Creating The Illusion Of Great Profit Opportunities
Some housing bubble news from Wall Street and Washington. Bloomberg, “A $7,000 income tax credit to anyone who buys a foreclosed property, further undercutting your asking price, (is) part of a deal that includes $29 billion in tax cuts through 2010 that are intended to give the battered housing market a boost. U.S. Senate leaders agreed to it on April 2. More than $25 billion would be handed out to homebuilders over a three-year period in the form of rebates of income taxes paid during the height of the housing boom.”
“‘These tax provisions will keep property values up, keep folks in their homes, and keep businesses afloat, and those are all keys to handling the housing crisis,’ Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in a statement.”
“No, they’re not keys to handling the housing crisis. At best, they would be a waste of taxpayer money. At worst, they might delay some of the adjustments that have to occur before the housing market can stabilize.”
“The $7,000 credit, which would be paid over two years, is as likely to depress values as to prop them up.”
“The problem for homebuilders is that during the boom they geared up to construct more than 2 million new housing units a year. That included stockpiling land, increasing their workforces and constructing many houses on speculation.”
“Today, only about half that many homes are being built and sales have plunged. If anything, allowing losses to be carried back an extra two years could work to slow down the needed industry shakeout.”
“As a Finance Committee statement said on April 2, ‘Homebuilders and other housing sector businesses particularly need cash to prevent layoffs, to avoid selling land and houses at distressed prices, and simply to shore up their lagging bottom lines.’”
“Avoiding the sale of land and the inventory of unsold new homes is exactly the wrong thing to encourage. Reducing the overhang of new homes is the real key to establishing a bottom for the industry.”
The Wall Street Journal. “Do the political math. The Mortgage Bankers Association tracks 46 million mortgage borrowers, and 42 million are paying on time. More than 20 million households own their homes outright and, having worked for years to pay for them, probably don’t want to pay for someone else’s. Neither do 35 million renters who didn’t take a flyer on nicer digs.”
“The Senate Banking Committee, chaired by Connecticut Democrat Christopher Dodd, held the first of what are sure to be many hearings last week on the government’s role in connection with the near-collapse and ultimate acquisition of Bear Stearns Cos. by JPMorgan Chase & Co.”
“Isn’t there an inherent conflict of interest? Congress has oversight responsibility for financial regulatory agencies. At the same time, the members represent business constituencies dedicated to opposing rules and regulations that get in the way of their profits.”
“As for Dodd, he’s no piker when it comes to raking it in from the financial industry. Finance, insurance and real estate companies chipped in $13 million in campaign contributions since 1989, according to the Center for Responsive Politics.”
“As a group, members of the Banking Committee received a total of $29.3 billion in the 2003-2008 election cycle from those industries and related political action committees.”
“Among the ideas floated by Treasury Secretary Hank Paulson last week in his blueprint for regulatory reform was for the Fed to become a kind of uber-cop.”
“But if Fed policy makers can’t identify an asset bubble until after it has burst (by their own account), how can they anticipate the next threat to the financial system?”
From Reuters. “Former Federal Reserve Chairman Alan Greenspan has defended himself from charges that easy U.S. monetary policy created the current credit crisis by inflating a housing bubble, and instead blamed professional investors.”
“‘The U.S. bubble was close to median world experience and the evidence that monetary policy added to the bubble is statistically very fragile,’ Greenspan wrote.”
“‘The core of the subprime problem lies with the misjudgments of the investment community,’ he wrote. Subprime-mortgage securitisation exploded because it appeared misspriced and there were few delinquencies and defaults, ‘creating the illusion of great profit opportunities.’”
“Lenders were then pressed by securitisers for mortgage paper ‘with little concern about its quality.’”
“Greenspan also said he doubts tightening of regulation would have solved the problem. ‘The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent,’ he wrote.”
The Dallas Morning News. “Credit score experts have bragged about the way the all-important three-digit number is able to predict a consumer’s likelihood of repaying a loan. But did they fail to screen subprime mortgage applicants properly?”
“‘The FICO score is based on their existing credit accounts,’ said Craig Watts, Fair Isaac spokesman. ‘That’s where the lenders went astray. They thought the FICO score could anticipate additional risk that an exotic mortgage was going to bring to an individual’s credit risk. That’s not what the FICO scores do.’”
“Lenders were using the credit scores ‘as a way of pricing the risk, but they really weren’t an indicator of how well those loans were going to perform,’ Mr. Fishbein said.”
“Dallas mortgage banker Craig Jarrell believes in the FICO scores. ‘I don’t think they failed at all,’ said Mr. Jarrell. ‘They [subprime borrowers] had bad credit, and they got a loan anyway.’”
“The lenders who made those loans ignored the fact that the borrowers with poor credit shouldn’t get a home loan. Blame that mindset on the fact that the lenders could just pass the risk to investors who were eager to snap up high-yielding securities backed by subprime loans.”
The New York Times. “Almost all mortgage applicants had to sign a document allowing lenders to verify their incomes with the Internal Revenue Service. This includes the so-called stated income mortgages, affectionately known as ‘liar loans.’”
“So while borrowers may have misrepresented their incomes…lenders had the tools to identify these fibs before making the loans. All they had to do was ask the I.R.S. Instead, lenders appear to be complicit in the rampant fibbery.”
“Mike Summers, VP for sales and marketing at Veri-tax Inc., in Tustin, Calif., knows plenty about this. His company handles the filing of these verification forms with the I.R.S. on behalf of lenders and loan originators. He began selling the service to lenders in 1999 and said he was surprised at the reaction he received — like that of a skunk at a garden party.”
“‘In 2001, I was going around the subprime world trying to get them to sign up,’ Mr. Summers recalled. ‘Ameriquest, and others I don’t want to name, just didn’t want to know because it would kill the deals. The attitude was don’t ask, don’t tell.’”
“Can investors stuck with losses on these loans sue to recover their investments based on this due-diligence failure? ‘Investors hoping to put back the loans for deficient underwriting under reps and warranties would end up going back to the originators,’ said Josh Rosner, an authority on mortgage-backed securities. ‘Given that many of these lenders are out of business, ultimately this could come back to the bank or investment bank.’”
“‘The general view is this should not be talked about out loud,’ Mr. Rosner added.”
“Wall Street will certainly battle forcefully against such lawsuits, if investors bring them. But its role as one of the great enablers in this mortgage debacle is something that even Wall Street can’t deny.”
The Orange County Register. “A small group of former mortgage workers were huddled around a table last month, talking about the dire condition of the industry that had employed them.”
“‘I always assumed that the industry would be there,’ said Dave Kleiman, 48, who started at age 18 in what is now called subprime lending and most recently was a senior manager at Saxon Mortgage in Foothill Ranch, which shut down in February. ‘There’s nothing left to rebuild now.’”
“Jon Daurio is a former Ameriquest executive who founded subprime lender Encore Credit Corp., which was bought in 2006 by Bear Stearns Cos. He’s doubtful the local subprime industry will ever be what it was before last year’s crash.”
“‘It’s not coming back, and if it comes back, it’s not going to be the same way, and it’s definitely not going to be on the profit structures that we had,’ he said.”
