingly obvious that it wasn’t going to work for us in the downturn, and that KC would. Now I’m in a nice recession-proof industry (actually it should boom a bit during this recession) and have a lot less worries.

The last several years have been a nighmare, thank God it’s over. I was acting as the principal engineer at a land development firm when DWH contacted me to come work for them. Since I’d been following the bubble since the beginning of 2004, I was interested in being somewhere where I had input in preparing to weather the storm, so i took the up on their offer. Bad decision; it wasn’t until later that I found out my boss didn’t want me there and had fought tooth and nail for over a year to keep my position from being created (yeah, he lied during the interview process).

And all the talk about me having a say in things was tabled as soon as I got there and I was stuck in a corner and treated like an entry level worker (but expected to clean up a lot of other people’s messes). My entire purpose was diametrically opposed to my boss, the director of design, because I was suppose to reduce costs and streamline processes, many needed changes being completely obvious. Things went down hill when I identified various ways to save tens of millions of dollars and my boss had my laptop stollen to prevent evidence of his incompetance getting out. While i went to him first and presented things in a non-confrontational way, he obviously didn’t take it that way. And then the resulting “investigation” worked with him to help cover up what really happened.

I swear that place is run like the Gestapo, looking for dirt to hold over people. In my case since there was no dirt toadies were used to try to manufacture some. Meanwhile I was doing my best to warn about what was coming and try to get much needed preparations underway.

And then, lo and behold, at the end of 2005, just when the market was beginning to tank and most of the other builders were starting to pull back in the bubble areas like Florida, DWH massively increased their exposure there and started hiring new people like mad. The designs were truely asinine, with some lots alone going for $750k. The price range they were targetting was pretty much non-existant as far as affordability, but they didn’t seem to get it.

Then the rumour came out that they were going to move heavily into Phoenix. i spoke with the CEO and warned him off because of the massive vacant overpriced inventory, especially since the company would have to directly purchase significant tracts of land at inflated prices. My suggestions were looked down on and discreditted, which they later deeply regretted.

I warned of the coming credit crunch and the need to prepare financing for future buyers so that they could qualify. As we had just gone through the largest boom in history plenty of cash should have been available for funding but it was all frittered away.

The entire product line needed to be redesigned as almost nobody could afford the company’s offerings (and they could buy identical products from competitors for 20% less). That and the market they were targetting (the truely rich) didn’t want to buy our product-they had the money to build true custom homes. We were actually selling to the faux rich, but none of the executives got it. I warned that in the near future we would be competing against our own several year old homes that had been foreclosed on and were now offered at half price and in a non-lending environment. But what did i know, I was just some kind of nut.

Almost everything the executive management did was wrong and made things worse. For instance, the director of finance worked out a “great deal” with a major lender to finance us into the future. This deal involved bundling the development and building loans together (to get a 1/2% reduction in interest rates charged). It should be obvious that the last thing you want to do is bundle 3-4 year loans with 6 month loans, but that’s what this rocket scientist did. And because of the way the terms were written, construction came to a halt because no residential building funds could be released since they were tied to the land development.

There was lots more incompetance like this, too much to go into (and although I took notes, I’ve decided to try and just forget about it - this writting will be the last time I make mention of it).

And they embarked on a massive layoff schedule, but instead of getting rid of the dead wood (of which there was an excessive amount) they targetting all the competant professionals who knew what was going on and how to fix what was broken. You see the executives were more scared about people being able to point out their incompetance than they were about the market taking them under. I’m sure this will change in the near future, but only after it’s too late to reverse the process. Luckily I was able to control my own destiny and left on my own terms.

The greatest lesson I took from this mess is the extent to which corruption has spread in American business. DWH is considered one of the best places to work, by several rating agencies, however this is a policy of deliberate manipulation to bring in new employees at lower wages. Only contact info for “in-on-the-game” employees are provided to the agencies. All people who would tell the truth about what goes on are excluded. So a rosey, but distorted view is thus presented.

