"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.
Office repercussions? Lots of fear in the REIC right now.
CR - back in the 80s I knew a guy who bought a house in Houston during the oil boom then lost his job in the bust. He looked for a job in Houston for almost two years - nothing. Depleted his savings completely....
Eventually he looked outside Houston & got a job in Chicago and tried to sell his home and couldn't because the price declines ate up all equity plus some...
I can't remember the exact prices but it was something like this
Bought the home for $250K, put $50K down payment (he admitted he over-paid, everyone was there back then)... $200K mortgage.
Tried to sell... best offer only $150K. He would have had to bring an additional $50K to the closing and didn't have it.
So he 'commuted' to Chicago for three years until he got a decent job back in Houston.
We heard of Residential RE pricing being 'sticky' on the downside as owners refused to sell because they did not want to voluntarily take a loss.
Now we have owners unable to sell contributing to the 'stickiness' of the price decline, even though they were possibly willing to take a loss to unload the property.
At first, I thought, wow, the lender should take what they can get if the seller wants out. BUT then I thought about it a little more. I can see a whole new scam opportunity emerging here if lenders get too anxious to mitigate losses.
It would work like this: Seller owns the house, has a 400k mortgage, but the house is only worth 375k. Instead of selling for 375k and sticking the lender with a 25k loss, the seller talks to the buyer and gets a 325k offer and a 50k cash payment to seller off the books. The lender gets a 75k loss and the seller gets a final ATM withdrawal of 50k.
This is hardly outrageous considering the scam was just recently worked the other way in the boom. Plenty of cases where the seller was kicking back to the buyer when the buyer paid an inflated price and mortgaged 100%. Buyer then walked away with some free cash and bad credit, I mean worse credit.
dryfly, He probably had a family - I've seen long commutes before when people can't sell. He probably could have rented the Houston house, but he would have been taking a loss - and then could only rent an apartment in Chicago. That sounds tough.
vader - we have seen lots of fraud. And have there been any cases of people getting busted for this kind of fraud? None that I am aware of... where are the police, where are the investigators from the lender. Nowhere to be found that is where. It's a complete free-for-all out there with no cops and no law and no enforcement.
If you know of people getting busted for mortgage fraud, I would love to hear about it. There has probably been billions lost to one kind of fraud or another. Google "super jenae" and you can see her exploits detailed on bubble tracking blogspot. Completely outrageous, and the police never come to arrest her.
Lets just call the little plan I detailed above "short sale fraud". It could be very lucrative. Imagine they typical seller who had a 400k mortgage, and a 500k valuation a year ago. He has seen 100k vanish... look at the temptation to do a short sale for 350k. Who is ever going to bust him? If some loss mitigation person at the lender bites the bullet on a 350k short sale, he can walk with 50k.
Yes it's fraud and I am not advising it. But where is the enforcement out there? Not a government priority, there is no cop on the beat... free market is best you know. Deregulation is the way to go!
Seriously, do you know of any enforcement actions against mortgage fraud?
yea, but that was back in the day when there were good jobs somewhere.
It is likely there will be no jobs no where to commute to that will pay enough to pay the house note and commuting expenses.
I was there in Houston at the time. The area was in a virtual depression, but the rest of the nation was in a strong recovery.
That's what made the housing situation so miserable -- people who lost their job in the oil bust simply couldn't pack up and take advantage of "Morning in America".
They were trapped by their houses which kept depreciating for years.
There are a few, M-F, tho I think you're basically right that the resources are not/likely to be devoted that should. But there's the Beazer case; there are some odd cases I've seen like this one from Florida, http://tinyurl.com/3bfm3b
And there are some prospects like a suspected flip scam here in MI, where persons of interest are still being identified. Even small white collar cases seem to require so much time and expertise.
The mortgage holder is not going to do a short sale as long as payments are being made.
So the property will need to be threaten by foreclosure before the short sale takes place, and the seller is unlikely to have $50,000 in cash laying round to buy something he can get later cheaper after it goes into foreclosure.
I think people in the future would have no incentive to give the seller 50k as a last ATM withdrawal, all they get from me if I was the buyer is the middle finger. why would I want to assume a higher payment, things work different on the way down
MMG - good point, most buyers may not be able to come up with enough cash to make it worth everyone's while. The seller could offer a decent discount to market price, but then that gets harder to get by the loss mitigation team. So maybe it won't be widespread or large amounts. Still, if you are a buyer, and made a 400k offer, and the seller says how about 350k and you shoot me 25k on the side. Plus, the property tax is lower going forward in all liklihood. I can see people trying to run it by the loss mitigation group to see if they get an approved short sale, maybe make sure the place is a wreck when the appraiser drops by.
is interesting... but many of the cases are multi million dollar cases. It makes sense to go after the big ones, of course. But I think in the bubble there were tons of onesy twosy frauds that can't and won't be prosecuted. And I still think there will be a million small frauds on the way down....the big ones are worth catching, who has time for the little ones?
