May 04, 2007

HousingPANIC Stupid Question of the Day


This one's a bit harsh but needs to be asked...

Should poor people with limited income, inconsistent work and credit histories and no chance of paying the loan back have been allowed to buy $500,000 houses with teaser rate liar's loans on interest only terms with no money down?

Follow-up question - what were Countrywide and IndyMac thinking?

(Disclosure - I'm short IndyMac, and not in favor of people living beyond their means)

39 comments:

Anonymous said...

Not harsh at all. The answer is NO, and it for the benefit of our entire society (financial system, neighborhoods/communities, the individuals etc.). To put those without the means to properly sustain homeownership for the long term & who will in a few short years be forced into foreclosure is just shear/pure folly.

All the mortgage companies were just looking at the short term fee income earned from the transaction. That is what they were thinking. We need to have lenders/originators/brokers be responsible for making these loans.

traineeinvestor said...

Harsh? No.

It would be harsh if the poor hardworking tax payers or savers who invest (through "safe" bond funds or "conservatively" managed pension funds end up footing the bill.....oh, wait - that's what's going to happen, isn't it?

I actually thought it was a rhetorical question.

Paul E. Math said...

Again, what is so terrible about renting? Why did we feel so sorry for these people being 'shut out of the american dream'? Since when was that an absolutely necessary component of the american dream?

There is very little difference between renting and buying. It's just a financing decision. And you have to do the math and consider which is the better deal. Every time.

Unfortunately, our whole culture has created this enormous bias toward purchasing, as a financing option, over leasing. Like Keith is fond of saying, you can rent the property from the landlord or you can rent the money from the bank - either way you're renting. But that's not how lemmings look at it.

FlyingMonkeyWarrior said...

The answer is no one cared. The sales weasels ALL got their commission checks and the mortgage company sold the mortgage immediately.

Anonymous said...

Sure why not. If a bank is stupid enough to lend $500K to someone making $7 an hour, who am I to tell the bank not to do it?

Anonymous said...

ike Keith is fond of saying, you can rent the property from the landlord or you can rent the money from the bank - either way you're renting. But that's not how lemmings look at it.

The lemmings are coming around. I sold my home 2 months ago and relocated. I decided to rent instead of buy something to let the housing market shake itself out.

I have been asked numerous times by friends/family/co-workers "so what did you buy". With no exeptions when I tell them I am renting a home for a year, their reaction is positive. I was expecting a lot of reactions like "you're throwing your money away" or "why would you want to rent when you can afford to buy", etc.

When I tell them what I am renting (custom built 2900 sq ft home with a huge yard, a 35 yard pool, hardwood floors, jacuzzi tubs, 3 fireplaces, all the high end upgrades, located a neighborhood of $750K to $1M plus homes all custom built and none look the same unlike the cookie cutter subdivision I left) and what my rent is $1950/month, their jaws drop. When they see pictures of the home and/or come over to visit their first reaction is you're getting this for $1950 a month...HOLY ****!! I tell them yes I am and you could too. I'm not getting a great bargain or anything, this is the going rate
for rentals. Then they do a quick calculation on how much their mortgage is, what they live in and a light bulb goes off.

I'm telling you the times they are a changin' and people are starting to get it.

After living here for a while and getting settled in I'm thinking, why ever buy again. Even if the price of this house falls $100K or being really optimistic $200K, it would still cost more to own than rent. And as a renter I don't have to worry about a leaky roof or the A/C breaking. I'm starting to think I may stay a renter for a long time.

Anonymous said...

Allowing someone to dig hole so deep they can never dig out is part of being a free people. On the other hand facilitating such idiocy should be illegal.

Anonymous said...

America needs, and is thus far incapable of producing half-decent, affordable housing. Please make that a topic.

Those inflated cracker boxes were not $500,000 houses, either.

- A. Creampuff

Mort said...

Mortgage fraud and speculation is a legitimate business. The gubbermint encourages it. If you don't participate you are a fool and will be punished accordingly. Play and lose = free pass. Don't play = floggings twice daily.

wombat said...

So you're renting a nice place at 1/3 of the carrying cost. How long do you suppose that can go on? Get ready to move in six months when the new owner (the bank) kicks your ass out. They might give you two weeks if you're lucky.

Anonymous said...