“What fueled the recent boom for subprime lenders was securitization. Wall Street firms bought mortgage loans from lenders, packaged them into securities, and sold them to investors. It was a great business for a while. In 2004 and 2005, with home prices nationally rising at an annual rate of around 15 percent, subprime borrowers largely stayed current on their mortgages.”
“That led to riskier subprime lending, more securitization, more profits for lenders and investors.”
“‘It was all based on the idea that house prices couldn’t go down,’ said Dana Johnson, chief economist for Comerica Bank. ‘And of course, they did, and it was that that set in motion all of the defaults. You had people who had no skin in the game.’”
“The question for the mortgage industry, then, is will securitization come back? Or, barring that, will investors at least resume buying mortgages to hold?”
“‘I don’t see Wall Street coming back anytime soon in terms of the risk appetite for underwriting subprime mortgages to the extent that we did,’ said Ricardo Chance, a managing director with KPMG Corporate Finance LLC in Costa Mesa who previously worked for investment firms.”
“For many investors, the condo hotel may go down as the Pets.com of the real-estate bubble. Many buyers purchased the hotel rooms from developers hoping to get paid every time the room was rented.”
“But condo hotels, which account for as much as 10% of all hotel rooms under construction and a much greater percentage in resort markets such as Orlando, Fla., and Las Vegas, are coming back to haunt many of the people who bought the units, the developers that constructed the buildings, and the operators hired to run the hotels.”
“Some projects also are being brought to the attention of regulators by investors.”
“‘It’s been a very bad investment,’ said Moji Adekunbi, who bought a $550,000 condo-hotel unit in the Signature at the MGM Grand in 2005 in Las Vegas, where one of every four hotel rooms being developed is a condo-hotel unit.”
“Mr. Adekunbi counted on the cash flow from renting out his unit more than covering his $3,000-a-month mortgage payment, leaving him with a tidy profit.”
“He said the developer’s sales staff led him to believe that the hotel would have 94% occupancy and $350-a-night rates, Turns out, he said he is netting only between $400 and $1,800 a month before his mortgage payment.”
“‘I am in so much debt. I don’t know how long I can sustain this,’ Mr. Adekunbi said. Making matters worse, many markets for these rooms are weak, meaning owners might lose much of their investment if they sell.”
“During the real-estate boom, many Americans scrambled to buy anything they could — office condos, warehouse condos and high-rise residential condos, which are crowding the skyline of cities such as Miami.”
“Developers loved condo hotels. ‘It minimized the upfront risk to the developer, and shifted it to the individual unit owners,’ said Mark Lunt, a lodging analyst at Ernst & Young. Many developers said they insisted that buyers regard condo hotels as vacation homes that they would use rather than income-producing investments.”
“In Florida, a group of buyers is suing WCI Communities Inc., claiming the developer sold them condo hotels in the waterfront Resort at Singer Island as unregistered securities. The buyers said they bought the units as investments, not primarily for their own use.”
“A few buyers are talking to the SEC, alleging possible securities fraud, according to their attorneys. One issue could be whether developers sold these units as investments, which should have been registered with the SEC or other regulators.”
“Many developers were careful not to market condo hotels as investments, but ‘many others find it difficult to restrain themselves from creating expectation of investment returns and cash flow,’ said Rob Webb, a senior hospitality partner in (a) Cleveland law firm. ‘All you have to do is find the developer’s newspaper ads, and it could be a devastating blow.’”
“Michael Trombley, a retired major-league pitcher who lives in Fort Myers, Fla., is one of several investors who have filed lawsuits alleging securities laws were violated in the sale of units in the Clearwater Cay Club in Clearwater, Fla.”
“‘They were always trying to preach to people that the market is hot. This is a no-brainer. You’d better get in quick,’ said Mr. Trombley.”
“In 2005, Mr. Trombley, along with five friends and family members, bought five units in the development for a total of about $2.2 million, according to his attorney, taking out loans to finance the entire purchase price.”
“Mr. Trombley estimates the four units he holds are worth at best 40% of the original purchase price, he said. Carrying costs, meanwhile, are running about $14,000 a month.”
In the first link, John M. Berry does a pretty good job at pointing out how counter-productive congress is behaving. But I think some finer points are still missing in the media. This is so overbuilt, the markets desperately need builders to fold and construction to stop. This stuff in Washington right now will undoubtedly make the bust even worse. If it passes, I’ll just have to point that out here in 12 months or so.
As for the condo-tels. I posted on those extensively as I always thought it was the best proof of a financial mania. I am sure I’ve got hundreds of juicy quotes in the archives if any lawyers are sniffing around for evidence.
My favorite indicator of the mania was the plan to convert grain elevators into condos.
Sorry, the “floating condos” beat up the grain elevators, and took away their lunch money.
OMG, I think someone actually did that here. Need to go over and check out a project more closely..
What about former insane asylums and maximum security prisons being turned into condos? They’re even worse than silos, and yet idiot “investors” have rushed in to buy. I’m sure somewhere there is a developer eyeing old mausoleums for his next great conversion.
There’s a hotel here in Boston that used to be a police station: Jury’s.
Someone turned an old concrete plant into condos in central AR. It converted into 2 or 3 condos, 3 story. The original exact functional purpose of the structures (other than they are part of an old concrete factory as I said) is unknown to me ecxept that one of them had a giant conveyor belt running up to the top of it.
I’m not sure if anyone lives there now…it doesn’t look like it and they have been there a couple years now.
I stayed in a hotel that was a converted grain silo in Akron, Ohio once. It was kind of fun for a single evening, but I wouldn’t want to live there. Round walls are hard on furniture placement.
Sounds like the former Quaker Oats building. Used to exude a nice oaty fragrance, that is, when the odor from the nearby rubber companies wasn’t fouling the air.
Actually, I always wanted to live in my own tower. I like the grain silo idea, at least for a house.
My BIL works for a construction mgmt company that does condo-tels around the world, and he has done quite well with it (esp since the mgmt company doesn’t have any direct risk). When I asked him how these things could possibly pencil out over simply renting a hotel room for vacation, his response was basically, “They’re not making any more land.”
“If it passes, I’ll just have to point that out here in 12 months or so. ”
Well, that’s what we do all day around here, so at least someone sees what’s gonna happen!
when you put quotes inside your main postings - are some of those your words versus something from an article
guess Ron Paul will be the “loan” no vote
good article on RCA in lp.org
You know, I don’t think so. I see less and less support for these hair brained ideas every day. They won’t change anything, and IMO that is sinking in. Plus, the reality of the jobs problem is coming to light. I hope we can change direction soon.
‘and less support for these hair brained ideas’
-What is important is that the idea is debated in the publics eye. The same hype was connected with the ‘Jumbo’ loan limits being raised - it provided no relief or help to J6P.
As long as ‘Joe’ thinks something might happen, he is happy.
Actually it’s “hare-brained” ideas, though rabbits would file libel lawsuits to be thus defamed by comparisons to FBs and the imbeciles who would bail them out.
