January 24, 2007

HousingPANIC Stupid Question of the Day


Are homebuilders themselves breaking the law and guilty of mortgage fraud (via known false/over-inflated appraisals) when they offer cash back and massive incentives?

A $500,000 house with $50,000 incentives or cash-back = a $450,000 house, no matter what your loan, mortgage broker, neighbor, builder, realtor or appraiser says.

33 comments:

Anonymous said...

you need to find out where foreclosure auctions occur in Phoenix. See if the ones done on courthouse steps are listed publicly on the net, etc. Then the sales data can be compared with the Zestimate to get a true pricing picture for the Arizona market.

Anonymous said...

But what about if you use their financing company (the homebuilder is the lender). They are the ones proposing the 'cash back', so no fraud is involved, is there?
It just means you're dumb enough to use their financing, which means you'll get screwed on the rate, points, etc.
If you're dumb enough to believe that the housing prices will remain the same or go up, 10% cash back applied to pay off your loan principle seems like a relatively painless way to 'build equity' and essentially lower the purchase cost to you. No?

Salt Lake Mortgage Guy said...

"But what about if you use their financing company (the homebuilder is the lender). They are the ones proposing the 'cash back', so no fraud is involved, is there?"

This is where the difference between legal and illegal cash back comes into play. It is illegal under any circumstance to get cash back at closing without the lender knowing. Why? Because of the lies and trickery involved on the loan application and sales contract. It's not illegal in itself to get cash back, it's illegal to lie about it.

If the lender knows, then it's fine. In these new construction deals, cash back at close is fine because the builder(seller) knows and the lender knows.

Perhaps a better question is how some of these builders get around RESPA laws by requiring use of their lender and their settlement agent for these incentives to apply.

Salt Lake Mortgage Blog

Anonymous said...

Absolutely correct! Regardless the opinion of the soccer mom realtor, or the incompetent or unethical appraiser, if a $500,000 home sale has $50,000 in cash back at escrow, it is a $450,000 house. It is one of the biggest frauds going at this time.

Dragasoni said...

Again, more mortgage fraud going on amongst the home builders. Sure, they make it look affordable on paper for the first year or so, but then come the resets, which ultimately force the home debtors out. Sorry, but $200,000 is a lot of money; since when did $200,000 become the average prices of a starter home? Less than 5 years ago these same starter homes were well under $100,000.

This proves to me that the average sales price reports are bogus, and that the builders are moving into the fear stage; possibly the desperation stage. The problem is that these ‘fire sales’ still aren't enough to make homes affordable for most people using conventional financing; further price reduction is needed.

Depending on your location, I say we are in need a 25-60% drop from current prices.

-Dragasoni-

Anonymous said...

The movie Lucky Sleven was pretty good (Bruce Willis).

At the beginning they had to do a "Kansas City Shuffle" which basically means to find a fall guy (a mark) for the fraud about to be perpetrated.

So who's the Mark in this greatest con game of all time. Hedge Funds (I thought those guys were supposted to be smart), Chinamen (maybe), US Taxpayer (almost definately).

BTW - that means you and me.

Anonymous said...

KEIF,

Have you ever purchased a new car with a dealer or manufacturer rebate? Did you or your dealer break the law when you bought a $30,000 car for $25,000 thanks to a $5,000 rebate?

This is no differrent.

Anonymous said...

KEIF,

Since I know you give both sides of the story I'll assume you missed these artciles today about Utah and Seattle. Funny how news like this is never reported on your blog, wonder why. Or is it a case of "if it's not in Phoenix I don't report it" kind of thing?

http://tinyurl.com/2uzvvw

FORECLOSURES PLUMMET IN RED-HOT HOUSING MARKET
Wednesday, 24 January 2007

Foreclosures are fast becoming a phenomenon of the past in Tooele County’s red-hot residential real estate market. During the past year, foreclosures dropped by about 70 percent compared to 2005, according to data from the Wasatch Front Multiple Listing Service.

