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sarcasm The Countrywide shill stikes again /sarcasm
The gradual detioration of UW guidelines left me with the impression that they were being designed to subvert due dilligence.
OT-
Looks like all is well! Only a mild recession, at most!
CNBC
Market Pros Think It's Time To Buy US Stocks Again
Tuesday May 27, 3:24 pm ET
Investors who spent the past nine months avoiding the skidding US stock market and economy by snapping up multinational companies are now coming back home.
As stocks have staged a comeback and the economy is showing that it is in for at most a mild recession, portfolio managers have been in rebalancing mode to bring their national/international investment ratios back to a more normal level.
The gradual detioration of UW guidelines left me with the impression that they were being designed to subvert due dilligence.
You aren't the only one, although we're still apparently a minority.
The rest of the world thought all this business of stated income made perfect sense until about the middle of last year. Now they want to focus on the $15,000 a month hotel worker, as if. We'd be soooo lucky if those were the only loans going bad right now.
--
'Was Mr. Peterson calling that "preposterous" at the time? I was."
Good for you, Tanta. The outcomes of these practices were never in doubt, were they?
Jas
May 27 (Bloomberg) -- Housing demand in California, where one out of every eight U.S. residents lives, is reviving as bargain hunters buy foreclosed properties, reversing a two-year slide in home sales.
Thank God! CR, now we can relax and start buying again!
Has news reporting ever been good?
One could use nothing but quotes from newspapers and newsmagazines with high national circultion to construct fourty years of world history nobody over twenty would believe were supposed to be non-fiction.
High school students across the nation are using quotes from NPR, NY Times and WS Journal as a basis for reports. Poor little lambs are in for a surprise someday soon.
That's "Prof. Peterson" to you.
Calculated Risk ad Econbrowser are the only sources of economic news I trust anymore. Charts of actual data with short commentary.
The really good news is: the same underwriting standards were used for corporate bonds for companies with weak balance sheets, packaged, rated AAA and sold. We will be seeing them anytime now as the economy starts to slow and corporate profits slack off.
What happened to the "Read More" link?
One thing I rarely see in discussions of this fraud is an acknowledgment that on the other side of the table with that 15k a mo. hotel worker was a broker/banker saying, "Now, you understand that if your stated income is only twelve thousand a month, we aren't going to be able to approve this loan - are you sure (nod nod, wink wink) that you haven't forgotten a second job, or something? Maybe a trust fund?"
I know that in lying about their income, these folks were committing fraud - and I'm betting that some of the more egregious cases will be prosecuted - on one side of the table.
Before I learned to dig in my heels, I was talked, a couple of times into things I knew weren't Kosher - because they were "standard practice" and "just the way this business is done."
Now I have little or no sympathy for some flipper that knowingly lied, betting that he/she could turn the house before any chickens came home to roost. They gambled, they lost - and whether they deserve it or not, they're gonna pay a price. And the collective actions of these speculators was instrumental in driving prices to unrealistic (insane?) levels. Time to pay the piper.
But I keep picturing some barely literate minority, possibly with a limited grasp of the language, being fast-talked into signing a foot tall stack of papers they have no comprehension of whatsoever. Now they are worried sick they are gonna lose the home they were so proud to "own" a year or so back.
I see the flipper (and, of course the knowing broker) in this case as the criminal, in the other, I see Snydely Whiplash.
Advice for all national news organizations:
Do not - repeat, do not - run a story on the mortgage issue without a quote from (better yet, vetting by) Tanta.
Warning for all national news organizations:
If your reporting on the mortgage topic has had its credibility, accuracy, and completeness restored due to implementation of the advice above, the flaws of your coverage of all other topics would be revealed the way a single polished tooth in the mouth of a lifetime smoker would reveal the dinginess of its neighbors.
The really good news is: the same underwriting standards were used for corporate bonds for companies with weak balance sheets, packaged, rated AAA and sold.
Ya good thing too... else we might have had lay offs and we wouldn't want that!!!
Another "cover up" expose....mortgagegate?
Tanta- I do think there are people who are shocked, and will be shocked. There is still a sizable hunk of the population that never knew stated income existed. When you mention it, they wave their hands and say that surely someone tried to verify the income. And then if you patiently explain what stated means they still can't accept it.