The front line loan reps. committed fraud and the borrowers did also .
It's up to the management and underwriting staff to underwrite loan applications . It's up to Real Estate Brokers to checks their RE agents work . The front line commission salespeople have always been tempted by the devil so it's up to management/underwriting to not just rubber-stamp deals . All front line loan agents know what the underwriters are looking for and it's not enought to just go with a package based on blind faith and if management did this it was because they wanted to close their eyes .
It's a conspiracy to commit fraud regarding the REIC and their buyer/borrowers .
It's not enough to say the secondary market investors were greedy to justify the loan package fraud .
I think that there are grounds for a class action lawsuit against all sub-prime lenders ans the REIC /NAR/builders that engaged in fraud against the general public in a attempt to keep the party going .
The fraudulent acts of the REIC inflated property values and taxes ,they created undue harm to the genersl public and investment public and put the deposits of this nation under undue risk for personal profit .The real estate sharks lead a real estate campaign of false advertising and investment advice to lured thousands of unqualfied buyers/borrowers into real estate investments based on a false promise that " real estate always goes up" or "don't worry you can refinance out of that liar no down loan" .
The borrowers were lead to believe that they qualified for their toxic loans long -term based on solid real estate values or appreciating values.The general public was sold a bill of goods to the point of mania . Builders marketed to investors with their "special lenders " who advised them to claim owner-occupant status to avoid the higher down payments and debt ratio requirements .in part to obtain construction financing .

Give back all your ill-gotten gains REIC and crawl back in the hole you put America in .

Anonymous said...

"The answer is no one cared. The sales weasels ALL got their commission checks and the mortgage company sold the mortgage immediately."

Exactly. The system develop a way to kick consequences far down the road. As usual, honest people are left holding the bag.

area 51 said...

YES,
It's the "American Dream", everyone gets a free college education, everyone gets a 6 figure job, everyone gets a house.
Especially illegals and ghetto dawgs.

David said...

As a mortgage broker I am sick of seeing Stated Income loans!!! Especially for loan-to-values of 95 and 100%. I guess I could live with a stated income loan up to 80% LTV just so that the borrower has skin in the game.

Let me put it this way... There are 2 reasons why stated income loans exist.
1. I am too lazy to provide my tax returns to document my income for this loan.
2. I don't declare all of my income, so I cheat on my taxes and can't document my illegal activities.

IT MAKES NO SENSE!!

NO-DOC LOANS???? Ok, fine. Put 30% down and you can do it with a good credit score.

I am also sick and tired of the Whiner “It’s Not my Fault” Class , because it is the socially responsible who are going to bail out the lying fools who didn't know that a $1000 payment on a $300,000 house was not enough to cover the interest.

I am a libertarian, but something has to be done about speculators in the market. It is too late now for the situation we are in, but why should a specu-vestor be allowed to take tremendous risk underwritten by the taxpayers? Let me explain…

Here in Phoenix, I am seeing countless specu-vestors who are completely underwater on their investment homes and won’t face reality. These dirtbags took a social necessity –housing—and lied so that they could make an almost risk-less bet. They lied to the builders and said these would be owner-occupied homes and they lied to the lenders when they “stated” their income. –all facilitated by dirty mortgage brokers and real-turds. Now that the market is coming back down, they are stuck and they can’t sell and they can’t refinance. All these houses are going back to the banks and neighborhoods are being gutted.

My proposal would only harm this market further now, but I think we should setup a sliding scale tax for investors. I think investors are a good thing when they come into a neighborhood and do rehab on a house and add value to the neighborhood. I also think investors are a good thing when they buy property for the long term (5 or more years) and rent to people who can’t, or choose not to buy. What I propose is a tax on the specu-vestors who come into a community from places like Califonia and start pushing up prices into an unsustainable bubble for the local citizens. These people do not add value. So let’s do a capital gain tax based on the time period held: 80% < 1 year, 70% 1-2 years, 60% 2-3 years, 50% 3-4 years, 40% 4-5 years. >5 years, current tax rate.

I fundamentally believe that a social necessity such as housing –which is so basic and vital to living and producing in this society—not be used as a vehicle for one class of people to speculate, distort, and leverage at the cost of society. There are plenty of other investment vehicles for those who choose to speculate. (And I am usually a libertarian!)