The dishonesty, all in the name of making a few more bucks (for people who are already grossly rich) was disgusting. As an example, they claimed the company had a health care policy with United Health Care and garnished wages accordingly. However, in the course of racking up some medical bills (which I got preaproval for) I found out there was no health care coverage. It turns out that the company was self insured and paid UHC a small fee to process and deny claims for the company. Thus bills that they were contractually obligated to pay at 70% (and had agreed to before hand) they either refuse to pay outright, or paid at the reduced rate of 30%. After talking around I found that this was common practice for the company and one of the main reasons they require a no recourse contract against suing the companyprior to emplayment.

I will say that employment at DWH really woke me up to the extent of corruption in corporate America, and the moral bankruptcy of the current system. So I guess in that at least it was worth it, but never again for me. I refuse to particpate in that system again, in the corrupt health care system meant to bleed us dry, in the banker induced poverty by mortgage schemes and the government theft of our currency and cronyism with their elitist buddies on wall street and corporate crooks. I’m sure it sounds like I’m jaded, but I can’t stress how much once my eyes were opened in one area, it just started to snowball.

I remember speaking with an older friend who was in the petro-chemical industry right after the Enron thing blew up. He told me all corporate America was corrupt and he saw it on a daily basis. Still indoctrinated by Republican tripe I immediately labelled him a communist and tried to no avail to change his mind. I’m not sure why, because when Enron blew i had the distinct impression the whole economy was a deck of cards and that what they’d been doing was common practice. i guess i was just shocked to hear it said out loud. I’m sure I came across as a young know-it-all who didn’t really know what he was talking about. Well, not to distant in the future I now believe and agree with everything he said, much because of personal experience.

Anyway, that’s my story. Sorry to be so OT and hijack the thread. and now for something completely different…..

Comment by DannyHSDad
2008-02-09 08:59:17

Thanks for sharing!

Comment by Faster Pussycat, Sell Sell
2008-02-09 09:49:53

“Never argue truth to power.”

Certainly not in a company where it is not appreciated. Your integrity left you open to being left hung to dry.

The lesson is not to give up your integrity but to make sure that your values are aligned, and if not, walk away. You will never change a certain kind of fundamentally corrupt game, and it is folly to even try.

 
 
Comment by edhopper
2008-02-09 09:07:57

Testify brother!
I truly do not think most of America understands how the Equity and Hedge Fund class has ruined this country. The amount of capitol they siphon off of the top is criminal. And they get the tax breaks.

Comment by gorobei
2008-02-09 11:58:52

Hmm, I’ve dealt with the hedge people a bunch in my career, and most have been tough but relatively honest. It’s a really small world, and word gets around fast if you screw someone for no reason. Hell, I far prefer pitching a $20M plan to a serious capitalist, and getting (or not) a handshake on the deal within 30 minutes, than spending months dealing with useless middle managers and corporate lawyers at some average corporation.

That said, America does seem to be undergoing a pretty serious transition to faceless hyper-capitalism. A lot of people are starting to realize that a college degree and eight hours of work a day just aren’t worth very much in the current world. More than even before, the top 1% of talent is being rapidly funnelled into the “elite” global corporations, and the other 99% are just workers/consumers. Sigh.

 
Comment by spike66
2008-02-09 13:34:00

devildog,
nice to hear from you and congrats on your new life in KC. As for the corruption and dishonesty you were subjected to, it seems even worse than I have experienced. And I thought I was jaded.

 
 
Comment by Bye FL
2008-02-09 09:17:35

Crazy story! This is why ive chosen to be self employed. I see alot of people going to work for themselves in the future and for good reason.

You did your best to warn those kooks, they set their own downfall. My dad used to work for a company with an incompetent CEO who killed the company. Dad lost the job, the CEO probably lost all his life’s savings. Serves him right.

 
Comment by exeter
2008-02-09 09:27:08

teufelhunden… Thank you for you honesty. Even after the most blatant and obvious display of facts about our current system, there are still people (in fact on this blog) who will defend it, stand behind it and excuse is with a straight face, even at their own economic peril.

 
Comment by aladinsane
2008-02-09 09:42:12

teufelhund:

Nice insider’s tale of what’s what.

