It's comforting to know that they can buy a new house before they let the old one go back. Heaven forbid they should have to choose between getting screwed or renting, like some of us.
CR, with the name of the poster both in the old style AND at the beginning of the post those that have chosen to adopt FireFox + Greasemonkey + Killfile can continue to screen posters. When the name is not shown at the bottom of the post(old way) my screening script is rendered useless. Just FYI.
The script needs to parse out the user(kinda like you picking out the noun in a sentence):
Name | Homepage | date-time | #
What was happening, and F.Fred pointed this out in the prior posting, was that the input couldn't be parsed when the | symbol was missing when a poster didn't enter a homepage:
It truely is a game of chess. I suspect(hope) that lenders will catch on, but remember that there are still not holding these loans....so....some accountability needs to show up quick.
There's nothing wrong with exercising a put, unless you don't really have one.
There is no "put option" in a mortgage loan. There isn't.
We use this term to create a kind of analogy to bonds or derivative instruments that really are puts or have explicit imbedded puts. But confusing an analogy with a literal description is a problem.
Your mortgage note has no put option in it.
What we are calling a "put" here is defaulting on the debt. Of course that's legal.
However, buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud. That is not, actually, legal.
I explained that one a while ago. You are required to fill out the part of the application that lists real estate you already own. You must put the value of the property you own as well as your current loan amount, and you must disclose whether the property is pending sale, sold but not yet conveyed, or a rental property. If you lie and put an inflated value in there so that the new lender on the new loan doesn't realize you're upside down, you are committing mortgage fraud. This is not a question of whether you will be caught or not. It's a matter of you signed something with an untrue statement in it.
Kp, F. Frederson, great. Thanks to r0m30 for his suggestions.
On the post, I've seen this before (in the early '90s in California), but on a very small scale. I was surprised then - but it doesn't surprise me now. In a discussion with Peter Viles at the LA Times, he suggested that a poll taken 6 months ago would have been overwhelmingly opposed to homeowners walking away - his recent poll suggests many people think it's OK if it makes sense (financially, legally, etc.)
That is a significant change in attitudes in just a few months.
Thanks to everyone for the Haloscan suggestions.
Best to all.
When I first annoyed everyone by predicting this would happen I was greeted with skepticism at best.
The next thing to worry about is "not-foreclosures" those where people stop paying but the banks are not in any position to do anything about it. Either they are overwhelmed or they are tacitly abandoning their claim for now or too afraid of portfolio impairment by actually foreclosing. There might be a business in this someplace. Can we set up a company, call it "Strong Arm Note Remediators" where we buy a note for say 60¢ on the dollar and do what the bank would not or could not?
I read most of those posts the other day but couldn't keep up. I was wondering what you thought about just walking away and renting for a good long time. I'm not looking to start an ethics discussion or thread war but I'm interested (and highly respect) in your opinion as a compassionate banker.
What are the penalties for mortgage fraud? Is this a federal or State crime? The last question I guess is are their enough court rooms and
prisons to even attempt to prosecute it?
Can we set up a company, call it "Strong Arm Note Remediators" where we buy a note for say 60¢ on the dollar and do what the bank would not or could not?
The bank would probably be willing to do it if the loss were only 40%. If you offered to buy a lot of these notes at 60 cents on the dollar, they'd be taking advantage of you.
Tanta, it is definitely worth repeating that the CBS story amounts to fraud - the fictional "Bob" in the story is using his good credit to buy the house across the street, and is not disclosing his pending "intentional foreclosure".
I guess this is another round of fraud for housing - something that is illegal, but probably won't get prosecuted.
--
TANTA: "However, buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud. That is not, actually, legal."
Legalism is a morally bankrupt philosophy.
Can't a person who owns a home buy another for any reason as long as he qualifies? Do people need to make public their intentions? Only dopes would do so and even they have a good chance to get away with it as long as they don't lie on the application to buy the second home. Am I missing something?
I ignore the theories and look at the practices. Americans from top to bottom are trying to gain by screwing others. Making use of the opportunities provided, a very American thing to do.
The big question is: Who provided the opportunity to screw others? The American System as constructed by the Crooks working with OPM.
everyone was saying, after the dot.bomb debacle that houses were INVESTMENTS
Right.
Like the house you buy today is magically going to go from being a place where you live to a place that's also able to provide medical care and produce large amounts of gasoline for your car as well as food for your mouf.
When people talk about their house as investments, I always ask "What does your house do today that it didn't do 10 years ago?"
We got into this by fraud, and, by god, that's how we'll get out.
I understand that the bankruptcy laws changed sometime in the past decade to make it more difficult for the bankrupt to walk away from debt.
I'm not familiar with the bankruptcy code (god help the poor attorney who is), but it would seem to me we're going to see a huge jump in bankruptcies culminating in a political revolt by the bag-holding class.
Lots and lots of fraud (on both sides of the suit) will be uncovered if the bankruptcy courts get involved.
What are the penalties for mortgage fraud? Is this a federal or State crime?
In most cases, it's both.
It is a federal crime to induce a federally-insured lender to make a mortgage loan by means of fraudulent declarations. It is a federal crime to do the same thing to any lender if you are trying to get them to give you a federally-insured loan.
So basically, the only time it isn't a federal offense is if the lender is not a federally-chartered depository, is not owned by the holding company of a depository, does not use warehouse money supplied by a depository, and the loan is not GSE or FHA or VA.
However, if you manage to avoid having committed a federal offense on that ground, you can still get in trouble with the feds if anything was a matter of interstate commerce. Lots of these fraudsters end up getting prosecuted for wire fraud, for instance. If the lender and the title company are in different states, you just wired money across state lines for fraudulent purposes, so bingo! the Feds can go after you. You also see a lot of mail fraud charges (same concept).
It is extremely difficult to construct a profitable mortgage fraud scenario that is federal-proof.
..You are required to fill out the part of the application that lists real estate you already own
What's interesting is that in the past a lot of speculators/investors were trying to game the system by buying several properties simultaneously. They wouldn't list the other properties and, if timed correctly, they wouldn't show up on the credit report (or QC credit report pulled later). There would be inquiries on the credit report but these were often not really investigated thoroughly enough. In today's world the level of due diligence is much more thorough.
I'm not sure how viable an option the type of house swap scenario here really is.
You're a Cassandra. Okay, well, she was right, after all. Fraudulent situations aside, the part to me that was interesting is the tipping point. If enough people are having foreclosure happen to them, then it loses its stigma, and people who would normally have fought tooth and nail to stay up-to-date on their mortgage payments start to rethink their "options". As more choose to not make payments and slip into foreclose, others begin to reconsider. Prosecuting fraud will help slow the process, but some who are simply falling behind and not trying to leg into a lower-priced house in a legally questionable manner, will eventually choose to stop making payments.
What does anyone think about legislation appearing on the table that tries to change the rules about foreclosing and bankruptcy? I'd imagine it differs from state to state and if this gains momentum the banks will want to put a stop to it. I can't see this going on without a fight.
Maybe the next guest post should be from a lawyer..
I just installed greasemonkey and killfile on Firefox and it works to eliminate the posts of "he who shall not be named." Great! I highly recommend it to all. Just google "firefox greasemonkey" and install it. Restart firefox and then google for "firefox killfile" and install the script.
Every post will contain links to either kill or hide the comment.
The fact that the high finance boys get away with fraudulent practices more often than we would like does not in any way give homeowners moral or ethical license to try to defraud the system as well. Once a critical mass of average citizens believes that doing the right thing is for chumps, civil society no longer exists.
A large percentage of people who took on these ridiculous loans thought they were getting something for almost nothing. TANSTAAFL still applies, and always will.
I second Nades, BTW. Everything looks and works great on my end.
Buying the house across the street and defaulting on your original house will be very hard to procecute. We are now talking about the thought police unless the fools spill the beans before they pull off this scam. This is different than lying about a material fact on the documents, that is just plain fraud.
It's often the case in California that it's very difficult to rent with a foreclosure on your credit report. Most landlords check credit reports and won't rent to tenants with poor credit. (At one point I noted to a homeowner who sniffed that one of her neighbors "only had to make the rent" that tenants needed better credit to rent than borrowers needed to buy.) So an upside down borrower is well-advised to buy another house before letting the first house go; otherwise the family may be camped out with relatives for a goodly long time.
I was wondering what you thought about just walking away and renting for a good long time.
Let me put it this way.
If you want to think that your mortgage note gives you an "implied put," then you must conclude that it has an implied option cost.
Call the lender and ask if they'll take deed-in-lieu plus some one-time cash payment from you as an "option fee." The lender can say yes or no to that.
But anything else is frankly "default." I am not trying to be all moralistic about default; I just think people need to call a spade a spade. These aren't "not-foreclosures." They are foreclosures due to default.
Someday, say about Jan 12th when the banks start getting keys in the mail instead of checks there's gonna be some confusion and running around. Hold off for a minute that you can't really mail the keys back, the people that will be doing this don't know that. So, the junior loan processor talks to the loans supervisor who gets the senond vp of consumer credit accounts to come down and look into this pile of keys where a stack of checks should be. After a minute of scratching his youthful full head of hair he says; "Hey, is old Smitherers still around? You know the guy that was with the company 7-9 mergers/takeovers/aquisitions ago from that company that used to lend their own money out to the community and the community would deposit their money with them? I think it was called something something b-a-n-k." "He is? Good, get him up here and see if he remembers." Crotchety old Smithers is actually an ancient 49, his hair has a funny whitish tone in places. The whole tableau resembles the final scene of Logan's Run. Smithers looks at the pile of keys, the upturned faces full of botox and worry and says... "Oh, 1991 except faster and deeper and longer. About time. Hmmmpf." Reaching over to the wall he scrapes away posters announcing in-house education classes for tapping 401ks, cash back at closing seminars in Maui, HELOC loans at the local Hummer dealership to reveal a door. Painted over and nearly invisible only the faintest outline of the name "Repos and Dispensations" is visible. As the seal is broken, like on an ancient tomb, a whiff of Aquanet and Grecian Formula curls the nose hairs of the onlookers. Smithers bursts in to a room full of sleepy 50 somethings and says "breakout the bong and disco ball fellas, it party time once again!"
Historians may note this may be the earliest recorded reference to bongs in the history of the great housing unwind.
Its a tough time for some to be an office building owner. Local brokerage CB Richard Ellis released its fourth quarter report showing the office market had a vacancy rate of 15.2 percent.
The underlying fundamentals of the Las Vegas economy remain strong, but the combination of the subprime crisis and overbuilding of office properties have created the perfect storm, causing substantial market softening, says Craig Shute, managing director of CB Richard Ellis Las Vegas office.
In 2007, 3 million square feet of space came on line, up from the 1.2 million Las Vegas averaged since 2000. That expansion isnt expected to slow down this year with another 3 million square feet hitting the market.
I like the comparison to corporate accounting. Corporations can make aggressive business decisions to boost the value of executive stock options and if the gambol turns negative there can be a balance sheet write off. Why can't the individual do the same.
I feel maybe business should even be held to a higher standard.
Leaving the morality to the moralists, and law to the lawyers for a moment, the concept of trading houses with your neighbor to slough off the depreciation still cracks me up.
the concept of trading houses with your neighbor to slough off the depreciation still cracks me up.
It actually mostly just cracks up mortgage underwriters, too. I'm guessing that more than a few of them are chuckling as they see these deals come through (and still chuckling when they deny them or condition approval on sale of the current home).
How long did it take in the 1990s downturn from the start of price declines until the time "jingle mails" were common practice?
In Denver, the 1980s HUD crisis began in 1986 -- prices hit bottom in 1990, and didn't recover until 1996. Jingle mail took a year or two before it became a common phenomena.
Now, in Denver, the HUD crisis was preceded by the crash of the energy industry, followed by commercial real estate, then industrial real estate -- residential real estate was the last to crash.
But it took a full 10 years for the cycle to play out.
The difference back then was the homeowners had lost their jobs, and couldn't pay their mortgages -- most folks who had jobs rode out the upside down value cycle.
used required symbols in front and back of Ojoes comments but it italicized my comments as well.
Either you didn't use the close-italic tag at the end (you left off the / in front of the i), or you mistakenly closed something other than italic (you typed / b instead of / i).
I've done both of those things in my time. It's just a fairly spectacular form of the old typo.
Re: people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity ..
We live in a world of lotto tickets, sprawling casino proliferation, asset bubbles and oh my God, Wallstreet, which is like a vampire that sucks the life out of America with derivative illusions; they con people into believing this Mont Carlo fuel from these tainted blood suckers is just what these Zombies need more of!
American Zombies are up all night wishing and praying for easier ways to make money, as they look at real time stock markets all day long, just as The Fed did last week! Ben baby was gaming the market and he didnt want his chips to fall too far, like a 5% drop in his portfolio was the end of the friggn world.....that was a criminal act and that was collusion and that is corruption! He should be out of there and if any Americans are left that are not addicted to vampire blood need to stand up to this crap!
The population is not playing the same game that Grama and Gramps played 50 years ago and when literally everyone refinanced after 9/11 probably every mortgage in America was re-written and tossed into a software pooled pile of junk that morphed into underwritten synthetic trash -- which was garbage in and now garbage out! What did these fools that packaged all these derivatives think, people were going to sit in houses burning cash?
People sure as hell dumped stocks in the dotcom bubble/crash, and these are the very same daytrad'n fools that at the heart, soul and core of the The American Houseflipper Society; this is not an ownership society as dreamed up by The Bush Coup, its The Mont Carlo Society!
I think the Peter Viles survey needs to be read and interpreted with some care.
First off, it was a volunteer response survey by readers of his blog, so the survey sample is skewed toward actively engaged critics of the bubble and real estate investors. Mind you I said skewed towards . . . not composed 100% by such people.
Second, even in Viles' sample, which does show a shift of attitudes in his pre-selected pool, there is still split opinion.
We need to remember that most people will probably continue to feel shame about foreclosure. And the great majority will not be able to game the system through foreclosure.
I would propose a two-pronged general approach:
On one side, prosecute the fraudsters up and down the food chain. Going after the big fish is crucial to cleaning up future practices, but it is also necessary to prosecute some of the small fry individual buyers who lied and cheated against the law. Not all can be prosecuted and probably not even most, but a gesture in this direction will have a demonstration effect for the future.
On the other side, bankruptcy laws need to be reformed and loosened to ease the way for the relatively more innocent individual owners to experience bankruptcy. Letting the small fry who didn't commit big crimes off the hook will lubricate the process of working the bad debt out of the system, and that is what is necessary.
It will take some years and there will be pain. Some of the pain must be taken by bing lenders and financiers, and some of the pain for individual owners needs to be softened
so that we get through this more quickly and sanely.
idoc you need to close the italix and not with the same set of characters. similar. I cant type them cause it will mess up my post but put a "/" before the i on the closing set.
Credit is still way way too easy if people can pull this off. Let their current house go so they can buy a different one that has been discounted through the forclosure process. I don't think this angle will be available for long...
On one side, prosecute the fraudsters up and down the food chain. Going after the big fish is crucial to cleaning up future practices, but it is also necessary to prosecute some of the small fry individual buyers who lied and cheated against the law. Not all can be prosecuted and probably not even most, but a gesture in this direction will have a demonstration effect for the future.
His name is Casey Serin and instead of a perp walk the little toad was a featured guest on the Dr. Phil Show last Wednesday.
Other than about the general economy, I concur with CR that the RE downturn may not be over for another two years (with strong regional variations, of course). I don't expect any more big declines, but still try to find out a good entry spot.
BTW I heard in the Denver, CO area prices actually start rising again? I may have a new job opportunity there. Any thoughts?
There seems to be a significant element of herding in the rising tide of jinglemail, not just in terms of simple joining as in, "I see others are doing it now too so it's okay" but in terms of defense as in, "larger numbers moving in the same direction will mask me from, or actively confuse, predators (legal agencies)."
Of course herding was probably a significant element in creating the stampede (bubble) in the first place but those who were getting 'cut out' are finding ways to rejoin now, or so it would seem.
Interesting; like the current political scene, however bad you imagined it was, it's actually worse; anyone who thinks SoGen lost 4bil because of a single rogue trader or that unwinding his trades was the primary cause of an equity futures panic or that the Fed made a major, unscheduled rate cut because of that panic needs to lay off the bong-water: There's a stampede in progress but it's barely begun and Buffalo Ben & crew are trying to turn it before it gains too much momentum.
I cannot believe that someone in a negative equity position has enough money to qualify for buying a second house (particularly across the street). In the instance cited the mortgager would basiclly know the value of the existing property. It seems to me that the only way to make this happen is to inflate assets in some way- i.e. misrepresent one's worth or better said-fraud.
The Superfund law was created to protect people, families, communities and others from heavily contaminated toxic waste sites that have been abandoned.
man, ur actually starting to sound rational. i wouldn't touch any RE in Denver at this time. the trend is still way against u. but i understand the urge to bottom feed. i just won't be willing to look until next yr at the earliest and then only if the surrounding landscape looks better than it does now.
one pt i thought i'd pt out to those invested in SRS. one thing that may be happening is that as FFR drops investors r considering REITS for dividends yields. i don't believe its valid considering the defaults that r happening now and will escalate in the near future. my plan is to wait for the FOMC rate cut and see if SRS drops anymore before adding to my position. i think we're seeing yet another opportunity to get in. i did add a bunch thru Wed, Th runup last wk.
i also had an interesting conversation with a former investment banker friend yesterday who said that pension plans r NOT big holders of muni bonds as some here have suggested due to their inherent tax free status. he felt that the biggest holders would be Mom and Pop investors and tax exempt money mkt funds. being the short seller that i am, i'm trying to find the entity most exposed to this mkt as the next short. comments?
CalculatedRisk writes:
'On the post, I've seen this before (in the early '90s in California), but on a very small scale.'
Remember also after the 1994 Northridge EQ, MANY people in SoCal were walking away AND taking insurance money with them, sometimes by faking the insurance companies out by making phony deals w/ contractors who never did repairs according to fraudulant repair 'contracts', who then gave money back to the walker after the jingle-mail scam on the damages properties.
... Why cant we live in utopia and run around naked and sit in the sun all day (and night like Doc , eat grapes, drink wine and relax, play a little tennis, do some blogging, drink a little wine, sit in the sun? Why does this world have to be run into the ground by money grubber pigs (insert pig icon here)
Here is a very interesting story about economic disparity as it relates to changes in society:
Debate: Does Global Inequality Fade as Global Economy Grows? Hong Kong tops
January 24, 2007
This annual index cites Adam Smiths The Wealth of Nations in 1776 as its foundational theoretical framework and measures ten variables, such as the ability to do business, property rights, corruption and labour freedom. The average score (0 equals repressed, 100 equals free) was 60.6%, down slightly from last year but the second-highest since the survey began.
As I indicated before, some form of walking away is financially sensible. Isn't that why lenders traditionally required a healthy down payment?
I had also asked how one could legally structure a deal.
It seems the looming reality for the lenders is that the paper is going to get marked down anyways if it hasn't already. Perhaps the most practical way out of this is to rewrite the notes at the current home value. The money is gone. Someone has to eat it. Why should a borrower with a non-recourse loan eat it? And yes, these lenders basically wrote puts at the strike price without collecting adequate premium. Look at it another way, at least this time it's our own citizens screwing the banks et al rather than foreign countries.
Again, further proof that Americans are lazy, stupid and criminals!
Jas Jain
Jas,
I'm not sure how you became blinded with self-hatred, but I can assure you: your picture of the USa nad its cizons is wrong. I grew up in Germany and have also lived in France before coming to the US. From both earlier experiences it was a step ahead. I'm not saying that my fellow-Germans are a bad people, it's quite the contrary. But wherever I went in the US, people have been even more helping and open. Also, the degree of self-reliance and ressourcefulness is absolutely higher here.
I have a hard time believing this is a long term viable strategy to have your cake and eat it too. I mean there's two choices, either fill out truthfully and that should be pretty easy to reject. Door number 2 leave out some material information and commit fraud.
Start clipping a few of these guys early and you send a message that wasn't sent in the first wave.
There is no fraud necessary, if the second loan in itself is valid.
Imagine someone with 50% cash in the bank for the second buy, needing only 50% financing. On the first buy he is upside down. Why should the second lender care? There is no lender's guild forbidding the loan, I suppose.
These things happen all the time with companies. It is only new in the housing sector.
I think Tanta's argument is only half right. You can't make false statements about what you own on a mortgage application.
But if you fully expect to pay off the mortgage you are applying for, that mortgage application is not fraudulent.
Tanta, you can't retroactively create a fraud on a prior mortgage application because you subsequently see another buying opportunity.
The kosher way to disclose this would be to say that you plan to occupy the new house and try to rent out the old. In fact, you should probably attach that statement to the ap in writing. If you are then unable to rent out the old house on decent terms, well tough. No foul. But you would probably need to show that you tried.
The Fed is encouraging this behavior with low, low rates. You really could swap your primary residence into a house across the street with 80% LTV and a 6% fixed rate 30-year mortgage, and rent out your underwater house for a year or two before letting it foreclose, and come out way ahead. That would not be a fraud, would it, Tanta?
I am sorry to disappoint many here but I don't like all the attention.
I simply want to focus the searchlight on real Crooks and evildoers in America. And the real problem that America faces born-and-bred dopes produced by the Great American Dope Factory. Baby Doomers are the first batch from the factory.
"If you lie and put an inflated value in there so that the new lender on the new loan doesn't realize you're upside down, you are committing mortgage fraud."
Tanta,
How can someone lie about this? Doesn't the loan officer have means to check the accuracy of the value/terms of the current loan? If you state you are renting it out won't a loan office ask for receipts? If you state you are selling the house won't the officer ask for a RE contract? As for the current value is the average Joe expected to know what the market value of his existing home is? That is why we have appraisers. How can Joe be held accountable for something he is not trained to know? I would assume it is the responsibility of the loan officer to decide the value of the existing home value.
So mr. mortgage buyer big wheel trader (MMBBWT) decides he will buy a new cheaper home across the street and walk out of his overpriced mortgage by committing fraud on his loan application. So mr. mortgage buyer big wheel trader still has the equivalent home and is paying less for it and his payments are less. Mr. mortgage lender big wheel trader makes some fees on the new mortgage he has sold. Mr. mortgage lender big wheel trader (MMLBWT)also would now have a property that was abandoned that he could now sell on the market and create another mortgage with less payments than before. So Mr. mortgage lender big wheel trader is getting two mortgage payments rather than one if that property across the street does not sell because the fraud is not allowed. So we have a mortgage market built on fraud and perpetuated on fraud. That fraud is now by the MMBBWT but with only a slight amount of effort MMBLWT could find out if MMBBWT has an existing home and what the terms and value of the existing home is and the amount left to be paid on the mortgage.
That sounds like work for the MMLBWT and it might eliminate a new mortgage fee.
This is not financial engineering. This is fraud. A Ponzy.
There is a ways to go to straighten this mess out. It is only the beginning.
This is exactly what I saw many people do during the late 80's, early 90's in New Jersey. And I'm sure it was happening elsewhere, too. This was back then when there was a taboo about BK's and foreclosures. I'm guesing that the more this gets talked about, the more people will jump on the idea. And why not? Property values keep sinking and there is no end in sight. It makes financial sense.
Rich, the point is most lenders would probably reject an applicant out of hand if their purpose getting the new loan was to purchase a new house that they plan to live in whilst renting out their current home. I mean rental rates and housing prices have been out of whack in most of the country for quite some time, not a lot of money made purely from renting something out.
In business school my finance professors taught the one way for company management to value payments on the corporations bonds was to look at them as buying call options on corporate assets.
Jingle mail seems like the little guy's application of high finance.
Well maybe the Fed can cut rates by the summer down to .ooo5% and then the Treasury will send increased checks to people...say $10,000 for starters... on the condition ...NO MORE JINGLE MAIL PLEASE....on the basis that you are scewing up our economy.
Re:CRE
It is getting realy ugly in Florida. Like I mentioned a long time ago, I wouldn`t be surprised to see 70-80% decline in prices.(from the peak). In residential real estate I see a few bank repos listed for less than 40% of the last purchase price. Not a good sign. And IMO we still have a long way to go.
Norka, that's called the merton model and the correct interpretation is that the equity is a call option on the firm's asset with a strike price equal to the value of the debt.
Jas, you have indeed gotten totally shrill with folks that would be somewhat sympathetic to your viewpoint.
In the ten years I have seen you on the internet, you have changed, gotten hectoring, mean, and somewhat ridiculous.
Why?
Think about it.
Now on to the main part of my comment. Tanta, what happens when folks in the mortgage industry allow or even encourage a vampire loan? So the borrower is technically dead on some other real estate- if they disclose it and state their intention to "rent" the prior property.
Now that skirts the legality part, and the lenders do need to do transactions.
Adelphia, Enron, Worldcom, etc. all led to Sarbanes Oxley and the photo-op perpwalk. Then, in a sense, fraud was contained to the management suite.
Again, the attitude comes from the top of society, from our corporate and government leaders, which is: Lying is OK if you call it spin. Ignoring evidence is OK if you do it in the name of patriotism or profits.
What did our leaders expect? And all the perps still have 12 months of non-intervention by the SEC, Justice Dept. & OCC to cover up all their tracks. We are all sharks now, and if you are not, you are leaving money (and your retirement) on the table for someone else. This is one, big bad pendulum and it is picking up disquieting speed.
Isn't it rather common to buy a new house prior to selling the old and be upfront about your intentions to live in the new house. This is commonly done for people "trading up" or for people moving to a new location.
It would seem to be very hard to prove that the person intentionally stopped paying on the second home. Especially if they kept paying for a year or so after they bought home #2 at large discount.
For this not to occur it would seem all mortgage brokers and bankers would have to be 100% ethical and not just trying to line their own pockets at the expense of some of their peers. What are the odds of that happening?