Anonymous said...

Again, what is so terrible about renting? Why did we feel so sorry for these people being 'shut out of the american dream'? Since when was that an absolutely necessary component of the american dream?

I agree. I think the rapid price appreciation is what drove this notion into overdrive. I mean... years ago people moving to a new city would never think to buy until they had been there renting/working/driving around for at least 1 year. Now people buy on a weekend trip before they move because they are worried that prices will be so high this time next year. It's a gamble folks.

Anonymous said...

No.

And, what they were thinking was that if they did it big enough, there would be a bailout.

Anonymous said...

I have a friend that is a German national working here on a visa- she was previously in the banking industry over there.

According to her, in Germany credit is very hard to get and the banks have a fiduciary duty to their customers- that is, they cannot put their customers in financial peril by lending them too much.

Maybe this is what is needed here.

Anonymous said...

PKK here-

What they were thinking was "I'll
shove off the risk and inevitable
end result onto someone else and
collect a nice little cut for myself
before the house falls in"

I was in real estate (didn't like it)
for 1 relatively unproductive year
(sold one house) in 1977...we wouldn't give time to showing houses to anyone who didn't qualify
by rigorous standards. I believe
payment,interest, credit card
LIMIT, any other debt could not
exceed 31% of income; I believe
though am not sure it was after
tax income. The lenders wanted
to MAKE SURE you could pay for
all 360 payments (30 year fixed).
And 5% down was rare. The lower
down payments 3-5% were for
GI or state GI loans. OF COURSE
you had to prove it. There just
weren't exceptions.

We have an air of entitlement in
this country completely out of
touch with reality, and no sense
of what we can afford. I am willing
to bet 90% of the population doesn't know how to reason out if
they can afford something. If
someone tells you you can, you take
the word of a complete stranger
who has a vested interest in you
believing that. There is no social
conscience about the long term
consequences of bad group decisions. We have faith that there
are incredible, magical safety nets
out there that will "fix it". Those
safety nets were dismantled over the Reagan and since years. They were put into place after 1929 for
very good reasons.

Yesterday on CNBC I heard someone
say that there hadn't been a run up
in that markets that many months in
a row since 1929. Well, well, well.

The reason these ridiculous loans
were made was that houses were
selling at ridiculous, out of reason prices, with great commissions had by all. However the
pool of Truly Qualified buyers was
quickly exhausted. So they had to
invent creative mortgages. I believe as far as I can find, that
it was common to do the same in the
1920's. Five year mortgages were
common, and then refinancing was
necessary. Heaven help you if you
hadn't kept a good record of regular payments.

In 1954 the 30 year mortgage was
introduced; unions warned against
it because the final total amount
is roughly 3x the amount borrowed.
But more people qualified to own
homes. They had probably started
to run out of buyers qualified by
the current standards.

People. Who are we doing this for?
If you buy a house for $100,000.
Finance it at 8%, 30 year fixed,
5% down, you will pay a bit over
$300,000. Seller/builder gets
$96,000. Realtor gets $6,000.
The bank/mortgage gets the rest.
They get to leverage it out to the
moon, all for a securitized risk,
and a little paperwork......

honica jewinski said...

Newsflash....... They were'nt!!!!!

Anonymous said...

Ah............no!

Anonymous said...

"the banks have a fiduciary duty to their customers- that is, they cannot put their customers in financial peril by lending them too much.

Maybe this is what is needed here."

Naw. Regulation only prevents the rich from fleecing the poor.

"If this were a dictatorship, it'd be a heck of a lot easier, just so long as I'm the dictator." --George W. Bush

Mark in Zurich/San Diego said...

My Aunt rented her entire life (lived till 90) and she ended up with a larger portfolio than ANY one in the family . . .she divided it up upon here death, and I got my share. . .my father and mother owned all of their lives, and ended up with very little money other than their house . . .in Ohio, it didn't fetch much 10 years ago. . .my Aunt was a school principal, and never earned huge amount of money, but save and invested.

catching on said...

All the mortgage companies were just looking at the short term fee income earned from the transaction. That is what they were thinking. We need to have lenders/originators/brokers be responsible for making these loans.

May 04, 2007 9:43 AM



correct. but go one step further: The short term was to boost stock prices, so the insiders can dump on the way out. Just a big scam.