Thanks~

 
Comment by BP
2008-02-09 10:14:42

You have hit on a point in which I have been concerned for a long time. Corruption in American Society whether it be left or right, rich or poor, private or public. Clinton’s corruption was excused; no one has really pushed any real investigation into JEB Bush and all his cronies. W’s sweetheart baseball deals or Obama’s slum lord deals. The media will talk very little about “walking around money” given to minorities preachers during campaigns. When it is our guy (or girl) we defend them ad nauseam. The question is whether this is all new to our culture or because of the media are we just more aware of it?

Comment by exeter
2008-02-09 10:48:51

Conflate, distort, conflate distort. The corporate corruption and take over of our government has everything to do with the long and historically proven relationship between big business and (r). FACT.

 
Comment by teufelhunden
2008-02-09 12:59:00

It seems to me the closer we come to full socialism/communism the more corrupt our society becomes. It has gotten to a point where something has to give. The elitist class is now in open warfare against the middleclass and is engaged in an effort to completely destroy us. If they succeed we become just one more third world dictatorship.

The problem is that most Americans have defaulted on their responsibility of eternal vigilence. And the elitists have done a good job cloking themselves in the colors of the different parties. So the mindless citizens expend all their effort foaming at the mouth at the members of the “other” party, never noticing they are one and the same.

The bad news is I think the coming cotastrophy is inevitable. The good news is I believe that a new order will arise from the ashes closely resembling what the founding fathers originally instituted at the birth of our counrty.

Comment by exeter
2008-02-09 14:48:20

It appears quite the opposite. The more we buy into the BS of “taxcuts are good for the economy”, “deficits don’t matter” and “outsourcing creates jobs” all part of the crony capitalism mantra, the more corrupt we become. The last 7 years proves that.

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Comment by teufelhunden
2008-02-09 18:03:32

Exeter,

It’s all one and the same. What we have in this country is some kind of distorted, twisted capitalism. At the same time we have ever increasing socialism/communism where the government claims to want to help everyone, but in reality uses the arguement as an excuse to take more money from the people to allocate to their own pockets.

The socialism aspect that drives me nuts is the fact that in every job I’ve had I’ve been at the top of the heap and in addition to doing my job in an excellent manner, end up doing everyone elses job too (so that I can do mine correctly), thus subsidizing all the slackers. To me this is corporate socialism and it disgusts me. I don’t mind helping out people who try, but are truely inferrior (a small percentage), but I’m outraged to have to do the work of people who are lazy and not pulling their weight because they are angry that they aren’t paid enough/the government takes all their money/etc. Lots of people have just given up because they feel they are no longer compensated in a manner to provide for themselves. “They pretend to pay me, and I pretend to work.”

The thing that really gets me is seeing incompetant cronies who don’t know what they’re doing promoted over myself and others who actually do extraordinary work.

Well no more of that for me thank you. From now I’ll be my own boss and do things my way.

 
 
Comment by Lost in Utah
2008-02-09 14:48:36

devildog, thanks for sharing that. You’ve spurred my own recomittment to a life of simplicity and as off the grid as possible. To hell with them all. Congrats for getting out, it may take some time to recover, but you will. Thanks again.

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Comment by skip
2008-02-09 12:58:14

Great post - I love hearing the insider’s view!

DWH is considered one of the best places to work, by several rating agencies, however this is a policy of deliberate manipulation to bring in new employees at lower wages.

I remember a couple of years ago when Computerworld ranked Walmart as one of the top places to work in the IT industry. I asked my girlfriends brother-in-law about it and he said everyone he worked with was convinced Walmart bought their way into that rating somehow. He later quite because he couldn’t stand it there anymore.

 
Comment by Anon
2008-02-09 14:02:15

Cronyism is everywhere in American business. Everything is driven by quarterly bonuses, there is no incentive for sustainable operations.

You should have been using this to your advantage by driving short term gains and trying to take credit for them. Then at the same time networking and making new contacts for alternate employment that you could point out your successes to in an attempt to increase income based on past performance. That is the American way.