Hopefully the political math (the 97 million households that supposedly aren’t FB’s) will set in, but I don’t have high hopes. It seems that the surveys always show that the masses want better schools, bread, circuses, and the like, and even though they don’t want higher taxes, they always seem to vote for them in bond measures, etc.
I still think the pols are making a huge mistake by courting the FBs. Outright owners - a lot of them seniors - vote prodigiously. Renters - unburdened by the need to work 2 or 3 jobs will have plenty of time to vote.
What about the FBs? They probably won’t have the gas money to even get to the polling place. Heck, if they couldn’t be proactive in their personal lives by reading the loan docs - why do politicians think they’ll be proactive enough to vote?
Yeah, but voting is as easy as dropping a nickel into a slot machine and pulling a lever.
Reading 40 pages that affect the rest of your financial life? That’s tough.
What about the FBs? They probably won’t have the gas money to even get to the polling place.
Forget the gas, they probably don’t even own a car anymore.
FBs shouldn’t be allowed to vote, or drive, or breed for that matter.
What is it with people still talking about the ’subprime crisis’?
As far as I know, subprime is but a small part of the overall mortgage problem.
We have:
Subprime
Option ARMs
Alt-A
Prime
What is it with people still talking about the ’subprime crisis’?
MSM can’t see anything that isn’t right under their noses. So, until those Option ARMS, AltA and Prime loans start to reset & cave in large numbers, we’re stuck with the Subprime label. Subprime loans have quicker resets (usually 1 - 2 years), the others are mostly 5 years or longer, so it makes total sense we saw the Subprime debacle first.
They still won’t change their tune. They’ll probably start reusing the “contagion” phrase and blame Sub-prime for “taking down” prime.
http://www.cnbc.com/id/23993467
CNBC.com just posted an article on “Foreclosures Coming to McMansion Country.”
And…………………drum roll……………………………….
HELOCs!
The other ATM machine (think pork).
Leigh
I disagree SMF. I frequently have this discussion with the clueless on Main Street who continue to insist that “it’s those suprime mortgage holders” or “those speculators”. It’s neither. What it is? It’s is the rapid price decline of the underlying asset. Plain and simple. Yeah, I agree it is crapola finance that drove the price up but without it, the price structure compresses on itself. It seems to me the MSM uses cutesy buzzwords(suprime, CDO, etc) to create a diversion as a means to cover up the ugly truth about your house at 123 Main Street and I don’t think the MSM and PTB ever will be the first to drop that turd bomb.
“Subprime” crisis sounds a lot better than “Wall Street Gangsters / Fed / MSM Screwed Us Again” crisis. Well, it sounds better to three groups, anyway.
I think Subrime has become the generic moniker for all bad loans, much as Xerox means a photo-copy, Kleenex means a tissue, etc.
Much easier to blame all the problems on a nebulous term, rather than point the finger at the real culprits.
And as typical, better to portray the poor and minorities as being the ‘victims’.
What happens to the story when everybody is ‘victimized’?
And BTW, we are selling our house and buying a new one. And we are blazing new lower comps on the way! Selling and buying at 2003 prices. And we are buying in one of those immune high-end areas.
And BTW, we are selling our house and buying a new one. And we are blazing new lower comps on the way! Selling and buying at 2003 prices. And we are buying in one of those immune high-end areas.
I love the irony of the last sentence!
Got Popcorn?
Neil
That should have been “so called immune high-end”. We have a few shills on the SacLanding blog that always stay the high end will never go down, yada yada yada. SMF knows it’s bs and has been calling them on it. He knows they’ll still fall more but now that he’s proved they will go down, he’s having fun >; )
Shills, where?
We had one that called me on my prediction that we were on the 3rd inning. Asked me for a reference, to which I duly provided one from the CEO of Freddie MAC. She has not posted since.
Neil, realistically speaking, with the price we are paying for the new house and the new comparable, you could say that we are putting several individuals immediately and officially underwater.
And this is a house that sold for $415K in 1999. So you can just imagine that this is a well established higher end area.
Seriously speaking, we are a little afraid that some may be really upset over what we did.
Imagine this, and it really is happening:
Our house is 2200 sq.ft. custom home in .27 ac. Selling for $398K. A 2500 sq.ft. track in our little neighborhood (needed TLC) was listed at $460K. And this was less than what they purchased for in 2005. Soon after we listed at $420K, they listed theirs at $399K. But we are selling for $398K. What happens to them then?
“A $7,000 income tax credit to anyone who buys a foreclosed property”
We already have a huge tax credit for overindebted buyers of oversized homes. It’s called the home mortgage interest deduction. We should be working to repeal that, not add more perverse incentives.
You may say I’m a dreamer. But I’m not the only one.
I second this. The more tax breaks, the higher house prices will be and the poorer the government will be.
I second this. The more tax breaks, the higher house prices will be and the poorer the government will be.
Don’t forget all of us. The poorer all of us will be with the taxes we’ll be paying to bale everyone out.
It’s called STARVE THE BEAST.
The goal of the neo-slime is to screw up the budget so badly that the social programs have to be gutted. They cannot do this without a financial crisis to use as cover.
The crazies in the Reagan admin came up with it.
And what are your thoughts on Hillary Clinton’s approach to “freeze interest rates for 5 years” and “stop all foreclosures for 90 days”?
RE: A $7,000 income tax credit to anyone who buys a foreclosed property”
Obviously, a financing concession…You can knock that amount right off the top of the estimated fair market value.
And when the concession is eliminated?
Got yourself a nice white elephant there buddy.
The politico’s just don’t get it.
Some foreclosed properties are so trashed that $7k would be just a drop in the repair bucket.
Some foreclosed properties are so trashed that $7k would be just a drop in the repair bucket.
Most foreclosed properties are trashed. When I did sell real estate, I did my best to discourage people from buying them. The hidden problems are so numerous and can financially ruin most buyers. Even if no one trashed them, just sitting empty for eternity, until the bank actually forecloses, causes so many problems in the walls, the plumbing, the septics, the wiring and on and on. There are some foreclosures that the banks could actually give to you and it would still cost more to bring it up to live in condition than the actual cost of the property.
So, if my business gives me a home purchase loan, and I end up foreclosing on myself… can I get this $7000 tax credit? How many times can I churn it?
So, it sounds like folks should not look at short sales, but just wait for the lender to foreclose and take the house back?
Might be some whining in the J6P community when they realize to make full use of a 7K tax credit they have to actually pay more than 7K in federal income tax. What is that, more than 70K income?
Is this a tax break for the above medians from the Democratic congress?
“…full use of a 7K tax credit they have to actually pay more than 7K in federal income tax. What is that, more than 70K income? ”
It is $3,500/year for two years. I imagine that there will be some sort of income phase-out if/when it makes it out of Congress.
Veto it all anyway, Mr. President. Show us something.
“‘These tax provisions will keep property values up, keep folks in their homes, and keep businesses afloat, and those are all keys to handling the housing crisis,’ Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in a statement.”
*******
The Dumbshit Brigade strikes again!
The key will be letting house prices fall. For without that, every “solution” will fail.
Hey Congress - wake up!