Funny that no one here has mentioned the federal tax law change that eliminates the tax liability on forgiven debt. This is a toxic combo of attitude change(i.e walk away) combined with no tax implication. My hunch is that the the new fed policy will turbo charge the foreclosure situation (another unintended consequence of gov't intervention).Further, since I think that this tax provision has an expiry date, one can only forsee a dramatic pickup in foreclosures as the date approaches.
One thing I find amusing is that a lot of folks who are "successful" using this strategy will end up with a house that loses a lot of value.In the sacramento area I do not think the economy will support a median price above $200k,at best.Also I think prosecutions will be based more on mail and wire fraud which are simpler and easier to prove than Mortgage fraud.I seem to recall the penalty for Mortgage Fraud is 10 years in the federal pen,which does not sound like fun.
Ministry of Truth writes:
Buying the house across the street and defaulting on your original house will be very hard to procecute. We are now talking about the thought police unless the fools spill the beans before they pull off this scam. This is different than lying about a material fact on the documents, that is just plain fraud.
Who is going to want to prosecute?
Option 1:
Home Owner goes into default on House 1. Bank loses money on House 1. HO buys House 2 while in the middle of foreclosure. Bank finds out, prosecutes. HO loses House 2, bank takes loss on House 2. Bank now has two REOs on the books.
Option 2: Home Owner goes into default on House 1. Bank loses money on House 1. HO buys House 2 while in the middle of foreclosure. Bank finds out, ignores situation. HO keeps House 2, bank makes money off of HO sending in the mortgage payment. Bank has one REO on the books.
I think the banks will take Lose-Win over Lose-Lose any day of the week. It may not be legal, moral or ethical, but it's the way things work now a days.
Anonymous writes:
Misean: A general consensus that feeding trolls encourages them was developed yesterday. See http:// calculatedrisk.blogspot.c...commenting.html for details.
Anonymous | 01.27.08 - 2:17 pm
Oh come now, I only fed Jas a shnook video. It's not like I'm feeding O-Joe and Gary.
Hard to believe that the moral vitality so hard to locate these days will make a reappearance and transform the Morass into the Utopian pasture one imagines in those gated communities in the Carib.
Regs that allowed HFs managers to net as much as $1.7B without interference from the SEC or other regulatory agencies serve as a model (like our President) for the behavior of the rest...the comparatively (and absolutely) underprivileged people who have little input in those rules and regulations.
Where is the leading example to redirect the jingle mailer from his self-serving habit to the greater good of the community and responsible service to his lender and investors who of course have immaculate moral standards?
i don't think this phenomenon will get legs. most ppl underwater on house #1 won't take a chance on house #2 as anyone can recognize the continued downtrend in prices.
Amen to that, bro. Problem is, we've lost our will and our way to effectively prosecute. What do you expect from a government that wrote the book on fraud (all branches and both parties, too)?
On a related note and waaaaaaay OT, I can't wait until the story about Cheney telling Leahy to, "Go fu(k yourself." on the floor of the Senate is presented to school kids right along side other historical American moments like Washington crossing the Delaware.
In Japan the down turn in RE was a bumpy ride since the general population had a deep belief that RE was a good investment. This situation reminds me of this, my guess these people along with many of the auction properties will be back on the foreclosure list in a few years.
well i think the fun is already beginning. what do you think will happen when j6p after abandoning his home and going to cheaper mortgage gets report from his 401k account to find out that his portfolio went down 30% because of foreclosures. ever heard of boomerang?
O-Joe asks -- I heard in the Denver, CO area prices actually start rising again? I may have a new job opportunity there. Any thoughts?
There is a missing modifier in that sentence, and I'm not what it is -- will start rising? have started rising? hmmm . . .
As an appraiser, I see values in the Denver Metro Area being generally stable, with some entry level neighborhoods seeing a sharp decline due to the oversupply of REO listings; move up neighborhoods tend to be stable or declining; in trendy and high end urban sub areas, values tend to be stable or rising slightly. Condos and townhomes tend to lead or follow the value trends of entry level neighborhoods.
The good news in Denver is that our values have been generally stable since 2001 -- we never recovered from the dot com crash, and had job losses until 2006. Our real estate values generally peaked in 2006, and some of the folks that maxed out the home ATM at that time are in a world of hurt.
In my neighborhood (North West Denver) the values had gone up 11% year to year, as of last November -- but this is a hot trendy area, and the values are following that pattern.
On the other hand, the flood of REOs are creating buying opportunities -- I see a lot of REO fix n flip sales at $175-185k, that were purchase a month before at $125k.
In many neighborhoods, we are seeing a stratification of values, between the REO bottom of the market condition homes, and the owner occupied top of the market homes. In many neighborhoods, the top of the market has remained stable, while the bottom of the market has collapsed, due to the glut of REOs. Some homebuyers won't even look at an REO, because they want a home that is in move in condition.
As to what the future holds -- predictions are that Colorado real estate values will not experience the big hit we are seeing elsewhere, with the caveat that a serious national recession could bring down our local economy.
"The fact that the high finance boys get away with fraudulent practices more often than we would like does not in any way give homeowners moral or ethical license to try to defraud the system as well. Once a critical mass of average citizens believes that doing the right thing is for chumps, civil society no longer exists."
I suggest rereading what you just wrote. Did you really mean to say that civil society consists of those at the bottom obeying the "rules" while those at the top don't have to?
CR, I am surprised that the alleged attitude change toward playing hardball with creditors is apparently so recent. Trump and others have been actively promoting this kind of behavior to the masses for years.
I am not so sure that when you go thru foreclosure (FC) for whatever reason or motive that you can 'just go and rent' unscathed.
I believe that any half-decent property that is under professional property management will do at least some credit checks on a prospective tenant. I do not know if a recent FC would be uncovered or how it would affect your deposit, rent or whether they accept you. One friend who had been thru chapter something 5 years previously had to pay double the normal deposit for an apartment.
Perhaps property managers might have some input on this thread.
H.R.3648 Mortgage Forgiveness Debt Relief Act of 2007 was signed into law on 12/20/2007. It is set to expire on 1/1/2010 and allows for the temporary foregiveness up to $2,000,000.
A report from the Coloradoan. The number of city building permits pulled for new homes, duplexes and condos in Loveland dropped 37 percent in 2007, reflecting a national trend of a slumping home building industry. The 2007 numbers mark a dramatic 68 percent decline when compared with 2004, when residential building permits spiked to 923. Business is way down, said David Keirns, owner of Keirns Construction Co. in Loveland.
Keirns maintained a steady number of new starts through 2006 until things began to slip in 2007, and now, thats spilling into 2008.
Residential is doing the same thing here (in Fort Collins), said Delynn Coldiron, who compiles the permitting data for the city of Fort Collins. The last couple years have been the sharpest decrease. There has been a pretty sharp decrease in single-family attached and detached.
Home sales are at a 30 percent to 40 percent cancellation rate locally, meaning people want to buy up, but they cant sell their existing homes, said Joe Knopinski, VP of neighborhood development for McWhinney Enterprises. Our basic problem in Colorado is that people are interested in moving up (to a new home), but they are worried that they cant sell their house, Knopinski said.
Imagine someone with 50% cash in the bank for the second buy, needing only 50% financing.
Easy to imagine such a borrower.
Rare to find one who is upside down on his current home.
Isn't it rather common to buy a new house prior to selling the old and be upfront about your intentions to live in the new house. This is commonly done for people "trading up" or for people moving to a new location.
Yes, it is very common. It is also common for people to buy second homes and investment properties.
That is why the Uniform Residential Loan Application has required the borrower to fill out the schedule of RE owned for decades.
In fact, many people will not be sure what to list under the current value of their property. They will in fact ask the loan officer for help. An honest loan officer will notice the similarity between the currently owned home and the contract price on the proposed new home and put a value on the application that does show that the current home is underwater.
What an underwriter will do in this situation is case-specific. If the borrower indicates that the currently owned property is listed, the underwriter might calculate the probable loss on sale and require the borrower to show sufficient assets to cover that before closing the new loan. If the borrower indicates that the property is going to be held as a rental, then the underwriter isn't going to ask to see a lease (the property is currently occupied by the owner and will be until he moves into the new home). However, the UW will probably ask an appraiser to calculate probable rental income based on comparable market rents, and include any net negative carry in the borrower's DTI for the new loan. Of course, the UW might use a much larger vacancy factor than the borrower would like, but that's why we have underwriters.
I am saying that in fact it's fairly easy to spot this if you have a minimally-competent underwriter; that lenders have started using minimally-competent underwriting in the last several months; and that therefore this scam is highly unlikely to work.
It is a "scam" any time it involves making untrue representations on the new mortgage application.
"Residential is doing the same thing here (in Fort Collins)," said Delynn Coldiron, who compiles the permitting data for the city of Fort Collins. "The last couple years have been the sharpest decrease. There has been a pretty sharp decrease in single-family attached and detached."
The permits indicate new home starts. When the numbers go down, it typically means less work for local home builders, which appears to be the case in Loveland.
"Business is way down," said David Keirns, owner of Keirns Construction Co. in Loveland.
Broker--Things are bad in Florida but they are not 79-80% off bad.
Everyone else--I read that article and the fact pattern was that the guy moving across the street DID NOT LIE. He would have to show enough income to pay both mtges I believe, or he would have to have a renter. He put down a hefty downpayment.
Finally, my hub was a state prosecuter with Janet Reno for a number of years. If you all think for one moment that there is enough state or federal resouces to prosecute the clear cut fraudsters you are in the clouds somewhere. There are not enough judicial, or prosecutorial resources to prosecute even 1% of the fraudsters. And there certainly aren't enough jail cells to house them. Altho jail cells except for the biggies aren't appropriate. Fines and financial punishments would do just fine.
I couldn't even guess how many extra federal and state judges would have to be hired. In Florida the state judges were totally overworked before the foreclosure numbers ramped up and now the system is one camel's straw from total collapse.
Only thing I can think to do if you don't want to spend the money to double or triple the number of judges and prosecutors and their supporting minions is to declare the war on drugs lost, legalize nearly everything, and then use those resources on this mess.
--
Showing American dopes the mirror is a thankless job but someone has to do it.
Sorry, if someone doesn't like to look at the current reality and wants to keep the fantasy version of the years long past.
Americans can't handle the decline that they are already on. And they don't want to know how deep the abyss is. The abyss is deep enough to break the system and it will.
The Daily Sentinel reports from Colorado. A remarkable run-up in property values in the last few years appears to have reduced the appetite of some would-be buyers and left others on the outside looking in at what could have been. Real estate sales in Mesa County sank more than 11 percent to 6,424 last year from 7,241 in 2006, according to a year-end report produced by Stewart Title Company in Grand Junction.
Exasperating the decline was that real estate sales plunged 20 percent in the fourth quarter ending Dec. 31. That marked the sixth quarter in a row that real estate sales were lower than the comparable period in the previous year.
It seems so healthy. Retail sales are strong and we have job growth. They wonder how this can happen, said Bob Reece, who researched and authored the report. I think the basic person with a pocketbook is looking at what they can afford or reasonably purchase but they are struggling at this point.
The report showed that a total of 19 homes, priced between $750,000 and $1 million, were sold between Nov. 30, 2006 and Dec. 1, 2007. At the same time total listings in that price range increased to 40. Data for homes priced above the $1 million threshold were nearly the same.
That, Reece said, showed homes in those categories took more than a year to sell. The slowdown comes on the heels of 65 percent run-up in local housing prices in the past five years, Money magazine noted in its December issue.
No question, said Denny Granum, president of Monument Homes in Grand Junction, on the length of time it takes to sell houses at the far end of the pricing spectrum.
Granum, whose company specializes in the $500,000 and up market, said he peeled back the prices on a couple of houses in areas where they were a little higher priced than they should be for the market. Its business, he said.
Tanta,
My point is that an underwriter's VP, knowing that a probable foreclosure will soon be locking the borrower out of the credit markets could price the new purchase as an investment property, and be confident that property will perform when the borrower has no where else to go.
As was pointed out, the get out of jail free card is going to be very tempting for folks who default on property through the end of the decade. No taxes! Just ten years on FICO? so what? How much more can I lose if I stay put? Add to the mix the mod department overloads, and the number of folks who won't even bother to call their mortgage servicing department is going to spiral.
Hey Tanta, feedback loops and reduction of word counts; the less said, the better! Why increase entropy, go the opposite direction to find clarity. Less is more!
Any fool can make things bigger, more complex, and more violent. It takes a touch of genius - and a lot of courage - to move in the opposite direction.
Albert Einstei
About our concern over whether we are chastizing little people for just doing what big people do:
It's a legitimate point.
But if you ask the "little people" who work for mortgage lenders (processors, underwriters, appraisers) to close their eyes and let you get away with this out of "solidarity" with your striking back at the Man, you're asking the little people to risk going down for you. We all know that the Tanned Ones get away, but these days (things have changed) managers are poring over reports and little untanned underwriters face getting the boot.
It would be a lot easier for me to have sympathy with these folks if it didn't seem so clear that they just want the same kind of free lunch their "betters" have been getting, and screw anyone who stands in their way. I can't quite work up solidarity with "Jingle Mailers" any more than I worked up any solidarity with them back when they were just plain old specuvestors who were "entitled" to 100% financing.
Society is worse off once a critical mass of its citizens believes that doing the right thing is for chumps.
What America needs are true statesmen and stateswomen. We need a find a way to recruit, yes recruit, real leaders. They don't seem to rising to the top.
DPP: more to the point, the bank for house 2 is probably different from the bank for house 1. The people responsible for selling house 2 would be hurting themselves - badly in a falling market - to help bank #1. Not gonna happen.
I personally would encourage this. I think grossly overvalued house prices are causing permanent real damage in the form of further overbuilding and wasteful location decisions so the sooner things become rationally priced the better. I also think the minimum down payment loans you need for exploitative jingle mail to make sense are a really bad idea and should stop immediately. So this exploitative jingle mail will help the economy. I don't see why honest people should care much about the relative allocation of losses between crooked lenders and crooked borrowers.
The interests of honest renters waiting for prices to fall outweigh those of the crooked lenders who are the cause of this mess.
Perhaps you can create some legal deal structures for the little people. I personally have NO debt. I really do place the bulk of the blame on the ultimate idiots that bought the paper in the first place. If they did their jobs correctly, we wouldn't be here!
I saw a story saying that often lenders who would normally foreclose simply don't do so because of the expense and trouble and ending up with a house on their hands that they don't know what to do with. I don't recall if they evict the "owner" and let the house sit empty or what. Has anyone else heard much about this?
I do not know if a recent FC would be uncovered or how it would affect your deposit, rent or whether they accept you. One friend who had been thru chapter something 5 years previously had to pay double the normal deposit for an apartment.
Yes, and the amount saved from 2 house payments would provide enough of a deposit to make any landlord ignore almost any credit issues. Plus, the renter will eventually get that money back. Anectdotally, landlords on the housing blogs seem to actually like foreclosees. After all, they were generally trying to get rich by fixing up property - not really a bad person to have around. Plus, while they can buy into an apartment once a bad reference plus a FC really would put them in a bad way so they need to be on the landlord's good side. I don't think being locked out of the rental market is a significant issue for foreclosees.
LawyerLiz for the win.
Only other option is to proesecute the bejezus out of a few and put it all over the news. Scare the rest of them.
...Hasn't worked with drugs either though.
Societe Generale says the positions were in balance at midday on Friday Jan. 18. As European stock markets fell on average almost 2 percent that day, the positions were making losses of 1.4 billion euros by the evening. As the bank moved to unload the positions on Monday Jan. 21, a day when fears of a U.S. recession sent first Asian shares and then European stock indexes down on average 7 percent, the losses ballooned to 4.9 billion euros.
Another hole in the story. SocGen says it uncovered the fraud on the 18th. Yet, facing massive "rogue exposure," its officials chose to "go fishing" on the 18th and over the weekend instead of laying off risk. Just because markets are closed doesn't mean you can't lay off risk. Uh, SocGen is a smart enough risk manager to know this.
They are ADMITTING that 70% of the damage was not due to "rogue trader" but to their time-is-of-the-essence failure to lay off risk.
I saw a story saying that often lenders who would normally foreclose simply don't do so
Look back to the post where Wells Fargo said that they were keeping historically more property and CW said that sometimes foreclosure isn't the best option.
On topic, is buying across the street really going to be a big problem? Or is it going to be a "poster child" of our times? I'm thinking it can't be a very high percentage, but a sign of our new situational ethic.
RACE: an unexplored dimension of the housing crisis. It not only spreads into the economy as a whole, it spreads into politics, racial politics too:
\tThey had small means and big hopes of owning a house. But African-Americans snared in the US mortgage crisis have seen the American dream turn into a nightmare many call "financial apartheid."
The storm triggered by risky "subprime" loans has left many in ruins, forced out of their modest homes and furious at falling victim to financial dealings that have taken a particular toll on minority families.
"People of color are more than three times more likely to have subprime loans," concluded the organization United for a Fair Economy in a recent report which estimated that minorities have seen between 163 billion and 278 billion dollars of their equity go up in smoke since 2000.
With its weakened economy and a large black population more used to renting, Cleveland has become a poster child of the subprime crisis in a country where some 2.1 million borrowers are behind on their mortgage payments.
City officials estimate that foreclosures have swallowed some 70,000 homes and turned entire neighborhoods into ghost towns.
The city has responded by suing lenders, accusing them of targeting black borrowers and steering them to the loans granted with few formalities and at hefty interest rates to people with poor credit histories.
In this city where nearly 27 percent of the population lives under the poverty line -- about 20,000 dollars a year for a family of four -- many have a friend, a cousin, a brother, a co-worker or a neighbor who lost a home because they could no longer make their monthly payments once their adjustable rates jumped.
"Cleveland, Detroit, Baltimore (are) cities where lots of people of color live and what do they have in common? They are hit by the foreclosures meltdown. Is it a coincidence?" said Jesse Tinsley, who lives in the low-income Mount Pleasant neighborhood.
"When the wave of foreclosures blighted our neighborhood, members of our community rang the alarm. Nobody did anything. Now that white suburbs are hit, the city hall discovered foreclosures," he said.
On topic, is buying across the street really going to be a big problem?
I don't think so. I think we're in "Poster Child" territory.
For one thing, it's too damned early in this process. I mean, there's "ruthless smart" and there's "ruthless stupid." I don't think there are enough "ruthless stupids" trying to catch falling knives across the street to make this a big trend.
I saw a story saying that often lenders who would normally foreclose simply don't do so
Foreclosure is the right of the lender, not the obligation of the lender. Anybody can just decide to write off a debt because it costs too much to try to recover any of it through foreclosure.
However, refraining from foreclosing does not release the lien.
I just want to know what lender is still so foolish as to not catch on to this buyer? Have they learned nothing or is it just another crooked broker enabling the process?
Even if the bank for HO #1's new mortgage is different they still want the deal to go through. On this new mortgage they get to show something in "Origination for January 2008" instead of a big fat goose egg. The fact that they're taking on another fraudulent loan is something they'll deal with later, if necessary.
Whoever the seller and the seller's bank are for house #2 want the deal to go through. The seller gets what they want, to sell their home. The bank gets paid, instead of possibly being foreclosed upon. Neither this bank or this seller are taking a loss for Bank #1 or HO #1.
Anything to keep the system moving, even at a reduced level, even with easily detected fraud, is preferable to the banks at this point.
The reduced price of Home #2 also sets lower comp prices, which will hopefully make things more affordable for the honest renters someday.
There are several markets that are now just beginning torealy head south -- Portland, Seattle, Charlotte, Austin, Denver, Bend etc.
It seems that the change in attitude towards foreclosure might cause late-blooming markets to experience faster rates of decline. In other words, home owners will be more aware of negative equity and more inclined to stop "throwing away" money on an upside down mortgage.
Could a FAQ for greasemonkey and killfile be posted on the site? Is there any way to make this default behavior on the site?
1/ Allowing yourself to be foreclosed on. Everyone agrees that's perfectly legal, right?
2/ Buying another house and allowing yourself to be foreclosed on an existing house. Presumably there's some kind of fraud in this, because normally a bank wouldn't lend money for the new house in this situation.
3/ But the person committing the fraud decides that he won't be prosecuted, so he goes ahead. How is this behaviour so much different from a failed CEO who demands a huge payment to leave a company, or else he will sue and drive the company through grief? In both cases someone is making an estimation of how the legal system works and what the opposing party is willing to do. I'm not defending fraud; I'm just a bit tired of our ability to accept fraudulent behaviour by the rich, but as soon as Joe Sixpack does it, it becomes a sign of civilization's decay. The decay has already set in; the rich have showed how these things are done; and the rest of us are just following their lead.
If the banks don't want to be victims of this kind of fraud, then maybe they should go back to mortgages with downpayments of 20 or 30%, knowing the client, and so on. But that would be too sensible, I guess.
Anyone have any idea of how the recent overhaul of bankruptcy law (I'm thinking the Act that made it easier for credit card companies to push debtors into a less lenient form of bankruptcy) interacts with increasing numbers of homeowners having negative homeowner equity?
As you can tell by my vague terminology, I am pretty clueless on the topic. But I imagine there must be some effects.
I think if this quickly becomes a trend, just as quickly mortgage lenders are going to be carefully scrutinizing this aspect of new applications.
I mean, the lenders run a credit report -- and the prospective borrower's existing mortgage debt sticks out like a sore thumb, right? Anything that looks fishy would lead the potential lender to inquire more about the house the applicant already owns.....
Or are these loans that can be sent along to the agencies & would make the originator think "not my problem"?
query_tool: The new house mortgage writer is only concerned about the new mortgage going bad. If the down payment is adequate and the DTI decent, the new house mortgage writer will do just fine. The defaulters aren't psychos seeking to bankrupt the bank, they're just people following their own self interest. If their self-interest is for staying in the new house and paying the mortgage, they will, and the new mortgage can be written to make this so.
This blog, run by law school faculty who specialize in bankrupcy law, covers a lot ont this topic and much of it is understandable by "the rest of us."
Hmmm... I realize I kind of missed the point with the last posting. I guess it comes down to this -- assuming no legal enforcement when it comes to this scenario:
a) Does the lender of the original mortage have any recourse?
b) Does the lender of the new mortgage have any obligation and/or reason not to lend to a "qualified" buyer when they suspect one of these swaps is taking place?
I mean, the lenders run a credit report -- and the prospective borrower's existing mortgage debt sticks out like a sore thumb, right? Anything that looks fishy would lead the potential lender to inquire more about the house the applicant already owns.....
You would think so, but Casey Serin proved us wrong in the past.
The real question is what is happening today? Are those obvious sore thumbs still ignored? My guess is yes.
Sebastian, What is the WrightB telling you about the economy? I wonder if AG uses it.
[Former Fed Chairman Alan Greenspan said last week that the United States was at - or possibly over - the edge of a recession, joining a lengthy list of economists seeing a downturn]
What is wrong with exercising a put? Ethics aside, if it is legal and you come out ahead why not do it? Investors simply mispriced risk so they lose.
As Tanta pointed out, there is no such thing as a put on a mortgage, at least not yet.
One thing that really bothered me recently were some media stories that new home buyers were treating their down payments like a "call option". A true option gives you the right but not the obligation to buy something, and is liquid in the sense that it can be sold to a third party.
Were one to, say, put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
One little problem, this is illegal. As in, if they catch you, you can go to jail.
You wouldn't know it by listening to the mainstream press, however.
You see, ethics are at the root of this whole mess; in this I am in complete agreement with Jas.
I can't tell the real Jas j from the fake one! I'm cracking up they post eggsactally the same holier than thou attitude from a high horse. Wide paint brush, sweeping generalziations. hehe.
While the concentration this week will likely be the Fed, my guess is someone is sure to steal the spotlight, any guesses as to whom?
If we get more hedgie blow-ups that trumps all.
What gets overlooked a lot IMO is that hedge funds have become almost an extension of the banking system, so hedge fund blow-ups today are much like the bank failures of yore.
You were responding to fraud (an imposter) and not to I. Unfortunately, America has too many desperate people and some are here on this blog. It seems like it is OK with blog owners. So be it.
a) Does the lender of the original mortage have any recourse?
It depends on the state in question.
It may also depend on the characteristics of the original loan. I wouldn't try this unless I were 100% sure there was no misrep on my original loan application (for the old house). Once I "walk away," the lender might pull that file, run a new credit report on me, see that I have just bought the new house, and then decide to go through my old file for any evidence of misrep. If the old loan was obtained fraudulently, there's big time "recourse."
b) Does the lender of the new mortgage have any obligation and/or reason not to lend to a "qualified" buyer when they suspect one of these swaps is taking place?
Obligation? Of course not. What "qualified" means, among other things, is "creditworthy." (Three C's: collateral, capacity, creditworthiness.) If I find any evidence that you are behaving in an uncreditworthy fashion, you are by definition "not qualified."
You may not be aware that other variants on this situation arise fairly frequently. People who are about to declare BK want to take out a big cash-out refi. Or a self-employed sole proprietor who is facing a big judgment (unrelated to the house) suddenly wants to deed the house over to his wife (in a non-community property state) and refinance the note in her name only. These things may or may not succeed, but underwriters are aware of their possibility, and do question transactions that don't seem to make any sense. The current scenario is just another variant on a setup by a deadbeat.
Repeat comment, but on topic.
My sister in law is typical of the upside down mortgage holders. The mortgage is $470k with a $90k HELOC. Within the last two months she tried to lock in her 8.9% HELOC, asking for no concessions. The bank, whose name rhymes with Washington Mutual, arrogantly told her she'd have to pay a fee and a higher interest rates.
So, now I read about how stunned the highly paid geniuses are that people are walking.
Whocouldanode?
...I'm guessing that more than a few of them are chuckling as they see these deals come through (and still chuckling when they deny them or condition approval on sale of the current home).
Chuckling is so 2007. The tolerance for approving a loan that becomes problematic is gone. There's a lot of pressure being applied to UWs and it will be reflected in their decisions.
central_scrutinizer - Were one to, say, put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
That has happpened here in SF. They are now trying it on the new condo towers coming online right now. Craigslist has had ~ half a dozen offers to sell deposits on these towers. One of the penthouses was resold (aledgedly at a profit) BEFORE the CO was issued or a deed recorded. Interesting times....