“Twelve to 18 months ago we would see 10 to 16 foreclosures per month, but now we only get three to four per month,” said Vicki Griffith, owner and broker for Tooele’s Prudential Real Estate office. “The value of houses has gone up so much and the market is so hot that people are able to sell quickly [before the bank forecloses],” she said.



http://tinyurl.com/2v978n


LOCAL HOUSING MARKET RESILIENT
By Samuel L. Anderson

...median prices are still on the rise throughout our region (Seattle). In November, prices for all home sales were up 12.7 percent in Snohomish County, 13.6 percent in King County and 10 percent in Pierce County from a year ago..

Anonymous said...

If CTX packages these loans into MBS or sells their mortgage unit without notifying the buyers of the cashback deals, then it is fraud.

Anonymous said...

These cash back deals and incentives are why the median price reports we're seeing are a complete crock of s***, used by the REIC to show home prices are stable when indeed they're crashing even more than reported

Anonymous said...

gregg had to leave dodge city in a hurry
now hes in seatle

Anonymous said...

>> Have you ever purchased a new car with a dealer or manufacturer rebate? Did you or your dealer break the law when you bought a $30,000 car for $25,000 thanks to a $5,000 rebate? This is no differrent.

Um, yes is it. The value of YOUR car has no impact on the value of your NEIGHBOR'S car.

Get it now?

Anonymous said...

sure they are anon 5:56...it's all one big conspiracy

how do you explain the 70% drop in foreclosures? Is that all an illusion too?

OH LOOK there's a black helicopter in my backyard too

Anonymous said...

If anything, that tactic clearly demonstrates the desperation that is occuring on the home building front. And it is a good indicator of things to come.

It should also stand out as a word of caution to those buying into these development areas. The builders are there strictly for themselves and to garner a profit. If that means undercutting previously purchased homes in that area, so be it. It is already occuring in Vegas and Phoenix. As the housing downturn accelerates, this tactic will continue.

What I think makes this somewhat "illegal" also pertains to property taxes. Regardless of the money received via a cashback, the home's value in the record books is still the purchase price without any reductions pertaining to the cash back. Thus, the individual is being taxed at a higher rate than they otherwise would have due to the inflated home value.

Dr Housing Bubble said...

Just another way to keep prices inflated. Wouldn’t this logically mean that the home is overpriced by $100,000? It is tantamount to selling a BMW worth $30,000 for $35,000 but including a Europe trip that is worth $8,000. Again builders are in a Catch-22; lower prices and sell now but hurt the overall market in the long-term. Since most recent sales look at comps this will hurt them even longer with the built up inventory they are shouldering like an albatross. This is a last resort. The day is coming when they will have to knock off $100,000 plus incentives.

Why would a hot product need ancillary items to sell? Like putting peanut butter on a pill so your dog will swallow it.

Dr. Housing Bubble

Anonymous said...

Where the hell is Tooele County? I'm out here in Boston and this biaatch has come to a grinding halt, I think we're about to enter the "shit hits the fan" stage next....

Anonymous said...

Ah, the joys of Home-loanership.

Anonymous said...

Still no posting on bloodhoundblog on this cash back debacle

Oh, the silence is deafening!

Greg Swann is toast

I think he's deleting any comment that mentions the story too!

Anonymous said...

That ad was from May

Anonymous said...

Where the hell is Tooele County? I'm out here in Boston

Ahh yes the typical elitist attitude from the northeast..if it's not in the Boston-NY-DC corridor it doesn't count.

Anonymous said...

Um, yes is it. The value of YOUR car has no impact on the value of your NEIGHBOR'S car. Get it now?

That is ridiculous. Of course the value of my neighbor's car impacts mine. Or have you not heard of Kelly Blue Book? My car's value is based on sales of the same car. No different than a house's value is based on comps of smiliar homes.

keith said...

Kelly Blue Book doesn't record the ORIGINAL FINANCED AMOUNT of cars, sport. It simply records the current retail price it believes the car is WORTH, or WHAT THE MARKET WILL BEAR.

What you financed your car for has no bearing whatsoever on the price or value of your neighbor's car. Want to find out? Go buy a VW bug for $2 million. I don't think KBB will update their equations because of your stupidity.

Man, this is simple. But alas, most people aren't good with logic or math. That's how we got to the point we're at today.