Anonymous said...

> Should poor people with (...) no chance of paying the loan back have been allowed to buy $500,000 houses with teaser rate liar's loans on interest only terms with no money down?

Definietly yes. I don't think it's the government's role to set prices. If the lenders want to risk THEIR money, let them do it. If, however, the government is involved in it through loan guarantees, bail-out plans etc., the government should also regulate those loans. A downpayment of, at least, 10% or better 20% would be a good start. It would show that the homebuyer can deal with large amount of money and has some skin in the game. Unfortunately, the FHA "modernization wants to do away with downpayments, as if there wasn't enough leverage in the system already.

raynla said...

Hey I am a happy RENTER!

35 years old, No Kids

I make 70K a year.

I drive a nice sports car on Sundays.

I have a company car with paid gas

I pay $800.00 for a 1 bedroom in the San Fernando Valley part of LA.

I go out of the country on Vacation every year.

I love Ruth Cris Steaks.

I am about to get married soon and she makes about to same as me and we will continue to RENT, albeit a new 2 bed room condo that some Fool can't sell for $1350.00 No maintenence, insurance, HOA, taxes, ETC. And when the 1 year lease is up and we want a change of scenery we can simply move into another FOOL'S flip gone bad.

And when homes in LA are 50-60% off in 3 years and if Marshal Law hasn't been declared. We will RENT an even nicer place on the beach.

I am living the AFRICAN AMERICAN DREAM

You could too if you weren't a slave to COUNTRYWIDE.

RayNLA

Anonymous said...

wombat,

Why do you say that? As usual everyone on HP assumes the worst. How do you know what the carrying costs are? How do you know the bank is about to foreclose in 6 month? You don't know anything yet of course have to assume the worst. Sorry, not this time.

If you must know the house is 40 years old. Even though it's old, it is in excellent shape and was completely remodelled 5 years ago.

The current owners bought it 25 years ago for the grand sum of $118,000 which back then was a fortune for a home but since the husband was a surgeon at the hospital down the road, it was more than affordable and I am assuming there is no mortgage on it. Today Zillow says it's worth $950,000.

The owners live in Italy right now and plan on staying for another 2-3 years before coming back and retiring here. They kept the home because it really is a one of a kind home and they don't want to lose it. They lfet it unrented for over a year and only recently decided to rent it out. My wife went to business school with one of their sons and that is how we ended up finding out about it. They were more than fine keeping it empty for another 2-3 years since they were wary of renting to strangers. But since their son vouched for us so to speak, they were cool with it. They'll make a couple of bucks, we live in a great home. Win win for everyone.

Stop being so damn gloomy all the time. Not every home owner is about to foreclose. Not every renter is about to be kicked out on the street by the bank. The world is not about to end. Sheesh I need a Prozac after reading some posts here.

i am anonymous said...

>> Should poor people with limited income, inconsistent work and credit histories and no chance of paying the loan back have been allowed to buy $500,000 houses with teaser rate liar's loans on interest only terms with no money down?

If the lender doesn't mind losing the money, then why not?

But there can't be any bailouts or subsidies! Let the market handle it. And yes, the securitization market will shrink to a fraction of its size, but so what?

Anonymous said...

"Naw. Regulation only prevents the rich from fleecing the poor."

Who do you think writes the regulations? the poor?

guydaley said...

>> Should poor people with limited income, inconsistent work and credit histories and no chance of paying the loan back have been allowed to buy $500,000 houses with teaser rate liar's loans on interest only terms with no money down?

WHAT ABOUT THE CHILDREN!!! If you have children your guaranteed to stay otherwise the media will grab that story, front page it featuring the children with tears streaking down there cheeks, "Mommy, where are we going to live?" will be in big bold print. Having children is your free ticket. Parents NEVER have to be responsible for there own children, its a SOCIAL responsibility because after all, THEY ARE THE FUTURE OF AMERICA! So absolutely major taxpayer bailouts are in order. NO child left behind, NO child unhoused!!!! ESPECIALLY ILLEGALS, because after all, they are only trying to better there lives.

Anonymous said...

We are all pissed that the inevitable is being delayed and denied by the stupid and corrupt.