Picosec-
Reading that site made me feel like the first time I came across an in-depth post about the actual mechanics of securitization. I figured I had to wade in, if only because it was important for what I do, but it certainly made my head hurt. Thanks! (I guess)
LowyerLiz I said "I wouldnt be surprised to see 70-80% decline in price in CRE, in Florida. (from the peak)" If you are interested, I can e-mail you some auction prices on a few commercial properties. That would give you an idea of whats to come.(I honestly hope I am wrong-I love Florida).
I think we need a Bankruptcy/Foreclosure/Tax law guest blogger to explain how the IRS gift tax forgiveness works. As I see it, only the primary residence is exempt from the gift tax if the property is sold for under the loan amount. So how does this affect "owner occupied" properties that have been rented out and what are the potential consequences to a specuvestor? Also does claiming bankruptcy change the rules?
Chuckling is so 2007. The tolerance for approving a loan that becomes problematic is gone. There's a lot of pressure being applied to UWs and it will be reflected in their decisions.
I meant "chuckling" as in "nice try, dimwit, but I'm not that stupid" as the UW proceeds to deny the loan (or put in a contingency that will have the same effect).
Perhaps property managers might have some input on this thread.
Dave in San Diego
Dave getting a place in Diego is much more difficult than getting a place else where in the country. Credit checks etc... I've rented a few places else where and just showed up with a check.
This is really a cultural problem rather than an economic problem. There is a world of difference in walking away from a mortgage when one can't pay as opposed to when one can. The former can't fulfill their obligation, the latter can but won't: essentially a breach of promise. The social mores that have developed since the 60's have whittled away at the opprobrium of dishonorable conduct and as a result, behaviours which were unacceptable years ago are now permitted because they are rational. The pre 60's crowd would have argued that a promise is a promise which one is regarded to fulfill. Anyone remember Regulus?
Future mortgage contracts will have to price this new risk to the lender into the contract. The net result will be higher rates all around.
The middle class is a mindset, not an income quintile. There are many earning middle/upper class incomes who are lower class people. Money does not make an honourable man.
There is tax on forgiven debt (i.e., treating forgiven debt as income).
They aren't the same thing.
There is proposed federal legislation to suspend tax on forgiven debt for mortgagors right now.
Under the current rules, the IRS can waive taxation of forgiven debt if the borrower is insolvent. How you prove that is up to the IRS. Nobody should ever assume they'll get out of forgiven debt taxation until they've spoken to a tax lawyer.
I just want to point out that were are (apparently) looking at solvent jingle mailers. They couldn't get a new loan for the new property if they were teetering into BK territory. They just want to swap houses and loans.
From Richard Suttmeier's RightSide Advisors Weekly Radar Screen 1/27/2008:
My theory is that the FOMC is extremely worried about how fast the banking system is bleeding money. They knew how bad the earnings picture would be from Bank of America (BAC) and Wachovia (WB) when they reported fourth quarter results as the FOMC took action.
Bank of America is the largest bank by Assets according to the FDIC with assets of $1.29 trillion. Wachovia ranks fifth with $557 billion in assets. Combined they are 14.5% of the total of $12.7 trillion in total assets. This means that the industry will take a significant hit to net operating income in Q4 2007.
Bank of America (BAC) reported that fourth quarter net income fell 95% citing rapid credit deterioration in its consumer and commercial loan portfolios, and higher than projected writedowns of subprime mortgages. According to the FDIC the Bank of America had $43.3 billion in non-farm, non-residential construction loans on the books at the end of third quarter, which means that more bad loans are highly likely in 2008.
Wachovia (WB) reported that fourth quarter net income fell 98% as its deteriorating lending portfolio forced it to dramatically increase its loan-loss provisions. This is an admission that more bad loans are on the way in 2008. WB has huge exposures to Construction & Development Loans at $23.2 billion second to $23.5 billion for BAC. WB with much lower assets than BAC has $49.6 billion in non-farm, non-residential construction loans.
Net Operating Income: While Loan exposures continue to grow, and bad loans rise, net income takes a hit. Net operating income was down 22.1% sequentially to $28.7 billion at the end of the third quarter. Before the BAC and WB reports I heard estimates that net operating income would slide to under $20 billion for the fourth quarter 2007. Now I would not be surprised if net operating income came in closer to $10 billion. No wonder the FOMC is in panic mode. The FDIC wont release the Quarterly Banking Profile for the fourth quarter until the third week of February at the earliest.
Concerns from the Federal Deposit Insurance Corp
On January 17 FDIC Chairman Sheila Bair focused on the real estate problems facing the US economy at a Bear Stearns conference. The FDIC Chair told the audience that housing starts are sinking, the unemployment rate is going up, and the risk of recession is clearly rising. Foreclosures are on the rise in communities across the country. With falling real estate values, refinancing is not an option. The number of resets is simply way too big for the industry to handle one-by-one.
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Tanta is a legalistic robot on the subject of mortgage lending.
Crooks from NYC and the Fed sent invitations to mortgage companies to make fraudulent mortgage loans and they all accepted the invitations. Why? There was urgency to get the economy going full blast at least a year before the 2004 elections.
Fraud begins at the moment someone is allowed to lend OPM without any personal consequences and the risk lies down the road AND the lenders and the intermediaries expect to pass on the risk to unknowns.
Things get really ugly when you have intermediaries, most of whom are concentrated in NYC, who all co-operate in the Ponzi scheme while it lasts. It is greatly aided when various participants go to the same parties, clubs, churches, temples and synagogues! Cramer spilled the beans on the party and club goers last week.
Legal or not legal? If you control the legal system you can make anything legal except for rape, murder, etc. Even murders can be made legal but we dont have that problem YET.
One second. Sure, the intentional foreclosure makes sense from the point of view of the individual who has lost equity. But don't they still need to secure another loan to purchase a cheaper house ? They may have the best of credit, but if they have outstanding loans and an income which does not cover their current mortgage payments, who is going to lend them money ?
If this type of behavior (walking away from a house you can make the payments on, just because your neighbor across the street got a better deal) becomes prevalent, I predict the following will happen:
Banks will tighten credit even more, to the point of requiring much more paperwork and legal liability acceptance on the part of buyers should they act in
"bad faith." This will further depress home sales.
State and Federal authorities will begin to take note. Somebody will get prosecuted and made an example of. Remember Martha Stewart?
The rest of us will pay for the unethical behavior of the few through higher mortgage rates and taxes to bailout failed banks and pension funds.
Re. the intentional foreclosure scenario:
I believe Tanta is right. To take the example where the homeowner who is upside down on his mortgage but has 50% to put down on the house across the street at 20% below his current home value:
Doesn't the first lender have first lien on the cash that the homeowner is proposing to put down towards the new home?
In foreclosure, wouldn't the presence of that cash (in the form of equity in the second house) become apparent via a search through the country registrar's records?
Couldn't a lender try to then recover from the homeowner's equity (and possible more) in the new home?
Also, wouldn't there be prohibitions in mortgage agreements against taking on any new debt without current lenders acquiescing?
I cannot see how a homeowner could do the flip legally even by plausibly claiming no ill intent. Of course he could hope to be lost in the shuffle, but if such fraud is widespread it can't take much to search through deed records to quickly identify such homeowners.
CR - Have you seen any or many reports of this happening outside of CA and maybe FL? Just wondering how regional it really is - not that it wouldn't go national, but I'm just not seeing it.
Barley writes:
"intention to default on your current mortgage is a form of mortgage fraud"
Tanta - is it? is it really?
I said:
buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud
The fraud is against the new lender for the new home. It is a fraud because it always involves not filling out the application for the new home loan honestly. (If you fill out your application for the new home honestly, you're almost certain to get denied.)
Think about it: you submit an application for a loan to purchase a principal residence. You already have a principal residence that is mortgaged. The lender requires you to say what you are going to do with the house you currently own. Anything other than "I'm just going to give it back to the bank" would be a lie.
If you submit the application as a purchase for a second home, the lender will just laugh at you. People don't have vacation homes across the street.
If you submit the application as a purchase of an investment property, the lender will count net negative rental income in your DTI (and, of course, your entire existing house payment) unless you can somehow show that the new home can be rented at a profit. Good bloody luck with that. This last scenario is most likely to succeed, but then again you'll be paying a higher interest rate and making a larger down payment on the new home because it's a non-owner-occupied loan. I do not for a moment believe that these "ruthless" people are calmly accepting the price of an NOO loan in the interests of honesty.
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"But don't they still need to secure another loan to purchase a cheaper house?"
Hello Vikram,
Ever heard of renting? People even can find cosigners if they can get a good deal. Some are smart enough to prepare the groundwork before they default.
I have read about credit extended to the worst by some Crooks who are lending OPM. The whole system was turned into fraud because of tenth hand lending. NYC Crooks have no problem in coming up with schemes to make money now and let some poor bastards pay the price later.
Some of those poor bustards who will pay the price are known as US taxpayers. They are politically impotent to stop the abuse of taxpayers money.
The way I read it, there's no tax now, but the basis in the house is adjusted down by the amount of forgiveness. That could result in additional capital gains taxes later, depending on the amounts. Cap gains are currently much lower than the incremental tax rates on a high income payer.
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"The rest of us will pay for the unethical behavior of the few through higher mortgage rates and taxes to bailout failed banks and pension funds."
YES. Some of us cranks knew it way back when. Apparent fraud was in the open, but it was not specifically made illegal and was allowed to go on as long as it could go on. Crooks knew the game and the dopes didnt catch up to the fraud part until recently.
Hasn't that forgiveness of debt bill been signed by Bush?
I guess I wasn't paying sufficient attention. I didn't think it had been signed.
It does create trouble for the "buy first default later" crowd, doesn't it?
If you buy first, the new home becomes your principal residence. If the default on the old home occurs after that, then it's not a default on a principal residence and I don't see why the old lender wouldn't send that info to the IRS.
There is obviously lots of debate of whether swapping one home for another and then defaulting is fraud. Maybe, maybe not. What is clear and will have a HUGE impact going forward is that more and more people are just not paying the mortgage. This problem seems to be getting worse and there is more and more being written on it.
However you slice it, and for whatever the reasons may be, it is happening and will continue to happen with more and more frequency. And as it does, it will bring property values down even further, which will then convince even more people to do the same which will bring property values down even further, etc.
Any one who attempts to buy now is not trying to catch a regular falling knife, they are catching a chinese star which is sharp all around.
Jingle mail is going mainstream. This will probably speed up the whole crash process. I don't see OA types sticking around until the loan fully resets if they see their peers bailing out early and not getting burned. Or at least more burned than they would be anyway.
I would believe he would have to pay taxes on the forgiven debt from house 1, since it now would be classified non-owner occupied...any thoughts?
I'm not a lawywer but my understanding is if you've lived in a home as your primary residence for two out of any of the five previous years and sell it, it isn't treated as no owner occupied. That would seem to apply to this scenario.
CR, thanks for the names at the top of the post; it speeds up my reading.
Sure, fraud is bad.
But, there are going to be some ugly laws coming our way: FDR outlawed the personal holding of gold in '33, had folks turn it in at $20 per ounce, then immediately reset the price to $35 per ounce, a 43% cut in the purchasing power of the dollar.
I have no intention of turning my gold in, and will have it in a private bank in Switzerland, outside of the reach of the Feds.
Some laws will deserve to be broken. Some of you may call that unethical. I think FDR's actions in regard to gold were immoral, taking from savers and distributing to debtors.
No homeowner is illegal. Don't you know that people who are committing this "fraud" are contributing to the economy? They are paying property taxes, paying fees to lenders, making housing prices more sticky, and just hard-working folk trying to improve their situation.
(half-sarcasm off)
Rob Dawg has a point about Casey Serin. When I walk into my local Ralph's I'm reminded that shoplifting will be prosecuted to the fullest extent of the law.
LaywerLiz FTW. Why not contract out judges/attorney's to prosecute these cases though? Are you really telling me there is a shortage of lawyers? I'm sure there's some loophole the legislative bodies can do to catch the fraudsters... but I guess the truth of the matter is they don't really want to stop fraud. Isn't the prosecution a simple matter of showing "Exhibit A" first loan documents, and then "Exhibit B"? Hasn't there been a rise in unemployed people familiar with these documents that could be shifted to these jobs?
1. Do you really think these people have the money to pay the tax bill?
I don't know exactly who you mean by "these people."
Do most people facing FC these days have the money to pay the tax bill? Probably not. I have no problem with the IRS not trying to squeeze broke people. If we are talking forgiven debt on folks who stay in the home--a modification--then fine. Waive the taxes.
Does someone who has the money to make a down payment on a new home without selling their old home, and sufficient income to qualify for it while also carrying their current payment, have enough money to afford the tax bill on the loss on the old home? Sure. As a matter of fact I might describe what they're doing as an abusive tax shelter.
I might have gotten sidetracked by the "intentional foreclosure" discussion.
Therefore, it appears that if you have lived in the home for at least two of previous five years, you can claim it as a qualified principal residence. But note that the forgiveness applies only to acquisition indebtedness -- I wonder whether the IRS will demand plausible documentation that any cash gotten back on a refinance really was used to invest in the home?
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Schumpeter: One of the results of our historical sketch will, in fact, be that FAILURE OF THE BANKING COMMUNITY to function in the way required by the structure of the capitalistic machine ACCOUNTS FOR MOST OF THE EVENTS WHICH THE MAJORITY OF THE OBSERVERS WOULD CALL CATASTROPHES. (Emphasis added)
If the MBS market has seized up, how are loans and re-fi getting done? Are the lenders holding on to them?
Well, home sales have been in a dive recently. I assume the reason we have Fannie and Freddie is to get loans done on terms that free markets aren't willing to touch without some implied government protection. (?)
jg, the easy answer always seems to be holding gold in other countries. Don't you think there is a lot of risk in doing that? How do you get it when you need it? Smuggle it in on a plane? Sell it straight up for cash to someone you don't know in that country and risk getting robbed? Why do people think it would be easy to convert it back into cash overseas and just bring it back to America? Why wouldn't foreign banks be strongarmed into helping the US government find these assets? As people in South Africa found out, you need a private boat if you want to move your money around.
Don't get me wrong, I have my own share of gold but I don't see any easy way to hoard or use large amounts of money as gold. Please tell me I am wrong.
Tanta you've portraited buy #2 and let #1 foreclose idea as a (potential) scam, and I agree, however, if lender #2 knows lender #1 gets hosed but that the buyer is going to make payments on house #2 (he does need a roof) can the mortgage risk be repriced for dealing with a shady character. After all lender #2 doesn't care about lender #1's loss -only getting repaid on their loan. The worst part of this thinking is that lender #1 might end up doing the loan anyway, because if he doesn't someone else will. Ultimately, the price writedowns have to happen, regardless of who buys the houses and in non-recourse states, lenders should have known better to start with.
you are referring to the rules for getting the capital gains exemption. I do not believe that these rules will apply to debt forgiveness.
Arguing that walking away from a debt one could pay is sticking to a stupid bank or some wealthy investor who should have known better is pure rationalization. The fact is the borrower took some someone's money, promised to pay it back and then did not. Generally, this is known is stealing. Trying to pay it back and failing because of unexpected circumstances is one thing; just deciding you are better off not paying the money back is theft. Just because other people do it, perhaps in other forms, and get away with it does not change that.
There now, wasn't that suitably pompous and self-righteous? But honestly, would you want to to lend someone money who who felt justified in not repaying? Do you want the bank holding your deposits or your pension fund to lend that guy money?
There's certainly another trend following intentional foreclosures - bankrupt HOA's here in the Inland Empire. When do the special assessments start hitting the remaining homeowners?
however, if lender #2 knows lender #1 gets hosed but that the buyer is going to make payments on house #2 (he does need a roof)
Well, see, that's where the problem arises. You can no longer use the "he needs a roof" thing. He has a roof. He just wants to swap it for another roof of the same quality for a lower price. Why would anyone trust that he wouldn't do it again? Are you sure we're at the bottom?
There's a staple of the "Dear Abby" letter genre. It's usually a young woman. She is having an affair with a married man, who has promised that he will divorce his current wife to marry her. Her question to Abby or whoever is always, "How do I know he'll stay faithful to me?" Abby's answer is always, "You don't."
I think that we're conflating two differnet behaviors here...those people sufficiently underwater to contemplate walking away, and those people trying to buy something then dump the old over-valued property. But honestly no one has to resort to a fraud if their timing is right here.
What is the big deal with bankruptcy? It's probably the cleanest way and, frankly, is a big reason why the US is so entreprenurial and other countries aren't. There exists here a clean way out with a non-major penality for failure. So you bought a house, the market turned against you, and you failed. File BK. Companies do it all the time.
Are the banks not going to lend to you when the numbers of people in the same boat are so high? I think not. In fact, if there were massive BK filings (as there probably will be) the stigma will be greatly reduced. In fact, someone with a prior BK on their record is a much better risk, especially if you were very clean before it. So if you are clean, you're in over your head, call a lawyer, no need to scam. In a year or two, you get to save what you can and start again when this crap is over. And, frankly, I think you'll see some loosening of th BK laws in a short time.
I think FDR's actions in regard to gold were immoral, taking from savers and distributing to debtors.
I think it's hard to make a blanket statement that it's "immoral" in this case. In retrospect I think a lot of people underestimate the severity of the Great Depression -- the US was genuinely approaching the brink of economic collapse.
Where I believe the danger lies is in looking at this technique (deliberate inflation) as some kind of successful monetary policy as opposed to a last-ditch desparation move that might have lead to a different kind of collapse.
I worry we might conclude that "neutron bomb therapy" is a good first line of defense and thereby prematurely start handing out money leading to a far worse outcome -- perhaps a hyperinflationary depression where we end up without even a currency as a foundation for rebuilding.
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Barking dogs don't bother me but is a sad commentary that fraudsters are making inroads by posting as imposters. This is to be expected from some morally bankrupt individuals who post here. They are part of America and why shouldn't they be part of this blog. There are three Americas moral, immoral and in-between.
I was trying to address the debt forgiveness issue raised above by rhetorical questions.
w, I presume that I will just periodically give a 'sell' order to my Swiss bank, and have the proceeds from the gold sale transferred/wired to my U.S. operating account.
At this point, that's how I intend to operate, keeping 95% of my gold and gold mining mutual fund shares overseas, and selling small amounts over time to fund household operations. I'll keep a stash of 1/10th ounce coins on hand, too, for emergency use.
As U.S. laws and regulations change, I'll have to keep on my toes; maybe we'll have to emigrate if things get out of control here.
But, that will be my primary responsibility in those forthcoming tough times, keeping my family and our money safe.
ac, our Founding Fathers -- brave, moral, insightful men -- would clearly have found FDR's action, confiscating gold and immediately deflating its purchasing power, immoral.
Suppose I'm in a no-recourse state, jingle-mail a house and buy an equivalent house cheaper than the outstanding balance on the old house for cash. Anything illegal in that?
Aren't there pretty big restrictions on grounds for denying a mortgage? If the first house was contracted for on a non-recourse basis, is it even permissible for a bank to deny me the second mortgage after I scrap the first one?
Here's how Colorado looks on the ground from the viewpoint of this Front Ranger.
While making coffee in the morning I look out the window at the empty house next door- that has been on the market for a year with a total of 2 people looking at it. The owner hasn't lowered the price.
I go out for the paper and glance across the yard at the house that's occupied, but has been on the market for closer to two years. I've never seen anyone look at it.
Ah, coffee and newspaper. Lookie here! My town has 1 of every 41 houses in foreclosure. Weld county, less than 2 miles away, has made the top of the country list for foreclosures at least three times in the last year.
My neighbor stops by. He used to be a car salesman, but got his real estate license this October. He had 5 houses listed, and only 1 showing since then. He and his wife are getting divorced, and I hope he can sell his house or I'm going to start looking for zombies and Will Smith.
Oh yeah, my sister just signed papers on a short sale on her house in Gunnison, and my brother in Denver is about to be foreclosed on two properties. (Both well deserved.)
Regarding "principal residence" for purpose of not taxing any "profit" due to forgiven debt. The new law expanding this (previously just applied if the borrower had little or no assets) specifically states that the principal residence is the same as defined in Section 121. That is the section that allows $250k/$500k tax free capital gain; and is defined as being the principal residence of the taxpayer for 2 of the last 5 years.
FDR was an economics moron who got saved by the WW II. The New Deal had failed by early 1939 and the economy was back where it was before the New Deal. BTW, he was trying to inflate by manipulating price of gold. Not much was gained. It was a failed experiment.
You want the extent of America's decline? From George Washington to George Dimwit Bushboy.
FDR was an economics moron who got saved by the WW II. The New Deal had failed by early 1939 and the economy was back where it was before the New Deal. BTW, he was trying to inflate by manipulating price of gold. Not much was gained. It was a failed experiment.
It's unfortunate that because of WWII it's hard to draw any strong empirical conclusions from Depression-era policies.
I also think that makes it a poor choice for someone like Bernanke to use as the basis for his own policies.
We've gotten out of other depressions too. Likewise for other countries (Indonesia being a recent example).
Was deliberate inflation necessary for recovery in these instances?
The subject of renting after foreclosue has come up several times. I have been in the rental business for many years. Renting with bad credit is not really a big problem. In fact, about 50% of the rentals in the USA are targeted at people with bad credit.
Rental units are targeted at 4 levels of customers. level one, no checks of any kind. this is the slumlord level, and provides a valuable market-demanded service. Level two, criminal check. This is the largest level making up about 50% or more of the market. This targets working class poor and young college students. Level 3, credit check level. This is for people with good credit and insures that you'll get a pretty nice place to live. The special thing about this level is that the property owner can sleep at night knowing that if damage is done have can and will be compensated. Level 4, is check everything super luxury level. Very small part of the market. There just aren't that many rich renters in the world. I call this the new york/san fran level.
As someone already said, almost all problems can be overcome with an extra large deposit.
The real problem with going from owning to renting is a school district problem. 80% of the rental units are not in the better school districts.
Sandblaster said: Oh yeah, my sister just signed papers on a short sale on her house in Gunnison, and my brother in Denver is about to be foreclosed on two properties. (Both well deserved.)
This is what happens when you think of housing as an "investment" instead of a place to live. What ever happened to affordable housing?
Ella, lots of people have cash and are not entirely honest. Lots of them are the cash economy people (felons) that we're told need our help in realizing the American Dream.
I think that carrying assets in foreign banks will be too easy for the government to access in a depression. I have no expertise in this, but the way they scour the world for terrorist money means that all they need is access. Foreign assets held by Americans will be vilified as evidence of foreknowledge and conspiritorial intent. Do Swiss accounts operate anonymously? If they are linked to domestic accounts I am sure they will be easy for the government to trace. I just wonder if I will have to travel overseas constantly to bring money home if there is a true disaster. Living overseas probably would be the best solution.
If this were to become widespread then several homeowners would have to become involved. I doubt that there are that many holding a lot of cash. And certainly not enough cash to buy the house outright
Re: put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
Re: "There's been a change in social attitudes toward default. We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes."
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There is lot of economics-malpractice on this blog and everywhere in the financial media. How to identify those who are guilty of economics-malpractice?
Those who havent read, let alone study, Wealth Of Nations and Business Cycles. It is like a rabbi who hasnt studied the Torah.
Here's my dumb question. Lets say you do this little two step in a "recourse" state. The lender on the first loan sues you for the difference between the amount recovered on the foreclosed home and the amount owed on the mortgage. Can they take your new home (or at least get a lien on it) and would their claim to the new home be senior or junior to your new lender's lien on the home?
Was deliberate inflation necessary for recovery in these instances?
ac
AC: IMO you hit the core question.
During the Great Depression, the leaders of the Nations basically had two options:
a) Let the deflation run its course to the bitter end until all farmers and companies were liquidated and workers unemployed.
b) Reflate the economy by devaluing the currency with the goal of getting rid of claims of bondholders
The reason why ther GD was so bad and so long lasting is that government reinflated too timidly. Exception: Hitler's Germany. Hitler set up a gigantic reinflation in 1933. The Reich subsequently outperformed the recovery of the USA in the thirties by a great deal. Now, we know that Hitler's were never sustainably, because all he wanted was to go to war and then repair government finances by looting conquered nations. You could have reinflated as strong as Hitler did, though, also in a sustainable way.
Then, if you gho back in Europe's history you will always find the following pattern post dark ages:
a) government is formed from a war, starting with a new currency and 0 debt
b) government starts to amass debt and never pays it back
c) the amount of debt on the general economy is pushed higher and higher, because the government does not pay in cash, but in IOU's. Imagine if you paid your grocery store in IOUs instead of cash - how long before they start paying in IOUs their suppliers? - Debt is pushed thru the whole economy as consequense of ever-prolonging government debt.
d) At some point the government is bankrupt. Debt is called in a huge deflationary push rattles thru the economy. Very few rich people own all the bonds and the masses become poorer and poorer.
At this point there are only two options: kill the creditor claims or let the deflation run its course. (see the protocol of Chancellor Bruening's visit to Chequers to Mr Chamberlaine in 1931 - they were talking exactly about this. Shortly before the Weimar Republic ceased existing.)
In the past there were many end game variants: all creditors are killed (see Octavian's Proscriptions in old Rome), all debtors are enslaved, currency is replaced, etc.
That's why I believe Jas is completely wrong in accusing bankers - they are only the traders of the government-initiated debt game, not the cause. Goverment indebtness has always been the cause of the long wave cycle.
Currently, we're far away from any end-game. This is IMO about 40-50 years away and will not be so bad. I think we'll see a big & quick currency devaluation then and that's it.
To be more correct, we should not call the system "capitalism", but "debitism". Don't get me wrong: I'm highly in favor of debt, just not ever-prolonged government debt. Without debt, there are just dark ages.
I am untroubled by the morality of these trade-downs. I don't really care about the bitter unfairness suffered by a card shark whose mark turns out to be a rated player.