These are the same people who have pensions and believe that since there is a fiduciary responsibility, someone must be watching out for them.
Perhaps it's your deep sympathy for Countrywide that blinding you to how far ahead of the curve you are? As the comments pour in, you too, will have your Deming self-appraisal re adjustment.
Perhaps it's your deep sympathy for Countrywide that blinding you to how far ahead of the curve you are?
No, I think it's the fact that my memory goes back further than last week.
The BIG STORY of 2007 was NEW CENTURY GOING DOWN IN FLAMES on repurchases of stated income junky loans.
Check Calculated Risk archives.
This isn't about "normal people" just figurin' this out. It's about a bunch of class action attorneys finding some way to claim there was a "cover up" of what was disclosed on the effing prospectuses.
This isn't about "normal people" just figurin' this out. It's about a bunch of class action attorneys finding some way to claim there was a "cover up" of what was disclosed on the effing prospectuses.
Tanta | 05.27.08 - 5:58 pm | #
Lawyers have mortgages too - you wouldn't want them to have to 'walk away' now would you?
Hey, it was attorneys who successfully sued Arthur Andersen many years ago for using the phrase "Random Sample" on the workpapers. The lawyers argued that Random = Irresponsible and lacking in business judgement.
Where there's a will there's a way.
Again CFC wouldn't be talked about at all without the 2003-2006 option arm product. The company is and always was crap.
SR
Another good one Tanta.
The pendelum has swung so far to the "other" end it has flown off it's axis and cracked the banks over the melon so hard they are even dumber now!
Mortgage friend of mine just told me that a borrower looking to refi a $700K loan into a 30 year fixed. High 700's FICO. $350K/yr income. Over $1M in liquid assets. Property appraised at a conservative $1.1M.
Can you say declined?
Tanta,
I guess your argument might hold--unless this same nonsense went on at the lenders directly controlled by the investment banks. Bear owned a subprime lender, maybe two?
If their lender participated in the same sort of thing, then it's a cinch: they're screwed. Though they're probably screwed anyways. I read somewhere there are still suits going on from the S&L crisis. Wall St will be dealing with this for a very long time.
As a regular reader I am pleased to report that I knew you were going to say this: "If the guidelines allowed utter stupidity, it isn't likely that the project supervisors would kick out a loan for displaying that particular kind of stupid." as soon as I heard the NPR report.
Thank you for reducing my level of ignorance.
Seems to me somebody somewhere should be culpable. If the guidelines actively encouraged tolerance of fraud, then the authors of the guidelines should be accountable. Of course, it might also be worthwhile to look at implementation of the guidelines as well as the document itself.
Ya good thing too... else we might have had lay offs and we wouldn't want that!!!
I'll pay good money to have a former investment banker wash my car.
If the guidelines actively encouraged tolerance of fraud, then the authors of the guidelines should be accountable.
Yup. Those are the Big Boyz.
But what will get? A bunch of due diligence supervisors fired.
Mortgage friend of mine just told me that a borrower looking to refi a $700K loan into a 30 year fixed. High 700's FICO. $350K/yr income. Over $1M in liquid assets. Property appraised at a conservative $1.1M.
Can you say declined?
JT in SD | 05.27.08 - 6:21 pm | #
If his current loan is so crappy he wants out into a 30YF at any cost then he should convert some of that $1MM in liquidity into a 'loan to himself' - erase the current mortgage then wait out this little storm and refi later - if he so chooses.
While waiting to refi, start backfilling the 'liquidity' he 'withdrew from himself' with savings from the $350K income he is now NOT spending on a mortgage payment... it should be a no-brainer easy choice for a person with those assets to juggle & come out better than he started.
Unless there is more to the story...
If I was the banker I'd be looking real hard for the 'rest of the story' on jumbo apps like that before I approved it too.
I suspect before it's all over, the MBS holders will sue whomever they can for probable widespread fraud in the loans. No question the MBS buyers were the ultimate incompetents in this mess. Hoo...
Walkaway owners being jailed in California. A new level of risk has been added to owing a home.
eCONomic Scuttle Butt » Blog Archive » “Walkaway” Mortgage Deadbeats Jailed in California
anon writes:
Walkaway owners being jailed in California. A new level of risk has been added to owing a home.
