‘Something’s Got To Give’
Reports from Washington to Wall Street on the housing bubble. “Once a nuisance to a handful of lenders, mortgage fraud has blossomed into one of the fastest-growing white-collar crimes in the country, putting innocent homeowners on the hook for overpriced houses and pushing up interest rates for all home loans.”
“Often the borrower is a willing accomplice. But these schemes, which the Federal Bureau of Investigation calls ‘fraud for profit’ and which account for about 80% of mortgage-fraud cases, usually require the work of an industry insider. ‘It’s hard to perpetrate fraud for profit without some kind of third-party professional being involved, whether an appraiser, loan officer, real estate broker; someone to extract the money from the lending channel,’ says (economist) Mark Fleming.”
“Local homeowners may feel another pinch: A neighborhood where some houses have falsely inflated appraisals can lead to higher tax bills for all, as happened in one Atlanta neighborhood, says Tim Doyle, of the Mortgage Bankers Association. Later comes another problem: ‘They’ll hit four or five properties in one small area, the properties will get foreclosed upon and get boarded up,’ he says. ‘That affects other people’s property values.’”
“The Mortgage Bankers Association is scrambling to make room for more attendees after initially selling out its first fraud conference, to be held in May.”
Mr. Paul Muolo has some insider info. “A task force for the Mortgage Bankers Association has taken the forceful position of opposing arbitrary caps or forced reductions on Fannie Mae and Freddie Mac’s retained portfolios. Then how come the trade group hasn’t? That’s something Countrywide Home Loans, MBA’s largest dues-paying member, would like to know. In a recent letter to MBA chief Jonathan Kempner, Countrywide CEO Angelo Mozilo, made his displeasure known, saying the trade group is making a ’significant omission’ by not taking a public position on the issue.”
“It seems as though more and more investment banking firms are demanding ‘buybacks’ on nonconforming loans they purchased. Industry executives tell us the trend started in the fourth quarter and is accelerating. The biggest problem with the loans is early defaults.”
“A Bush administration reform proposal that would allow the Federal Housing Administration to charge risk-based mortgage insurance premiums is not going down well. Over the past few years FHA has been jokingly referred to as ‘the government’s subprime program.’”
“FHA to Compete in Subprime Market. In an effort to increase homeownership opportunity for many Americans, the Department of Housing and Urban Development announced a far-reaching proposal to modernize the Federal Housing Administration (FHA) and make it an important financing option in today’s housing market.”
“While many areas of the country have reported that investor activity is down, this hasn’t stopped builders from forging on in building a steady supply of new home. Why so much builder confidence? The reason appears to fairly simple, builders can offer price cuts and incentives that existing home owners and sellers cannot.”
“If demand slows and production doesn’t, inventories pile up. Unless builders want to run their business into the ground, they build fewer houses. Something’s Gotta Give.”
“The difference between new home sales and single-family starts has reached extremes seen only a handful of times, according to Joe Carson. In all three previous instances, 1972, 1978 and 1984, starts took a tumble. Housing guru Michael Carliner at the National Association of Home Builders in Washington says says the bulging inventory of unsold homes, up 23 percent in the past year to 548,000, isn’t as burdensome as it looks. However, ‘there are things that we don’t measure that are worrisome,’ Carliner says, referring to sales cancellations. ‘Cancellations appear to be up,’ based on net sales numbers reported by large builders.”
“If housing starts don’t begin to decline soon, there will be a problem of too much inventory, he says.”
The lending environment in the US is in such a mess. Sorry, I am preaching to the choir.
David
Bubble Meter Blog
BY MESS YOU MEAN THERE MIGHT BE A PROBLEM WITH SOME OF THE LOANS OUT THERE? HUH…..I GUESS THAT’S POSSIBLE.
Given the current state of affairs does it seem logical that lenders will be forced to require 20% down in order to stave against falling housing prices?
If they do they will create what they are trying to hedge against
From the Originator Times Link:
‘Other proposed reforms would make it easier for FHA to serve purchasers of affordable housing such as manufactured homes and condominiums. FHA would eliminate a feature of its Manufactured Housing program that limits how much a lender can recoup from mortgage defaults, providing greater incentive for lenders to make these loans. The proposal would also increase the loan limits to reflect the real cost of manufactured housing today. The legislation would also eliminate burdensome statutory provisions for insuring condominiums.’