Courtesy of: http://en.wikipedia.org/wiki/First%2C_do_no_harm
“Primum non nocere is a Latin phrase that means ‘First, do no harm.’ The phrase is sometimes recorded as primum nil nocere.
It is one of the principal precepts all medical students are taught in medical school. It reminds a physician that he or she must consider the possible harm that any intervention might do. It is most often mentioned when debating use of an intervention with an obvious chance of harm but a less certain chance of benefit.
Since at least 1860, the phrase has been a hallowed expression for physicians of hope, intention, humility, and recognition that human acts with good intentions may have unwanted consequences.”
‘keep property values up’
I agree, and this quote above should remove any question about what government involvement in housing is all about. Almost everything they do makes houses LESS affordable, and the sooner the media wakes up to this, the sooner we can have an honest debate about the role of government in housing.
How would taxpayers feel if Congress worked to keep gasoline and food prices up ?
They have worked to keep gas and food prices up. Refused to pass stricter CAFE standards for years, encouraged SUV sales, insisted on using Ethanol as a fuel driving up feed costs. It goes on and on.
Well said Mo. SLOBurbans, Excretions and TaWhores should have been banned long ago.
I get around by bike, so I have some really nasty names for SUVs. But, Exeter, your names have a certain panache to them. Thanks for adding them to the lexicon.
http://gawker.com/365129/how-to-flick-off-a-hummer
While the Hummer H3 has the well-deserved FUH2 site, the behemoths you just mentioned and the heedless creatures who drive them deserve equal treatment.
I think the phrase needs to be changed to “Keep Mortgage Payments High.” Possibly, only then, will it finally sink into people’s heads that high home prices equal high mortgage payments.
But then again, I don’t think most people feel that the problem is unaffordable homes. They feel that it is all a problem of in-proper loans being written. Which is true to an extent, but in many areas the unaffordable housing prices make exotic loans the only possible way for large portions of the public to ever afford a home.
Improper.
“in many areas the unaffordable housing prices make exotic loans the only possible way for large portions of the public to ever afford a home”
Isn’t it the other way around? If there weren’t exotic loans, the prices wouldn’t be unaffordable. Furthermore, exotic loans don’t help anyone “afford” a home. They may help someone buy a home they can’t afford, as we’ve seen so well, but they don’t do crap to actually make a home more affordable.
The media is bought and paid for by the very people that want to see prices stay high. If you are hoping for some truth telling to occur in the media, I have a war in Iraq I want to sell you.
Wait a minute…
“‘These tax provisions will keep property values up, keep folks in their homes, and keep businesses afloat, and those are all keys to handling the housing crisis,’ Senate Finance Committee Chairman Max Baucus, a Montana Democrat, said in a statement.”
Doesn’t matter if the values are kept up or not. The people in them cannot afford the payments, so what’s the government going to do. Make them for these poor victims.
Secundum, bene facere.
The worst thing about the bailout legislation, to me, is that it does not appear to address people who extracted equity to buy toys. If we’re going to bail people out, we should AT LEAST be able to disqualify people who extracted equity.
So true - they got theirs and spent it and they got it tax free. I don’t like any of the bailouts, but I am particularly offended by any bailout for anyone that HELOCed or refied.
We should also disqualify anyone whose income listed on the mortgage application does not match that reported to the IRS.
“It reminds a physician that he or she must consider the possible harm that any intervention might do.”
More specifically, it is part of an oath not to perform euthanasia or abortions (both common in ancient Greece), which explains why so many medical school graduates now avoid taking it. When it comes to “preserving the purity” of their “art,” today’s doctors are a real riot.
http://en.wikipedia.org/wiki/Hippocratic_Oath
The problem with interventions of so many kinds is one cannot predict the outcomes, or determine whether they are helping or harming. The housing bubble, however, seems to be pretty obviously bad, and trying to prop it back up sounds like a disaster in making, even without endless analysis. Since when did more fakery and illusion become the best-hoped result? Is keeping a terminal patient (housing bubble) alive in death throes better than letting him go?
I wonder how many bribes, uh, contributions, Senate Finance Committee Chairman Max Baucus has received from the banking and real estate industries.
“‘These tax provisions will keep property values up,”
It really sounds like it’s them against us.
The question as always is, when were ‘they’ for us?
I agree Jane!
The Financial Indusrty were like legal mafia loan sharks during the boom helped by thier wall strett cronies! See the movies “In debt we trust” and “Maxed Out” (you can find them on netflix).
We were set up!
Everybody will suffer in the ensuing economic fallout.
We were set up!
To the extent that it appears Joe6P is being conditioned to believe that Debt=Wealth (with a highly leveraged residence or investment property as the wealth vehicle), I agree with you.
It just looks like the PTB’s intention is to keep the loans alive. Who cares if the homedebtor can afford it.
The intention is to prop up prices. Period.
“Greenspan also said he doubts tightening of regulation would have solved the problem. ‘The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent,’ he wrote.”
I guess Mr Magoo thinks we are all stupid with his constant denials of responsibility. Look Egghead, I put a cop on road with a lot of speeders and he starts handing out tickets, pretty soon people start driving a lot slower. Just enforcing the simple regulations works !
“Just enforcing the simple regulations works !
Amen! Although dismantling the Glass Steagall Act wasn’t an example of trying to get rid of the laws in the first place.
“Greenspan also said he doubts tightening of regulation would have solved the problem. ‘The problem is not the lack of regulation but unrealistic expectations about what regulators are able to prevent,’ he wrote.”
When you roll back regulations and put those covered by the regulations in charge of enforcing what’s left of the regulations, the results are entirely predictable.
there is an old rule about defending yourself too much.
methinks the former fed chair doth protest too much…
Methinks the former FED head is slowly starting to realize that he’s going to go down in history as the financial equivalent of Nero.
I advise one more book before the fall, then Oprah and another one once universally reviled.
These people who bought condohotels will probably never get their money back.
I have a family member who bought a condohotel unit in the virgin islands back in 1988. It’s very nice and is right on the beach in one of the best spots on the island - but the market value today is *still* about 25% less than the original purchase price 20 years ago.
Anyone who thinks people would willingly pay $350 a night for a hotel room deserves to be taken to the cleaners.
I just cancelled a trip to Chicago because all of the hotels near my convention on Michigan Ave were in the $300 price range.
I used to live in Chicago. None of them are worth it IMO. I really wonder how well the travel/tourism industry will do with a recession, killer energy (ie travel) prices, and their ridiculous hotel rates?
There won’t be a travel industry. Three airlines went out of business just last week.
i was just in Vegas last week for a business convention. No recession there, hotels full, resrauants crowded, people at the gaming tables at all hours…….maybe they haven’t gotten the word yet……….or it’s all on plastic
Four airlines failed in one week.
Champion also failed (flew 13 seat puddle jumpers. Ok, tiny, but still a registered airline.).
Got Popcorn?
Neil
I live here now and agree completely. Friends/coworkers don’t believe me when I say that it’s cheaper for me to stay a week in Tokyo than a week on Michigan Avenue - by a decent margin!
All the same, the city makes big bucks on the hotel taxes - so I hope all the rubes keep sending their big bottomed wives here for the weekends to shop ’til they drop.