Your chain is being yanked....
LOL... Judge "Jed Clampbet"? Mortgage industry spokesman "Snidely Wachovia"?
Good items on that site: "Ditech Acknowledges Waterboarding Delinquent Homeowners"
JT in SD-
I agree with Dryfly's comments. I'd also add that even if everything is "legit", what you're seeing is the velocity of money going to zero.
You have GOT to do a thread on Phil Gramm and his lobbying on behalf on the investment bank industry. It's on Countdown right now.
Have been reading this blog for close to 2 years - must say it has been both intellectually and financially rewarding.
Am looking to buy a house in Edgewater, NJ. 70 yr old house that has been empty for over a year. Listed in November for 779K and reduced to 735K 2 months ago. Respect the opinion of people on this blog and would welcome advice on how much to bid.
But what will get? A bunch of due diligence supervisors fired.
If it goes that high!
NJ Anon,
I'm from Hudson Co. The dropping in prices is just beginning in our area. IMO, hang tight. Wall Street layoffs will continue and that will hurt Bergen County real estate even more.
Inventories are shooting up and move up buyers from Hudson to Bergen are scarce nowadays.
What seems like a good deal today may be a sucker's bet a few years from now. Whatever you decide, good luck, neighbor.
anon writes:
Walkaway owners being jailed in California. A new level of risk has been added to owing a home.
Page not found | The Wall Street Examiner? p=41
According to the last few paragraphs of this link, going to jail isn't the only risk defaulting home owners face.
As to the "smoking gun" issue, let's return to the quote from the segment, in particular, the part which says "if it was an income verification, a lot of times they weren't making the income."
So the auditor is saying that loans which were fraudulently induced went into the pool.
Do you think the Bear Stearns prospectus warned investors they were including loans which the borrower fraudulently induced and which, absent continued market appreciation, the borrower had no reasonable likelihood of repaying?
I doubt it, but I haven't seen the prospectus. On the other hand, how can you be so sure that Bear Stearns complied with its underwriting guidelines, or that these guidelines themselves were adequately disclosed? Do you know if the prospectus contained a general statement such as, "We expect the loans to be repaid", or any other indicia of the quality of the loans?
The "smoking gun" concept can only be evaluated in context of what the prospectus said. If the prospectus straight out stated, we believe these loans are garbage, the borrowers will not be able to repay, and we think you will be lucky to get back $0.60 on the dollar, then you probably have a point. But again, I doubt they said that.
Doom,
I hear you but I've been holding off for 4 years - am on thin ice with my wife on this topic. Also, the kids need to get out of the apartment. At this point I think it'll be another 20% down from the end of this season and I'll just bite the bullet and live with that.
So what do you think? Atleast cannot hurt to put in a bid.
anon writes:
Walkaway owners being jailed in California. A new level of risk has been added to owing a home.....
This is how it should be... hope the govt punishes at least the ones who committed explicit fraud (stated income fraud??)
Phil Gramm and his lobbying on behalf on the investment bank industry
Well he's a snake, but he has plenty of company under that rock with Dodd, Schumer, Frank and Hillary.
They should just drop the pretense that they represent the states they supposedly come from.
The Senator from JP Morgan: Upchuck Schumer
The Senator from Chase Manhattan: Hillary Clinton
The Senator from Goldman Sachs: Phil Gramm
etc.
NJ Anon,
Ok, I understand your situation. The wife always wins, I know! Only thing I can tell you is to forget the asking price and the amount it was reduced to. You have to try to get a true value of worth based on current market conditions and then try to lower it as much as possible from there.
Too often people make offers based on asking price. Forget doing that. Anybody can ask for anything. If it was listed at $995,000 and was just reduced to $895,000 it would seem that at $750,000 it would be a "good" deal. And obviously it isn't. Hasn't sold yet for less.
So the first thing to do is to find out what it's really worth. And try to not prejudice your opinion based on the asking price. Than of course, try to get it for less than that.
They probably want a quick closing so emphasize your qualifications and being able to close quick as a bargaining chip. Good luck.
Hope you folks realize that the article about Judge Jed Clampbett imprisoning walkaways is satire.
just sayin...