Whether this is legally fraud or not will turn mostly on the second lender, not the jingle mailer. It would be hard to prove fraud if the borrower says, "My home is on the market now," and it is--even if he subsequently just walks. Only the most loose-lipped, such as our interview subject here, are likely to provide any solid evidence of intent to defraud in such cases. However, it is easy for the second lender to trap the borrower into either an honest admission or outright fraud simply by asking the questions they're supposed to be asking. If loan officers and brokers keep jiving their UWs for the sake of their commissions, well, that's too bad for the bank.
Oh, and can we please stop it with "This will raise rates for everybody!" If you mean, mortgage rates go up when underwriters don't give it up freely like drunken crack whores at a house party, well, maybe they should go up, I don't know. All they have to do is stick to their twelve-step programs and do their jobs, and this "trade-down" strategy really won't become a big problem.
Sandblaster
Weld County is very bad for REOs. I did over 100 REO appraisals there last year, 90% of which were for one lender. Some areas are 50-70% REO among homes sold. Some newer areas are like ghostowns. The market there is very distressed with very little to be optimistic about.
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O-Joe: "That's why I believe Jas is completely wrong in accusing bankers - they are only the traders of the government-initiated debt game, not the cause. Goverment indebtness has always been the cause of the long wave cycle."
O-Joe,
It is better to read the master, Schumpeter, than to listen to Jas:
Finally, EVERYTHING WAS DONE TO MAKE IT EASY FOR EVERYONE TO RUN INTO DEBT, FOR THE PURPOSE OF BUILDING A HOME AS FOR ANY OTHER PURPOSE.
In other words, we shall readily understand why THE LOAD OF DEBT SO LIGHTHEARTEDLY INCURRED BY PEOPLE WHO FORESAW NOTHING BUT BOOMS SHOULD BECOME A SERIOUS MATTER whenever incomes fell, and that construction would then CONTRIBUTE, directly and through the effects on the credit structure of IMPAIRED VALUES [read falling prices] OF REAL ESTATE, AS MUCH TO A DEPRESSION AS IT HAD CONTRIBUTED TO THE PRECEDING BOOMS.
-x-x-x-
IT WAS THE BAD PRIVATE DEBT AND BAD BANKERS THAT CAUSED THE GD.
The next 30 days are going to be interesting, with the results of S&P's rerun stress test due and ACA's 30 day stay of execution up in mid/late February.
From what I understand from the post and comments, is that it is possible to fool the credit system in order to secure funds. If this is true - then I think it is the fundamental problem.
At a fundamental level, the objective of the credit system should be to evaluate the risk of return of principal. If the credit system (credit scores, outstanding debt, history of repayment) fails to provide relevant information to the lender, then lending will break down. Even when you rent, you need to establish proof that you will be able to make monthly payments. If an individual has defaulted on a house or is planning to default on a house, at some point the system needs to ensure down the road credit to the individual is denied or deemed as "risky" - requiring a higher rate of return for borrowed principal. Otherwise, the whole system or borrowing and lending does not make sense to me.
I remember Tanta mentioning in one of her previous comments that - the risk of walking away is that individuals loose access to future credit. Hopefully there are systems in place to ensure this happens !!
1) Lots of us (including Rob Dawg) discussed this very thing well over two years ago. We're far from "stunned and surprised". 2) Prices here in SoCal will definitely decline 70-80%; in fact, just heard about a $750K place sold out of FC for $350K, and we're just getting interesting here. 3) I got rejected from lots of (admiittedly nice) rental properties in 2000 due to an active Ch13, despite offering six months rent up front. 4) FDR's actions regarding gold were patently unconstitutional. No, repeat no, circumstances justify that, period.
I grew up in Weld County. Outside of some feed lot owners, nobody there then could be considered even upper middle class, so I'd be surprised if the median home was realistically anywhere north of $100K. The idea that they were building tons of $300K+ around there (and even along the northern front range) was absurd.
Lawyer Liz - Send the cases here to north Florida. We have judges - especially younger retired ones - looking for assignments (to make a few bucks) - and they can't find any.
Sorry I cannot remember who asked the question - but making a "short bet" based on the muni market is kind of hard. There used to be a muni bond futures contract - but it was eliminated due to lack of volume/interest. There are some new-fangled muni ETF's. But I wouldn't trust them (to go long or short). The muni market is a large highly fragmented not-very-active (in terms of trading) market. It's hard to do anything in that kind of market except buy and hold. Note that are sometimes some arbitrage opportunities for outfits like hedge funds and pension funds (between taxables and munis) - but the players tend to overestimate the liquidity of the market. So occasionally they wind up puking up lots of munis (when their bets go bad). That is usually a good buying opportunity for more traditional buyers.
Question for you people in California. If the laws changed so California became a "recourse" state - what percentage of the kind of shenanigans discussed in this thread do you think would disappear? I'm not talking about people who lose their houses because they lost their jobs - or have huge medical expenses - etc. Just the house stuff where people are trying to "game" the system.
To the person who mentioned leaving the country if X,Y,Z happened (JG?) - where are you going to go if you go? And what languages are you learning to prepare? The Swiss may want your money but they don't really want you unless you are very rich - like Marc Rich. And you wouldn't feel very comfortable there unless you speak German, Italian or French (and preferably 2 of those languages - although German is dominant). BTW - I think it is great to learn foreign languages - even if one doesn't plan to flee the United States. Our language this year is French (last year it was German - and the year before that Japanese). And my husband and I both speak Spanish. Roby
I think it would be a big mistake for anyone to make fraudulent statements on a loan application under the theory that everyone is doing it and there's safety in numbers.
Lawyerliz is probably right in saying that criminal prosecution is unlikely, but even here one runs the risk of being the guy somebody decides to make an example of. A good defense lawyer is expensive even if you are acquitted, and if you are not, the consequences of a felony conviction go far beyond any fines and jail time, especially for white-collar types. (You're going to be blue collar, post-conviction.)
Far more likely, though, is civil fraud suits filed by the lenders, if they decide this kind of behavior needs to be stamped out, regardless of cost. Of course they are not going to come after everyone, any more than the RIAA can go after all the illegal downloaders. But do you want to be one of the luckless ones who winds up in the crosshairs of the lender's legal team? In my experience, banks have some pretty mean legal pitbulls on retainer.
In many if not all states, I believe a finding of fraud could entitle the plaintiff to damages that are some multiple of the actual amount in question.
FTR, there are a few organizations that are in the business of placing the assets of wealthy individuals beyond the reach of most governments, including (especially) Uncle Sam. Their services are definitely beyond my means, but if anyone here is interested I can look up the info.
tj & the bear writes:
1) Lots of us (including Rob Dawg) discussed this very thing well over two years ago. We're far from "stunned and surprised".
It has been a very good week for vindication. It is going to be interesting. In theory credit can be repaired and supposedly things "drop off" after a few years. Yeah right. Welcome to a world where your comments on a blog are google cached and meme tagged and attached to your credit profile. Forever. Interested individuals are encouraged to google James Bolivar diGriz for a glimpse of the future.
"3) I got rejected from lots of (admiittedly nice) rental properties in 2000 due to an active Ch13, despite offering six months rent up front."
I don't know about landlord/tenant law in other states, but in MA it is illegal to take more than first, last & one month-security dep, so there would be no sweetening the deal for people with bad credit as far as I can see. If you try to take more as a landlord, you can get slammed in small claims for the equivalent of 3 months' rent. But then MA has some pretty strict laws in this regard.
Japan Thinks Pre-Bush State Of Union Address has Too Much Lipstick On Ugly Pig!
Monday, January 28, 2008
09:45 - Stocks: Open Sharply Lower On Jitters Over U.S. Woes
09:19 - Forex: Dollar Moves At Upper Y106 Range In Early Tokyo Trading
In its Economic Review, Deloitte predicts GDP growth will slow sharply from 3.2 pct in 2007 to 2 pct this year, and to 1.7 pct in 2009.
This would be the weakest performance from the UK over a two year period since 1991-92, and below Chancellor of the Exchequer Alistair Darling's forecast in his pre-budget report for 2.00-2.50 pct and 2.50-3.00 respectively.
More Industrial Lipstick ASAP......make it look pretty!!!
Rob, so what?
let them google me, after all, if they don't want the truth they should continue to talk with their speechwriters and NAR economists.
Jas aside, talking to pols is always a veeeery delicate undertaking. They have their preferred reality, and if you should happen to impact that with a careless word, they sense you are a threat, and deal with you accordingly.
Very few pols want an honest take on things, that way they live in the echo chamber. If they don't they sound a lot like John McCain, whose biggest problem has always been those pesky unscripted moments which totally drive the mainstream Rovian repubs mad.
Same things are easy to forsee, but how the polity reacts can be difficult. Remember, Rob D, Slippery Jim met his Inskeep. Somebody will put you in the traces before you know it. It happened to me;-}
Here's a link I just picked up from Naked Capitalism about growing prosecutions and civil suits against those involved in mortgage fraud, including borrowers.
Just watched CBS 60 minutes which had a geat piece on the topic of this post. Focused on Stockton, CA, where foreclosures are rising at an incredible rate. Anyone who wanted a 100%+ loan to value loan got one no questions asked. Our close are we to the end--40% into the foreclosure problem. Right now the inventory is 2 years and just about everything that's selling is REO. And the REO investors are mostly waiting for lower prices. I talked about this and related posts to my wife this afternoon. When she watched the CBS segment, she said: " This is just what you were talking about." I guess that the general public, especially in Ground Zero States, is starting to get a realistic perspective on the problem.
I wonder whether CR can get a video of this report on 60 Minutes.
I grew up in Weld County. Outside of some feed lot owners, nobody there then could be considered even upper middle class, so I'd be surprised if the median home was realistically anywhere north of $100K. The idea that they were building tons of $300K+ around there (and even along the northern front range) was absurd.
tj & the bear
When going up and down the canyon roads and sticking to 40 mph(beware of cops) on the Peak to Peak gets frustrating, I ride in Weld County or "the other side of the I25" as I tell my wife as I leave.
I agree with tj. There are still some very interesting farm labourer accomodations one can spot out there - quite sobering. The overbuilding of the exurbs is quite absurd. They've ruined it just as much as Victorville, Apple Valley on the fringes of LA have been ruined.
O yeah and beware of cops. I swear, I really think they use spotter planes - those signs aren't there just for show unlike LA. I've got two tickets in 4 years.
Yes, that's exactly what we heard. We also heard others tell us they'd love to rent to us (given our references), but federal housing laws prevented them from showing any leniency.
Rob Dawg, Misean, TJ, et al.--
Yes you all got it right, and I have faith you'll have further insights. That's why we come here.
I just think it's a little funny that you feel the need to say that you were first. Of course, if I had to wait through this last year of being a target for optimistic critics sniping, I'd probably want to crow a bit too.
And Rob Dawg: Harry Harrison's justification for crime, ranks second only to Fat Tony's explanaton to Bart Simpson.
Weld country has spent the last 5 years putting McMansions up in Dogpatch.
The one piece of this that I have yet to hear about as far as house values goes is water. Highlands Ranch is working off an aquifer that's getting lower by the minute. All those McMansions supposedly turned in a share of BigT, but it's unbelievably overbuilt for the water we have. There was even a megachurch that wanted to be annexed by my town simply because we have a good amount of water rights.
--
"Jas aside, talking to pols is always a veeeery delicate undertaking. They have their preferred reality, and if you should happen to impact that with a careless word, they sense you are a threat, and deal with you accordingly."
Have I ever had any problem with what you say, how you, or why you say, AllenM? I agree, or I disagree, but I never make you the subject.
Intolerant people make posters whose conclusions they dont like the subjects of their comments. Some are even worse by indirectly making posters the subject of their comments. They are dishonest and intolerant. But, that is the world we live in and we deal with. We got to deal with dopes and Crooks at the top.
Obviously, people here demand conformance. I dont demand any conformance from anyone.
just watched the Sixty minutes Kroft job on housing. I would be amazed if the Fed gives any more sugar for a while.
Now the pinch of ARM financing is showing up in homeowners that are totally cul de saced (equivalent of WS pier loans, LOL:-} and having to walk.
New home construction is dead with this kind of meme going mainstream. A lot of future homebuyers were brought forward and slaughtered and will not be participatory in the home owners markets.
That cohort of introductory homeowners will not make an entry into the market as starter replacement buyers. This and the discouraging financing will provide a tremendously delay in the recovery from this debacle.
As I have stated "many" times, we have a real hedge fund problem brewing-
"Unable to extract cash from the once-burgeoning and now- frozen derivatives markets of collateralized debt obligations, institutions are raising money where trading doesn't need an appointment.
We provide a service to people who need liquidity,'' said Jean-Francois Theodore, deputy chief executive officer of New York-based NYSE Euronext, in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland.In troubled times, that's our function.'' "
"As you're liquidating a pool of subprime mortgages not worth anything near par, you may have to take big losses and at the same time sell other securities like equities or investment- grade bonds,'' said Brian Barish, president of Denver-based Cambiar Investors, which manages more than $8 billion.If someone was in a casino and they lost a lot of money, they might have to liquidate personal holdings or savings they had no intention of selling to satisfy those other losses.'' "
"When you've got to raise money, you've got to raise money,'' said Dean Gulis, who helps manage $3 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan.If you own something that's illiquid and not worth as much as you think it is, then clearly something else has to be sold in its stead.'' " Seized-Up Credit Market Spurs Record Stock Trading (Update4) - Bloomberg.com
I wonder what American dopes would do without their beloved democracy. What would they do without the right to give approval to one agent of the Crooks over the other agent of the Crooks? They will suffer from the withdrawal symptoms.
All empires come to an end and it is never an easy thing for some to deal with. Enjoy while it lasts!
Sandblaster:
I live in Colorado Springs, and the housing construction continues...but permits are off 30% or so. But they are still building these $350k homes in huge developments all the way up to where Black Forest begins in northern El Paso County. We don't have that many big employers; there's 3 military bases, but they can't all be officers. So I don't know where these people are working, or they were bought with option-ARM loans a couple of years ago.
Anyway, talked to the dad of a friend of my daughter's last fall. Big house, big lot, camper, ATVs all that stuff. He's in constuction, and he's got a 3% teaser ARM that resets in March, with a $20k prepayment penalty. So his mortage will increase dramatically and he told me his business is off 50% from last year. Not a good combination.
I see many homes here that have been on the market a year or longer...they refuse to drop their price. We're nearing the peak foreclosure of 1989, but percentage wise, it's not there yet. I'm confident it will though.
Jas, they would hustle you out the door so quick your head would spin. Nothing, personal, not targeting you, they just wouldn't even bother letting you get out the beginning of your commentary.
You can't call folks who have no idea that they are criminals when they are just operating in the structure that has evolved over the last hundred years. They just won't accept that it is all their fault.
What they want is a politically easy expedient solution that will play well on the evening news, and solutions to messes like this require long drawn out lousy compromises that are ideologically corrupt to the outside, but allow the system to keep operating.
After all, the system is what the institutions all have a stake in perpetuating, and we also have a large stake. Hectoring them on the immorality of the system puts you in the boat with Thoreau and Emerson, but doesn't really put you in the room with Seward to understand the negotiations leading to the restoration of the gold dollar.
You are being targeted as a troll because you are slinging mud at all of the folks here indiscriminately- and quite frankly, I couldn't tell the difference between the fake and the real, which is one of the drawbacks of the current system of comments here.
Like Rob said, it's not about boasting so much as vindication. Even on HBB people considered us way too bearish, yet we were simply pointing out the logical progression (as techie/analysts are wont to do). The progression continues, but many simply don't want to see it.
Gee, like the people I know that let their house in another state go into forceclosure ( on a 1st and 2nd- total about $70,000 more than the house is worth). They now had the husband's boss buy a house here in the boss' name, which they signed a lease option to buy- the same month they stopped paying the mortgages on their home.
Of course they see NOTHING wrong with this. I fee really bad because I actually hope they get caught. Their actions to me are morally detestable.
Oh, did I forget to mention, they are filing BK in an effort to wipe out the mortgage debt and about 40,000 in credit card debt? Most likely will have to go 13 because his income is too high, and they are now in a bit of a quandry as to how to explain this whole house thingy and the timing of everything. Oh, forgot to mention too the boss put down 50,000 of his own money to buy the house for them. Of course,he signed the paperwork as being owner occupied.
I can't wait until the trustee sees all of the paperwork.
Any opinions as to what will happen? I'm thinking an adversarial motion maybe.
All, I'm playing around with the Haloscan template.
Best to all.
Intentional foreclosure. Jingle Mail. Negative Equity.
The Bongwater Put.
What is wrong with exercising a put? Ethics aside, if it is legal and you come out ahead why not do it? Investors simply mispriced risk so they lose.
This could make for a very interesting few years. I can only imagine jinglemail was not an option in the RMBS models...
It's comforting to know that they can buy a new house before they let the old one go back. Heaven forbid they should have to choose between getting screwed or renting, like some of us.
We also may need a term for "rogue traders" who have gone on the lam.
taking a "trader holiday"?
CR, with the name of the poster both in the old style AND at the beginning of the post those that have chosen to adopt FireFox + Greasemonkey + Killfile can continue to screen posters. When the name is not shown at the bottom of the post(old way) my screening script is rendered useless. Just FYI.
I like the name before and after!
In sonoma county we were 25% off the peak in december.I wonder if Trump will have a new series of seminars,after all he has gone BK a couple of times.
Testing. The standard comment footer seems to restore the greasemonkey functionality. Not a single thing by our resident bore is getting through.
CR
Killfile appears to be working again.
The script needs to parse out the user(kinda like you picking out the noun in a sentence):
Name | Homepage | date-time | #
What was happening, and F.Fred pointed this out in the prior posting, was that the input couldn't be parsed when the | symbol was missing when a poster didn't enter a homepage:
User writes: date-time | #
Thanks CR!
Lenders will need to come up with a guideline so they can tell when a borrower might be trying to jingle downsize.
Shortly thereafter, the loan officers will figure away around this new jingle down guideline.
So much fraud - so little time.
CR everything works fine on Firefox on a mac. Looks good. I like this one the best FWIW...
EPD:
It truely is a game of chess. I suspect(hope) that lenders will catch on, but remember that there are still not holding these loans....so....some accountability needs to show up quick.
What is wrong with exercising a put?
There's nothing wrong with exercising a put, unless you don't really have one.
There is no "put option" in a mortgage loan. There isn't.
We use this term to create a kind of analogy to bonds or derivative instruments that really are puts or have explicit imbedded puts. But confusing an analogy with a literal description is a problem.
Your mortgage note has no put option in it.
What we are calling a "put" here is defaulting on the debt. Of course that's legal.
However, buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud. That is not, actually, legal.
I explained that one a while ago. You are required to fill out the part of the application that lists real estate you already own. You must put the value of the property you own as well as your current loan amount, and you must disclose whether the property is pending sale, sold but not yet conveyed, or a rental property. If you lie and put an inflated value in there so that the new lender on the new loan doesn't realize you're upside down, you are committing mortgage fraud. This is not a question of whether you will be caught or not. It's a matter of you signed something with an untrue statement in it.
This could indeed be a very bad negative feedback loop. If this takes hold, how do you stop it? What causes the negative feedback to end?
Must admit I'm glad I'm renting -- this will be a very bad trend for homeowners if it really takes hold.
Kp, F. Frederson, great. Thanks to r0m30 for his suggestions.
On the post, I've seen this before (in the early '90s in California), but on a very small scale. I was surprised then - but it doesn't surprise me now. In a discussion with Peter Viles at the LA Times, he suggested that a poll taken 6 months ago would have been overwhelmingly opposed to homeowners walking away - his recent poll suggests many people think it's OK if it makes sense (financially, legally, etc.)
That is a significant change in attitudes in just a few months.
Thanks to everyone for the Haloscan suggestions.
Best to all.
CR,
You forgot the "moral hazard" label.
When I first annoyed everyone by predicting this would happen I was greeted with skepticism at best.
The next thing to worry about is "not-foreclosures" those where people stop paying but the banks are not in any position to do anything about it. Either they are overwhelmed or they are tacitly abandoning their claim for now or too afraid of portfolio impairment by actually foreclosing. There might be a business in this someplace. Can we set up a company, call it "Strong Arm Note Remediators" where we buy a note for say 60¢ on the dollar and do what the bank would not or could not?
Yes, well, everyone was saying, after the dot.bomb debacle that houses were INVESTMENTS. In reality they are consumption goods...long term consumable.
So, the rat basTARDS are now walking away. What a shock.
Cheers,
Would any new appraised values discovered in the loan app process have any repercussions outside of the specific loan app process?
Tanta,
I read most of those posts the other day but couldn't keep up. I was wondering what you thought about just walking away and renting for a good long time. I'm not looking to start an ethics discussion or thread war but I'm interested (and highly respect) in your opinion as a compassionate banker.
Tanta,
What are the penalties for mortgage fraud? Is this a federal or State crime? The last question I guess is are their enough court rooms and
prisons to even attempt to prosecute it?
Can we set up a company, call it "Strong Arm Note Remediators" where we buy a note for say 60¢ on the dollar and do what the bank would not or could not?
The bank would probably be willing to do it if the loss were only 40%. If you offered to buy a lot of these notes at 60 cents on the dollar, they'd be taking advantage of you.
Tanta, it is definitely worth repeating that the CBS story amounts to fraud - the fictional "Bob" in the story is using his good credit to buy the house across the street, and is not disclosing his pending "intentional foreclosure".
I guess this is another round of fraud for housing - something that is illegal, but probably won't get prosecuted.
Best Wishes.
Rob Dawg,
I was singing jingle mail back in October.
Cheers,
--
TANTA: "However, buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud. That is not, actually, legal."
Legalism is a morally bankrupt philosophy.
Can't a person who owns a home buy another for any reason as long as he qualifies? Do people need to make public their intentions? Only dopes would do so and even they have a good chance to get away with it as long as they don't lie on the application to buy the second home. Am I missing something?
I ignore the theories and look at the practices. Americans from top to bottom are trying to gain by screwing others. Making use of the opportunities provided, a very American thing to do.
The big question is: Who provided the opportunity to screw others? The American System as constructed by the Crooks working with OPM.
Jas
Rogue traders on the lam = PerpWalkabout
everyone was saying, after the dot.bomb debacle that houses were INVESTMENTS
Right.
Like the house you buy today is magically going to go from being a place where you live to a place that's also able to provide medical care and produce large amounts of gasoline for your car as well as food for your mouf.
When people talk about their house as investments, I always ask "What does your house do today that it didn't do 10 years ago?"
We got into this by fraud, and, by god, that's how we'll get out.
I understand that the bankruptcy laws changed sometime in the past decade to make it more difficult for the bankrupt to walk away from debt.
I'm not familiar with the bankruptcy code (god help the poor attorney who is), but it would seem to me we're going to see a huge jump in bankruptcies culminating in a political revolt by the bag-holding class.
Lots and lots of fraud (on both sides of the suit) will be uncovered if the bankruptcy courts get involved.
Nastier and nastier.
What are the penalties for mortgage fraud? Is this a federal or State crime?
In most cases, it's both.
It is a federal crime to induce a federally-insured lender to make a mortgage loan by means of fraudulent declarations. It is a federal crime to do the same thing to any lender if you are trying to get them to give you a federally-insured loan.
So basically, the only time it isn't a federal offense is if the lender is not a federally-chartered depository, is not owned by the holding company of a depository, does not use warehouse money supplied by a depository, and the loan is not GSE or FHA or VA.
However, if you manage to avoid having committed a federal offense on that ground, you can still get in trouble with the feds if anything was a matter of interstate commerce. Lots of these fraudsters end up getting prosecuted for wire fraud, for instance. If the lender and the title company are in different states, you just wired money across state lines for fraudulent purposes, so bingo! the Feds can go after you. You also see a lot of mail fraud charges (same concept).
It is extremely difficult to construct a profitable mortgage fraud scenario that is federal-proof.
..You are required to fill out the part of the application that lists real estate you already own
What's interesting is that in the past a lot of speculators/investors were trying to game the system by buying several properties simultaneously. They wouldn't list the other properties and, if timed correctly, they wouldn't show up on the credit report (or QC credit report pulled later). There would be inquiries on the credit report but these were often not really investigated thoroughly enough. In today's world the level of due diligence is much more thorough.
I'm not sure how viable an option the type of house swap scenario here really is.
Rob Dawg | Homepage | 01.27.08 - 1:05 pm | #
You're a Cassandra. Okay, well, she was right, after all. Fraudulent situations aside, the part to me that was interesting is the tipping point. If enough people are having foreclosure happen to them, then it loses its stigma, and people who would normally have fought tooth and nail to stay up-to-date on their mortgage payments start to rethink their "options". As more choose to not make payments and slip into foreclose, others begin to reconsider. Prosecuting fraud will help slow the process, but some who are simply falling behind and not trying to leg into a lower-priced house in a legally questionable manner, will eventually choose to stop making payments.
What does anyone think about legislation appearing on the table that tries to change the rules about foreclosing and bankruptcy? I'd imagine it differs from state to state and if this gains momentum the banks will want to put a stop to it. I can't see this going on without a fight.
Maybe the next guest post should be from a lawyer..
"We got into this by fraud, and, by god, that's how we'll get out."
What a great line!
Intentional foreclosure. Jingle Mail. Negative Equity. All terms that could be common in 2008.
Likewise for "rotor blade" and "turbine engine".
I just installed greasemonkey and killfile on Firefox and it works to eliminate the posts of "he who shall not be named." Great! I highly recommend it to all. Just google "firefox greasemonkey" and install it. Restart firefox and then google for "firefox killfile" and install the script.
Every post will contain links to either kill or hide the comment.
I love the new format and greasemonkey + killfile has been a revelation. Thank you all for the wonderful education.
I can now go back to reading the comments in peace .... errr .... reasonable unease.
(longtime lurker)
CR,
"I guess this is another round of fraud for housing - something that is illegal, but probably won't get prosecuted."
Then it was just a put on further appreciation.
