May 29, 2007

$1,800 a month disability payment. $150 child support. And yup, $894,000 in Alt-A Liar's Loan debt. Party over.

Just read the whole article in USAToday on Friday. Then ask yourself - how will IndyMac (the Liar's Loan king) ever stay in business? And do you see now how home prices got so wildly and briefly inflated?


Corrupt commission-hungry mortgage brokers, out-of-control fraud and greed, IndyMac and other Alt-A lenders with no oversight, hedge funds buying up the debt, and then... the party ended.

Let's clean up the mess everyone.

(yes, I'm short IndyMac and yes, this whole scheme is caving in)

Neighborhood finds real estate loans too good to be true

Soon, mortgage applications — almost entirely blank — arrived in the mail. Darden signed and returned them. In November, Darden closed on the first house. In December, she closed on a second.

She'd been preapproved for $360,000. Now she was borrowing $894,000.

It would cost her $7,194 a month.

It wasn't until seven months later, though, after she struggled to find tenants and maintain the buildings, that Darden began to wonder just what had happened. It began to make sense only when she studied the finished paperwork.

When she bought, Darden was receiving $1,800 a month in disability payments — as she recovered from a collapsed lung — sometimes supplemented by child support of $150 a week.

But the mortgage application described a woman she did not recognize: an administration manager for a medical supply company, earning $114,000 a year.

Meanwhile, the real Frances Darden was quickly falling behind.


One of the most notable things about Frances Darden's story is how much it echoes the others.

Valerie Hayes says she knew something was very wrong when she went to close on the $440,000 loan for her house, a two-family in East Boston. She'd agreed to $2,300 payments because of expected rental income. But the documents listed payments at $3,300 a month.
"I see the real mortgages and it's apparent to me I got robbed," Hayes says, "but I'm thinking I'm going to make this work."

Why didn't she walk out? Because she'd already given up her old apartment and had a tenant waiting to move in. Within months, though, maintaining the building depleted savings already strained by the mortgage payments. That's when she noticed the reference to a second job — one she never had — earning a fictional $1,846 a month working for Champagne.

Late last year, Hayes moved out and the lender began foreclosure.

Others are still trying to hold on.

There's Macdala Louis, a nursing assistant, who bought on Edwin Street. Her loan application said she had a second job working for a company, Hart Professional Cleaning, that does not appear to exist.

And Jennifer Stone, a medical assistant who bought a $489,000 home with her partner, a special police officer.

"They said we had accounts we didn't even have. They said we had $50,000 in the bank," Stone says. "I didn't even have $700 in my 401(k)."

19 comments:

Anonymous said...

Yes and this is typical of EVERY SINGLE home owner. In the spirit of fair and balanced reporting, I await your report on the 99.99% of people who didn't do this.

Anonymous said...

Un-f'n-believable! The tip of the iceberg. One good sign is that my hometown "1% mortgage solution" dirtbag has stopped his incessant peddling. Maybe he's taking up a new career as a drugdealer, childpornographer, or lawyer.

Anonymous said...

11:04:

Don't know what town that is but in my hometown the no down, 100% financing, bad credit OK ads are alive and well.

Anonymous said...

YEA, I never know what the mortgage payment going o be till closing, 2500 / 3500/ whatever, cuz my banker said "We won't know till closing, but it will be affordable". I can trust him right? He works for me.


Gotta go guy, lots of farm work to do today.

Anonymous said...

Collapse comments

Anonymous said...

Yes and this is typical of EVERY SINGLE home owner. In the spirit of fair and balanced reporting, I await your report on the 99.99% of people who didn't do this.

May 29, 2007 10:37 AM
---------------
YES, 99.99% of home-debtors did not do this, but if you add up all the bad debt from the 0.01% that did you have billions in bad debt that will never be recovered. Add that to the billions from sub-prime & alt-a that just going bad sans this extreme fraud then I'd say you've got a real threat to the financial system even though the problem is only from 5% of the over all market.

Anonymous said...

Hey, everyone deserves a chance at a home!

Anonymous said...

YES, 99.99% of home-debtors did not do this, but if you add up all the bad debt from the 0.01% that did you have billions in bad debt that will never be recovered. Add that to the billions from sub-prime & alt-a that just going bad sans this extreme fraud then I'd say you've got a real threat to the financial system even though the problem is only from 5% of the over all market.

---------------------------------
These lost billions are built in to the system. A certain percentage of loans will never be paid back. This is true today and has always been true. It is also why interest rates are higher for riskier borrowers. It will not ruin financial systems. It will ruin a few lenders, but I think the financial system will be just fine.

gt said...

briefly inflated?
still 'briefly' inflated where i am, and will be briefly inflated for 2 more years.
nice to have you back, what's with all these getaways? only in europe

sam said...

Note the lag effect- she was not able to sell when things went badly in 2005 due to her divorce. If she had been able to sell, a greater fool would have helped cover up the fraud and she might have been OK.

We are only hearing about this now. It shows that it takes sometime for the nonsense of the last couple years to filter through the system.

RJ said...

Thanks to speculative lending among other things:

Marketwatch,"U.S. Home Prices Fall for First Time Since 1991"
http://www.marketwatch.com/news/story/us-home-prices-fall-first/story.aspx?guid=%7B1403381F%2D45B8%2D4997%2D9606%2D0A98635B4280%7D&siteid=yhoof

Bloomberg,"Home Construction Bust May Last Until 2011, U.S. Builders Say"
http://www.bloomberg.com/apps/news?pid=20601087&sid=aKQoeHb1MraI&refer=worldwide

For those who insist that housing price declines are currently insignificant compared to the previous run up, remember - we're on a price "curve." We're at the top looking down at a long negative slope. These price declines are just the beginning. Stay in cash!