How does this fly with banking firms pulling loans? It makes it easier to offload the crap onto the govt?
inventory is already a problem ,dude
“It seems as though more and more investment banking firms are demanding ‘buybacks’ on nonconforming loans they purchased. Industry executives tell us the trend started in the fourth quarter and is accelerating. The biggest problem with the loans is early defaults.”
Terrible underwriting…..No…Let me rephrase that….NO underwriting….
BLASPHEMY!!! OUR LENDERS ARE THE BEST IN THE WHOLE WORLD. NO WAY WOULD THEY CUT CORNERS OR FALSIFY DOCS!
they don’t need to *falsify* docs…all they need to do is write up on of them no-doc loans that apparently are perfectly legal, right? Honestly; we are living in an amazing age where the guy on tv tells me I don’t need to produce W-2s, paychecks, bank statements, nothing. Just come in and be able to sign a piece of paper. They tell me so on tv! They’ll take my word for it when I state my income and my assets.
brave new world!
rant on
The lending problem is world wide. The banksters have built an empire made of paper, and that paper is going to burn brightly! It isn”t even paper it’s freaking electrons and keystrokes now. Oh what a green hell they have created.
Seriously though, what has caused such a shift in the public perception of the banking *cough* industry *cough* in the last 20 years? Honestly, most of these benevolent banker types are not your friends. With all of the restrictions that have been lifted on the financial sector in the last 10 years is it no wonder that everything that is built or produced has a bankers name attached? It’s over for the tyranny of the bankers though, it’s a skimming game that always leads to collapse. ALWYAS LEADS TO COLLAPSE! After the end of tyranny of the bankers usually the tyranny of the generals is the next step. Step up to the counter and pick your poison.
rant off
Just forgot one step. Weymar.
Weimar I’m afraid … it’s not realy a step, more of the endgame.
For those who still believe than Helicopter Ben (and the ECB) are going to crush the speculators in the housing market some highly recommended reading:
Gold Knows What No One Knows!
http://tinyurl.com/lbrt4
excellent article about what is going on regarding rates, money supply and stealth worldwide support of the housing market
…Floating on Money
http://tinyurl.com/qbt5l
Russell sums it up pretty well, couldn’t agree more:
The cover-up to this Fed-created inflation is those mini-boosts in Fed funds. The little boosts give the false impression that the Fed is “fighting inflation.” But inflation is a product of too much money chasing too few goods. Without M-3 we can’t prove it, but gold is telling us that the Fed is creating huge amounts of liquidity. Above everything else, the Fed is intent on keeping housing UP.
on the one-way road to Weimar (both in the financial and the political/military sense).
S&P warns on correction for real-estate stocks
By John Spence
Last Update: 3:12 PM ET Apr 10, 2006
BOSTON (MarketWatch) — Standard & Poor’s Equity Research Services on Monday warned investors of a potential 5% to 15% pullback in shares of real estate investment trusts, citing historically lofty valuations and softening fundamentals. “There are a number of potential catalysts for a short-term correction in the sector, including rising long-term interest rates, an earnings shortfall from a market leader, or widespread profit taking,” said Robert Hansen, head of S&P’s financial services group, in a statement. “The REIT sector’s sustained outperformance over the last few years has been based on improving fundamentals, however, we think valuations look stretched on a near-term basis,” added Robert McMillan, S&P REIT analyst.
OT: I just got a great advertisment in the mail from Countrywide and a local real estate agent. They’re trying to sell me on a condo in my complex by showing some figures on a 0% interest only 7/1 ARM, and a 40-year pay-option ARM. The 0% IO shows an estimated payment of $2555/mo (including HOA, taxes etc.). These same condos rent for $1300/mo. The headline to their ridiculous ad. is “Why Pay Rent When You Can Afford This?” Gee, because I’d be saving over $1200/mo?