If many hold this view, the the losses projected are just the icebergs tip.
Cheers,
Bongwater Put... Brilliant!!
The fact that the high finance boys get away with fraudulent practices more often than we would like does not in any way give homeowners moral or ethical license to try to defraud the system as well. Once a critical mass of average citizens believes that doing the right thing is for chumps, civil society no longer exists.
A large percentage of people who took on these ridiculous loans thought they were getting something for almost nothing. TANSTAAFL still applies, and always will.
I second Nades, BTW. Everything looks and works great on my end.
Buying the house across the street and defaulting on your original house will be very hard to procecute. We are now talking about the thought police unless the fools spill the beans before they pull off this scam. This is different than lying about a material fact on the documents, that is just plain fraud.
It's often the case in California that it's very difficult to rent with a foreclosure on your credit report. Most landlords check credit reports and won't rent to tenants with poor credit. (At one point I noted to a homeowner who sniffed that one of her neighbors "only had to make the rent" that tenants needed better credit to rent than borrowers needed to buy.) So an upside down borrower is well-advised to buy another house before letting the first house go; otherwise the family may be camped out with relatives for a goodly long time.
CR et al.,
How long did it take in the 1990s downturn from the start of price declines until the time "jingle mails" were common practice?
Thanks, O-Joe
I was wondering what you thought about just walking away and renting for a good long time.
Let me put it this way.
If you want to think that your mortgage note gives you an "implied put," then you must conclude that it has an implied option cost.
Call the lender and ask if they'll take deed-in-lieu plus some one-time cash payment from you as an "option fee." The lender can say yes or no to that.
But anything else is frankly "default." I am not trying to be all moralistic about default; I just think people need to call a spade a spade. These aren't "not-foreclosures." They are foreclosures due to default.
Unenforced laws are not deterrents to behavior.
They actually just created an incentive for this when mortgage debt forgiveness became non-taxable.
spam, I agree... it seems to be what 'they' want!
"They cannot stand to consider another's point of view, especially when that point of view is rationale and superior!"
You'll generally have more success making your point to whoever "they" is if you're not boasting about your own superiority.
Misean,
Yes, I remember your dulcet tones in that catchy rendition way last year. You might enjoy this entry from my blog dated Sunday, December 17, 2006:
All That Was Old Is New Again
Someday, say about Jan 12th when the banks start getting keys in the mail instead of checks there's gonna be some confusion and running around. Hold off for a minute that you can't really mail the keys back, the people that will be doing this don't know that. So, the junior loan processor talks to the loans supervisor who gets the senond vp of consumer credit accounts to come down and look into this pile of keys where a stack of checks should be. After a minute of scratching his youthful full head of hair he says; "Hey, is old Smitherers still around? You know the guy that was with the company 7-9 mergers/takeovers/aquisitions ago from that company that used to lend their own money out to the community and the community would deposit their money with them? I think it was called something something b-a-n-k." "He is? Good, get him up here and see if he remembers." Crotchety old Smithers is actually an ancient 49, his hair has a funny whitish tone in places. The whole tableau resembles the final scene of Logan's Run. Smithers looks at the pile of keys, the upturned faces full of botox and worry and says... "Oh, 1991 except faster and deeper and longer. About time. Hmmmpf." Reaching over to the wall he scrapes away posters announcing in-house education classes for tapping 401ks, cash back at closing seminars in Maui, HELOC loans at the local Hummer dealership to reveal a door. Painted over and nearly invisible only the faintest outline of the name "Repos and Dispensations" is visible. As the seal is broken, like on an ancient tomb, a whiff of Aquanet and Grecian Formula curls the nose hairs of the onlookers. Smithers bursts in to a room full of sleepy 50 somethings and says "breakout the bong and disco ball fellas, it party time once again!"
Historians may note this may be the earliest recorded reference to bongs in the history of the great housing unwind.
It is impossible to escape the ignorant blather of Americans. They celebrate being dopes!
At the gym yesterday a couple of sniggering morons said to me, "Nice stretchy pants, dude."
Americans are the most insecure race on the planet! They are as uncomfortable with raw masculinity as they are with a powerful intellect.
Thanks Tanta!
Always grateful! Michael.
How long did it take in the 1990s downturn from the start of price declines until the time "jingle mails" were common practice?
Thanks, O-Joe
Optimistic Joe
ur not worried r u OJoe?
When does this start happening with CRE??
Its a tough time for some to be an office building owner. Local brokerage CB Richard Ellis released its fourth quarter report showing the office market had a vacancy rate of 15.2 percent.
The underlying fundamentals of the Las Vegas economy remain strong, but the combination of the subprime crisis and overbuilding of office properties have created the perfect storm, causing substantial market softening, says Craig Shute, managing director of CB Richard Ellis Las Vegas office.
In 2007, 3 million square feet of space came on line, up from the 1.2 million Las Vegas averaged since 2000. That expansion isnt expected to slow down this year with another 3 million square feet hitting the market.
Business and Economy - Las Vegas Sun
I like the comparison to corporate accounting. Corporations can make aggressive business decisions to boost the value of executive stock options and if the gambol turns negative there can be a balance sheet write off. Why can't the individual do the same.
I feel maybe business should even be held to a higher standard.
Jebus Jas,
Do you really think your pontifications are that important. Soap box time is limited...step down let someone else up.
Shnook
YouTube -
Cheers,
Help.
that was the first time i tried posting with italics. used required symbols in front and back of Ojoes comments but it italicized my comments as well.
Leaving the morality to the moralists, and law to the lawyers for a moment, the concept of trading houses with your neighbor to slough off the depreciation still cracks me up.
Rob,
ROFLMAO...and I do read your blog.
Cheers,
--
Did someone post above from prior threads yesterday? Is that you, Tanta?
At least have the courtesy to let people know that it was a repost.
People show their true colors when they are challenged. Also, I see lot of happy people congratulating each other. You are welcome!
Jas
the concept of trading houses with your neighbor to slough off the depreciation still cracks me up.
It actually mostly just cracks up mortgage underwriters, too. I'm guessing that more than a few of them are chuckling as they see these deals come through (and still chuckling when they deny them or condition approval on sale of the current home).
O-Joe asks --
How long did it take in the 1990s downturn from the start of price declines until the time "jingle mails" were common practice?
In Denver, the 1980s HUD crisis began in 1986 -- prices hit bottom in 1990, and didn't recover until 1996. Jingle mail took a year or two before it became a common phenomena.
Now, in Denver, the HUD crisis was preceded by the crash of the energy industry, followed by commercial real estate, then industrial real estate -- residential real estate was the last to crash.
But it took a full 10 years for the cycle to play out.
The difference back then was the homeowners had lost their jobs, and couldn't pay their mortgages -- most folks who had jobs rode out the upside down value cycle.
Time for a new show on HGTV called FORECLOSURE. All these neat tricks can be documented in a weekly hour long TV program.
used required symbols in front and back of Ojoes comments but it italicized my comments as well.
Either you didn't use the close-italic tag at the end (you left off the / in front of the i), or you mistakenly closed something other than italic (you typed / b instead of / i).
I've done both of those things in my time. It's just a fairly spectacular form of the old typo.
Re: people that have otherwise had the capacity to pay, but have basically just decided not to because they feel like they've lost equity ..
American Zombies are up all night wishing and praying for easier ways to make money, as they look at real time stock markets all day long, just as The Fed did last week! Ben baby was gaming the market and he didnt want his chips to fall too far, like a 5% drop in his portfolio was the end of the friggn world.....that was a criminal act and that was collusion and that is corruption! He should be out of there and if any Americans are left that are not addicted to vampire blood need to stand up to this crap!
The population is not playing the same game that Grama and Gramps played 50 years ago and when literally everyone refinanced after 9/11 probably every mortgage in America was re-written and tossed into a software pooled pile of junk that morphed into underwritten synthetic trash -- which was garbage in and now garbage out! What did these fools that packaged all these derivatives think, people were going to sit in houses burning cash?
People sure as hell dumped stocks in the dotcom bubble/crash, and these are the very same daytrad'n fools that at the heart, soul and core of the The American Houseflipper Society; this is not an ownership society as dreamed up by The Bush Coup, its The Mont Carlo Society!
Do I have to keep draw'n pictures for people?
I think the Peter Viles survey needs to be read and interpreted with some care.
First off, it was a volunteer response survey by readers of his blog, so the survey sample is skewed toward actively engaged critics of the bubble and real estate investors. Mind you I said skewed towards . . . not composed 100% by such people.
Second, even in Viles' sample, which does show a shift of attitudes in his pre-selected pool, there is still split opinion.
We need to remember that most people will probably continue to feel shame about foreclosure. And the great majority will not be able to game the system through foreclosure.
I would propose a two-pronged general approach:
On one side, prosecute the fraudsters up and down the food chain. Going after the big fish is crucial to cleaning up future practices, but it is also necessary to prosecute some of the small fry individual buyers who lied and cheated against the law. Not all can be prosecuted and probably not even most, but a gesture in this direction will have a demonstration effect for the future.
On the other side, bankruptcy laws need to be reformed and loosened to ease the way for the relatively more innocent individual owners to experience bankruptcy. Letting the small fry who didn't commit big crimes off the hook will lubricate the process of working the bad debt out of the system, and that is what is necessary.
It will take some years and there will be pain. Some of the pain must be taken by bing lenders and financiers, and some of the pain for individual owners needs to be softened
so that we get through this more quickly and sanely.
Joe
idoc you need to close the italix and not with the same set of characters. similar. I cant type them cause it will mess up my post but put a "/" before the i on the closing set.
give it a try!
test
test
thanx guys (and gal)
Credit is still way way too easy if people can pull this off. Let their current house go so they can buy a different one that has been discounted through the forclosure process. I don't think this angle will be available for long...
On one side, prosecute the fraudsters up and down the food chain. Going after the big fish is crucial to cleaning up future practices, but it is also necessary to prosecute some of the small fry individual buyers who lied and cheated against the law. Not all can be prosecuted and probably not even most, but a gesture in this direction will have a demonstration effect for the future.
His name is Casey Serin and instead of a perp walk the little toad was a featured guest on the Dr. Phil Show last Wednesday.
ur not worried r u OJoe?
idoc
Hi IDOC,
Other than about the general economy, I concur with CR that the RE downturn may not be over for another two years (with strong regional variations, of course). I don't expect any more big declines, but still try to find out a good entry spot.
BTW I heard in the Denver, CO area prices actually start rising again? I may have a new job opportunity there. Any thoughts?
O_Joe gobbble up all the Denver real estate you can get your hands on, buy now before you are priced out forever!
There seems to be a significant element of herding in the rising tide of jinglemail, not just in terms of simple joining as in, "I see others are doing it now too so it's okay" but in terms of defense as in, "larger numbers moving in the same direction will mask me from, or actively confuse, predators (legal agencies)."
Of course herding was probably a significant element in creating the stampede (bubble) in the first place but those who were getting 'cut out' are finding ways to rejoin now, or so it would seem.
Interesting; like the current political scene, however bad you imagined it was, it's actually worse; anyone who thinks SoGen lost 4bil because of a single rogue trader or that unwinding his trades was the primary cause of an equity futures panic or that the Fed made a major, unscheduled rate cut because of that panic needs to lay off the bong-water: There's a stampede in progress but it's barely begun and Buffalo Ben & crew are trying to turn it before it gains too much momentum.
DO NOT FEED TROLLS.
Re: "We got into this by fraud, and, by god, that's how we'll get out."
No problem can be solved from the same level of consciousness that created it.
Albert Einstein
We can't solve problems by using the same kind of thinking we used when we created them.
Albert Einstein
Insanity: doing the same thing over and over again and expecting different results.
Albert Einstei
--
Is this blog turning into fraud?
Because someone is posting as Jas Jain who is not I. I hope that this would be stopped.
Cowards don't play by the rules.
Jas
Re: "We got into this by fraud, and, by god, that's how we'll get out."
No problem can be solved from the same level of consciousness that created it.
Albert Einstein
We can't solve problems by using the same kind of thinking we used when we created them.
Albert Einstein
Insanity: doing the same thing over and over again and expecting different results.
Albert Einstein
Sounds like we're going to have to resort to "superfraud" instead.
I cannot believe that someone in a negative equity position has enough money to qualify for buying a second house (particularly across the street). In the instance cited the mortgager would basiclly know the value of the existing property. It seems to me that the only way to make this happen is to inflate assets in some way- i.e. misrepresent one's worth or better said-fraud.
I have found the solution to this messs:
The Superfund law was created to protect people, families, communities and others from heavily contaminated toxic waste sites that have been abandoned.
Superfund - Wikipedia, the free encyclopedia
OJoe
man, ur actually starting to sound rational. i wouldn't touch any RE in Denver at this time. the trend is still way against u. but i understand the urge to bottom feed. i just won't be willing to look until next yr at the earliest and then only if the surrounding landscape looks better than it does now.
one pt i thought i'd pt out to those invested in SRS. one thing that may be happening is that as FFR drops investors r considering REITS for dividends yields. i don't believe its valid considering the defaults that r happening now and will escalate in the near future. my plan is to wait for the FOMC rate cut and see if SRS drops anymore before adding to my position. i think we're seeing yet another opportunity to get in. i did add a bunch thru Wed, Th runup last wk.
i also had an interesting conversation with a former investment banker friend yesterday who said that pension plans r NOT big holders of muni bonds as some here have suggested due to their inherent tax free status. he felt that the biggest holders would be Mom and Pop investors and tax exempt money mkt funds. being the short seller that i am, i'm trying to find the entity most exposed to this mkt as the next short. comments?
You cannot defeat me with words, and so you must turn to deceit!
Again, further proof that Americans are lazy, stupid and criminals!
CalculatedRisk writes:
'On the post, I've seen this before (in the early '90s in California), but on a very small scale.'
Remember also after the 1994 Northridge EQ, MANY people in SoCal were walking away AND taking insurance money with them, sometimes by faking the insurance companies out by making phony deals w/ contractors who never did repairs according to fraudulant repair 'contracts', who then gave money back to the walker after the jingle-mail scam on the damages properties.
--
Misean,
First, you purposely misspell my name and then you have the gals to tell me how to behave.
People who themselves dont know how to behave telling others how to?
Your mama never taught you manners?
Jas
Jas
The problem with mud wrestling with a pig is, that, after a while you realize that you are getting filthy but the pig is enjoying it.
Whos the pig?
Why cant we all just be like this??
Maria Sharapova^Ana Ivanovic - Google Search
... Why cant we live in utopia and run around naked and sit in the sun all day (and night like Doc
, eat grapes, drink wine and relax, play a little tennis, do some blogging, drink a little wine, sit in the sun? Why does this world have to be run into the ground by money grubber pigs (insert pig icon here)
Here is a very interesting story about economic disparity as it relates to changes in society:
Debate: Does Global Inequality Fade as Global Economy Grows? Hong Kong tops
January 24, 2007
Debate: Does Global Inequality Fade as Global Economy Grows? Hong Kong tops « oceanflynn @ Digg
This annual index cites Adam Smiths The Wealth of Nations in 1776 as its foundational theoretical framework and measures ten variables, such as the ability to do business, property rights, corruption and labour freedom. The average score (0 equals repressed, 100 equals free) was 60.6%, down slightly from last year but the second-highest since the survey began.
As I indicated before, some form of walking away is financially sensible. Isn't that why lenders traditionally required a healthy down payment?
I had also asked how one could legally structure a deal.
It seems the looming reality for the lenders is that the paper is going to get marked down anyways if it hasn't already. Perhaps the most practical way out of this is to rewrite the notes at the current home value. The money is gone. Someone has to eat it. Why should a borrower with a non-recourse loan eat it? And yes, these lenders basically wrote puts at the strike price without collecting adequate premium. Look at it another way, at least this time it's our own citizens screwing the banks et al rather than foreign countries.
Again, further proof that Americans are lazy, stupid and criminals!
Jas Jain
Jas,
I'm not sure how you became blinded with self-hatred, but I can assure you: your picture of the USa nad its cizons is wrong. I grew up in Germany and have also lived in France before coming to the US. From both earlier experiences it was a step ahead. I'm not saying that my fellow-Germans are a bad people, it's quite the contrary. But wherever I went in the US, people have been even more helping and open. Also, the degree of self-reliance and ressourcefulness is absolutely higher here.
O-Joe
I have a hard time believing this is a long term viable strategy to have your cake and eat it too. I mean there's two choices, either fill out truthfully and that should be pretty easy to reject. Door number 2 leave out some material information and commit fraud.
Start clipping a few of these guys early and you send a message that wasn't sent in the first wave.
Tanta,
I think you are missing the point.
There is no fraud necessary, if the second loan in itself is valid.
Imagine someone with 50% cash in the bank for the second buy, needing only 50% financing. On the first buy he is upside down. Why should the second lender care? There is no lender's guild forbidding the loan, I suppose.
These things happen all the time with companies. It is only new in the housing sector.
I think Tanta's argument is only half right. You can't make false statements about what you own on a mortgage application.
But if you fully expect to pay off the mortgage you are applying for, that mortgage application is not fraudulent.
Tanta, you can't retroactively create a fraud on a prior mortgage application because you subsequently see another buying opportunity.
The kosher way to disclose this would be to say that you plan to occupy the new house and try to rent out the old. In fact, you should probably attach that statement to the ap in writing. If you are then unable to rent out the old house on decent terms, well tough. No foul. But you would probably need to show that you tried.
The Fed is encouraging this behavior with low, low rates. You really could swap your primary residence into a house across the street with 80% LTV and a 6% fixed rate 30-year mortgage, and rent out your underwater house for a year or two before letting it foreclose, and come out way ahead. That would not be a fraud, would it, Tanta?
You cannot accept the fact that I am superior to each and every one of you.
That is your problem, and that is what is wrong with America. It does not know its betters.
--
Buyers beware!
Some fraudster is posting as Jas Jain.
I am sorry to disappoint many here but I don't like all the attention.
I simply want to focus the searchlight on real Crooks and evildoers in America. And the real problem that America faces born-and-bred dopes produced by the Great American Dope Factory. Baby Doomers are the first batch from the factory.
Jas
"If you lie and put an inflated value in there so that the new lender on the new loan doesn't realize you're upside down, you are committing mortgage fraud."
Tanta,
How can someone lie about this? Doesn't the loan officer have means to check the accuracy of the value/terms of the current loan? If you state you are renting it out won't a loan office ask for receipts? If you state you are selling the house won't the officer ask for a RE contract? As for the current value is the average Joe expected to know what the market value of his existing home is? That is why we have appraisers. How can Joe be held accountable for something he is not trained to know? I would assume it is the responsibility of the loan officer to decide the value of the existing home value.
So mr. mortgage buyer big wheel trader (MMBBWT) decides he will buy a new cheaper home across the street and walk out of his overpriced mortgage by committing fraud on his loan application. So mr. mortgage buyer big wheel trader still has the equivalent home and is paying less for it and his payments are less. Mr. mortgage lender big wheel trader makes some fees on the new mortgage he has sold. Mr. mortgage lender big wheel trader (MMLBWT)also would now have a property that was abandoned that he could now sell on the market and create another mortgage with less payments than before. So Mr. mortgage lender big wheel trader is getting two mortgage payments rather than one if that property across the street does not sell because the fraud is not allowed. So we have a mortgage market built on fraud and perpetuated on fraud. That fraud is now by the MMBBWT but with only a slight amount of effort MMBLWT could find out if MMBBWT has an existing home and what the terms and value of the existing home is and the amount left to be paid on the mortgage.
That sounds like work for the MMLBWT and it might eliminate a new mortgage fee.
This is not financial engineering. This is fraud. A Ponzy.
There is a ways to go to straighten this mess out. It is only the beginning.
This is exactly what I saw many people do during the late 80's, early 90's in New Jersey. And I'm sure it was happening elsewhere, too. This was back then when there was a taboo about BK's and foreclosures. I'm guesing that the more this gets talked about, the more people will jump on the idea. And why not? Property values keep sinking and there is no end in sight. It makes financial sense.
Rich, the point is most lenders would probably reject an applicant out of hand if their purpose getting the new loan was to purchase a new house that they plan to live in whilst renting out their current home. I mean rental rates and housing prices have been out of whack in most of the country for quite some time, not a lot of money made purely from renting something out.
In business school my finance professors taught the one way for company management to value payments on the corporations bonds was to look at them as buying call options on corporate assets.
Jingle mail seems like the little guy's application of high finance.
Did you not hear me?! A fraudster is posting as Jas Jain.
How can this blog make a pretension to seeking truth when a fraudster is running amok?
Well maybe the Fed can cut rates by the summer down to .ooo5% and then the Treasury will send increased checks to people...say $10,000 for starters... on the condition ...NO MORE JINGLE MAIL PLEASE....on the basis that you are scewing up our economy.
Then things could be back to normal.
Re:CRE
It is getting realy ugly in Florida. Like I mentioned a long time ago, I wouldn`t be surprised to see 70-80% decline in prices.(from the peak). In residential real estate I see a few bank repos listed for less than 40% of the last purchase price. Not a good sign. And IMO we still have a long way to go.
Jas,
Please tell me where I misspelled your name:
"Misean writes:
Jebus Jas,
Do you really think your pontifications are that important. Soap box time is limited...step down let someone else up.
Shnook
YouTube - ? v=XCb9lh3nVd0
Cheers,
Misean | 01.27.08 - 1:30 pm"
Cheers,
Norka, that's called the merton model and the correct interpretation is that the equity is a call option on the firm's asset with a strike price equal to the value of the debt.
This is not the equivalent case.
Jas, you have indeed gotten totally shrill with folks that would be somewhat sympathetic to your viewpoint.
In the ten years I have seen you on the internet, you have changed, gotten hectoring, mean, and somewhat ridiculous.
Why?
Think about it.
Now on to the main part of my comment. Tanta, what happens when folks in the mortgage industry allow or even encourage a vampire loan? So the borrower is technically dead on some other real estate- if they disclose it and state their intention to "rent" the prior property.
Now that skirts the legality part, and the lenders do need to do transactions.
Someday this war's gonna end...
Adelphia, Enron, Worldcom, etc. all led to Sarbanes Oxley and the photo-op perpwalk. Then, in a sense, fraud was contained to the management suite.
Again, the attitude comes from the top of society, from our corporate and government leaders, which is: Lying is OK if you call it spin. Ignoring evidence is OK if you do it in the name of patriotism or profits.
What did our leaders expect? And all the perps still have 12 months of non-intervention by the SEC, Justice Dept. & OCC to cover up all their tracks. We are all sharks now, and if you are not, you are leaving money (and your retirement) on the table for someone else. This is one, big bad pendulum and it is picking up disquieting speed.
"hectoring, mean, and somewhat ridiculous"
No, I have not changed. Perhaps it is every one of you who has changed into dopes and worse.
The truth sets you free. I am simply telling the truth, but dopes will not listen.
Isn't it rather common to buy a new house prior to selling the old and be upfront about your intentions to live in the new house. This is commonly done for people "trading up" or for people moving to a new location.
It would seem to be very hard to prove that the person intentionally stopped paying on the second home. Especially if they kept paying for a year or so after they bought home #2 at large discount.
For this not to occur it would seem all mortgage brokers and bankers would have to be 100% ethical and not just trying to line their own pockets at the expense of some of their peers. What are the odds of that happening?
Misean: A general consensus that feeding trolls encourages them was developed yesterday. See Calculated Risk: Commenting for details.
Funny that no one here has mentioned the federal tax law change that eliminates the tax liability on forgiven debt. This is a toxic combo of attitude change(i.e walk away) combined with no tax implication. My hunch is that the the new fed policy will turbo charge the foreclosure situation (another unintended consequence of gov't intervention).Further, since I think that this tax provision has an expiry date, one can only forsee a dramatic pickup in foreclosures as the date approaches.
One thing I find amusing is that a lot of folks who are "successful" using this strategy will end up with a house that loses a lot of value.In the sacramento area I do not think the economy will support a median price above $200k,at best.Also I think prosecutions will be based more on mail and wire fraud which are simpler and easier to prove than Mortgage fraud.I seem to recall the penalty for Mortgage Fraud is 10 years in the federal pen,which does not sound like fun.
Ministry of Truth writes:
Buying the house across the street and defaulting on your original house will be very hard to procecute. We are now talking about the thought police unless the fools spill the beans before they pull off this scam. This is different than lying about a material fact on the documents, that is just plain fraud.
Who is going to want to prosecute?
Option 1:
Home Owner goes into default on House 1. Bank loses money on House 1. HO buys House 2 while in the middle of foreclosure. Bank finds out, prosecutes. HO loses House 2, bank takes loss on House 2. Bank now has two REOs on the books.
Option 2: Home Owner goes into default on House 1. Bank loses money on House 1. HO buys House 2 while in the middle of foreclosure. Bank finds out, ignores situation. HO keeps House 2, bank makes money off of HO sending in the mortgage payment. Bank has one REO on the books.
I think the banks will take Lose-Win over Lose-Lose any day of the week. It may not be legal, moral or ethical, but it's the way things work now a days.
Anonymous writes:
Misean: A general consensus that feeding trolls encourages them was developed yesterday. See http:// calculatedrisk.blogspot.c...commenting.html for details.
Anonymous | 01.27.08 - 2:17 pm
Oh come now, I only fed Jas a shnook video. It's not like I'm feeding O-Joe and Gary.
Cheers,
Hard to believe that the moral vitality so hard to locate these days will make a reappearance and transform the Morass into the Utopian pasture one imagines in those gated communities in the Carib.
Regs that allowed HFs managers to net as much as $1.7B without interference from the SEC or other regulatory agencies serve as a model (like our President) for the behavior of the rest...the comparatively (and absolutely) underprivileged people who have little input in those rules and regulations.
Where is the leading example to redirect the jingle mailer from his self-serving habit to the greater good of the community and responsible service to his lender and investors who of course have immaculate moral standards?
i don't think this phenomenon will get legs. most ppl underwater on house #1 won't take a chance on house #2 as anyone can recognize the continued downtrend in prices.