I lived in Chicago for 8 years. Still have plenty of friends there so plenty of free sofas to crash on. I just take my friends out to a fancy dinner. Cheaper than a hotel.
Those hotels on Michigan Ave. are ludicrous. Yes, I’ve been inside the rooms. No, you don’t want to know why.
Actually, Pussycat, inquiring minds DO want to know why
Hotel rooms are a racket. Last time I went to DC, I got a $400 a night room for $150 through price-line. Those that pay the $400 are usually losers that think the company or client is paying for it so why do I care what it cost? Even supposedly bright ppl are clueless when it comes to understanding how money works. Bright ppl realize that every dollar of additional transaction costs is a dollar that was diverted from your pocket to someone else’s. I can’t stand the diversion of cash.
Slim checking in here from Tucson. This town’s economy is very dependent on travel and tourism, and guess what? The snowbirds aren’t flocking here. Hence, a lot of hurtin’ business-puppy dogs locally.
I know 3 different couples that usually go to Arizona for the winter, but none of them went this year.
How’s the tourism in FL this year?
The companies pushing these things must have had one slick little sales seminar. Probably had a lot of shiny things around for the dolts to stare at with their mouths hanging open. Let them wipe off the drewl and sign on the dotted line to take their first step on their way to becoming a Hilton, Marriot or some other big name Hotelier.
Sounds like many of these people could only afford their Condotels if the best case scenario played out. Why some people have to base their decisions on the rosiest of estimates is beyond me.
I know people that do the same with their borrowing for toys. They base what they can purchase upon their earnings with overtime, because we all know that the overtime will never go away. That and sales commissions only go higher every year, if you are hitting your sales goals, which always happens…..DUH.
Anything you need a seminar to sell is probably not worth it. Everyone at these events feels like “I’m unique, no one else knows about this, therefore I will become rich”. Its just like multi-level marketing scams. Very few new businesses are so profitable and at the same time unknown. Smart people who have a lot of money spend a lot of time figuring out what is a good investment. That’s why stockbrokers are rich and condo-hotel owners are poor.
How could these ppl think that they were being sold an investment that cash-flowed? Do they really think the developer thought he was making way too much money, and wanted to sell valuable assets at a great price to a limited number of lucky buyers because he was in some sort of an altruistic mood? Money is wasted on such morons. I just hope those that pocketed the money put it to better use.
” Comment by NotInMontana
2008-04-04 10:14:13
My sense is that anyplace you can think about that sounds kinda nice has been bitten by the bubblicious bug. Everyone’s thinking the same thing.”
And this is why I am not relocating to any location where “everyone” wants to live in. I am moving to a location where few people want to live in so I am getting it for reasonable prices while I wait for this madness to end. Any bailouts will only prolong the correction.
For those of you telling me to move to a desirable location, the answer is yes, but not till prices bottom out. For those telling me to rent, it’s too bad the landlords are deluded by ripoff rents that end up costing as much to “own” I will wait for those houses to go back to the bank and go thru a few rounds of knife catchers before no one wants it anymore. Then ill buy one on the cheap to live in.
Well get this, I was thinking where in remoter parts of MT I would relocate to, only to find out that older locals had already figured that out. Longtime residents of Missoula have taken their modest equity to places like Philipsberg and Livingston, places that used to be so delightfully out of the way. Even Sidney MT is overcrowded due to the oil boom.
By the time I get around to moving, it’ll be too late.
Why would people want to live in cold, cold, cold Montana? Enough people tell me not to relocate to NW PA as it is.
I just compared the average temps in Billings with those in NW Penn. In absolute numbers they are about the same, but I’ll bet its a lot more humid in NW Penn (due to proximity to the great kaes) , and thus feels much colder.
Maybe you could look to areas like Chester, Joplin, Inverness, etc. Places that even the schools have had to combine there are so few people. Dutton and Brady also come to mind.
But don’t you think you should rent for at least 6 months to make sure you like the new location before you lock in? Even if you pay only $50,000 or whatever, if you don’t like it there, you will either surely lose money if you need to sell quickly (no appreciation and of course closing costs), or you will be stuck there for a couple of years until you can break even. Even if you don’t like renting, to pay a little extra for 6 months over what a house may theoretically (again, factor in taxes, maintenance, insurance) save you in the long run is a good insurance policy IMO.
Bad form to reply to my own post, but one thing I forgot to add was that if you buy in Oil City, PA, or wherever the houses are $50K, and you don’t like it, you may have trouble selling it regardless, just because it isn’t as desirable, and thus there are fewer buyers.
I guess I could try that. It would eat up part of my downpayment though. Should I rent the house I probably will end up buying in 6 months if I do decide to stay in Oil City? Won’t the seller end up taking advantage of me and refuse to negotiate the asking price because he knows itll cost me time and money to relocate again?
Maybe I should negotiate the buying price before I even move in and make some sort of rent to own deal where I pay above market rent on the condition that 100% of the rent is credited towards the purchase price, *but* if I don’t buy after 6 months(or pay another 6 months rent) I forfiet all the rent which I will pay up front so the landlord won’t worry about skipped rent payments.
Say I want to buy a $50k house. I will negotiate it down to $40k and if market rent is $550, I will pay $700 times 6 or $4200. After the 6 months, I can either walk away and forfiet $4200 or buy the house for $35.8k($40k minus $4.2k credit) the seller knows there is a good chance I will end up buying it because of the huge amount of “rent to own money” as well as relocation time and expenses. I would only forfiet if I decide Oil City isn’t for me or I find a much cheaper house in a different part of Oil City that makes it worth to forfiet the 6 month rent to own money.
If I were to buy, you are saying I may not be able to sell for 2 years unless I reduce the price to the point I could lose $10k on a $40k house plus property taxes(another $1500) would I still be able to rent the house for big cash flow till I sell it?
This presents the option of buying it outright or doing a rent to own(see above)
Some kind of rent with an option to buy may not be a bad way to go; if you do that, you may want to invest a couple hundred to have a qualified attorney draw up the paperwork for you.
Why don’t you try moving out of “Mom and Dad’s” house and try actually living on your own period.
cut bait and go fishin’
I love Bye Fla’s posts. I liked them even better in 2006 on the “City Data” board’s Oil City discussions. Do a search for the screenname:
“need_affordable_home” and read some of those fascinating posts. Hmmmm. Lotsa talk but still no action? For the third year? C’mon “Bye Fla” you can do better than that!
Condo-hotels sound like a big ripoff. In a down economy they sound difficult to make a profit. A huge risk to the buyer at a huge profit for the developer.
My dad almost bought a timeshare like a decade ago. Probably would have lost money today.
Like time-shares, I bet there will be a healthy supply of them on the re-sale market for dimes on the dollar.
And poof, just like that the UK funny munny was gone
Abbey pulls last 100% mortgage
Even 95% loans are now becoming scarce or more expensive. Aaron Strutt, from the mortgage brokers Chase de Vere, predicted that within weeks deposits of 10-15% would become the norm. It also changed its range so that the best deals are now available only to those who can put down a deposit of 25% or more.