Anonymous said...

About 25% of loans in 2004-2006 were stated income and 90% of those inflated their income.

Anonymous said...

Can someone enlighten me what is up with stated income loans? I have read that they are supposed to be used by people without a steady income stream, like salespeople who make a few sales a year, each of them big numbers but can't show a steady monthly paycheck.

But no matter how you earn your living, be it salaried, sales, small business, everyone files taxes right? So I on't understand why these people aren't made to at least show tax returns with their "stated income".

Am I missing something obvious here? Taking away the fraud from it all, I don't see why a "stated income" loan would exist in the firts place.

Anonymous said...

Anonymous said...

YES, 99.99% of home-debtors did not do this, but if you add up all the bad debt from the 0.01% that did you have billions in bad debt that will never be recovered. Add that to the billions from sub-prime & alt-a that just going bad sans this extreme fraud then I'd say you've got a real threat to the financial system even though the problem is only from 5% of the over all market.

---------------------------------
These lost billions are built in to the system. A certain percentage of loans will never be paid back. This is true today and has always been true. It is also why interest rates are higher for riskier borrowers. It will not ruin financial systems. It will ruin a few lenders, but I think the financial system will be just fine.

May 29, 2007 12:04 PM
------------
You mean the lenders have ASSUMED what the PROJECTED losses will be based upon PAST experience. A foundational fact ASSUMED in the PAST has been that PROPER UNDERWRITING had occurred and the borrower was able to repay the loan. The losses programmed into the system were based upon job loss, divorce etc and NOT just bald INABILITY to pay. The loss reserves will be burned through quickly, the default mitigation teams will have way TOO many lost cause cases resulting the bank having TOO many properties worth far less than the loan balance. The result will be of historical proportions and threaten the viability of the financial system on a scale equal if not greater than the the S&L crisis.

lendingmaestro said...

1.) What does this article have to do with Indymac Bank?

2.) Documents were supplied but obviously forged by the broker, NOT by Indymac Bank, Wells Fargo,WAMU, etc...

3.) Underwriters still have to perform a reasonable income test. You cannot state a paralegal's income at 130k a year.

4.) Stated income loans are denied every single day.

5.) A stated income letter goes out with every loan package that requires the borrower to hand-write their income and attest that no one has coerced them into inflating that number.

5.) I don't feel sorry for any of these people. They should not have purchased/refinanced these homes.

area 51 said...

IndyMac is issuing $500M in preferred shares.
Gonna get me some!

Anonymous said...

This makes me F'n mad! These idiots are the ones who inflated RE to the moon.

Anonymous said...

Gosh golly! My third house and I didn't know nothin' 'bout no 2nd job! And how'd they get my signature on those loan papers?!!!

Peahippo said...

anon @ 3:41 PM said: «I don't see why a "stated income" loan would exist in the firts place.»

From my understanding, stated-income loans are one of the so-called financial products that were routinely offered to well-asseted or -monied folks. In short, such loans were for the rich. In the financial stratosphere of the rich man's banking experience, such things can be done on the paperwork equivalent of "give me your word". There is a lot of pressure at the management top to give the money top special treatment. So ... there are stated-income and no-documentation loans.

The error that was made was to expand the use of these loans to the general population, which is generally filled with the poor and the dishonest. They are TERRIBLE risks! It kept the housing bubble inflating for years beyond what it should have, and also supported banking profits for a critical time. Now, having so unwisely indulged, it's time to pay the actual price. The truth is, financial products for the wealthy are simply wasted on the poor and middle class.

We've seen this kind of thing before. Look at what happened to bankruptcy. Bankruptcy was obviously designed to be used by the wealthy. Pervasive lawyering allowed bankruptcy methods to reach a much larger population than before. Result: Bankruptcies surged, and became a common item in middle-class and poor lifestyles. Eventually, the Congress had to put some restraints on it ... which are still not enough, since at the heart of the bankruptcy system is the assumption that the bankrupter actually WANTS to pay back debts in the first place. For many poor and middle class, that's just not true. Sound familiar?

Timeline Guy™ said...

To anonymous about the purpose of stated income loans.

Stated income loans were originally developed by te French in the early 1700's, as the concept of "income" was relatively new and not alot™ of bankers were comfortable with lending to the serfs. The serfs could 'state their income' much in the same way as the royals could (although the royals had a well developed tax collection system in place should revenue fall short.

Fast forward to 2003. Stated income loans were by now highly refined as a way to get sweet™ real estate deals for people with hard to document incomes like illegal aliens, flippers, people on public assistance and crack dealers. The widespread use of these sweet™ financing vehicle quickly made up between 93% and 144% of all loan originations.

It wasn't until early 2007 that many of the illiterate homebuyers realized what negative amortization and monthly payments were. In many instances, it was widely promised by the mortgage brokers that the borrower could either flip for a sweet™ profit into another deal or take staggering sums of cash back at the close of escrow, thus pre-paying thier profits for having done nothing to earn it.
In many insances, these borrowers had the unfortunate reality that they would have to pay back every dirty penny™ and possibly face driving a Jetta for a considerable time.

Hope that clears it up.