They must both be new to the business because they did not include the “Tax Benifits” of home ownership in their matrix…
[b]“Why Pay Rent When You Can Afford This?” Gee, because I’d be saving over $1200/mo?[/b]
But then you wouldn’t have “pride in ownership”! Can’t put a price tag on that! Think of all those long weekends you’re missing out on, fixing crap around the house and blowing money at Home Depot. C’mon man, what are you, anti-American?? Sheesh.
I just received a similar email from a broker selling pre-construction condos “below market” for a new development in Chelsea, NYC. He describes them as a “can’t miss opportunity” that has been opened up to the public for a limited time. I had no idea real estate developers were so magnanimous….
I asked the agent how anything can sell below market…he hasn’t gotten back to me yet.
If you really want his head to spin ask him if there is a market at all if no one is buying the condos.
That’s funny, I would love to see the reaction to that.
off topic- I just got a resume from a former software engineer with just a couple years experience because he turned mortgage broker in 2003. apparently he wants back into the software industry. hint #1 you are going to have a tough time.
DROWNING POOL LYRICS
“Bodies”
Let the bodies hit the floor
Let the bodies hit the floor
Let the bodies hit the floor
Let the bodies hit the floor Beaten why for
Can’t take much more
One - Nothing wrong with me
Two - Nothing wrong with me
Three - Nothing wrong with me
Four - Nothing wrong with me
One - Something’s got to give
Two - Something’s got to give
Three - Something’s got to give
Now
Let the bodies hit the floor
Push me again
This is the end
Skin against skin blood and bone
You’re all by yourself but you’re not alone
You wanted in now you’re here
Driven by hate consumed by fear
Let the bodies hit the floor
Thought these lyrics might be appropriate for the end of the housing bubble.
‘‘They’ll hit four or five properties in one small area, the properties will get foreclosed upon and get boarded up,’ he says. ‘That affects other people’s property values.’”
But, but, but none of those property owners gave a damn when their home ATM was going up, up, up. Gee, here come the law suits. And as for those excess property assessments…your local government has already hired people and spent the monies….now do you want less public services in the future or a lower tax basis?
funny … I read in the newspaper last week that most of the Dutch McMansions (we don’t have that many of them) have probably severely undervalued by appraisers in the last years.
The reason for this is that this lowers the government tax for the owners (most of them don’t have a maximum I/O mortgage, so they don’t worry about valuations). Government knows that owners of these expensive homes will always start an expensive lawsuit when they don’t like the appraisal, so just to prevent extra cost they suggest appraisers to lower the valuation for these homes by around 25%. And because these homes are usually unique, until recently nobody noticed.
Of course, by the time the owners want to sell the valuation numbers magically disappear
From bizyahoo.
“The largest predictor of economic well-being in cities is the percent of college graduates,” said Ned Hill, professor of economic development at Cleveland State University. To do well, he said, cities must be attractive to educated people.”
And now meet one of your buyers:Home
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AP
College Grads Seek Jobs, Culture in Cities
Monday April 10, 1:39 pm ET
By Stephen Ohlemacher, Associated Press Writer
College Graduates Chase Jobs, Culture to Big Cities, an AP Analysis Shows
WASHINGTON (AP) — College graduates are flocking to America’s big cities, chasing jobs and culture and driving up home prices. Though many of the largest cities have lost population in the past three decades, nearly all have added college graduates, an analysis by The Associated Press found.
ADVERTISEMENT
The findings offer hope for urban areas, many of which have spent decades struggling with financial problems, job losses and high poverty rates.
But they also spell trouble for some cities, especially those in the Northeast and Midwest, that have fallen behind the South and West in attracting highly educated workers.
“The largest predictor of economic well-being in cities is the percent of college graduates,” said Ned Hill, professor of economic development at Cleveland State University. To do well, he said, cities must be attractive to educated people.
Nationally, a little more than one-fourth of people 25 and older had at least bachelor’s degrees in 2004. Some 84 percent had high school diplomas or the equivalent.
By comparison, in 1970 only a bit more than one in 10 adults had bachelor’s degrees and about half had high school diplomas.