 
Comment by NoVa RE Supernova
2008-02-09 14:52:52

Teufelhunden,

Thank you for the insider’s account. You hit the nail on the head: Corporate America has become completely corrupt and cares only about short-term profits, not long-term viability much less doing the right thing by their clients and customers.

 
Comment by dude
2008-02-09 16:12:13

Thanks for relating the experience DD. We can’t all live a thousand lives but we can learn from the lives of thousands.

I hope you do well in KC. If you meet up with an RM in KC named Tucker whose been bald since he was twenty, tell him Decker from Arcadia says, “hi”.

 
Comment by WaitingForREO
2008-02-09 17:56:07

teufelhunden - thanks for sharing the trauma. You’ve at least changed one person’s day.
My working life has accustomed me to a continued disintigration of ethics. As a Silicon Valley consultant the trade-offs for suppressing one’s conscience are small crumbs from the meal and one more day near the table. Can’t say that I know yet the true cost of this trade-off - though we’ve at times considered the equivalent of your KC move. IMHO, the current business climate is the pedictable result of a consciencely designed and intensly marketed doctrinal view in which government and regulation are “evil.” This cycle seems to repeat every quarter century. The magnitude of corporate crimes this cycle have been awe inspiring - consequently, this time may be different.

 
Comment by teufelhunden
2008-02-09 18:11:56

One of the things I forgot to mention: I did the structural engineering for the Texas venues (Houston, Dallas, Austin, San Antonio). DWH has major structural issues due to the fact the director of design completely changes plans after they have been engineered, and they don’t get re-engineered. We’re talking lots of structural failures in houses that cost up to $1 million.

There is no reason for it, especially when they claim their mantra is “enhancing people’s lives”. It has solidified my commitment never to buy a home that a builder has constructed as they are shoddy pieces of junk.

The only home I’ll ever own from here on out will be the one I’ve designed and engineered, and I’ll build it myself too. And when I do it’ll be using hard cold cash - no more mortgages for me.

 
 
Comment by Bye FL
2008-02-09 08:56:30

I saw this in my newspaper yesterday.(for west palm beach, fl)

http://www.centexhomes.com/Southeast-Florida/N46185.asp

Royal Palm
3,250 Sq.Ft.
5 Bedrooms
3 Full Bath
2 Living Areas
2 Dining Areas
2 Car Garage
2 Story
Master Bedroom Upstairs

was $412k, now $253k! That’s just $78/foot!

http://www.palmbeachpost.com/reweekend/content/weekend/epaper/2008/01/18/rew7_CovSunTerra0118.html

Those are some massive price drops and the lowest $/foot yet in west palm beach!

Comment by teufelhunden
2008-02-09 09:28:26

That’s all it was ever worth to begin with. It’s just that the poor FBs excessively enriched the builders over the last several years paying way more than the intrinsic value for housing. Come to think of it, since it’s a Centex piece of junk, it’s probably still a little overpriced.

Comment by Bye FL
2008-02-09 09:42:24

I told my dad that the $253k house could ultimately end at $180k at the bottom. Other houses are alot more overpriced at $120 to $160 a foot so $78 a foot represents a big leg down in price. I did predict the bottom to be an average of $70/foot.

The disparity between south FL and other states, even against Texas is rapidly shrinking. At the peak, you could get a house in Texas for a third the price of south FL! At the bottom, Texas may be 2/3 the price of south FL.

 
 
Comment by exeter
2008-02-09 09:28:47

Yeah? And who in hell NEEDS 3250ft/sq?

Comment by edgewaterjohn
2008-02-09 09:47:35

A very dutiful consumer.

 
Comment by teufelhunden
2008-02-09 09:48:27

I’m sure you could find some corrupt politician to say that it’s implied under the general welfare clause of the consitution…

 
Comment by Bye FL
2008-02-09 09:57:08

They want $199k for the 1825 square feet model, that’s $109/foot. Way better deal to buy the biggest model. If one doesn’t need all the space, why not rent out a room or two and let it pay part of your mortgage and youll be paying far less than the smaller house!

 
 
Comment by BP
2008-02-09 10:31:54

I grew up down the road there. They are still ovepriced. $195,000 might be about right.