--
Real American behavior at full display on this blog -- Intolerant and willing to commit fraud if that is what it takes to win!
Pathetic, but I am not surprised. What you see on the blogs today you will see it in the streets in 2010 -- packs of gangsters.
Jas
Clyde | 01.27.08 - 2:16 pm | #
Amen to that, bro. Problem is, we've lost our will and our way to effectively prosecute. What do you expect from a government that wrote the book on fraud (all branches and both parties, too)?
On a related note and waaaaaaay OT, I can't wait until the story about Cheney telling Leahy to, "Go fu(k yourself." on the floor of the Senate is presented to school kids right along side other historical American moments like Washington crossing the Delaware.
Sharks, indeed.
Gotta' love the moral example.
OC Steve
has that tax relief bill on loan losses passed yet?
Thread music:
YouTube -
In Japan the down turn in RE was a bumpy ride since the general population had a deep belief that RE was a good investment. This situation reminds me of this, my guess these people along with many of the auction properties will be back on the foreclosure list in a few years.
well i think the fun is already beginning. what do you think will happen when j6p after abandoning his home and going to cheaper mortgage gets report from his 401k account to find out that his portfolio went down 30% because of foreclosures. ever heard of boomerang?
O-Joe asks -- I heard in the Denver, CO area prices actually start rising again? I may have a new job opportunity there. Any thoughts?
There is a missing modifier in that sentence, and I'm not what it is -- will start rising? have started rising? hmmm . . .
As an appraiser, I see values in the Denver Metro Area being generally stable, with some entry level neighborhoods seeing a sharp decline due to the oversupply of REO listings; move up neighborhoods tend to be stable or declining; in trendy and high end urban sub areas, values tend to be stable or rising slightly. Condos and townhomes tend to lead or follow the value trends of entry level neighborhoods.
The good news in Denver is that our values have been generally stable since 2001 -- we never recovered from the dot com crash, and had job losses until 2006. Our real estate values generally peaked in 2006, and some of the folks that maxed out the home ATM at that time are in a world of hurt.
In my neighborhood (North West Denver) the values had gone up 11% year to year, as of last November -- but this is a hot trendy area, and the values are following that pattern.
On the other hand, the flood of REOs are creating buying opportunities -- I see a lot of REO fix n flip sales at $175-185k, that were purchase a month before at $125k.
In many neighborhoods, we are seeing a stratification of values, between the REO bottom of the market condition homes, and the owner occupied top of the market homes. In many neighborhoods, the top of the market has remained stable, while the bottom of the market has collapsed, due to the glut of REOs. Some homebuyers won't even look at an REO, because they want a home that is in move in condition.
As to what the future holds -- predictions are that Colorado real estate values will not experience the big hit we are seeing elsewhere, with the caveat that a serious national recession could bring down our local economy.
^^^^^^^^^^^^^
"The fact that the high finance boys get away with fraudulent practices more often than we would like does not in any way give homeowners moral or ethical license to try to defraud the system as well. Once a critical mass of average citizens believes that doing the right thing is for chumps, civil society no longer exists."
I suggest rereading what you just wrote. Did you really mean to say that civil society consists of those at the bottom obeying the "rules" while those at the top don't have to?
CR, I am surprised that the alleged attitude change toward playing hardball with creditors is apparently so recent. Trump and others have been actively promoting this kind of behavior to the masses for years.
I am not so sure that when you go thru foreclosure (FC) for whatever reason or motive that you can 'just go and rent' unscathed.
I believe that any half-decent property that is under professional property management will do at least some credit checks on a prospective tenant. I do not know if a recent FC would be uncovered or how it would affect your deposit, rent or whether they accept you. One friend who had been thru chapter something 5 years previously had to pay double the normal deposit for an apartment.
Perhaps property managers might have some input on this thread.
Dave in San Diego
Idoc,
H.R.3648 Mortgage Forgiveness Debt Relief Act of 2007 was signed into law on 12/20/2007. It is set to expire on 1/1/2010 and allows for the temporary foregiveness up to $2,000,000.
Nice that they are helping the truly needy!
I guess we can add Colorado to the "its different here" list. Too funny!
A report from the Coloradoan. The number of city building permits pulled for new homes, duplexes and condos in Loveland dropped 37 percent in 2007, reflecting a national trend of a slumping home building industry. The 2007 numbers mark a dramatic 68 percent decline when compared with 2004, when residential building permits spiked to 923. Business is way down, said David Keirns, owner of Keirns Construction Co. in Loveland.
Keirns maintained a steady number of new starts through 2006 until things began to slip in 2007, and now, thats spilling into 2008.
Residential is doing the same thing here (in Fort Collins), said Delynn Coldiron, who compiles the permitting data for the city of Fort Collins. The last couple years have been the sharpest decrease. There has been a pretty sharp decrease in single-family attached and detached.
Home sales are at a 30 percent to 40 percent cancellation rate locally, meaning people want to buy up, but they cant sell their existing homes, said Joe Knopinski, VP of neighborhood development for McWhinney Enterprises. Our basic problem in Colorado is that people are interested in moving up (to a new home), but they are worried that they cant sell their house, Knopinski said.
coloradoan.com | Fort Collins | The Coloradoan,
Imagine someone with 50% cash in the bank for the second buy, needing only 50% financing.
Easy to imagine such a borrower.
Rare to find one who is upside down on his current home.
Isn't it rather common to buy a new house prior to selling the old and be upfront about your intentions to live in the new house. This is commonly done for people "trading up" or for people moving to a new location.
Yes, it is very common. It is also common for people to buy second homes and investment properties.
That is why the Uniform Residential Loan Application has required the borrower to fill out the schedule of RE owned for decades.
In fact, many people will not be sure what to list under the current value of their property. They will in fact ask the loan officer for help. An honest loan officer will notice the similarity between the currently owned home and the contract price on the proposed new home and put a value on the application that does show that the current home is underwater.
What an underwriter will do in this situation is case-specific. If the borrower indicates that the currently owned property is listed, the underwriter might calculate the probable loss on sale and require the borrower to show sufficient assets to cover that before closing the new loan. If the borrower indicates that the property is going to be held as a rental, then the underwriter isn't going to ask to see a lease (the property is currently occupied by the owner and will be until he moves into the new home). However, the UW will probably ask an appraiser to calculate probable rental income based on comparable market rents, and include any net negative carry in the borrower's DTI for the new loan. Of course, the UW might use a much larger vacancy factor than the borrower would like, but that's why we have underwriters.
I am saying that in fact it's fairly easy to spot this if you have a minimally-competent underwriter; that lenders have started using minimally-competent underwriting in the last several months; and that therefore this scam is highly unlikely to work.
It is a "scam" any time it involves making untrue representations on the new mortgage application.
"Residential is doing the same thing here (in Fort Collins)," said Delynn Coldiron, who compiles the permitting data for the city of Fort Collins. "The last couple years have been the sharpest decrease. There has been a pretty sharp decrease in single-family attached and detached."
The permits indicate new home starts. When the numbers go down, it typically means less work for local home builders, which appears to be the case in Loveland.
"Business is way down," said David Keirns, owner of Keirns Construction Co. in Loveland.
I left out a modifier, too -- that should read:
There is a missing modifier in that sentence, and I'm not sure what it is
Volatility == Euphamism for Declines.
Easier to dupe the bagholders and continue to fleece them of their 401k holdings when employing euphamisms. Sad.
Broker--Things are bad in Florida but they are not 79-80% off bad.
Everyone else--I read that article and the fact pattern was that the guy moving across the street DID NOT LIE. He would have to show enough income to pay both mtges I believe, or he would have to have a renter. He put down a hefty downpayment.
Finally, my hub was a state prosecuter with Janet Reno for a number of years. If you all think for one moment that there is enough state or federal resouces to prosecute the clear cut fraudsters you are in the clouds somewhere. There are not enough judicial, or prosecutorial resources to prosecute even 1% of the fraudsters. And there certainly aren't enough jail cells to house them. Altho jail cells except for the biggies aren't appropriate. Fines and financial punishments would do just fine.
I couldn't even guess how many extra federal and state judges would have to be hired. In Florida the state judges were totally overworked before the foreclosure numbers ramped up and now the system is one camel's straw from total collapse.
Only thing I can think to do if you don't want to spend the money to double or triple the number of judges and prosecutors and their supporting minions is to declare the war on drugs lost, legalize nearly everything, and then use those resources on this mess.
--
Showing American dopes the mirror is a thankless job but someone has to do it.
Sorry, if someone doesn't like to look at the current reality and wants to keep the fantasy version of the years long past.
Americans can't handle the decline that they are already on. And they don't want to know how deep the abyss is. The abyss is deep enough to break the system and it will.
Jas
One more from Colorado-
The Daily Sentinel reports from Colorado. A remarkable run-up in property values in the last few years appears to have reduced the appetite of some would-be buyers and left others on the outside looking in at what could have been. Real estate sales in Mesa County sank more than 11 percent to 6,424 last year from 7,241 in 2006, according to a year-end report produced by Stewart Title Company in Grand Junction.
Exasperating the decline was that real estate sales plunged 20 percent in the fourth quarter ending Dec. 31. That marked the sixth quarter in a row that real estate sales were lower than the comparable period in the previous year.
It seems so healthy. Retail sales are strong and we have job growth. They wonder how this can happen, said Bob Reece, who researched and authored the report. I think the basic person with a pocketbook is looking at what they can afford or reasonably purchase but they are struggling at this point.
The report showed that a total of 19 homes, priced between $750,000 and $1 million, were sold between Nov. 30, 2006 and Dec. 1, 2007. At the same time total listings in that price range increased to 40. Data for homes priced above the $1 million threshold were nearly the same.
That, Reece said, showed homes in those categories took more than a year to sell. The slowdown comes on the heels of 65 percent run-up in local housing prices in the past five years, Money magazine noted in its December issue.
No question, said Denny Granum, president of Monument Homes in Grand Junction, on the length of time it takes to sell houses at the far end of the pricing spectrum.
Granum, whose company specializes in the $500,000 and up market, said he peeled back the prices on a couple of houses in areas where they were a little higher priced than they should be for the market. Its business, he said.
Welcome to GJSentinel!
It's a good thing we have all of these laws and regulations. Otherwise we might have a housing bubble destroying the US Empire...ooops.
Gosh those darned gov't regulators. We need more of them so this doesn't happen again.
Cheers,
I thought this blog/story was about International foreclosures, not Intentional
Sorry, but that changes all my previous posts which now need to be deleted as being unrelated and off topic, are you with me jas or against me?
Tanta,
My point is that an underwriter's VP, knowing that a probable foreclosure will soon be locking the borrower out of the credit markets could price the new purchase as an investment property, and be confident that property will perform when the borrower has no where else to go.
As was pointed out, the get out of jail free card is going to be very tempting for folks who default on property through the end of the decade. No taxes! Just ten years on FICO? so what? How much more can I lose if I stay put? Add to the mix the mod department overloads, and the number of folks who won't even bother to call their mortgage servicing department is going to spiral.
Countrywide Foreclosures (REO) Blog
shows over 15k houses for sale through Countrywide alone.
This is still on the downward path.
Someday this war's gonna end...
Hey Tanta, feedback loops and reduction of word counts; the less said, the better! Why increase entropy, go the opposite direction to find clarity. Less is more!
Any fool can make things bigger, more complex, and more violent. It takes a touch of genius - and a lot of courage - to move in the opposite direction.
Albert Einstei
crispy&cole --
Some areas of Colorado are declining sharply; some are declining to stable; some are stable to rising.
I tell anyone who asks that six months from now, we might be looking back to these times as "the good old days."
Time will tell how it plays out -- but I'm not making any long bets on the current real estate market.
^^^^^^^^^
Perhaps thr K wave is real.....wow
About our concern over whether we are chastizing little people for just doing what big people do:
It's a legitimate point.
But if you ask the "little people" who work for mortgage lenders (processors, underwriters, appraisers) to close their eyes and let you get away with this out of "solidarity" with your striking back at the Man, you're asking the little people to risk going down for you. We all know that the Tanned Ones get away, but these days (things have changed) managers are poring over reports and little untanned underwriters face getting the boot.
It would be a lot easier for me to have sympathy with these folks if it didn't seem so clear that they just want the same kind of free lunch their "betters" have been getting, and screw anyone who stands in their way. I can't quite work up solidarity with "Jingle Mailers" any more than I worked up any solidarity with them back when they were just plain old specuvestors who were "entitled" to 100% financing.
A mod...
Society is worse off once a critical mass of its citizens believes that doing the right thing is for chumps.
What America needs are true statesmen and stateswomen. We need a find a way to recruit, yes recruit, real leaders. They don't seem to rising to the top.
I thought FHA has started overlooking prior foreclosures on buyer's credit reports -- especially if the FC occurred because of a sub prime ARM reset.
Is that not so? Is that part of FHA-Secure, or one of the other new FHA programs?
^^^^^^^^^^
DPP: more to the point, the bank for house 2 is probably different from the bank for house 1. The people responsible for selling house 2 would be hurting themselves - badly in a falling market - to help bank #1. Not gonna happen.
I personally would encourage this. I think grossly overvalued house prices are causing permanent real damage in the form of further overbuilding and wasteful location decisions so the sooner things become rationally priced the better. I also think the minimum down payment loans you need for exploitative jingle mail to make sense are a really bad idea and should stop immediately. So this exploitative jingle mail will help the economy. I don't see why honest people should care much about the relative allocation of losses between crooked lenders and crooked borrowers.
The interests of honest renters waiting for prices to fall outweigh those of the crooked lenders who are the cause of this mess.
Tanta,
Perhaps you can create some legal deal structures for the little people. I personally have NO debt. I really do place the bulk of the blame on the ultimate idiots that bought the paper in the first place. If they did their jobs correctly, we wouldn't be here!
I saw a story saying that often lenders who would normally foreclose simply don't do so because of the expense and trouble and ending up with a house on their hands that they don't know what to do with. I don't recall if they evict the "owner" and let the house sit empty or what. Has anyone else heard much about this?
Adults are the measure of all things. I'm still trying.
Calmo, from Steve's 'ol News Blog? Is that you?
I do not know if a recent FC would be uncovered or how it would affect your deposit, rent or whether they accept you. One friend who had been thru chapter something 5 years previously had to pay double the normal deposit for an apartment.
Yes, and the amount saved from 2 house payments would provide enough of a deposit to make any landlord ignore almost any credit issues. Plus, the renter will eventually get that money back. Anectdotally, landlords on the housing blogs seem to actually like foreclosees. After all, they were generally trying to get rich by fixing up property - not really a bad person to have around. Plus, while they can buy into an apartment once a bad reference plus a FC really would put them in a bad way so they need to be on the landlord's good side. I don't think being locked out of the rental market is a significant issue for foreclosees.
Perhaps you can create some legal deal structures for the little people.
I did. It was called "Chapter 13 cram-downs."
LawyerLiz for the win.
Only other option is to proesecute the bejezus out of a few and put it all over the news. Scare the rest of them.
...Hasn't worked with drugs either though.
Another hole in the story. SocGen says it uncovered the fraud on the 18th. Yet, facing massive "rogue exposure," its officials chose to "go fishing" on the 18th and over the weekend instead of laying off risk. Just because markets are closed doesn't mean you can't lay off risk. Uh, SocGen is a smart enough risk manager to know this.
They are ADMITTING that 70% of the damage was not due to "rogue trader" but to their time-is-of-the-essence failure to lay off risk.
I just think people need to call a spade a spade
Ok Ken Lewis, Mr Blankfein, Mr paulson, Mr cayne, MrOneil, Mr bernanke, Definetly MR greenspan...
are all spades !
Particulary the type that shovel bullsh**.
I saw a story saying that often lenders who would normally foreclose simply don't do so
Look back to the post where Wells Fargo said that they were keeping historically more property and CW said that sometimes foreclosure isn't the best option.
On topic, is buying across the street really going to be a big problem? Or is it going to be a "poster child" of our times? I'm thinking it can't be a very high percentage, but a sign of our new situational ethic.
Boy, it really sounds more authoritative when it says "Neal said..:
Dumping one overpriced house for another is merely an extension of the ruthless new economy.
After all, it's no longer your father's Chevrolet.
"I did. It was called "Chapter 13 cram-downs.""
Perhaps you should create a separate site. Help is certainly needed...
RACE: an unexplored dimension of the housing crisis. It not only spreads into the economy as a whole, it spreads into politics, racial politics too:
\tThey had small means and big hopes of owning a house. But African-Americans snared in the US mortgage crisis have seen the American dream turn into a nightmare many call "financial apartheid."
The storm triggered by risky "subprime" loans has left many in ruins, forced out of their modest homes and furious at falling victim to financial dealings that have taken a particular toll on minority families.
"People of color are more than three times more likely to have subprime loans," concluded the organization United for a Fair Economy in a recent report which estimated that minorities have seen between 163 billion and 278 billion dollars of their equity go up in smoke since 2000.
With its weakened economy and a large black population more used to renting, Cleveland has become a poster child of the subprime crisis in a country where some 2.1 million borrowers are behind on their mortgage payments.
City officials estimate that foreclosures have swallowed some 70,000 homes and turned entire neighborhoods into ghost towns.
The city has responded by suing lenders, accusing them of targeting black borrowers and steering them to the loans granted with few formalities and at hefty interest rates to people with poor credit histories.
In this city where nearly 27 percent of the population lives under the poverty line -- about 20,000 dollars a year for a family of four -- many have a friend, a cousin, a brother, a co-worker or a neighbor who lost a home because they could no longer make their monthly payments once their adjustable rates jumped.
"Cleveland, Detroit, Baltimore (are) cities where lots of people of color live and what do they have in common? They are hit by the foreclosures meltdown. Is it a coincidence?" said Jesse Tinsley, who lives in the low-income Mount Pleasant neighborhood.
"When the wave of foreclosures blighted our neighborhood, members of our community rang the alarm. Nobody did anything. Now that white suburbs are hit, the city hall discovered foreclosures," he said.
On topic, is buying across the street really going to be a big problem?
I don't think so. I think we're in "Poster Child" territory.
For one thing, it's too damned early in this process. I mean, there's "ruthless smart" and there's "ruthless stupid." I don't think there are enough "ruthless stupids" trying to catch falling knives across the street to make this a big trend.
I saw a story saying that often lenders who would normally foreclose simply don't do so
Foreclosure is the right of the lender, not the obligation of the lender. Anybody can just decide to write off a debt because it costs too much to try to recover any of it through foreclosure.
However, refraining from foreclosing does not release the lien.
I wonder if we will see thinly-veiled PR campaigns that try to re-instill a sense of taboo towards "walking away."
I just want to know what lender is still so foolish as to not catch on to this buyer? Have they learned nothing or is it just another crooked broker enabling the process?
Fair Economist,
Even if the bank for HO #1's new mortgage is different they still want the deal to go through. On this new mortgage they get to show something in "Origination for January 2008" instead of a big fat goose egg. The fact that they're taking on another fraudulent loan is something they'll deal with later, if necessary.
Whoever the seller and the seller's bank are for house #2 want the deal to go through. The seller gets what they want, to sell their home. The bank gets paid, instead of possibly being foreclosed upon. Neither this bank or this seller are taking a loss for Bank #1 or HO #1.
Anything to keep the system moving, even at a reduced level, even with easily detected fraud, is preferable to the banks at this point.
The reduced price of Home #2 also sets lower comp prices, which will hopefully make things more affordable for the honest renters someday.
There are several markets that are now just beginning torealy head south -- Portland, Seattle, Charlotte, Austin, Denver, Bend etc.
It seems that the change in attitude towards foreclosure might cause late-blooming markets to experience faster rates of decline. In other words, home owners will be more aware of negative equity and more inclined to stop "throwing away" money on an upside down mortgage.
Could a FAQ for greasemonkey and killfile be posted on the site? Is there any way to make this default behavior on the site?
There are a few steps in this:
1/ Allowing yourself to be foreclosed on. Everyone agrees that's perfectly legal, right?
2/ Buying another house and allowing yourself to be foreclosed on an existing house. Presumably there's some kind of fraud in this, because normally a bank wouldn't lend money for the new house in this situation.
3/ But the person committing the fraud decides that he won't be prosecuted, so he goes ahead. How is this behaviour so much different from a failed CEO who demands a huge payment to leave a company, or else he will sue and drive the company through grief? In both cases someone is making an estimation of how the legal system works and what the opposing party is willing to do. I'm not defending fraud; I'm just a bit tired of our ability to accept fraudulent behaviour by the rich, but as soon as Joe Sixpack does it, it becomes a sign of civilization's decay. The decay has already set in; the rich have showed how these things are done; and the rest of us are just following their lead.
If the banks don't want to be victims of this kind of fraud, then maybe they should go back to mortgages with downpayments of 20 or 30%, knowing the client, and so on. But that would be too sensible, I guess.
from NYT's
You may not be able to force liquidity, Mr. Niederauer said, but you could force transparency.
U.S. Said to Be Weighing Public Pricing of Derivatives - NY Times
Anyone have any idea of how the recent overhaul of bankruptcy law (I'm thinking the Act that made it easier for credit card companies to push debtors into a less lenient form of bankruptcy) interacts with increasing numbers of homeowners having negative homeowner equity?
As you can tell by my vague terminology, I am pretty clueless on the topic. But I imagine there must be some effects.
I think if this quickly becomes a trend, just as quickly mortgage lenders are going to be carefully scrutinizing this aspect of new applications.
I mean, the lenders run a credit report -- and the prospective borrower's existing mortgage debt sticks out like a sore thumb, right? Anything that looks fishy would lead the potential lender to inquire more about the house the applicant already owns.....
Or are these loans that can be sent along to the agencies & would make the originator think "not my problem"?
I would believe he would have to pay taxes on the forgiven debt from house 1, since it now would be classified non-owner occupied...any thoughts?
Tanta & CR certainly know by now that money payments must be used get rid of 'trolls', just like kicking out CEO's on Wall Street.
DPP: I think we're agreeing, actually.
query_tool: The new house mortgage writer is only concerned about the new mortgage going bad. If the down payment is adequate and the DTI decent, the new house mortgage writer will do just fine. The defaulters aren't psychos seeking to bankrupt the bank, they're just people following their own self interest. If their self-interest is for staying in the new house and paying the mortgage, they will, and the new mortgage can be written to make this so.
rcryan -
This blog, run by law school faculty who specialize in bankrupcy law, covers a lot ont this topic and much of it is understandable by "the rest of us."
Credit Slips
Hmmm... I realize I kind of missed the point with the last posting. I guess it comes down to this -- assuming no legal enforcement when it comes to this scenario:
a) Does the lender of the original mortage have any recourse?
b) Does the lender of the new mortgage have any obligation and/or reason not to lend to a "qualified" buyer when they suspect one of these swaps is taking place?
I mean, the lenders run a credit report -- and the prospective borrower's existing mortgage debt sticks out like a sore thumb, right? Anything that looks fishy would lead the potential lender to inquire more about the house the applicant already owns.....
You would think so, but Casey Serin proved us wrong in the past.
The real question is what is happening today? Are those obvious sore thumbs still ignored? My guess is yes.
New hobby - calling banks to see if they offer FHA loans with seller paid closing and down payment, non-recourse. Maybe it is a buyer's market.
While the concentration this week will likely be the Fed, my guess is someone is sure to steal the spotlight, any guesses as to whom?
Sebastian, What is the WrightB telling you about the economy? I wonder if AG uses it.
[Former Fed Chairman Alan Greenspan said last week that the United States was at - or possibly over - the edge of a recession, joining a lengthy list of economists seeing a downturn]
What is wrong with exercising a put? Ethics aside, if it is legal and you come out ahead why not do it? Investors simply mispriced risk so they lose.
As Tanta pointed out, there is no such thing as a put on a mortgage, at least not yet.
One thing that really bothered me recently were some media stories that new home buyers were treating their down payments like a "call option". A true option gives you the right but not the obligation to buy something, and is liquid in the sense that it can be sold to a third party.
Were one to, say, put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
One little problem, this is illegal. As in, if they catch you, you can go to jail.
You wouldn't know it by listening to the mainstream press, however.
You see, ethics are at the root of this whole mess; in this I am in complete agreement with Jas.
I can't tell the real Jas j from the fake one! I'm cracking up they post eggsactally the same holier than thou attitude from a high horse. Wide paint brush, sweeping generalziations. hehe.
how to ruin a blog: a case study
While the concentration this week will likely be the Fed, my guess is someone is sure to steal the spotlight, any guesses as to whom?
If we get more hedgie blow-ups that trumps all.
What gets overlooked a lot IMO is that hedge funds have become almost an extension of the banking system, so hedge fund blow-ups today are much like the bank failures of yore.
Regarding moral hazard and changing attitudes toward walking away from a house, here's this quote:
"I reject your reality and substitute my own!"
From the Mythbusters show.
O-Joe,
You were responding to fraud (an imposter) and not to I. Unfortunately, America has too many desperate people and some are here on this blog. It seems like it is OK with blog owners. So be it.
Jas
ac-
while I most assuredly agree with you, I still think cfc steals the spotlight this week-
a) Does the lender of the original mortage have any recourse?
It depends on the state in question.
It may also depend on the characteristics of the original loan. I wouldn't try this unless I were 100% sure there was no misrep on my original loan application (for the old house). Once I "walk away," the lender might pull that file, run a new credit report on me, see that I have just bought the new house, and then decide to go through my old file for any evidence of misrep. If the old loan was obtained fraudulently, there's big time "recourse."
b) Does the lender of the new mortgage have any obligation and/or reason not to lend to a "qualified" buyer when they suspect one of these swaps is taking place?
Obligation? Of course not. What "qualified" means, among other things, is "creditworthy." (Three C's: collateral, capacity, creditworthiness.) If I find any evidence that you are behaving in an uncreditworthy fashion, you are by definition "not qualified."