Seattle was the best-educated city in 2004 with just over half the adults having bachelor’s degrees. Following closely were San Francisco; Raleigh, N.C.; Washington and Austin, Texas.
Molly Wankel, who has a doctorate in educational administration, said she moved to the Washington area for a job, and the culture of the city pulled her from the suburbs. Wankel, 51, grew up in eastern Tennessee and works at a company that develops software and training materials. She recently bought a home in the city.
“I just enjoy walking around looking at the architecture and the way people have renovated these 100-year-old homes,” Wankel said. “I love the landscaping and the lovely mix of many races, straight people, gays, singles, older people, younger people.” …….I’m sure with the inventory of housing you can attract more Wankels! Gee, maybe we can call people who continue to buy in the market…”Wankels”….I like the sound of that!!!
college graduates driving up home prices?
geez, in my country most of them don’t have a chance to start a homeowner career at all; they will have to wait until the bubble bursts.
Yea, all those college grads with 20k in credit card debt, 100k in student loans. Most of the ones I know are living in their parents basement. I guess that is what is driving up prices.
I was able to buy my first house a few months out of college even with a student loan on my back. However, that was 2001 before house prices were insane (they were just ‘high’ back then). Forget about that possibility now unless you give the kid a suicidal loan.
right, and until maybe just this moment, I’d bet they’ve been taking the suicide loans! I don’t doubt that the belief among young adults just out of college or just out of grad school that they *must* buy a house/condo is a *big* part of the bubble problem. Nobody *needs* to buy their first house just out of college, and I’d guess that very very few did so as recently as the mid-90s. I’d guess very few parents of kids just out of college would have been convinced that they should buy their kids a house until the last 10 years or so too, but I bet that’s a growing segment of the starter-home/condo sales too. after all, it’s a great investment, right?
Ms. Wankel there in DC or wherever is a little something different too…it’s not just being educated, it’s how a trendy hobby among the educated is style and design, ooh..look how so-and-so has renovated their Victorian. It used to be more niche-y and now with whole cable-stations mags and so on dedicated to it and an industry spending more and more advertising dollars on it there is more living around it. Now you can borrow a buttload of money to indulge in these sorts of projects your very own self!
“I don’t doubt that the belief among young adults just out of college or just out of grad school that they *must* buy a house/condo is a *big* part of the bubble problem.”
Exactly. And many of them have their parents enabling them in this delusion, since the parents want to brag to their neighbors about how well their kids are doing - even if they have to help their kids out by ponying up several thou to help with the downpayment or to furnish the place.
That’s part of the story with my niece’s recent home purchase, even though I talked to her for quite some time about the bubble and the real costs of home ownership. I initially persuaded her to hold off on home ownership for the next few years, since she intended to go to graduate school.
Unfortunately, when her husband came home from two tours of duty in Iraq, he believed that entitled him to a new home immediately. He used one of his military bonuses to put a down payment on a home in a new development out in the boonies. They now get to drive 50 miles each way to work. As for their jobs, despite niece’s college degree and his army experience, they’re both working retail. I’m predicting a financial crisis within three years, with niece’s mom refinancing her home over hubby’s objections in order to help her daughter save her home. And, of course, graduate school is no longer an option - unless niece’s mom refi’s in order to pay for that, too.
As a single homeowner with a small mortgage, a stable job, and spare bedrooms, I have this ominous feeling that in the next few years I’m going to have certain family members appealing to me to put them up for a few weeks (months) after they lose their homes to foreclosure/bankruptcy. I am seriously worried about that, because the type of personalities they have is what’s caused them to get into financial difficulties, and it’s those personality traits that really get on my nerves. Still, they’re family, and I’m gonna feel an obligation to try to help them once they’re truly desperate/destitute…
“If housing starts don’t begin to decline soon, there will be a problem of too much inventory, he says.”
Yup, soon there may be too much inventory. I think it’s time someone started keeping track of that pesky inventory!
I remember a time not so long ago when you could run someone a list of property between $200 and $250k on the MLS in a small grid and come up with 500 properties looks like that time is coming back the sad part is the last time there were a lot of foreclosures on that list looks like we are getting to that point without the R.E.O. properties. It’s going to be really sad when the foreclosures start coming out the pipe.