 
Comment by Happy Renter in Vancouver
2008-02-09 11:11:26

The “article” from the Palm Beach Post sounded more like an advertisement to me…

 
 
Comment by vmaxer
2008-02-09 09:16:49

“‘They told us they wanted full payment on the second loan,” said Scott, chief negotiator for a Re/Max office in McLean. ‘They stopped negotiating, and the conversation was over.’”

Now they get nothing. NOTHING!

Comment by Bye FL
2008-02-09 09:19:26

They will go bankrupt just like so many other lenders have. Greed and corruption is weeding out the weak ones. Survival of the fittest!

Comment by Evil Capitalist
2008-02-09 09:57:08

Wrong. They have outstanding $75k loan. They are offered to settle it for $1k. Of course they have no interest. They may as well carry it, especially since it is most likely insured against default.

Comment by dude
2008-02-09 16:21:41

“insured against default”

HAHAHAHAHAHAHAH, (DEEP BREATH)
HAHAHAHAHAHAHAHAHAH!

You slay me with your crackpot sense of humor.

(Comments wont nest below this level)
Comment by Evil Capitalist
2008-02-09 19:16:46

Most of them are in fact insured against default. That’s why lenders have no interest in workout.

 
Comment by Martin Cohen
2008-02-09 22:06:06

But WHO is the insurer? Will they be in business in a year?

 
Comment by michael
2008-02-10 06:25:29

who is the insurer?

me…you…your family. otherwise known as the u.s. taxpayer.

 
Comment by Evil Capitalist
2008-02-10 15:42:48

I think you are not getting it.

It is -given- that if they do let go of that loan they immediately have to book $1k return on a $75k loan. It is ABSOLUTELY NOT given that should they refuse to accept $1k they will get zero. Based on my work with financial sector I can tell you that the vast majority of loans are insured against DEFAULT. They are not insured against losses.

 
 
 
 
 
Comment by ec3
2008-02-09 09:21:00

“‘The bottom line is it will be another slow year like last year,’ Chmura said at the annual meeting yesterday of the Home Building Association of Richmond in Chesterfield County. The topic was ‘Surviving Today’s Market.’ About 500 people attended.”

Was this advertised at 3 in the morning?

 
Comment by smiling_in_SD
2008-02-09 09:59:38

“Trainer discovered that late last year when she got hit with thousands of dollars in back taxes from when she was self-employed. She also realized that the property tax on her home was not included in her monthly mortgage payments. She fell behind on both her loans.”

She’s obviously an idiot. Sweetheart, you didn’t “know” that you didn’t have an escrow account? Maybe if she planned ahead she wouldn’t have gotten “hit”.

ps: you also have to pay for gas and electric (fyi ..so it’s not a surprise)

Comment by virginian
2008-02-09 12:06:43

You will be surprised how many first-time homebuyers and flippers do not pay their property taxes. I know one personally; he was very surprised when city of Alexandria demanded taxes on his townhouse for missing payments for last two years or so. Any case, his house was repossessed and he now lives with his parents.

 
 
Comment by Frank Hague
2008-02-09 10:19:34

“Snead noted that many conventional lenders are now requiring 20 percent down payments for new home purchases. ‘People just don’t have that kind of money,’ he said.”

Everyone once in a while one of these builders or lenders will sum up exactly what the problem is without even realizing it. Despite this moment of clarity, that article says the same guy just finished a house built on spec. Go figure.

 
Comment by are they crazy
2008-02-09 10:49:47

Piggy back loans! I remember not so long ago when you had to have the 20% down payment and had to say where the money came from. Banks did the loans and usually you had to have had an account with them for a while to get a loan. The only people that went to mortgage brokers were those that couldn’t get loans at banks. It seems the whole idea of the piggyback was to avoid PMI. I remember hearing folks say that even if they had the 20% down, why should they use their own money. It all just defied logic to me.

Comment by reuven
2008-02-09 23:57:17

It’s also amazing that nobody seems to care about PMI anymore! Talk about “Cash in the trash”. I put 20% down so I wouldn’t have to pay that.