Stupidity bred the housing bubble.

Anonymous said...

all cash back deals must be BANNED IMMEDIATELY.

CASH BACK DEALS ARE A FRAUD

Anonymous said...

The 50K in incentives is not really 50K for the builder. That is just what they "say" they would charge you...after large profits of course. It's more like a cost of 10K for them...50K extra value for taxes for you.

Darnell da Realuhter said...

Yo YO man,

Youse bein' too hard on us reauhters. Dat $50K be an incenative. It likes t'gets us some mo'e stealers. When de builderz be givin away bre'd likes dat it be baaaad fo' us t'get in on some peice uh it. Man!

Like ah' wuz tellin Keyshawn de oda' day, it all about findin' stealers t'go wid de sellers. If de Man gotss some 'estra bre'd t'drow in de deal t'make me pick his crib t'sell, so's be it. Man! Dat's called supply and demand. ah' can supply de steala' and den ah' demand some spinners fo' mah' Navigayter.

Ah be baaad... You's dig it? It plum business.

w0rd.

Anonymous said...

Centex ran the same $100,000 off deal this last weekend for one of it's developments in west Florida where many homes are sitting empty. The sheeple came by the thousands.
PT. Barnum said " There's a sucker born every minute".
The easiest way to shear them is to tell them they are getting something free and greed takes over. They start foaming at the mouth to show their honey how shrewd they are. Then they line up to be shorn.

Anonymous said...

You jealous bitter renters have been priced out forever.

Paul E. Math said...

I think it is a system that is ripe for abuse. There is a systemic overstatement of home values which results in buyers overpaying for houses. Sellers benefit, homebuilders benefit, banks benefit, realtors benefit, mortgage brokers benefit. Buyers overpay without ever realizing it.

When comps all involve 10% cash-back then the comp is overstated by 10%. So the real comp is 10% less than what is being quoted by homebuilders, realtors and sellers.

The other person being defrauded is the ultimate purchaser of the MBS who is taking on more risk than they realize. The loan-to-value ratio is much higher than they realize so it is not priced into the rate of interest they are willing to accept in exchange for purchasing the mortgage.

So there are several big things wrong with this system.

Anonymous said...

I would suggest to these buyers that they insist that the builder just lower the price by 50k or forget it. Then your taxes and insurance would be lower.

squidly66 said...

keith
here is a site that claims to be working directly with the FBI i hope its true
code red and loud sirens
....paladinreports.com

Anonymous said...

Stupid people overpay for things. It's like the morons who bought Amazon stock for $400/shr. It went up to $450 but eventually dropped under $50. The people who bought from 2002-2006 were the ones who paid over $200 for AMZN stock.

Anonymous said...

>> That is ridiculous. Of course the value of my neighbor's car impacts mine. Or have you not heard of Kelly Blue Book?

Ok, let me make this simple for you. My neighbor and I buy the same new car on the same day. Later in the day, my new car gets rear-ended, causing $5k+ in damage, and diminished resale value because it's been in an accident ie. salvage value. Point: My neighbor's new car did not just lose $5k+ in value, or any amount of "salvage" value. Get it now?

Nevermind the fact that we BOTH lost 20% of value the moment we drove the car off the dealer lot...

Anonymous said...


Ok, let me make this simple for you. My neighbor and I buy the same new car on the same day. Later in the day, my new car gets rear-ended, causing $5k+ in damage, and diminished resale value because it's been in an accident ie. salvage value. Point: My neighbor's new car did not just lose $5k+ in value, or any amount of "salvage" value. Get it now?


WOW you are a dense one. If my house burns down causing $100K damage your house next door doesn't lose $100K either genius.

Now try to follow the conversation.

If your nieghbor sells his (non-salvaged) car for $10K and you try to sell yours for $15K, how do you think you'll do? No different than if your neighbors sells a house for $500K and you try to sell for $550K.

Just like housing, the value of your neighbor's car affects the value of
yours.

Moron, zillow bills itself as the Kelly Blue Book of homes...why do you suppose that is? Hmmm I dunno maybe a correlation between the way car and home values are set?