You may not be aware that other variants on this situation arise fairly frequently. People who are about to declare BK want to take out a big cash-out refi. Or a self-employed sole proprietor who is facing a big judgment (unrelated to the house) suddenly wants to deed the house over to his wife (in a non-community property state) and refinance the note in her name only. These things may or may not succeed, but underwriters are aware of their possibility, and do question transactions that don't seem to make any sense. The current scenario is just another variant on a setup by a deadbeat.
Repeat comment, but on topic.
My sister in law is typical of the upside down mortgage holders. The mortgage is $470k with a $90k HELOC. Within the last two months she tried to lock in her 8.9% HELOC, asking for no concessions. The bank, whose name rhymes with Washington Mutual, arrogantly told her she'd have to pay a fee and a higher interest rates.
So, now I read about how stunned the highly paid geniuses are that people are walking.
Whocouldanode?
...I'm guessing that more than a few of them are chuckling as they see these deals come through (and still chuckling when they deny them or condition approval on sale of the current home).
Chuckling is so 2007. The tolerance for approving a loan that becomes problematic is gone. There's a lot of pressure being applied to UWs and it will be reflected in their decisions.
--
central_scrutinizer: You see, ethics are at the root of this whole mess; in this I am in complete agreement with Jas.
Thanks.
There are three pillars to a prosperous society ETHICS, politics and economics.
The first two are already in deep trouble and the third will soon be.
It Is the Morality (or Ethics), Stupid!
Jas
central_scrutinizer - Were one to, say, put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
That has happpened here in SF. They are now trying it on the new condo towers coming online right now. Craigslist has had ~ half a dozen offers to sell deposits on these towers. One of the penthouses was resold (aledgedly at a profit) BEFORE the CO was issued or a deed recorded. Interesting times....
Picosec-
Reading that site made me feel like the first time I came across an in-depth post about the actual mechanics of securitization. I figured I had to wade in, if only because it was important for what I do, but it certainly made my head hurt. Thanks! (I guess)
If the MBS market has seized up, how are loans and re-fi getting done? Are the lenders holding on to them?
LowyerLiz I said "I wouldnt be surprised to see 70-80% decline in price in CRE, in Florida. (from the peak)" If you are interested, I can e-mail you some auction prices on a few commercial properties. That would give you an idea of whats to come.(I honestly hope I am wrong-I love Florida).
I think we need a Bankruptcy/Foreclosure/Tax law guest blogger to explain how the IRS gift tax forgiveness works. As I see it, only the primary residence is exempt from the gift tax if the property is sold for under the loan amount. So how does this affect "owner occupied" properties that have been rented out and what are the potential consequences to a specuvestor? Also does claiming bankruptcy change the rules?
Chuckling is so 2007. The tolerance for approving a loan that becomes problematic is gone. There's a lot of pressure being applied to UWs and it will be reflected in their decisions.
I meant "chuckling" as in "nice try, dimwit, but I'm not that stupid" as the UW proceeds to deny the loan (or put in a contingency that will have the same effect).
Perhaps property managers might have some input on this thread.
Dave in San Diego
Dave getting a place in Diego is much more difficult than getting a place else where in the country. Credit checks etc... I've rented a few places else where and just showed up with a check.
I meant "chuckling" as in "nice try, dimwit, but I'm not that stupid"
Agreed, but but since the perception is that even a marginal oversight can get you canned I'm guessing that it's more like "@#*$ this".
This is really a cultural problem rather than an economic problem. There is a world of difference in walking away from a mortgage when one can't pay as opposed to when one can. The former can't fulfill their obligation, the latter can but won't: essentially a breach of promise. The social mores that have developed since the 60's have whittled away at the opprobrium of dishonorable conduct and as a result, behaviours which were unacceptable years ago are now permitted because they are rational. The pre 60's crowd would have argued that a promise is a promise which one is regarded to fulfill. Anyone remember Regulus?
http://everything2.com/index.pl?node_id=1132994
Future mortgage contracts will have to price this new risk to the lender into the contract. The net result will be higher rates all around.
The middle class is a mindset, not an income quintile. There are many earning middle/upper class incomes who are lower class people. Money does not make an honourable man.
OT
Barrett Jackson numbers are finally in:
2008: $88mm
2007: $111mm
2006: $100mm
2005: $62mm
2004: $38mm
how the IRS gift tax forgiveness works
You are conflating two different things.
There is a gift tax.
There is tax on forgiven debt (i.e., treating forgiven debt as income).
They aren't the same thing.
There is proposed federal legislation to suspend tax on forgiven debt for mortgagors right now.
Under the current rules, the IRS can waive taxation of forgiven debt if the borrower is insolvent. How you prove that is up to the IRS. Nobody should ever assume they'll get out of forgiven debt taxation until they've spoken to a tax lawyer.
I just want to point out that were are (apparently) looking at solvent jingle mailers. They couldn't get a new loan for the new property if they were teetering into BK territory. They just want to swap houses and loans.
Dallas Morning News
Recession puts Florida housing market in a death grip
Recession puts Florida housing market in a death grip |
News for Dallas, Texas | Dallas Morning News
| Scott Burns | Personal Finance | Business Columnist | Dallas Morning News
"intention to default on your current mortgage is a form of mortgage fraud"
Tanta - is it? is it really?
From Richard Suttmeier's RightSide Advisors Weekly Radar Screen 1/27/2008:
My theory is that the FOMC is extremely worried about how fast the banking system is bleeding money. They knew how bad the earnings picture would be from Bank of America (BAC) and Wachovia (WB) when they reported fourth quarter results as the FOMC took action.
Bank of America is the largest bank by Assets according to the FDIC with assets of $1.29 trillion. Wachovia ranks fifth with $557 billion in assets. Combined they are 14.5% of the total of $12.7 trillion in total assets. This means that the industry will take a significant hit to net operating income in Q4 2007.
Bank of America (BAC) reported that fourth quarter net income fell 95% citing rapid credit deterioration in its consumer and commercial loan portfolios, and higher than projected writedowns of subprime mortgages. According to the FDIC the Bank of America had $43.3 billion in non-farm, non-residential construction loans on the books at the end of third quarter, which means that more bad loans are highly likely in 2008.
Wachovia (WB) reported that fourth quarter net income fell 98% as its deteriorating lending portfolio forced it to dramatically increase its loan-loss provisions. This is an admission that more bad loans are on the way in 2008. WB has huge exposures to Construction & Development Loans at $23.2 billion second to $23.5 billion for BAC. WB with much lower assets than BAC has $49.6 billion in non-farm, non-residential construction loans.
Net Operating Income: While Loan exposures continue to grow, and bad loans rise, net income takes a hit. Net operating income was down 22.1% sequentially to $28.7 billion at the end of the third quarter. Before the BAC and WB reports I heard estimates that net operating income would slide to under $20 billion for the fourth quarter 2007. Now I would not be surprised if net operating income came in closer to $10 billion. No wonder the FOMC is in panic mode. The FDIC wont release the Quarterly Banking Profile for the fourth quarter until the third week of February at the earliest.
Concerns from the Federal Deposit Insurance Corp
On January 17 FDIC Chairman Sheila Bair focused on the real estate problems facing the US economy at a Bear Stearns conference. The FDIC Chair told the audience that housing starts are sinking, the unemployment rate is going up, and the risk of recession is clearly rising. Foreclosures are on the rise in communities across the country. With falling real estate values, refinancing is not an option. The number of resets is simply way too big for the industry to handle one-by-one.
We Are in a Bear Market and Heading for Recessio
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Tanta is a legalistic robot on the subject of mortgage lending.
Crooks from NYC and the Fed sent invitations to mortgage companies to make fraudulent mortgage loans and they all accepted the invitations. Why? There was urgency to get the economy going full blast at least a year before the 2004 elections.
Fraud begins at the moment someone is allowed to lend OPM without any personal consequences and the risk lies down the road AND the lenders and the intermediaries expect to pass on the risk to unknowns.
Things get really ugly when you have intermediaries, most of whom are concentrated in NYC, who all co-operate in the Ponzi scheme while it lasts. It is greatly aided when various participants go to the same parties, clubs, churches, temples and synagogues! Cramer spilled the beans on the party and club goers last week.
Legal or not legal? If you control the legal system you can make anything legal except for rape, murder, etc. Even murders can be made legal but we dont have that problem YET.
Jas
One second. Sure, the intentional foreclosure makes sense from the point of view of the individual who has lost equity. But don't they still need to secure another loan to purchase a cheaper house ? They may have the best of credit, but if they have outstanding loans and an income which does not cover their current mortgage payments, who is going to lend them money ?
If this type of behavior (walking away from a house you can make the payments on, just because your neighbor across the street got a better deal) becomes prevalent, I predict the following will happen:
"bad faith." This will further depress home sales.
Re. the intentional foreclosure scenario:
I believe Tanta is right. To take the example where the homeowner who is upside down on his mortgage but has 50% to put down on the house across the street at 20% below his current home value:
Couldn't a lender try to then recover from the homeowner's equity (and possible more) in the new home?
Also, wouldn't there be prohibitions in mortgage agreements against taking on any new debt without current lenders acquiescing?
I cannot see how a homeowner could do the flip legally even by plausibly claiming no ill intent. Of course he could hope to be lost in the shuffle, but if such fraud is widespread it can't take much to search through deed records to quickly identify such homeowners.
CR - Have you seen any or many reports of this happening outside of CA and maybe FL? Just wondering how regional it really is - not that it wouldn't go national, but I'm just not seeing it.
What are these guys going to do, when they might need to replace a roof, AC, etc. You think it is bad now?
Barley writes:
"intention to default on your current mortgage is a form of mortgage fraud"
Tanta - is it? is it really?
I said:
buying the house next door or across the street with the intention to default on your current mortgage is a form of mortgage fraud
The fraud is against the new lender for the new home. It is a fraud because it always involves not filling out the application for the new home loan honestly. (If you fill out your application for the new home honestly, you're almost certain to get denied.)
Think about it: you submit an application for a loan to purchase a principal residence. You already have a principal residence that is mortgaged. The lender requires you to say what you are going to do with the house you currently own. Anything other than "I'm just going to give it back to the bank" would be a lie.
If you submit the application as a purchase for a second home, the lender will just laugh at you. People don't have vacation homes across the street.
If you submit the application as a purchase of an investment property, the lender will count net negative rental income in your DTI (and, of course, your entire existing house payment) unless you can somehow show that the new home can be rented at a profit. Good bloody luck with that. This last scenario is most likely to succeed, but then again you'll be paying a higher interest rate and making a larger down payment on the new home because it's a non-owner-occupied loan. I do not for a moment believe that these "ruthless" people are calmly accepting the price of an NOO loan in the interests of honesty.
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"But don't they still need to secure another loan to purchase a cheaper house?"
Hello Vikram,
Ever heard of renting? People even can find cosigners if they can get a good deal. Some are smart enough to prepare the groundwork before they default.
I have read about credit extended to the worst by some Crooks who are lending OPM. The whole system was turned into fraud because of tenth hand lending. NYC Crooks have no problem in coming up with schemes to make money now and let some poor bastards pay the price later.
Some of those poor bustards who will pay the price are known as US taxpayers. They are politically impotent to stop the abuse of taxpayers money.
Jas
Tanta,
Hasn't that forgiveness of debt bill been signed by Bush?
Search Results - THOMAS (Library of Congress)
The way I read it, there's no tax now, but the basis in the house is adjusted down by the amount of forgiveness. That could result in additional capital gains taxes later, depending on the amounts. Cap gains are currently much lower than the incremental tax rates on a high income payer.
how to ruin a blog: a case study
SlimShady | 01.27.08 - 3:55 pm |
SLim shady the sniper?
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"The rest of us will pay for the unethical behavior of the few through higher mortgage rates and taxes to bailout failed banks and pension funds."
YES. Some of us cranks knew it way back when. Apparent fraud was in the open, but it was not specifically made illegal and was allowed to go on as long as it could go on. Crooks knew the game and the dopes didnt catch up to the fraud part until recently.
Jas
Hasn't that forgiveness of debt bill been signed by Bush?
I guess I wasn't paying sufficient attention. I didn't think it had been signed.
It does create trouble for the "buy first default later" crowd, doesn't it?
If you buy first, the new home becomes your principal residence. If the default on the old home occurs after that, then it's not a default on a principal residence and I don't see why the old lender wouldn't send that info to the IRS.
There is obviously lots of debate of whether swapping one home for another and then defaulting is fraud. Maybe, maybe not. What is clear and will have a HUGE impact going forward is that more and more people are just not paying the mortgage. This problem seems to be getting worse and there is more and more being written on it.
However you slice it, and for whatever the reasons may be, it is happening and will continue to happen with more and more frequency. And as it does, it will bring property values down even further, which will then convince even more people to do the same which will bring property values down even further, etc.
Any one who attempts to buy now is not trying to catch a regular falling knife, they are catching a chinese star which is sharp all around.
Jingle mail is going mainstream. This will probably speed up the whole crash process. I don't see OA types sticking around until the loan fully resets if they see their peers bailing out early and not getting burned. Or at least more burned than they would be anyway.
I would believe he would have to pay taxes on the forgiven debt from house 1, since it now would be classified non-owner occupied...any thoughts?
I'm not a lawywer but my understanding is if you've lived in a home as your primary residence for two out of any of the five previous years and sell it, it isn't treated as no owner occupied. That would seem to apply to this scenario.
CR, thanks for the names at the top of the post; it speeds up my reading.
Sure, fraud is bad.
But, there are going to be some ugly laws coming our way: FDR outlawed the personal holding of gold in '33, had folks turn it in at $20 per ounce, then immediately reset the price to $35 per ounce, a 43% cut in the purchasing power of the dollar.
I have no intention of turning my gold in, and will have it in a private bank in Switzerland, outside of the reach of the Feds.
Some laws will deserve to be broken. Some of you may call that unethical. I think FDR's actions in regard to gold were immoral, taking from savers and distributing to debtors.
No homeowner is illegal. Don't you know that people who are committing this "fraud" are contributing to the economy? They are paying property taxes, paying fees to lenders, making housing prices more sticky, and just hard-working folk trying to improve their situation.
(half-sarcasm off)
Rob Dawg has a point about Casey Serin. When I walk into my local Ralph's I'm reminded that shoplifting will be prosecuted to the fullest extent of the law.
LaywerLiz FTW. Why not contract out judges/attorney's to prosecute these cases though? Are you really telling me there is a shortage of lawyers? I'm sure there's some loophole the legislative bodies can do to catch the fraudsters... but I guess the truth of the matter is they don't really want to stop fraud. Isn't the prosecution a simple matter of showing "Exhibit A" first loan documents, and then "Exhibit B"? Hasn't there been a rise in unemployed people familiar with these documents that could be shifted to these jobs?
Outrage aside, from a practical point, why not cancel the forgivness of debt tax obligation?
PS: Maybe Congress should have written in a withholding tax or lien on the eventual sale of property.
Recall that just yesterday there was a post devoted to the notion that posters should ignore trolls.
On topic, this phenomenon should correlate geographically with the speed and depth of the bubble deflation.
Bubble areas will see a lot, other areas not so much; though plain vanilla jingle mail will be more wide spread.
1. Do you really think these people have the money to pay the tax bill?
I don't know exactly who you mean by "these people."
Do most people facing FC these days have the money to pay the tax bill? Probably not. I have no problem with the IRS not trying to squeeze broke people. If we are talking forgiven debt on folks who stay in the home--a modification--then fine. Waive the taxes.
Does someone who has the money to make a down payment on a new home without selling their old home, and sufficient income to qualify for it while also carrying their current payment, have enough money to afford the tax bill on the loss on the old home? Sure. As a matter of fact I might describe what they're doing as an abusive tax shelter.
I might have gotten sidetracked by the "intentional foreclosure" discussion.
There is a good explanation of the debt forgiveness tax relief law at http://completetax.com/taxguide/news/07-004mortgage.asp.
According to the wording of the law, it applies to debt on a "qualified principal residence" as defined by tax code § 121. Exclusion of gain from sale of principal residence
Therefore, it appears that if you have lived in the home for at least two of previous five years, you can claim it as a qualified principal residence. But note that the forgiveness applies only to acquisition indebtedness -- I wonder whether the IRS will demand plausible documentation that any cash gotten back on a refinance really was used to invest in the home?
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Could someone here explain the concept and the reasons behind the jubilee in The Old Testament.
Is there any moral lesson in that?
Are Crooks of NYC aware of the concept?
Just curious,
Jas
--
Schumpeter: One of the results of our historical sketch will, in fact, be that FAILURE OF THE BANKING COMMUNITY to function in the way required by the structure of the capitalistic machine ACCOUNTS FOR MOST OF THE EVENTS WHICH THE MAJORITY OF THE OBSERVERS WOULD CALL CATASTROPHES. (Emphasis added)
FSU Editorial: "Schumpeter's Observations on Bankers, Debt & the
Real Estate Boom..." by Jas Jain 11/20/2005
Catastrophe was Schumpeters term for depression.
Jas
If the MBS market has seized up, how are loans and re-fi getting done? Are the lenders holding on to them?
Well, home sales have been in a dive recently. I assume the reason we have Fannie and Freddie is to get loans done on terms that free markets aren't willing to touch without some implied government protection. (?)
jg, the easy answer always seems to be holding gold in other countries. Don't you think there is a lot of risk in doing that? How do you get it when you need it? Smuggle it in on a plane? Sell it straight up for cash to someone you don't know in that country and risk getting robbed? Why do people think it would be easy to convert it back into cash overseas and just bring it back to America? Why wouldn't foreign banks be strongarmed into helping the US government find these assets? As people in South Africa found out, you need a private boat if you want to move your money around.
Don't get me wrong, I have my own share of gold but I don't see any easy way to hoard or use large amounts of money as gold. Please tell me I am wrong.
Tanta you've portraited buy #2 and let #1 foreclose idea as a (potential) scam, and I agree, however, if lender #2 knows lender #1 gets hosed but that the buyer is going to make payments on house #2 (he does need a roof) can the mortgage risk be repriced for dealing with a shady character. After all lender #2 doesn't care about lender #1's loss -only getting repaid on their loan. The worst part of this thinking is that lender #1 might end up doing the loan anyway, because if he doesn't someone else will. Ultimately, the price writedowns have to happen, regardless of who buys the houses and in non-recourse states, lenders should have known better to start with.
12th percentile:
you are referring to the rules for getting the capital gains exemption. I do not believe that these rules will apply to debt forgiveness.
Arguing that walking away from a debt one could pay is sticking to a stupid bank or some wealthy investor who should have known better is pure rationalization. The fact is the borrower took some someone's money, promised to pay it back and then did not. Generally, this is known is stealing. Trying to pay it back and failing because of unexpected circumstances is one thing; just deciding you are better off not paying the money back is theft. Just because other people do it, perhaps in other forms, and get away with it does not change that.
There now, wasn't that suitably pompous and self-righteous? But honestly, would you want to to lend someone money who who felt justified in not repaying? Do you want the bank holding your deposits or your pension fund to lend that guy money?
Of course no one can answer my questions! The silence is deafening!
This blog has become a sad and lonely place, where only the dopes pat themselves on the backs.
IAMJasJain
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Forgot the title of the above link:
SCHUMPETER'S OBSERVATIONS ONBANKERS, DEBT, AND THE REAL ESTATE BOOM OF 1920s and THE CAUSES OF THE GREAT DEPRESSION
FSU Editorial: "Schumpeter's Observations on Bankers, Debt & the
Real Estate Boom..." by Jas Jain 11/20/2005
It helps people to decide if they want to go to the link or not.
Jas
There's certainly another trend following intentional foreclosures - bankrupt HOA's here in the Inland Empire. When do the special assessments start hitting the remaining homeowners?
however, if lender #2 knows lender #1 gets hosed but that the buyer is going to make payments on house #2 (he does need a roof)
Well, see, that's where the problem arises. You can no longer use the "he needs a roof" thing. He has a roof. He just wants to swap it for another roof of the same quality for a lower price. Why would anyone trust that he wouldn't do it again? Are you sure we're at the bottom?
There's a staple of the "Dear Abby" letter genre. It's usually a young woman. She is having an affair with a married man, who has promised that he will divorce his current wife to marry her. Her question to Abby or whoever is always, "How do I know he'll stay faithful to me?" Abby's answer is always, "You don't."
I think that we're conflating two differnet behaviors here...those people sufficiently underwater to contemplate walking away, and those people trying to buy something then dump the old over-valued property. But honestly no one has to resort to a fraud if their timing is right here.
What is the big deal with bankruptcy? It's probably the cleanest way and, frankly, is a big reason why the US is so entreprenurial and other countries aren't. There exists here a clean way out with a non-major penality for failure. So you bought a house, the market turned against you, and you failed. File BK. Companies do it all the time.
Are the banks not going to lend to you when the numbers of people in the same boat are so high? I think not. In fact, if there were massive BK filings (as there probably will be) the stigma will be greatly reduced. In fact, someone with a prior BK on their record is a much better risk, especially if you were very clean before it. So if you are clean, you're in over your head, call a lawyer, no need to scam. In a year or two, you get to save what you can and start again when this crap is over. And, frankly, I think you'll see some loosening of th BK laws in a short time.
I think FDR's actions in regard to gold were immoral, taking from savers and distributing to debtors.
I think it's hard to make a blanket statement that it's "immoral" in this case. In retrospect I think a lot of people underestimate the severity of the Great Depression -- the US was genuinely approaching the brink of economic collapse.
Where I believe the danger lies is in looking at this technique (deliberate inflation) as some kind of successful monetary policy as opposed to a last-ditch desparation move that might have lead to a different kind of collapse.
I worry we might conclude that "neutron bomb therapy" is a good first line of defense and thereby prematurely start handing out money leading to a far worse outcome -- perhaps a hyperinflationary depression where we end up without even a currency as a foundation for rebuilding.
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Barking dogs don't bother me but is a sad commentary that fraudsters are making inroads by posting as imposters. This is to be expected from some morally bankrupt individuals who post here. They are part of America and why shouldn't they be part of this blog. There are three Americas moral, immoral and in-between.
I was trying to address the debt forgiveness issue raised above by rhetorical questions.
Jas
If you think your silent treatment will stop me, you're mistaken.
I have my own blog. I don't need any of you!
w, I presume that I will just periodically give a 'sell' order to my Swiss bank, and have the proceeds from the gold sale transferred/wired to my U.S. operating account.
At this point, that's how I intend to operate, keeping 95% of my gold and gold mining mutual fund shares overseas, and selling small amounts over time to fund household operations. I'll keep a stash of 1/10th ounce coins on hand, too, for emergency use.
As U.S. laws and regulations change, I'll have to keep on my toes; maybe we'll have to emigrate if things get out of control here.
But, that will be my primary responsibility in those forthcoming tough times, keeping my family and our money safe.
What do you think?
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I see desperation here among some. It is bound to spread to other parts of their lives.
Bad doggie!
Jas
ac, our Founding Fathers -- brave, moral, insightful men -- would clearly have found FDR's action, confiscating gold and immediately deflating its purchasing power, immoral.
It's a de facto violation of the 'takings clause.
Meant to write '...and immediately deflating THE DOLLAR'S purchasing power...
Fraudsters! Criminals! Dopes!
Corruption! Doom! Fire and Doom!
You have been warned!
Hypothetical questions:
Suppose I'm in a no-recourse state, jingle-mail a house and buy an equivalent house cheaper than the outstanding balance on the old house for cash. Anything illegal in that?
Aren't there pretty big restrictions on grounds for denying a mortgage? If the first house was contracted for on a non-recourse basis, is it even permissible for a bank to deny me the second mortgage after I scrap the first one?
jas is losing it! too funny!
A prophet is never loved, always hated.
I expected nothing more from American dopes.
Here's how Colorado looks on the ground from the viewpoint of this Front Ranger.
While making coffee in the morning I look out the window at the empty house next door- that has been on the market for a year with a total of 2 people looking at it. The owner hasn't lowered the price.
I go out for the paper and glance across the yard at the house that's occupied, but has been on the market for closer to two years. I've never seen anyone look at it.
Ah, coffee and newspaper. Lookie here! My town has 1 of every 41 houses in foreclosure. Weld county, less than 2 miles away, has made the top of the country list for foreclosures at least three times in the last year.
My neighbor stops by. He used to be a car salesman, but got his real estate license this October. He had 5 houses listed, and only 1 showing since then. He and his wife are getting divorced, and I hope he can sell his house or I'm going to start looking for zombies and Will Smith.
Oh yeah, my sister just signed papers on a short sale on her house in Gunnison, and my brother in Denver is about to be foreclosed on two properties. (Both well deserved.)
Regarding "principal residence" for purpose of not taxing any "profit" due to forgiven debt. The new law expanding this (previously just applied if the borrower had little or no assets) specifically states that the principal residence is the same as defined in Section 121. That is the section that allows $250k/$500k tax free capital gain; and is defined as being the principal residence of the taxpayer for 2 of the last 5 years.
I am missing something here as I am coming in late. BUT...
If Bob buys the house across the street, then where did he get the sown payment?
How does he qualify for 2 loans under the tighter lending standards?
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jg,
Founding Fathers are rolling in their graves!
FDR was an economics moron who got saved by the WW II. The New Deal had failed by early 1939 and the economy was back where it was before the New Deal. BTW, he was trying to inflate by manipulating price of gold. Not much was gained. It was a failed experiment.
You want the extent of America's decline? From George Washington to George Dimwit Bushboy.
Sell America Short!
Jas
Sandblaster,
Ya, but you have Estes Park.
FDR was an economics moron who got saved by the WW II. The New Deal had failed by early 1939 and the economy was back where it was before the New Deal. BTW, he was trying to inflate by manipulating price of gold. Not much was gained. It was a failed experiment.
It's unfortunate that because of WWII it's hard to draw any strong empirical conclusions from Depression-era policies.
I also think that makes it a poor choice for someone like Bernanke to use as the basis for his own policies.
We've gotten out of other depressions too. Likewise for other countries (Indonesia being a recent example).
Was deliberate inflation necessary for recovery in these instances?