 
 
Comment by Housing Wizard
2008-02-09 11:07:20

The part that I don’t understand is why didn’t the second trust deed holders get PMI insurance on those high loan to value purchase money seconds ?

The fact that the industry created a way to avoid PMI doesn’t excuse the fact that no lender should of been giving second TD purchase money loans at that high of a loan to value . A PMI company would never place insurance on a loan that high in which the borrower wasn’t gold and could qualify . I’m just wondering how the industry got away with making second TD loans like this without PMI insurance and strict underwriting because of that second . What a joke if those seconds TD’s were rated as anything but pure junk paper with the highest risk .

The loans that the dealers came up with were just a excuse to not have to underwrite loans and make people qualify . This is where a lending program made it possible for unqualified buyers to get high loan to value loans ,which in turn drove the market prices up beyond what it would of been had the buyers passed the qualifying test . The public should be pissed that they got priced out of the market or had their taxes raised on fake values based on this sort of extreme faulty lending practice . It’s not enough for me that the lenders and their rating agencies considered these loans investment grade quality . This sort of lending is not acceptable ,even under liberal standards .These lending models of risk are the biggest bunch of BS that I have ever seen in my life …no excuse .

Comment by skip
2008-02-09 13:04:02

The reason people went with a 2nd loan instead of PMI is that it was cheaper. Evidently, a 15 year/$70k/10% works out to be cheaper than PMI.

Also, the interest on the second loan was deductible while the PMI payment was not(this has been changed for PMI policies originated in 2007-2009).

Comment by Matt_in_TX
2008-02-09 14:39:44

This should tell us something about the perceived risk. Nah, prices never go down anyway. Don’t worry, be happy.

 
 
Comment by tuxedo_junction
2008-02-09 13:07:43

The seconds were securitized and then rated AAA based on FICO scores. Some of these seconds were even blended in with firsts into CDOs, which were rated AAA based on FICO scores.

 
 
Comment by virginian
2008-02-09 12:01:36

Northern Virginia is toasted. Recession arrived with full force. What is left from once prosperous IT industry is a hollow shell, and that is cracking. Verizon, Sprint, is still laying off people. About 3000 should leave Sprint alone. Other companies (Volvo, FBCM, food industry…) around Virginia are firing people left and right. This is definitely not good for the housing market. Fairfax and Loudon County are virtually bankrupt and have shortfall of tax revenues in hundreds of millions of dollars. From this is closer step to limit public services such as schools and law enforcement. Housing miracle that fueled Loudon County past ten years is gone and housing prices are falling down since the peak. I do not feel sorry for people, who on Virginian income bought a house on tiny lot with a price that matches California. In addition, they must commute 90 minutes to DC on the nation’s worst roads. The most funny and sad story of Theresa Trainer that people believed that their tiny townhouse is worth 357K. Moreover, she is not the first person who did not notice that they have to pay property taxes on their huts. I know flipper who got his house reposed because he failed to pay property taxes… and he did not know that they were paid separately from his mortgage. How hilarious! How many flippers did not pay taxes to counties around NoVA? It is reason, why Fairfax County alone had last year such deep budget deficit 220 mil.?

Comment by tuxedo_junction
2008-02-09 13:12:00

It’s amazing that Fairfax and Loudoun, two of the richest counties in the country, manage to have local government deficits right before a full recession hits. What is it going to be like in 2008?

Comment by virginian
2008-02-09 17:13:13

Wealth is a relative term. Homes in these counties are relatively small, but highly overpriced. I have seen much nicer houses in rural Kentucky with nicely painted fences and more land around it than here in NoVA. Yet KY is considered far poorer than VA measured by income. Another problem with these counties lies with the planning. Couple years ago I had red article, which pointed out that the Fairfax County, is the worst planned county in the nation. It lacks of everything… from insufficient roads, stores, civic services, to gas stations, malls, food courts, dinners… It has NIMBY mentality. On top of it, it has limited utilities. There was water restriction for almost entire 2007; its electric grid is failing. I do not live in that county, but next one; and had numerous power failures here in NoVA, because it is old and does not meet demand. Without revenues and deep budget deficit, its so highly prized school system will fail as well. The wealth effect in NoVA is a golem standing on sand that is predestined to go down.

