September 27, 2006

Classic Bubble: Money just raining down from the sky - buckets-full for anyone and everyone to use in the biggest Ponzi Scheme of all time



I found my way to this typical yet sickening mortgage broker's site today, pretty standard stuff I'd imagine. But it really amazes me how easy it is to go out and borrow say $500,000 today, with no income, no job, no credit, no ability to pay back the loan, and no oversight.

A classic trait of any financial bubble is the over-use of credit and leverage:

The abundance of credit, coupled with leverage (buying with borrowed money), accelerates this process and buying leads to more buying. Then comes the panic: some event shakes confidence and wakes up investors to the mania that has clouded their judgment. This panic leads to a crash: borrowed money needs to be repaid and investors will sell anything at any price to meet the bankers' needs.

This bubble folks saw credit and leverage amounts never before seen in the history of humanity. The series of events that led to this point is just amazing - the commoditization of loans, the growth of the unregulated "mortgage broker" channel, the complete lack of oversight by local banks, the no-cap-gains law written by a corrupted Congress, and the willingness of millions to break the law and lie on mortgage applications.

This easy money led to the bubble, period. Without this access to credit and lack of oversight, prices never would have been able to get to the point they did.

But here's a scary thought - it's not over. I could still go out today and lie on a loan, get $500,00, and buy a condo. The bubble will be dead only when this system is fully put down. And that'll take Congressional hearings, new laws, and new oversight. So stay tuned...

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29 comments:

Anonymous said...

Veteran real estate broker Deanne Esses, who plies her trade as a senior vice president at one of the city's biggest firms, Bellmarc Realty, said eight people in her Upper East Side office on Madison Avenue are leaving their jobs for alternative careers. Those eight represent 20% of the office's sales staff of 40.

That's only the beginning. Ms. Esses said she thinks more New York City brokers will be leaving the scene. "Business here is just not quiet; it has dropped dead over the past few weeks," she said. "At the same time, there's a flood of inventory on the market. We run open houses, we run advertisements, but nothing works. There are no buyers, and without buyers, there are no sales.


GREAT STUFF!!!

Anonymous said...

Liareah responds with, 'It's a gerat time to buy'.

MWAHAHAHHAHAHAHA!!!

haggis said...

Anonymous,

I sure hope you're living in a hollowed out volcano and not next to me.

(says he, quietly stoking an overfed albino cat)

Anonymous said...

One of the big reforms after 1929 was increasing margin requirements to buy stocks.

Hello, mortgage regulators??

haggis said...

Keith,

New laws won't be enacted until well after the horse has bolted from the barn.

I think lending standards will first tighten on a commercial basis as MBS become this decades version of junk bonds. Just wait for the gnashing of teeth by mutual funds, pension schemes and foreign borrowers.

Anonymous said...

"...offer expires at 11:59 p.m. Sept. 28, 2006."

who gives a f'ck!

borkafatty said...

Dont call it money it is Frauds.

great read:

http://tinyurl.com/mxloc

Anonymous said...

uh, he's talking about getting a mortgage that'll make you _____ (rhymes with "hum")

man, that's sick!

Tom said...

What do you want to bet that tomorrow they have another $300 off offer that expires September 29, 2006?

Anonymous said...

I won't feel sorry for the lenders when homedebtors can't pay. Lenders hate to forclose a property - it is so expensive and time consuming, not to mention they will lose their ass trying to get rid of all these homes in a down market. Just imagine what their finanicals will look like when they have even 20 percent of their mortgages in default. It is going to cost the lenders. Payback time.

Anonymous said...

what a junkie!

haggis said...

Bubble Head,

It isn't a Pollyana Chicken Little motivation behind these discussions.

It's a simple economic reality that houses, by definition, must be affordable to the average Joe. It is as simple as the historic FACT that for over 100 years properties have been priced at about 3X the average salary and rents are usually in the vicinity of ownership vis-a-vis costs.

It's also been demonstrated in many markets over the past 20 years that you can lose money in real estate if you ignore the real estate cycle.

Only a buffoon would argue to the contrary.

Cheers.

Anonymous said...

And if you're not sure give Paul Reichman a call and ask him about Canary Wharf...

Anonymous said...

to illustrate haggis' point:

i can rent my condo for $ 1,800. hell, lets say $ 2,000 to make the math easier.

historically, housing cost hover around the 8 to 10 times rental income mark.

$ 2,000 * 12 months * 10 = $ 240,000.

six months or so ago a similar unit in my building sold for $ 435,000.

i live in the DC metro area and if that is not a bubble then what is it?

Anonymous said...

almost sounds like sex is involved.

Salt Lake Mortgage Guy said...

A rate sheet that was sent to my email today contained some cool new payment option loans, however, at the top of the sheet was this link regarding mortgage fraud.

The name of the lender has been taken out.