Dave in San Diego,
The subject of renting after foreclosue has come up several times. I have been in the rental business for many years. Renting with bad credit is not really a big problem. In fact, about 50% of the rentals in the USA are targeted at people with bad credit.
Rental units are targeted at 4 levels of customers. level one, no checks of any kind. this is the slumlord level, and provides a valuable market-demanded service. Level two, criminal check. This is the largest level making up about 50% or more of the market. This targets working class poor and young college students. Level 3, credit check level. This is for people with good credit and insures that you'll get a pretty nice place to live. The special thing about this level is that the property owner can sleep at night knowing that if damage is done have can and will be compensated. Level 4, is check everything super luxury level. Very small part of the market. There just aren't that many rich renters in the world. I call this the new york/san fran level.
As someone already said, almost all problems can be overcome with an extra large deposit.
The real problem with going from owning to renting is a school district problem. 80% of the rental units are not in the better school districts.
Sandblaster said: Oh yeah, my sister just signed papers on a short sale on her house in Gunnison, and my brother in Denver is about to be foreclosed on two properties. (Both well deserved.)
This is what happens when you think of housing as an "investment" instead of a place to live. What ever happened to affordable housing?
Ella, lots of people have cash and are not entirely honest. Lots of them are the cash economy people (felons) that we're told need our help in realizing the American Dream.
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Come on doggie, time to spread more poop? You have bad owners, though.
The only serious problem in America is bad dog owners and stupid dogs!
Jas
Was deliberate inflation necessary for recovery in these instances?
Or, I would add, is inflation just necessary for preservation of the central banker's power?
Are Bernanke's helicopters meant to save the economy or the Federal Reserve?
I think that carrying assets in foreign banks will be too easy for the government to access in a depression. I have no expertise in this, but the way they scour the world for terrorist money means that all they need is access. Foreign assets held by Americans will be vilified as evidence of foreknowledge and conspiritorial intent. Do Swiss accounts operate anonymously? If they are linked to domestic accounts I am sure they will be easy for the government to trace. I just wonder if I will have to travel overseas constantly to bring money home if there is a true disaster. Living overseas probably would be the best solution.
lama,
If this were to become widespread then several homeowners would have to become involved. I doubt that there are that many holding a lot of cash. And certainly not enough cash to buy the house outright
Re: put 10K down on a new Toll brothers McMansion, and then sell your interest in the property two months later for 15K should home prices rise, you could make nice money speculating on real estate with out ever having to bother owning it.
Re: "There's been a change in social attitudes toward default. We're seeing people who are current on their credit cards but are defaulting on their mortgages. I'm astonished that people would walk away from their homes."
--
"I also think that makes it a poor choice for someone like Bernanke to use as the basis for his own policies."
Would you have faith in Burn-ass-ke or Schumpeter's version of the 1920s and 1930s? You can read some excerpts from Business Cycles in:
SCHUMPETER'S OBSERVATIONS ON BANKERS, DEBT, AND THE REAL ESTATE BOOM OF 1920s and THE CAUSES OF THE GREAT DEPRESSION:
FSU Editorial: "Schumpeter's Observations on Bankers, Debt & the
Real Estate Boom..." by Jas Jain 11/20/2005
Jas
--
There is lot of economics-malpractice on this blog and everywhere in the financial media. How to identify those who are guilty of economics-malpractice?
Those who havent read, let alone study, Wealth Of Nations and Business Cycles. It is like a rabbi who hasnt studied the Torah.
Beware of false teachers!
Jas
-ck-:
Thanks for your thoughts about the Denver area RE market. If the transfer there works out as planned, it would be around July.
O-Joe
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"I think that carrying assets in foreign banks will be too easy for the government to access in a depression."
Governments are all-power and many of them united. People are powerless and disunited!
Whodda thunk dat democracy will lead to this?
Jas
w, I think the key is to identify an overseas bank that has no U.S. presence and, hence, is not foreordained to 'do as it is told' by the Feds.
These folks purport to know such banks:
https://www.safewealthadvisory.com/
I also met a well-heeled Swiss national yesterday, and will pick that person's brain for a bank recommendation right after the stock market crash.
--
Jump doggie jump.
Bad bad doggie. And worse owners.
America has too many shameless dog owners
Jas
Ella, Maybe the now under-employed mortgage brokers can put together these deals. Those people are hustlers! They'll make it happen.
The cash, that's another hurdle.
Here's my dumb question. Lets say you do this little two step in a "recourse" state. The lender on the first loan sues you for the difference between the amount recovered on the foreclosed home and the amount owed on the mortgage. Can they take your new home (or at least get a lien on it) and would their claim to the new home be senior or junior to your new lender's lien on the home?
--
Too many bad doggies in the neighborhood. I always carry a big stick. And there is more in the stick.
Why do Americans breed so many bad dogs? They are insecure and lazy.
Jas
Cal House Bear wrote at
|01.27.08 - 1:04 pm |
regarding the mortgage put and jingle mail...
"This could indeed be a very bad negative feedback loop. If this takes hold, how do you stop it? What causes the negative feedback to end?
I always read the entire thread before i even think about posting.
I thought cal house bear's observations awesome and worth repeating.
Was deliberate inflation necessary for recovery in these instances?
ac
AC: IMO you hit the core question.
During the Great Depression, the leaders of the Nations basically had two options:
a) Let the deflation run its course to the bitter end until all farmers and companies were liquidated and workers unemployed.
b) Reflate the economy by devaluing the currency with the goal of getting rid of claims of bondholders
The reason why ther GD was so bad and so long lasting is that government reinflated too timidly. Exception: Hitler's Germany. Hitler set up a gigantic reinflation in 1933. The Reich subsequently outperformed the recovery of the USA in the thirties by a great deal. Now, we know that Hitler's were never sustainably, because all he wanted was to go to war and then repair government finances by looting conquered nations. You could have reinflated as strong as Hitler did, though, also in a sustainable way.
Then, if you gho back in Europe's history you will always find the following pattern post dark ages:
a) government is formed from a war, starting with a new currency and 0 debt
b) government starts to amass debt and never pays it back
c) the amount of debt on the general economy is pushed higher and higher, because the government does not pay in cash, but in IOU's. Imagine if you paid your grocery store in IOUs instead of cash - how long before they start paying in IOUs their suppliers? - Debt is pushed thru the whole economy as consequense of ever-prolonging government debt.
d) At some point the government is bankrupt. Debt is called in a huge deflationary push rattles thru the economy. Very few rich people own all the bonds and the masses become poorer and poorer.
At this point there are only two options: kill the creditor claims or let the deflation run its course. (see the protocol of Chancellor Bruening's visit to Chequers to Mr Chamberlaine in 1931 - they were talking exactly about this. Shortly before the Weimar Republic ceased existing.)
In the past there were many end game variants: all creditors are killed (see Octavian's Proscriptions in old Rome), all debtors are enslaved, currency is replaced, etc.
That's why I believe Jas is completely wrong in accusing bankers - they are only the traders of the government-initiated debt game, not the cause. Goverment indebtness has always been the cause of the long wave cycle.
Currently, we're far away from any end-game. This is IMO about 40-50 years away and will not be so bad. I think we'll see a big & quick currency devaluation then and that's it.
To be more correct, we should not call the system "capitalism", but "debitism". Don't get me wrong: I'm highly in favor of debt, just not ever-prolonged government debt. Without debt, there are just dark ages.
O-Joe
--
"This could indeed be a very bad negative feedback loop. If this takes hold, how do you stop it? What causes the negative feedback to end?
Taxpayer bailout $3-5Tr over ten-year period. Our mis-leaders have the LEGAL power to do it.
As I said, Legalism is a morally bankrupt ideology.
Jas
I am untroubled by the morality of these trade-downs. I don't really care about the bitter unfairness suffered by a card shark whose mark turns out to be a rated player.
Whether this is legally fraud or not will turn mostly on the second lender, not the jingle mailer. It would be hard to prove fraud if the borrower says, "My home is on the market now," and it is--even if he subsequently just walks. Only the most loose-lipped, such as our interview subject here, are likely to provide any solid evidence of intent to defraud in such cases. However, it is easy for the second lender to trap the borrower into either an honest admission or outright fraud simply by asking the questions they're supposed to be asking. If loan officers and brokers keep jiving their UWs for the sake of their commissions, well, that's too bad for the bank.
Oh, and can we please stop it with "This will raise rates for everybody!" If you mean, mortgage rates go up when underwriters don't give it up freely like drunken crack whores at a house party, well, maybe they should go up, I don't know. All they have to do is stick to their twelve-step programs and do their jobs, and this "trade-down" strategy really won't become a big problem.
Sandblaster
Weld County is very bad for REOs. I did over 100 REO appraisals there last year, 90% of which were for one lender. Some areas are 50-70% REO among homes sold. Some newer areas are like ghostowns. The market there is very distressed with very little to be optimistic about.
--
O-Joe: "That's why I believe Jas is completely wrong in accusing bankers - they are only the traders of the government-initiated debt game, not the cause. Goverment indebtness has always been the cause of the long wave cycle."
O-Joe,
It is better to read the master, Schumpeter, than to listen to Jas:
Finally, EVERYTHING WAS DONE TO MAKE IT EASY FOR EVERYONE TO RUN INTO DEBT, FOR THE PURPOSE OF BUILDING A HOME AS FOR ANY OTHER PURPOSE.
In other words, we shall readily understand why THE LOAD OF DEBT SO LIGHTHEARTEDLY INCURRED BY PEOPLE WHO FORESAW NOTHING BUT BOOMS SHOULD BECOME A SERIOUS MATTER whenever incomes fell, and that construction would then CONTRIBUTE, directly and through the effects on the credit structure of IMPAIRED VALUES [read falling prices] OF REAL ESTATE, AS MUCH TO A DEPRESSION AS IT HAD CONTRIBUTED TO THE PRECEDING BOOMS.
-x-x-x-
IT WAS THE BAD PRIVATE DEBT AND BAD BANKERS THAT CAUSED THE GD.
Jas
Nice comprehensive review article of the monoline insurers from Roubini's site:
http://www.rgemonitor.com/blog/economonitor/240092
The next 30 days are going to be interesting, with the results of S&P's rerun stress test due and ACA's 30 day stay of execution up in mid/late February.
Ever heard of renting?
From what I understand from the post and comments, is that it is possible to fool the credit system in order to secure funds. If this is true - then I think it is the fundamental problem.
At a fundamental level, the objective of the credit system should be to evaluate the risk of return of principal. If the credit system (credit scores, outstanding debt, history of repayment) fails to provide relevant information to the lender, then lending will break down. Even when you rent, you need to establish proof that you will be able to make monthly payments. If an individual has defaulted on a house or is planning to default on a house, at some point the system needs to ensure down the road credit to the individual is denied or deemed as "risky" - requiring a higher rate of return for borrowed principal. Otherwise, the whole system or borrowing and lending does not make sense to me.
I remember Tanta mentioning in one of her previous comments that - the risk of walking away is that individuals loose access to future credit. Hopefully there are systems in place to ensure this happens !!
lama,
Ya never know.
Wow, great thread! A few comments:
1) Lots of us (including Rob Dawg) discussed this very thing well over two years ago. We're far from "stunned and surprised".
2) Prices here in SoCal will definitely decline 70-80%; in fact, just heard about a $750K place sold out of FC for $350K, and we're just getting interesting here.
3) I got rejected from lots of (admiittedly nice) rental properties in 2000 due to an active Ch13, despite offering six months rent up front.
4) FDR's actions regarding gold were patently unconstitutional. No, repeat no, circumstances justify that, period.
CowTools,
I grew up in Weld County. Outside of some feed lot owners, nobody there then could be considered even upper middle class, so I'd be surprised if the median home was realistically anywhere north of $100K. The idea that they were building tons of $300K+ around there (and even along the northern front range) was absurd.
Lawyer Liz - Send the cases here to north Florida. We have judges - especially younger retired ones - looking for assignments (to make a few bucks) - and they can't find any.
Sorry I cannot remember who asked the question - but making a "short bet" based on the muni market is kind of hard. There used to be a muni bond futures contract - but it was eliminated due to lack of volume/interest. There are some new-fangled muni ETF's. But I wouldn't trust them (to go long or short). The muni market is a large highly fragmented not-very-active (in terms of trading) market. It's hard to do anything in that kind of market except buy and hold. Note that are sometimes some arbitrage opportunities for outfits like hedge funds and pension funds (between taxables and munis) - but the players tend to overestimate the liquidity of the market. So occasionally they wind up puking up lots of munis (when their bets go bad). That is usually a good buying opportunity for more traditional buyers.
Question for you people in California. If the laws changed so California became a "recourse" state - what percentage of the kind of shenanigans discussed in this thread do you think would disappear? I'm not talking about people who lose their houses because they lost their jobs - or have huge medical expenses - etc. Just the house stuff where people are trying to "game" the system.
To the person who mentioned leaving the country if X,Y,Z happened (JG?) - where are you going to go if you go? And what languages are you learning to prepare? The Swiss may want your money but they don't really want you unless you are very rich - like Marc Rich. And you wouldn't feel very comfortable there unless you speak German, Italian or French (and preferably 2 of those languages - although German is dominant). BTW - I think it is great to learn foreign languages - even if one doesn't plan to flee the United States. Our language this year is French (last year it was German - and the year before that Japanese). And my husband and I both speak Spanish. Roby
I think it would be a big mistake for anyone to make fraudulent statements on a loan application under the theory that everyone is doing it and there's safety in numbers.
Lawyerliz is probably right in saying that criminal prosecution is unlikely, but even here one runs the risk of being the guy somebody decides to make an example of. A good defense lawyer is expensive even if you are acquitted, and if you are not, the consequences of a felony conviction go far beyond any fines and jail time, especially for white-collar types. (You're going to be blue collar, post-conviction.)
Far more likely, though, is civil fraud suits filed by the lenders, if they decide this kind of behavior needs to be stamped out, regardless of cost. Of course they are not going to come after everyone, any more than the RIAA can go after all the illegal downloaders. But do you want to be one of the luckless ones who winds up in the crosshairs of the lender's legal team? In my experience, banks have some pretty mean legal pitbulls on retainer.
In many if not all states, I believe a finding of fraud could entitle the plaintiff to damages that are some multiple of the actual amount in question.
FTR, there are a few organizations that are in the business of placing the assets of wealthy individuals beyond the reach of most governments, including (especially) Uncle Sam. Their services are definitely beyond my means, but if anyone here is interested I can look up the info.
tj & the bear writes:
1) Lots of us (including Rob Dawg) discussed this very thing well over two years ago. We're far from "stunned and surprised".
It has been a very good week for vindication. It is going to be interesting. In theory credit can be repaired and supposedly things "drop off" after a few years. Yeah right. Welcome to a world where your comments on a blog are google cached and meme tagged and attached to your credit profile. Forever. Interested individuals are encouraged to google James Bolivar diGriz for a glimpse of the future.
OT - HUMOR WARNING - For you Dave Barry fans - his take on the primaries:
404 | MiamiHerald.com
P.S. Are OT and humor things allowed here these days? Roby
"3) I got rejected from lots of (admiittedly nice) rental properties in 2000 due to an active Ch13, despite offering six months rent up front."
I don't know about landlord/tenant law in other states, but in MA it is illegal to take more than first, last & one month-security dep, so there would be no sweetening the deal for people with bad credit as far as I can see. If you try to take more as a landlord, you can get slammed in small claims for the equivalent of 3 months' rent. But then MA has some pretty strict laws in this regard.
Japan Thinks Pre-Bush State Of Union Address has Too Much Lipstick On Ugly Pig!
Monday, January 28, 2008
09:45 - Stocks: Open Sharply Lower On Jitters Over U.S. Woes
09:19 - Forex: Dollar Moves At Upper Y106 Range In Early Tokyo Trading
In its Economic Review, Deloitte predicts GDP growth will slow sharply from 3.2 pct in 2007 to 2 pct this year, and to 1.7 pct in 2009.
This would be the weakest performance from the UK over a two year period since 1991-92, and below Chancellor of the Exchequer Alistair Darling's forecast in his pre-budget report for 2.00-2.50 pct and 2.50-3.00 respectively.
More Industrial Lipstick ASAP......make it look pretty!!!
Rob, so what?
let them google me, after all, if they don't want the truth they should continue to talk with their speechwriters and NAR economists.
Jas aside, talking to pols is always a veeeery delicate undertaking. They have their preferred reality, and if you should happen to impact that with a careless word, they sense you are a threat, and deal with you accordingly.
Very few pols want an honest take on things, that way they live in the echo chamber. If they don't they sound a lot like John McCain, whose biggest problem has always been those pesky unscripted moments which totally drive the mainstream Rovian repubs mad.
Same things are easy to forsee, but how the polity reacts can be difficult. Remember, Rob D, Slippery Jim met his Inskeep. Somebody will put you in the traces before you know it. It happened to me;-}
Someday this war's gonna end...
Tonights 60 Minutes "The House of Cards". The best msm reporting yet.
60 Minutes - Interviews, Profiles & Reports - CBS News
The 60 minutes piece mentions "Ponzi Scheme" in the first 2 minutes.
Here's a link I just picked up from Naked Capitalism about growing prosecutions and civil suits against those involved in mortgage fraud, including borrowers.
Bank Lawyer's Blog: No Longer Civil
Just watched CBS 60 minutes which had a geat piece on the topic of this post. Focused on Stockton, CA, where foreclosures are rising at an incredible rate. Anyone who wanted a 100%+ loan to value loan got one no questions asked. Our close are we to the end--40% into the foreclosure problem. Right now the inventory is 2 years and just about everything that's selling is REO. And the REO investors are mostly waiting for lower prices. I talked about this and related posts to my wife this afternoon. When she watched the CBS segment, she said: " This is just what you were talking about." I guess that the general public, especially in Ground Zero States, is starting to get a realistic perspective on the problem.
I wonder whether CR can get a video of this report on 60 Minutes.
CowTools,
I grew up in Weld County. Outside of some feed lot owners, nobody there then could be considered even upper middle class, so I'd be surprised if the median home was realistically anywhere north of $100K. The idea that they were building tons of $300K+ around there (and even along the northern front range) was absurd.
tj & the bear
When going up and down the canyon roads and sticking to 40 mph(beware of cops) on the Peak to Peak gets frustrating, I ride in Weld County or "the other side of the I25" as I tell my wife as I leave.
I agree with tj. There are still some very interesting farm labourer accomodations one can spot out there - quite sobering. The overbuilding of the exurbs is quite absurd. They've ruined it just as much as Victorville, Apple Valley on the fringes of LA have been ruined.
O yeah and beware of cops. I swear, I really think they use spotter planes - those signs aren't there just for show unlike LA. I've got two tickets in 4 years.
-K
Aw, tj, as your gold continues to skyrocket, you'll be a man of means. Get your overseas asset protection plan in order, man!
Oh my, these people (60 Mins) will only pay thier mortgage if value goes up and now into intentional foreclosure.
Berylmarkham,
Yes, that's exactly what we heard. We also heard others tell us they'd love to rent to us (given our references), but federal housing laws prevented them from showing any leniency.
CowTools,
I used to know the "bear in the air" along the northern I-25 in the 80's; he even nailed me once! Ah, the memories...
Rob Dawg, Misean, TJ, et al.--
Yes you all got it right, and I have faith you'll have further insights. That's why we come here.
I just think it's a little funny that you feel the need to say that you were first. Of course, if I had to wait through this last year of being a target for optimistic critics sniping, I'd probably want to crow a bit too.
And Rob Dawg: Harry Harrison's justification for crime, ranks second only to Fat Tony's explanaton to Bart Simpson.
SK, TJ& the bear and CowTools
Weld country has spent the last 5 years putting McMansions up in Dogpatch.
The one piece of this that I have yet to hear about as far as house values goes is water. Highlands Ranch is working off an aquifer that's getting lower by the minute. All those McMansions supposedly turned in a share of BigT, but it's unbelievably overbuilt for the water we have. There was even a megachurch that wanted to be annexed by my town simply because we have a good amount of water rights.
Water's more valuable than the houses.
--
"Jas aside, talking to pols is always a veeeery delicate undertaking. They have their preferred reality, and if you should happen to impact that with a careless word, they sense you are a threat, and deal with you accordingly."
Have I ever had any problem with what you say, how you, or why you say, AllenM? I agree, or I disagree, but I never make you the subject.
Intolerant people make posters whose conclusions they dont like the subjects of their comments. Some are even worse by indirectly making posters the subject of their comments. They are dishonest and intolerant. But, that is the world we live in and we deal with. We got to deal with dopes and Crooks at the top.
Obviously, people here demand conformance. I dont demand any conformance from anyone.
Jas
Is 20 million really a realistic number? It seems like a model-based error.
Wouldn't the chaos from associated foreclosures trigger some sort of legislative fix? Something akin to a real estate RTC.
OT: Nikkei is plummeting on opening.
just watched the Sixty minutes Kroft job on housing. I would be amazed if the Fed gives any more sugar for a while.
Now the pinch of ARM financing is showing up in homeowners that are totally cul de saced (equivalent of WS pier loans, LOL:-} and having to walk.
New home construction is dead with this kind of meme going mainstream. A lot of future homebuyers were brought forward and slaughtered and will not be participatory in the home owners markets.
That cohort of introductory homeowners will not make an entry into the market as starter replacement buyers. This and the discouraging financing will provide a tremendously delay in the recovery from this debacle.
Someday this war's gonna end...
As I have stated "many" times, we have a real hedge fund problem brewing-
"Unable to extract cash from the once-burgeoning and now- frozen derivatives markets of collateralized debt obligations, institutions are raising money where trading doesn't need an appointment.
We provide a service to people who need liquidity,'' said Jean-Francois Theodore, deputy chief executive officer of New York-based NYSE Euronext, in a Bloomberg Television interview at the World Economic Forum in Davos, Switzerland.In troubled times, that's our function.'' "
"As you're liquidating a pool of subprime mortgages not worth anything near par, you may have to take big losses and at the same time sell other securities like equities or investment- grade bonds,'' said Brian Barish, president of Denver-based Cambiar Investors, which manages more than $8 billion.If someone was in a casino and they lost a lot of money, they might have to liquidate personal holdings or savings they had no intention of selling to satisfy those other losses.'' "
"When you've got to raise money, you've got to raise money,'' said Dean Gulis, who helps manage $3 billion at Loomis Sayles & Co. in Bloomfield Hills, Michigan.If you own something that's illiquid and not worth as much as you think it is, then clearly something else has to be sold in its stead.'' "
Seized-Up Credit Market Spurs Record Stock Trading (Update4) - Bloomberg.com
--
"Someday this war's gonna end..."
YES, when the American System ends!
I wonder what American dopes would do without their beloved democracy. What would they do without the right to give approval to one agent of the Crooks over the other agent of the Crooks? They will suffer from the withdrawal symptoms.
All empires come to an end and it is never an easy thing for some to deal with. Enjoy while it lasts!
Jas
Sandblaster:
I live in Colorado Springs, and the housing construction continues...but permits are off 30% or so. But they are still building these $350k homes in huge developments all the way up to where Black Forest begins in northern El Paso County. We don't have that many big employers; there's 3 military bases, but they can't all be officers. So I don't know where these people are working, or they were bought with option-ARM loans a couple of years ago.
Anyway, talked to the dad of a friend of my daughter's last fall. Big house, big lot, camper, ATVs all that stuff. He's in constuction, and he's got a 3% teaser ARM that resets in March, with a $20k prepayment penalty. So his mortage will increase dramatically and he told me his business is off 50% from last year. Not a good combination.
I see many homes here that have been on the market a year or longer...they refuse to drop their price. We're nearing the peak foreclosure of 1989, but percentage wise, it's not there yet. I'm confident it will though.
Jas, they would hustle you out the door so quick your head would spin. Nothing, personal, not targeting you, they just wouldn't even bother letting you get out the beginning of your commentary.
You can't call folks who have no idea that they are criminals when they are just operating in the structure that has evolved over the last hundred years. They just won't accept that it is all their fault.
What they want is a politically easy expedient solution that will play well on the evening news, and solutions to messes like this require long drawn out lousy compromises that are ideologically corrupt to the outside, but allow the system to keep operating.
After all, the system is what the institutions all have a stake in perpetuating, and we also have a large stake. Hectoring them on the immorality of the system puts you in the boat with Thoreau and Emerson, but doesn't really put you in the room with Seward to understand the negotiations leading to the restoration of the gold dollar.
You are being targeted as a troll because you are slinging mud at all of the folks here indiscriminately- and quite frankly, I couldn't tell the difference between the fake and the real, which is one of the drawbacks of the current system of comments here.
Someday this war's gonna end...
sdtfs,
Like Rob said, it's not about boasting so much as vindication. Even on HBB people considered us way too bearish, yet we were simply pointing out the logical progression (as techie/analysts are wont to do). The progression continues, but many simply don't want to see it.
Note I said want, not can't.
Gee, like the people I know that let their house in another state go into forceclosure ( on a 1st and 2nd- total about $70,000 more than the house is worth). They now had the husband's boss buy a house here in the boss' name, which they signed a lease option to buy- the same month they stopped paying the mortgages on their home.
Of course they see NOTHING wrong with this. I fee really bad because I actually hope they get caught. Their actions to me are morally detestable.
Oh, did I forget to mention, they are filing BK in an effort to wipe out the mortgage debt and about 40,000 in credit card debt? Most likely will have to go 13 because his income is too high, and they are now in a bit of a quandry as to how to explain this whole house thingy and the timing of everything. Oh, forgot to mention too the boss put down 50,000 of his own money to buy the house for them. Of course,he signed the paperwork as being owner occupied.
I can't wait until the trustee sees all of the paperwork.
Any opinions as to what will happen? I'm thinking an adversarial motion maybe.
"and quite frankly, I couldn't tell the difference between the fake and the real"
Allen,
It's not that difficult, is it. I'm the one that writes these words over and over:
Some would call this endless repetition of the exact same words a sign of insanity, but it is the only way I can get through to you Americans.
The problem could not possibly be me!
It is all of you!
Clearly!
Dopes!