The party’s just getting started. Got 25% down?
I just heard a big sucking sound, all the way here in the Alt-A Bay.
Or maybe it was a “pop”…
******
“According to the financial information service Moneyfacts, the huge shrinkage in the number of sub-prime and buy-to-let mortgages triggered by the credit crunch and the Northern Rock crash has now filtered into the market for ordinary residential home loans.
There are 2,058 of them currently, compared to 3,370 in April 2007.
‘There were 104 deals at 100% a year ago, so that market has now gone to nothing’ said Moneyfacts’ Andrew Hagger
Aaron Strutt, from the mortgage brokers Chase de Vere, predicted that within weeks deposits of 10-15% would become the norm.
‘The Abbey’s 100% rates were so expensive compared to where they used to be, you would have had to really need the money to take the deal,’ he said.
‘Even 95% loans are now becoming scarce or more expensive.’
Last Friday the Halifax, another major lender, decided to impose a minimum 5% deposit on new borrowers.
It also changed its range so that the best deals are now available only to those who can put down a deposit of 25% or more.”
ANd this is what would rapidly happen in the US if the govnt’ stopped implicitly providing guarantees for GSE mortgage loans.
Aaron Strutt, from the mortgage brokers Chase de Vere, predicted that within weeks deposits of 10-15% would become the norm.
‘The Abbey’s 100% rates were so expensive compared to where they used to be, you would have had to really need the money to take the deal,’ he said.
‘Even 95% loans are now becoming scarce or more expensive.’
Easy money is like some odd fungus. You don’t want it, but it just won’t go away!
It also changed its range so that the best deals are now available only to those who can put down a deposit of 25% or more.”
Yes… I believe I was predicting 25% down payments would be the norm during the darkest days of this bubble. We’re not there yet. We’re in the tunnel, but there is stil a little light from the enterance. How long can J6P last before panic/capitualation in the dark? I think panic is this fall (nationally), capitualation (the greatest rate of price drops) won’t be until we’re well into 2009.
Got Popcorn?
Neil
This thread is chock-full of rich, creamy badness — the zenith-of-mongoloid-reasoning $7,000 forclosure credit, the dont-ask-dont-tell IRS verification letter issue, and the scam-tacular condo-hotel concept. My mind is reeling under the concentrated financial chicanery, legislative douchebaggery and full-on-idiocy inherent in these topics in just one thread. Where to begin? Where to begin?
Where does it end?
Great global depression II
I would begin with the fibbery:
“So while borrowers may have misrepresented their incomes…lenders had the tools to identify these fibs before making the loans. All they had to do was ask the I.R.S. Instead, lenders appear to be complicit in the rampant fibbery.”
Chicanery and doucebaggery got nuthin on the fibbery. JMHO
Why would these lenders check up? They wanted the loan to go through. It didn’t matter to them that the loan would go bad later because they weren’t holding on to it. Loan Officers are paid on commission so there’s no incentive for them to be ethical.
It used to be that your local bank had people you knew. The loan officer knew you, and he or she would have two interests in mind: the Banks interest, who would own the loan, and your interest, because if you did bad, the bank did bad.
In a race to get better returns securitization helped kill that old process and replaced it with a ‘fire and forget’ mentality.
you missed “Rampant Fibbery” in the recap
“…..a $550,000 condo-hotel unit…”
WTF?
Trump is asking much more for his crap product. Condo-hotels are great. You actually have ppl on waiting lists for investments that lose several thousand a month. The developer usually retains management and makes a killing. Think of it as securitization of the hotel industry. Retain the valuable contracts, yet get the purchase price off your books. Hell why settle for par, when you can sell at a $200k room for $550k? Brilliant.
Here in Chicago we’re all snickering at that great monstrosity going up on the river and the splendid crash all the purchasers are going to undergo.
About the only thing that could possibly save that deluded project is if the Olympic committee did in fact pick Chicago for 2018.
Considering the guerrilla warfare going on now between our local politicians and the gang down in Springfield, I’m not going to hold my breath.
you are talking about the Trump building right? the Trump Monstrosity?
actually the Hotel 71 across the river is attached to a very old tall building. it was the tallest building in the country for a couple of months back in the twenties. the builder wanted to build another one, just like it, right beside it but the Crash of 1929 hit. ‘29 wasn’t good then and next year is 29 with two zeros in between (2009).
da bear
“Do the political math.”
Clearly that is math the WSJ doesn’t know how to do. They are tracking irrelevant votes rather than relevant campaign contributions.
Remember, most members of Congress are elected in one-party districts, and can use the political machinery and lots of money to discourage primary challenges. Only a small share of Americans have representatives who have to care about what they say.
The ugly truth. Amen. Most of us are living in defacto tyranny.
Corporate socialism, a.k.a. Plutocracy.
Not that I disagree about the influence of campaign money on politicians. But the idea of ’safe seats” is becoming a thing of the past. As we saw in 2006, the Republicans have messed things up so badly(mainly due to Karl Rove’s one party rule doctrine, which has bitten them in the ass, and Bush’s complete failure as a President) that most seats are up for grabs. The seat of former Speaker Dennis Hassert was just won by a Dem.
I think in a year when over 80% of the public think we are heading in the wrong direction, the voters will very much count.
Then the seats are not safe any more? With, I assume, an overwhelming Democratic majority? California is the Trinity Site for safe seats - 62% Dem, 38% Rep, and it’s been that way for 15 years. In the last general election, out of some 150 odd statewide seats up, not a single one changed party hands.
It would really be a bitch if the state budget didn’t require a 2/3 rds majority.
Wonder what that looks like plotted vs population density. Hah.
The current Congress that took control in 2006 has the lowest approval ratings in history, something like 11%. So yes, the voters’ 80% “wrong direction” sentiment will prove disasterous for that poorly regarded group, as it has in previous “revolutionary times” - 1994, 2002, 2006.
Got electronic voting machines?
I was in Cuba last year….sat next to a German guy in a pub talking about the govt… he laughed at me and said “you Americans are incredible, you only have only one more political party than the communists have and indict them like criminals”
I didn’t know what to say… he was right.
People need to understand that what we have in this country is a war. It is a war, waged by the rich, against the middle class. In this war the people with assets do everything they can to inflate them, even if it means debasing the currency. Because those assets rise in value at a pace that far outpaces any loss they suffer at the grocery store. When the pace of asset inflation slows, or starts to deflate, they use public money to prop it up. They really don’t care who gets hurt, as long as the one thing they love - assets, can remain highly valued. They will use any slogan that works, and it goes on by both political parties. At the end of the day protecting their asset prices is all that matters.
Welcome to the war.
Wall Street uber alles.
It’s called an Oligarchy, and it’s very much alive in this country.
What? Your tirade makes little sense. If the rich are out to inflate their assets, why is it that ‘rich’ people aren’t real estate investors?
Inflation is still inflation no matter what the scale. Inflation may increase the value of an item in a pure numbers sense, but inflation erodes the actual value of the money at which these items are valued. Trust me, inflation hurts everyone.