LOAN FRAUD ZERO TOLERANCE
NOTICE: ANY SUBMISSION OF INFORMATION TO AHE KNOWINGLY
CONTAINING FALSE INFORMATION IN CONNECTION WITH A
MORTGAGE LOAN APPLICATION IS A FEDERAL CRIME.
Mortgage fraud means a material misstatement, misrepresentation, or omission relied
upon by *** to fund or purchase - or not to fund or purchase - a mortgage, including a
mortgage associated with a mortgage backed security or similar instrument issued or
guaranteed by ***. Such mortgage fraud includes, but is not limited to, false
information contained in identification and employment documents, false mortgagee or
mortgagor identity, and fraudulent appraisals; theft of custodial funds, non-remitted
payoff funds, misrepresentations of borrower funds, and property flipping where
designed to inflate falsely property value.
Possible mortgage fraud means that *** has a reasonable belief, based upon a review of
information available, that mortgage fraud may be occurring or has occurred. It is the
intent of ***’s Fraud Policy (“Policy”) to support the industry and law enforcement’s
efforts to eradicate residential mortgage loan fraud. Accordingly, by doing business with
***, the Broker shall be directly responsible for the actions of its employees and agents
performed in the course of doing business with *** and for maintaining compliance
with ***’s Fraud Policy. Although loan fraud may be perpetrated in many forms, some
of the most common examples are shown below:
• Submission of inaccurate or misleading information, including false statements on
loan application(s) and falsification of documents purporting to substantiate
credit, employment, deposit and asset information or personal information
including identity, ownership/non-ownership of the real property;
• The alteration or forgery of otherwise predominately accurate information;
• Inaccurate representations of current occupancy or intent to maintain required
occupancy as agreed in the security instrument;
• Lack of due diligence or concern by broker, loan officer, interviewer or processor,
including failure to obtain or divulge all information required by the application
and failure to request further information as dictated by Borrower’s response to
other questions. This could include the following examples: (i) simultaneous or
consecutive processing of multiple owner-occupied loans from a single applicant
where information differs on each application; (ii) permitting an applicant or
interested third party to assist with the processing of the loan; and (iii) failure to
disclose any relevant or pertinent information known to the Broker which could
negatively impact the lending decision.
*** specifically represents and warrants the quality and integrity of its loan production
to ***’s investors and any loan containing fraud or a material misrepresentation
seriously taints its salability in the secondary mortgage market. If a loan is discovered to
contain fraud or a material misrepresentation after its sale to a secondary market investor,
*** is obligated by contract to repurchase the loan from its investor, refund any
secondary marketing gain thereon, and reimburse the investor for any costs incurred as
the result thereof. Consequently, loans containing fraud or material misrepresentations
negatively impact ***’s business reputation and can severely strain investor
relationships. The potential consequences for knowing participants of this practice are
also very serious and *** position is a zero tolerance policy. Examples of the possible
consequences are as follows:
For Brokers:
• Criminal prosecution, which could result in fines, imprisonment or both.
• Revocation of Broker’s license.
• Loss of access privileges to lenders resulting from the exchange of legally
permissible information between lenders, mortgage insurance companies;
FHLMC, FNMA and other investors; policy agencies; and state and federal
regulatory agencies including the Department of Justice and the FBI.
• Loan repurchase and/or liability to *** for resulting monetary loss.
• Civil action by borrower, *** and/or other parties involved in the transaction.
• Loss of approval status with ***.
For Borrowers:
• Acceleration of debt as authorized by the security instrument (Deed of Trust /
Mortgage).
• Criminal prosecution, which may result in possible fines, imprisonment or both.
• Civil action by *** for damages.
• Civil action by other parties to the transaction such as seller or real estate
agent/broker.
• Forfeiture of any professional license.
• Long term adverse effect on credit history.

Ouch! By the way, the Federal penalty is 10 years in prison and a $1 million fine.

Salt Lake Mortgage Broker

Anonymous said...

largest mortgage frauds in American history

http://tinyurl.com/fsyu5

Anonymous said...

Anon said...

"...offer expires at 11:59 p.m. Sept. 28, 2006."

Look in HTML script for his page:

>>
Stamp = new Date();
num = 1*86400000;
Stamp = new Date(Date.parse(Stamp) + num);
<<

I.e. "expiration date" is always tomorrow (86400000 millisecs in a day). (and yes, it does write you a nice little cookie).

TexStcok

Salt Lake Mortgage Guy said...

Another lender out to protect themselves from foreclosure:

In an effort to alleviate potential risk to our loan originations, *** is instituting the following new underwriting parameteres to ALL LOAN PROGRAMS*.

~ Seller's will be required to be on title at least 90 days at the time the purchase contract is executed. Sellers Date of Acquisition is defined as the settlement date on the seller's purchase of the subject property.

~ Refinance transactions will require borrowers to be on title for at least 90 days prior to the borrower application date.

Salt Lake Real Estate Blog

Anonymous said...

Salt lake-

Thanks for the posts.

90 days before you can refinance? Wow, that's strict- NOT!- is that a new law?

Is this a new development, getting the memo about mortgage fraud and penalties?

Do you think your shop's "special", or did every lender in the US get one of those memos today?

Salt Lake Mortgage Guy said...

90 days actually is strict. That means a "flipper" would have to hold a property at least that long to sell it and increase their carrying costs by 60 days.

The refinance limitation would help stop the practice of some brokers who get people to "serial refinance" over and over in a short time while taking cash out and paying broker fees each time.

No lender likes mortgage fraud, but all the recent press certainly makes everyone aware that it does happen and the public is starting to take notice.

The lenders that sent these notices are national companies and they sent them to all their brokers, not just us.

Salt Lake Mortgage Loans

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