NJ Anon,
At the very least, don't pay a dime over the 2003 price. You better emphasize to the wife that she better love the place, because she could be stuck in it for a very long time.
NJ Anon,
One more thought. I understand (having 2 kids myself) that you want to get out of an apartment. Why don't you rent a house. Yeah sure, it's not yours. But the loss in value won't be yours either. Lease for 1 year and see what happens in the market. If it starts to stabalize, then buy. Otherwise, continue to rent and you just saved yourself a ton of money and headaches.
The anti-NAR slogan "why own, when you can rent".
Gamma on Dryfly:
I agree with Dryfly's comments. I'd also add that even if everything is "legit", what you're seeing is the velocity of money going to zero.
Agreeing with Gamma on both counts.
a) Why does this guy need this loan at all?
b) You can't lend what you don't have. No capital = no lending. They don't call it a credit crunch because lending terms are excessively generous.
The most obvious liars in this scam are the rating agencies that gave AAA ratings to so much of this garbage. Moody's and S&P clearly should have read the prospectus and/or studied the quality of the underlying mortgages.
I personally know of a bagholder -- a pension fund for plumbers -- that relies on an investment advisory board of mostly retired plumbers. These people couldn't possibly make an in-depth analysis of subprime MBSs and CDOs, so they relied on S&P to make an honest expert appraisal.
Can you blame the plumbers for thinking that a AAA-rated MBS (rated by both S&P and Moody)was a safe investment?
They should just drop the pretense that they represent the states they supposedly come from.
The Senator from JP Morgan: Upchuck Schumer
The Senator from Chase Manhattan: Hillary Clinton
The Senator from Goldman Sachs: Phil Gramm
I always liked Bill Maher's suggestion that politicians should have to wear patches on their jackets - like nascar drivers - showing who 'sponsors' them...
NJ Anon,
I believe that the decline in prices has only just begun. Consider that it was only last August that we finally began to see some real restraint in lending -- all accounts say that the very worst Alt-A loans, those defaulting the soonest, were made in 2007.
In the past, housing booms stopped when interest rates rose significantly, but this time around that didn't happen; rather, they just ran out of greater fools -- they could keep the ball rolling, even at a decelerating pace, only by continuing to loosen lending standards until they "broke the camel's back".
As indicated by the anecdote above about the fellow unable to refinance a $700k mortgage despite high income, assets, and a fairly decent FICO, lending standards are rapidly returning to -- probably returning past -- what they were back in the early '90s.
But in the early '90s there was substantial pent-up demand among the younger age cohorts, in which home ownership rates were near record lows for the last four decades, so there was an ample supply of first-time buyers to enable move-ups. And there was no glut of supply on the market.
Now we have the very opposite situation. Near-record high ownership rate among all age cohorts, and especially amongst the young, meaning a depleted first-time buyer pool. And an amazing glut of supply. And incomes that haven't grown (except amongst the very rich) by much in many years (especially in real terms).
And we are entering a severe recession.
Unless you don't believe that prices are a matter of supply and demand, you should expect that with vastly more supply and vastly less demand than in, say, 1993, inflation-adjusted prices should be lower than in 1993. (And when you're calculating inflation, consider that CPI rises due to increased competition for natural resources are not inflation -- inflation is only those price increase that are due to expansion of the money supply over and above expansion in the productivity of the economy.)
The price structure won't really begin to disintegrate until the many sellers still in denial and hoping the market will come back if they just hold on a while longer start reaching the ends of their ropes. We're not there yet. Wait at least until Sebastian stops making smug comments.
I guess I'm not understanding something... Tanta, you mean the due dilly people are getting different review standards than the standards of the loan pool they're reviewing for?
Billy Hill writes:
Seems to me somebody somewhere should be culpable.....
We, the taxpayers, must be culpable since we seem to be left holding the bag!
I guess as long as you are clear in your guidelines then gross stupidity should be excused.
Dagny
It's no surprise that the people making these comments are lawyers.
Stupidity isn't a crime. Neither is losing money.
The easy targets don't have any money, so aside from throwing a few of them in jail to satisfy the public, there isn't any reason to get all that aggressive.
The endless search for someone to blame gets old.