 
 
Comment by tuxedo_junction
2008-02-09 13:14:14

How’s the high end of NoVa holding up? I mean the SFDs in Great Falls, McLean, and the good parts of Alexandria. Also, high-rise condo apartments with DC views.

 
Comment by Evil Capitalist
2008-02-09 14:11:13

NoVAs local authorities are just f!cked in a head. It is the country where local authorities go out of their way to block additon of high tension power lines to data center operators who run out of power. These are the counties that in event of power failure send sheriff to the same data centers in the middle of night to make them turn off generators as the generators disturb the neighbors. And after that the counties wonder why it is not getting the projected growth in hard core IT industry?

 
Comment by Arwen_U
2008-02-09 14:44:39

I just did several hours’ worth of work compiling foreclosure data for Prince William County, VA in December. These were the results for property sales in PWC up to $400K:

A total of 1,052 properties were sold.
592 (56%) were purchases by mortgage lenders (foreclosures).
157 (15%) were sold by mortgage lenders.
303 (29%) were regular sales or properties not bought or sold by banks.

The water’s coming in faster than the banks can bail, methinks.

 
Comment by NoVa RE Supernova
 
Comment by Big Bubble Popper
2008-02-09 15:06:32

Verizon, Sprint, etc. are laying off people which is problematic enough for this area, but wait until the layoffs start happening for the defense and government contractors. Then you will really see blood run in the streets. The cuts to defense spending are coming. Even just cuts in the growth of spending means trouble.

On top of all this, it seems to me that there are a lot of people fed up with this area. Usually, its the long commutes, but in a lot of cases its their fault for deciding to live so far away. Regardless, if they have an opportunity to leave, they will be gone IF they call sell or otherwise get rid of their house.

We can look forward to lots of empty office buildings, and maybe lots of empty houses. Who knows? Maybe they can remake Tysons by just razing the place if it ends up so empty.

Comment by virginian
2008-02-09 17:25:56

I am happy to live inside the loop, so I do not commute. It is laughable that people were buying houses around Lake Anna, or in West Virginia to be homeowner and travel 2 hours to DC for work. When these people will lose their job, good luck to find one in their rural communities! DC Metro lives off federal government, so any cuts in the budget will hurt the area. And these cuts are coming, there is no denial for it here anymore. With budget projected to be in almost half trillion dollars in red, there is not much money left. However, there is possibility that the government will do anything to postpone recession at any cost. Maybe the government will turn this country resembling good old Soviet Union under Brezhnev with its market interventions. It will take care of housing problem with taxpayer money; it will provide full employment, and sends checks to citizens to subsidize everyone consumption. I know where such government protectionism leads, I lived under socialistic rule, and the ending was not pretty.

 
 
 
Comment by Emmi
2008-02-09 15:06:45

“Ignorant suckers like me”

EE ghads! We have this useless Dept. of Ed. maybe we can put it to use by getting it to require one month of personal finance coverage in math class every year from 5th grade on. With computers and the internet, it should be easy to make kids run a simulation of managing a household’s finances as a game for a grade. Shame on us for turning out kids that only know when the train is going to arrive. We don’t even have any trains where I live! How pointless is that knowledge?

Comment by Hailey
2008-02-09 17:54:19

I took an “Effective Living” class in high school where they did similar things. We had to balance check books, have budgets and mock-weddings/marriages and “egg” children to take care of, we even cooked, etc. Not a true test for real life by any means but at least it was something. I think everyone kid should be required to take some kind of “real life” class. That’s the problem with school, imo, the only thing it really prepares you for is getting up really early and putting in a six-day doing something you don’t want to be doing, someplace where you don’t want to be. Just like work (but with 2 less hours).

 
Comment by Hailey
2008-02-09 17:56:07

Oops… “6-hour day”

 
 
Comment by michael
2008-02-10 06:19:09

“Buyers Don’t Want A Deal, They Want A Steal”

yeppers.

 
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