If you own a house worth 5 mil, and inflationary pressures make that asset worth 10 mil, but inflation also affects the power of the dollar, so that 5 mil you ‘gained’ only happened because of inflation and therefore 10 mil now buys you what 5 mil did.
What good is a ‘highly valued asset’ if you can’t turn that value into purchasing power or wealth generating power?
I dont understand your comment. What are you trying to say about the correlation between wealth in America and property ownership? Also, what is the basis for your assumed direct correlation between real estate value and general inflation rates?
If you are leveraged you win from inflation. E.g., if you borrow 4 million to buy your 5 million dollar house, and the price doubles to 10 million, you now have 6 million in equity rather than 1 million. Thus, you have tripled your purchasing power.
“It is a war, waged by the rich, against the middle class.”
Wrong…it is a war of those who profit from loose credit and rampant consumerism, waged against those who “don’t buy stuff they cannot afford” and live within their means. Any bail out that puts taxpayer $$$ at risk benefits super rich, middle class, and the ‘near poor’, as long as they were smart enough to buy a house before the top and pull out “equity” to buy consumer items. After all, being a ‘victim’ is an American right. Savers and taxpayers that didn’t take the loose lending ‘bait’ will (eventually) be the ones to clean up the mess…those that profited most from it have already spent or hidden the money. You can’t get blood from a stone, so the only ones left to squeeze are the prudent savers, people who already paid off their homes, people that live within their means, and renters.
If you don’t allow yourself to get addicted to credit, the terrorists win.
I think if there are different teams, it is the baby boomers who want comfy retirements vs. younger generations priced out of the booms created by the boomers. Everything the boomers have touched became wildly speculative, and they left their mark on the young ones that the most important thing in life is what you have, not how you got it. So they are a generation of gamblers with no work ethic or sense of responsibility.
However, you reap what you sow. The lazy young ones will be paying the bills and changing the bedpans of the old ones. They will manage to steal all this speculation money back through more get-rich-quick scams, outrageous medical fees, and propitious inheritance laws.
“So while borrowers may have misrepresented their incomes…lenders had the tools to identify these fibs before making the loans. All they had to do was ask the I.R.S. Instead, lenders appear to be complicit in the rampant fibbery.”
Can this work in reverse? Can the IRS use the signed statements on these loans to collect back taxes on this “reported” income used to buy these houses?
“Can this work in reverse? Can the IRS use the signed statements on these loans to collect back taxes on this “reported” income used to buy these houses?”
Probably not. They can use it to investigate possible income underreporting, but if the income is not really there, (even if the taxpayer lied and said it is), it is unlikely that they can collect any taxes if there was no real income.
Since everyone (including the IRS) knows that most of these applications were lies, then they probably won’t waste time investigating anyone just on the basis of these statements.
More importantly, in order to know about this discrepancy, the IRS would have to compare the tax returns to the actual mortgage applications. These applications are not public records, nor are they filed with the IRS. Some may be filed with another government agency, but then they would have to take the time to cross-reference SSN’s. The result would be mostly people who really did not have the income to begin with.
Now, the other side of the coin is pursuing these for mortgage fraud, from the criminal side. I don’t think that the US Attorney is looking to do this en masse, as it might be a policy issue. Enough borrowers could claim that the application was faked by the broker (in some cases this would be accurate), and even if they did start getting convictions it would not be good politics.
Headline:
“Government putting foreclosed homeless people in jail, while big lenders get bailout $”
Probably would not go over well.
They can use it to investigate possible income underreporting, but if the income is not really there, (even if the taxpayer lied and said it is), it is unlikely that they can collect any taxes if there was no real income.”
That sounds like a Dateline story in the making: watching FBs squirm over the choice of either paying taxes on money they never earned (but claimed they did) or going to prison for fraud.
This story is another that supports my contention that the means are there to easily prosecute mortgage fraud on a massive scale. I have my doubts that there will be any DA’s that will choose to do any more than a token amount of prosecutions, however. Who says crime doesn’t pay?
IRS or bubba, hmm…
The FB’s should be given the opportunity to make good on their losses or be prosecuted and sent to prison where fraud was found. They should have the loss converted to a note much like a school loan with no statute of limitations and about the same rate and terms. This business of lying and cheating to get a loan then when it does not work out, just bailing and leaving everyone else to clean up the mess makes me sick!
“The interesting thing is that my second choice- Nashville- has also gotten bitten by the bubble. Just a few years ago, you could find nice old homes there for 50-75k. Not anymore. The same homes are now 250k, all driven up by what I assume are out of state speculators and East Coasters fleeing the cities.”
Jetson boy, this is why I have chosen to relocate to PA instead of TN. The NE part of TN is less bubbly but still not worth $150k for a nice house. As for the cooler winters, I got that figured out, I simply can visit my parents for a few weeks in south FL and skip the worst half of the winters in PA. And with global warming, I give it a decade before the winters are always mild.
“And with global warming, I give it a decade before the winters are always mild.”
You are joking, I hope. Global warming, if it continues in the trend many scientists think it will, would make a negligable difference on how comfortable you are in the winter a decade from now.
Bye,
I think you should look into Arthur, Nebraska. Very out of the way and inexpensive.
I’m sure all of us here on the blog are anxious to hear the news that you HAVE finally moved SOMEWHERE away from mom and dad - why don’t you try to do so by July 4 - Independence Day. We’re rooting for you man.
Bye FL
Your parents better want you for about 2 1/2 months every winter. In case you haven’t read, this year broke the precip record going all the way back to 1943. Most days broke the cold records too. Plus before you blindly go to NW PA you better check the taxes. My son just moved over there for his job and he about flipped out when he saw the taxes they took out of his paycheck compared to NE Ohio.
It is grossly unfair that those of us who saved money, didn’t speculate or flip houses, who paid more upfront for fixed rate mortages are getting to foot the bill for the irresponsible, greedy people who did the opposite. Are we REALLY required to bail these jerks out of their self-imposed financial mess?
Yep. We are. BTW, welcome to America.
Yep.
Ain’t America grand?
The media is using the “extortion” spin on things…if we don’t all kick in, we will all be in trouble.
However, they never go into how much trouble we could get into with a bail…law of unintended consequences, taxpayer $$ lost, prolonging the drop, moral hazard/discouraging prudent behaviors like saving, patience, and only buying what you can afford…and they assume that a bail will actually work.
The powers that be will always have a fallback for destructive quick action”: “We know that our actions caused some bad things to happen, but it would have been MUCH WORSE had we not acted when and how we did. You’re welcome!”
“We know that our actions caused some bad things to happen, but it would have been MUCH WORSE had we not acted when and how we did.”
Yup, and you can never prove otherwise, because they acted as they did.
I just finished reading _Greenspan’s Bubbles_, in which Fleckenstein points out how Greenie Magoo used this technique again and again in attempts to absolve himself from responsibility for the damage he did.
Has anyone seen the HUGE number of condo units that have been built at the AMERICANA plaza in Glendale, CA? I was amazed to see that at least half of the complex is just housing, etc…WHO THE HELL is going to want to A) live there and B) pay the prices they are asking for?