There is roughly an infinite demand for bad loans at all times. The problems are on the supply side and a lot of them have been financially punished or are already BK or effectively BK.
Who killed Davey Moore? (reference to Bob Dylan)
UnEasyOne writes:
Hope you folks realize that the article about Judge Jed Clampbett imprisoning walkaways is satire.
Well, maybe. It's just that most of the "news" out of California these days already reads like satire. So when satire is actually attempted, it can be hard to distinguish from the "real" thing.
Andreas writes:
"So the auditor is saying that loans which were fraudulently induced went into the pool."
This is really the point. If the IBs knew the mortgages they were adding to the pools were fraudulantly obtained they will have significant liability. Even if they should have known though reasonable due diligence, but looked the other wasy, they will have significant liability.
Invisible Hand - I feel for the Plumbers. But you are mistaken if you think Moody's and S&P reviewed the underlying loans in a given pool. In fact, the rating agencies have always been pretty clear that they don't look at the underlying loans. Due diligence on the loans is the duty of the investment bank.
I agree with dryfly's comments too. Somebody with that type of financial assets & income definitely has options. Also, I may not have been privy to the entire picture of this individual either. However, there are other stories I could tell you that are similar but I won't bore you. I guess the point I am attempting to make is the pendulum has swung so far to the other side it's laughable.
-jt
"There is roughly an infinite demand for bad loans at all times. The problems are on the supply side and a lot of them have been financially punished or are already BK or effectively BK."
Brilliantly put.
Tanta,
I have been reading CR every day for the last 5 to 6 months, I have been with you on almost every issue. However, my experience as both a Home Equity underwriter and a Loan Originator from 2001 to 2007 tells me that this NPR story is not at all overblown.
Most of my experience was with a small regional bank in New England. We were fairly conservative and required 10% down on everything, I mean everything. Still, my supervisors would routinely override our denials. They would chide us monthly if we denied too much. I can vividly remember my manager saying to our group of 20 underwriters, "You all have to loosen up, these loans are not going bad."
That small bank has minimal issues with default now. Can you imagine what the loose and sleazy lenders were like in the back room? The NPR report sounded very familiar to me and quite frankly, nothing about this crisis surprises me anymore. It was all about pushing more and more loans out with minimal concern for risk. Greed with capital letters.
Insurance Guy: I appreciate your knowledgeable comment:
"...you are mistaken if you think Moody's and S&P reviewed the underlying loans in a given pool. In fact, the rating agencies have always been pretty clear that they don't look at the underlying loans. Due diligence on the loans is the duty of the investment bank."
I am amazed. What in heck does a AAA rating mean if S&P and Moody don't look at the loans? The main determinant of value of an MBS is the quality of the mortgages.
doom, tj, jm,
Thanks for the comments - don't like to post from work (the authorities frown upon blogging) so a little late.
I agree with you guys that prices are going to slide - I'm not one of those that believes that 50+% corrections don't happen. When I started working in Mumbai in 1995 the last real estate boom had just ended and some areas corrected 70% or more. Worked in Japan for some years and every year we'd get the landlord to reduce rent.
However, I like the house. Old house - the potential (??disaster??) looms at you and we can see ourselves living there several years. As you noted I'm in a strong negotiating position and will put in a lowball - if accepted good, if not then better and we'll be back next year.
Invisible Hand -
Two sources you might be interested in. The first is the Moody's Code of Conduct from their website. Check out page 6, paragraph 3.
The second is an article by a lawyer, Gregory Markel, from the law firm Cadwalader - an expert in securities litigation. He outlines the duties of the investment banks in their role as underwriter of asset backed securities and speaks about potential liability.
http://www.moodys.com/cust/research/MDCdocs/01/2003400000425277.pdf
http://www.cwt.com/assets/article/122706MarkelSecLitandRegulation.pdf
Thank you, Insurance Guy.
These two references are both definitive, and I have printed both of them to study them further.
My main interest is not litigation regarding whether S&P is legally at fault. I am studying the practical effect that an AAA rating had on enabling hundreds of billions of subprime and Alt-A MBS to be sold, including the proportion of investors who misunderstood the meaning of an AAA rating.
Sounds like an interesting study. Good luck.