Keith, you are just feeling the effects of the slow, dreary, molasses decline in the overpriced housing market, that was reflected in the answers to your previous post about whether we could sense the bubble popping in our respective areas. While a place like where I live is as expensive as ever and barely moving, I think a lot of us are sobering up to the idea that when it comes to money and greed, the truth is always that a long fought battle lies ahead, with many casualties. Not a convenient bursting, but a slow-leak that is very painful for those of us that do want to own a nice, reasonably priced home for the long term habitation of our family. I have just signed to rent for another year, and while I am renting a very nice place, I really didn't want to rent again. I just can't afford to buy right now, although prices are begrudgingly dipping and, in my area, I believe will pick-up downward momentum.

... that, Keith, is what is ailing you, my man.

...and, no more David Lereah bashing.

We are about to enter the next phase of downturn. It will be an ugly pitched battle. Weeks of economic indicators will signal the fall, yet one perfectly placed quote or suggestion that a bottom or upturn may be possible will carry the day and public sentiment.

Inch by bloody inch, however, the reality of the collapse will be charted, if not seen and then we'll have our day.

Ben Dover said...

Get ready to move in six months when the new owner (the bank) kicks your ass out. They might give you two weeks if you're lucky.

That's what a lease is for you dumb shit. The LL I rent from tried every way possible to get me to rent without a lease... F U NO WAY! It came down to telling him to call me when he had the lease ready to sign, and it better be real soon, like in the next hour.

Check your States landlord tenant laws. Here in Ca. the lease goes with the property, and it must be honored by the new "owner". YMMV

Anonymous said...

> WHAT ABOUT THE CHILDREN!!! If you have children your guaranteed to stay otherwise the media will grab that story, front page it featuring the children with tears streaking down there cheeks, "Mommy, where are we going to live?"

What about renting?

Charles Schumer said...

I think the taxpayers should bail out all the subprime lenders and Wall Street bankers

Anonymous said...

If renting is so great why is it all you talk about wanting prices to drop so you can buy? You are all so full of shit.

Guy Daley said...

Against you didn't see it, MASSACHUSETTS put a moratorium on foreclosures!

Google it for more info and I doubt very much that Massachusetts will be the last state to do so.

So absolutely, people don't have to take any responsibility for there poor decisions, after all they were duped. Another 20 years and nobody will ever have to be responsible for any stupid decision they make as long as you do it in a group. Then it becomes a social responsibility and taxpayers have deep pockets. (Lets hope that China and Japan are still loaning us money then).

terry said...

The private sector is perfectly capable of providing half-decent, affordable housing. All it needs is for government to get out of the way with its NIMBYism and protectionist policies.

Why not SRO condos? If you can rent a crummy SRO room, why can't you own one?

What the working poor need is a way to stabilize their housing costs like homeowners with fixed-rate mortgages can. You can't stabilize your housing costs in a rising market by renting.

Anonymous said...

I'd like to see some regulation to prevent this from happening again but I don't know what it could possibly be.

Paul E. Math said...

David, I think that's a great idea. I lean pretty far to the right myself but it makes me uncomfortable to see speculators profiting from this housing bubble. Especially when you consider who the money is being transferred to and from. Especially when housing is really a necessary item. I would feel the same way about food, which may very well be the next bubble (along with other commodities).

Paul E. Math said...

guy daley: "MASSACHUSETTS put a moratorium on foreclosures!"

I understand your concern but here's my take on that. I am a 'mass-hole' so I've been thinking about this for a bit. So here goes.

I think the moratorium is a great way for the state govt to pretend to do something while doing nothing at all. Which is to say I'm not all that upset about the moratorium, although I would be very upset about any form of bailout.

Firstly, the moratorium costs the taxpayer nothing. So that's definitely good. I've ranted on this blog before about the unfairness of spending my tax dollars on subprime borrowers.

Secondly, the moratorium only lasts 2 months. If these people can't refinance then they're out. And with tighter lending standards and home values flat, if not declining, most of the people caught will not be able to refinance. They only qualified for their subprime mortgages based on the low teaser rate and will not qualify for the higher monthly payments of a fixed rate mortgage, based on debt to income ratio restrictions.

So all this moratorium does is prolong the inevitable. Costs me nothing. Makes the govt look like they are not deaf to the concerns of the ignorant.

I can wait 2 more months.