If people in Glendale think the traffic congestion at the Galleria and Brand Blvd was bad, just wait until this monstrosity opens up.
Bwaaa haaa ha!
Oops… I really have to start holding that in…
Got Popcorn?
Neil
Mixed-use is fine in concept if properly priced - put housing and services closer together reducing the need for some driving. In practice, the housing is overpriced so the cash-strapped borrowers have no money left over and thus the retail component flounders - lots of empty store fronts. Also, the tendency for the retail is to be non-essential services so it’s not clear that driving ends up being reduced all that much.
I am speaking here as a liberal.
I do believe the Government should step in when people are suffering. I do think the Government has a roll to play when so many people might lose there homes. The overall negative effects on the economy should be a concern.
BUT I DON’T THINK PEOPLE AND BANKS SHOULD BE BAILED OUT AFTER MAKING BAD DECISIONS, AND I ESPECIALLY DON’T THINK THE GOVERNMENT SHOULD DO ANYTHING TO PROP UP HOME PRICES.
Help people leave there homes and find places to live. Help negotiate with lenders so that they may stay in their homes but it’s value is reduced so both the lender and owner lose capital. Make sure people being foreclosed aren’t being taken advantage of. Government can do a lot. But propping up bubbles is foolish, wasteful and in the end unproductive.
And I say this as a liberal.
Please don’t breed, Liberal. I beg you. Don’t vote, either.
It is not the guv’mint’s job to “help people leave there (sic) homes and find places to live.”
“I do think the Government has a roll (sic) to play when so many people might lose there (sic) homes.”
Stupid, irresponsible people have always been with us and always will be. The vast majority of these so-called “victims” deserve no pity or assistance. Many wittingly and willingly inflated their incomes or otherwise falsified their mortgage applications to get into houses far beyond what they could reasonably afford. Now they’re getting foreclosed on? Cry me a river, Liberal. That’s how stupid, irresponsible people learn the hard lessons that MIGHT impart some wisdom and responsibility, or at least serve as a cautionary tale for others.
I don’t need the Nanny State coddling me if I make bad decisions, and I sure as hell don’t need to subsidize the gross stupidity and crass sense of entitlement of millions of cretins called my fellow citizens.
Edhopper,
I am speaking here as a conservative. I don’t think the Government (Federal, State, County or City) can ever successfully replace the cumulative wisdom of the marketplace and the consumer. Charities and private philanthropy have their places and uses. When Government intervenes in social issues, the result is almost always that it perpetuates the problems it was ostensibly setting out to solve.
I agree with you that “propping up bubbles is foolish, wasteful and in the end unproductive”.
In my view just about everything beyond the Army, Navy, Air Force, Marines, Coast Guard, and Interstate highways fits that description.
I think the Bush Administration has been a colossal fiscal failure. I think any future Democratic Administration will be an even more colossal fiscal and National Security failure. I don’t think there is any hope for lasting improvement in this country so long as voters choose between Republicans and Democrats. That is precisely because the Federal Reserve (a private banking system) and the un-named military-industrial complex that actually runs this country, use the Dem/Rep liberal/conservative artifice to successfully divide and distract us.
I say this as a disillusioned conservative.
I seriously doubt that FBs walked simply because the value of their house declined. They walked because they couldn’t afford their payments any longer after the reset - pure and simple. They believed the lie that housing only goes up on price. If they could have continued to pay, they would have made the attempt to ‘wait it out’. IMO.
This is about the builder loss tax provision.
I am just making sure about something - the builders would have to sell first to declare a loss. Or can write down the inventory while they are holding it? If they had to sell, it would further encourage them to dump inventory over the next two years to incur a loss – and get the tax break correct?
“Dallas mortgage banker Craig Jarrell believes in the FICO scores. ‘I don’t think they failed at all,’ said Mr. Jarrell. ‘They [subprime borrowers] had bad credit, and they got a loan anyway.’”
“The lenders who made those loans ignored the fact that the borrowers with poor credit shouldn’t get a home loan. Blame that mindset on the fact that the lenders could just pass the risk to investors who were eager to snap up high-yielding securities backed by subprime loans.”
NO - this statement is not entirely true. Many Alt-A loans were made to people with “good” credit. They had scores above 680. However, many of these Alt-A loans are now going bad just like subprime. Foreclosures are not happening to just the subprime people these days.
See the following article for more proof:
http://seekingalpha.com/article/70757-wamu-alt-a-pool-deteriorates-further?source=yahoo
The problem is that income and ability to pay is not the same thing as a FICO score. By ignoring the ability to pay part of the equation, the process was doomed to fail. In those cases where the FICO indicated a high probability of failure and the income was not verified - well what would one reasonably expect the outcome to be?
Last week I went to the local shopping mall. I haven’t really noticed fewer people in the mall… but the shops are closing down… so they must be having some issues.
Disney Store, GONE. Movie/music/sports memorbilia store, GONE. 2 clothing stores, GONE. Nail salon, GONE.
Sharper Image, close out sale. Another clothing store, close out sale.
A nice article full of statistics:
FED UP: Bernanke joins G-7 to Stem Global Financial Meltdown
http://www.smirkingchimp.com/thread/13904
My favorite quote from it:
“In a recent interview with the New York Times, former Secretary of the Treasury Paul O’ Neill, was asked how the problems with subprime mortgages could lead to a financial crisis of global proportions. O’ Neill said,”
“If you have 10 bottles of water, and one bottle has poison in it, and you don’t know which one, you probably won’t drink out of any of the 10 bottles; that’s basically what we’ve got here.”
“‘The FICO score is based on their existing credit accounts,’ said Craig Watts, Fair Isaac spokesman. ‘That’s where the lenders went astray. They thought the FICO score could anticipate additional risk that an exotic mortgage was going to bring to an individual’s credit risk. That’s not what the FICO scores do.’”
I have someone I know who during the housing boom because he had a 770 FICO score was able to get $5 Million dollars in loans….But the big question is “CAN HE PAY IT BACK?” That is where the FICO scores went bad…they didn’t use them together with the ability to pay instead the FICO, which can be manipulated, was used to give out loans like candy….
A couple of points:
- I am so sick of the “need to keep housing prices up.” Argh - housing is completely unaffordable already - why would anyone want this to continue?! Yes, I know all the reasons, but I’d love to somebody call them on this and ask them why it is “good for the nation” to have people spending 50% or more of their paycheck to make teaser payments on a house? It’s almost like saying, “High gas prices are good for the nation.” or some silliness.
- Yep, we had floating condos on a river, grain silo condos, prison and madhouse condos. The nice part about a mausoleum condo is that the “investors” are already there! And they won’t be leaving (I hope… “Night of the Living F’d Buyers!”)
- If the gubermint wants to prop up the market by giving my money out to reward people who buy foreclosed houses, I hope that just results in more people waiting for houses to go into foreclosure, thus forcing more price drops.
- I am more concerned about plans to help governments buy up empty houses. I can just imagine them doing that and effectively socializing housing (You can only buy from the government - at an insanely high price, of course!) or having the extra houses bulldozed to produce an artificial housing shortage so that prices can stay at unaffordable forever.