Ode to the tyranny of the banker with repsects to Pastor Niemoeller.
First they came for the farms
and I did not speak out
because I was not a farmer.
Then they came for the industry
and I did not speak out
because I was not a industrialist.
Then they came for the small businesses
and I did not speak out
because I was not a small businessman.
Then they came for my house…..
Fill in the blank
and the posters on this blog did not speak out
because they are not homedebtors
Comment by nhz
2006-04-10 12:23:18
college graduates driving up home prices?
geez, in my country most of them don’t have a chance to start a homeowner career at all; they will have to wait until the bubble bursts.
Reply to this comment
Comment by asgardragnarok
2006-04-10 12:31:27
Yea, all those college grads with 20k in credit card debt, 100k in student loans. Most of the ones I know are living in their parents basement. I guess that is what is driving up prices.
Geez, no kidding. Most college graduates nowadays have a hard time just finding a job in the field they graduated in, much less having excess cash to drive housing prices up. And in my area, most college graduates make about as much as your average service type job does…so much for that degree they are still paying student loans on.
Wow. This blog is a real eye-opener! I’ve been getting this sinking feeling here in the Philadelphia region . . . a friend of mine is an agent here in the supposedly “hot” Chester County and he’s a little nervous. But everyone else I talk to around here thinks I’m crazy, this region is different - not many houses, lots of demand, was really under-priced . . .
but everyone I know is really over-leveraged too! are they right? is SE Pa really different?
background - we sold a little (crappy) house in Roxboro a little over 3 years ago - in as is condition, right next to a crappy auto dealer, with crappy neighbors, for three times what we had paid for it, and we’d done no work other than painting!!! I thought it was CRAZY at the time! but was soooooo glad to get out of Philly for tax reasons (among others). we’d nearly had our mortgage paid off so we cleared quite a lot - which we put in a (probably overvalued) nice house out here in West Chester - this is hopefully where we’re going to stay for many, many years so am hoping the crash (which it will be, even here I think) won’t hurt us too badly. (we have a a fifteen year fixed rate on the remainder of the difference between the houses and are paying ahead, everyone says we’re nuts for doing this)
lots of “for sale” signs around here too, but things still seem to be moving. well except for the “for sale by owner” ones.
I’ve been tracking inventory in WC/UHS/KC school districts since last June. After a big dip in late fall, we are back up over June inventory levels and climbing now. As I’ve been tracking it for less than a year, I don’t know what the typical pattern is, month by month. By June, I can report whether what we are seeing is similar to last year, or climbing past last year. But, I do see stuff selling, or at least going under contract.
It *seems* like prices are moderating, especially on the high end; on the other hand, prices for my townhouse development (one of only a few in my school district) are still climbing.
This area has a strong and fairly diverse employment environment (Vanguard, MBNA, Astra Zeneca, DuPont, QVC, etc) so I don’t think we’re as dependent on housing-related jobs as some other areas.
Who knows- maybe the realtors are right and Chester County is “different.”
I sure hope not. But I’m despairing of the bubble ever bursting here.
Tidbit for my favorite blog:
Longtime lurker here… I was out walking, saw this and thought of you guys. Good old Berkeley, my hometown!
Mystery House in Ownership Fight
http://www.berkeleydailyplanet.com/article.cfm?issue=04-07-06&storyID=23832
Paperwasp
Wow! Thanks paperwasp, that is quite a story. Talk about a FB and this guy didn’t even miss a payment. Man somebody’s nuts should be put in a vice over this one.
A first for me. Today I received a live call offering me a refinance at attractive rate. The call came from Irvine, Orange County, CA, the mortage capital of sub prime lending. She said as per their record they they can save me $$$.
Before I received few times broadcasting type recorded
message telling me to call them back….
The catch: I am renting for last 8 years. Appears the mortgage brokers are running out of people to refinance!
Hmmmm… rental financing. That’s a new one!
Hey don’t give the OC mortgage B*stards any ideas.
David
http://bubblemeter.blogspot.com
wow…a *live* call! I get like 6 calls per week at least, but they’re always taped…