This is America dammit. Someone is trying to perpetuate this fraud now---bet on it. But since no one but the buyer and seller will profit, it isn't going to be easy. Now if you can just think of some way for the originator to get a piece,...
I'm thinking there also must be some kind of wacky 1031 exchange fraud going on, too, but I doubt if it's as widespread as the liar loan scam. Can you call it a conspiracy if everyone is just passing the buck to the greater fool?
Now... I've been thinking of this for a week or so now and I still can't figure out how I'm wrong with this (though I simply MUST be):
I've read a number of examples where a mortgage payment on a McMansion will reset to, say $2500/month while renting the same floor plan down the road costs $1000-$1250.
So... what happens when an individual decides to walk away from their underwater mortgage @ $2500/month and rents down the street for half the price per month? Doesn't that give them $1250-1500 more money in their pocket every month? Won't that help out the consumer spending? What am I missing here?
OT, but I was reading that the Sept. B/D model has the lowest adjustment(asides from Jan.), so will the jobs number be a blowout to the downside?
expectations are 100k(zero + usual B/D), Liscio says 80k, depending on how many finance weasels got the chop I could see a 10k drop. Last month's B/D had +12k finance jobs, a lower adj. & the announced 45k in financials.....
That's just it -- they never pay the $2500, therefore there is no $1250 savings. When their teaser payment adjusts, they walk to the rental and keep their costs affordable.
Consumer spending takes the hit, too, because even though they may have the same cash flow they no longer have the credit nor the incentive to buy large durable goods.
[Heh... just thought of TJ/Hooker, agh memories of youth...]
True, but payments don't double at the reset, and (could be wrong here, but) some will streach to make the payments for a few months (though probably with CC I guess, one debt for another).
But there should be some additional head room in the budget from going from the subprime payment (pre or post reset) to rent (esp. if they decide to downgrade from the McMansion).
Course, there's 3 "but"s and 2 "c/sould"s in that statement... so a lot of wiggle room in that! And with the probably use of CCs to deley the invetiable that would compound the issue.
Yet... it still feels to me that many would end up with some additional disposible income... but again I figure I must be wrong!
Thanks TJ/Bear... you're most liekly MUCH closer then I am =)
DarrylR,
Gosh that article really brings it home. I'm in Europe but work closely every day with people who live in the towns in your article and I visit the area a few times a year. These are people with good salaries but who bought the most ambitious houses they could afford then proceeded to renovate. Husbands/wives both drive the latest cars (no public transit out there). More money spent on nannies and the dog nursery (no kidding). Wow.
My experience in auditing has been that where there's a transaction, there's potential fraud. Bigger profits attract and then require smarter criminals.
In New Hampshire, a politically connected RE developer started an environmentally destructive development right next to the Pemigewasset River after the market had turned in the late 80's. He bled a huge salary and the project went bankrupt. I suppose we'll see that one a hundred times again this time.
The U.S. attorney in Brooklyn has started a criminal investigation into a pair of hedge funds that had positions in mortgage-backed securities and subsequently collapsed at Bear Stearns Cos. ...
The Seattle-based company said in a statement that it will record a $975 million loan-loss provision and losses and writedowns of $410 million on mortgage loans and securities.
Yes, what a hoot - and that pop in the futures MUST be related to the robust economy - can't have anything to do with the yen moving from around 116.4 to 117.1 at that moment...hey arbogast, you around?
Yes....and here is the meat of it according to Rex -
"Jobs continued to be lost in the manufacturing and construction sectors, offset by growth in public schools, health care and food service."
So, we will be driven to the moon by teachers, nurses, and waiters who's mortgage payments are resseting 50% higher. Definitely something to get excited about.......oh yeah, financial services fell by 14,000.
The Thompsons bought their home in 2002 for $271,000 and financed the purchase with a $272,250 loan, county files show. In 2004, they obtained a $54,000 equity line of credit. In July 2005, they obtained two new loans totaling $441,000.
While it's possible that they used the 170k MEW to feed orphans in Africa, it's more likely that money was used to buy the latest and greatest toys.
I wonder how many people read that paragraph and thought it sounded reasonable that these people LTVed 100+% and then piled on all that additional debt.
You don't have to go back to the oil bust in the 80's to see this "commute" deal going on. I'm "commuting" from my Minneapolis to my "real home" in Michigan. Ditto for at least 5 friends who've left families in MI, living in tiny apartments and keeping the house payments back "there" current. MI is a wasteland and getting worse. (They just put a sales tax on services that have even whacked the astrologers and tarot card readers ... now we're supposed to just guess at what comes next?) Not much commuting because cost of travel eats living costs. We're the new migrant workers. Well paid but stuck in situations with no end in sight.
Similar to Jack D, but in reverse. Moved wife and kids to TX to buy (originally from TX) and still work in CA. Live w/ my FIL and like a migrant, I send money home, just don't use money orders.
We are doing pretty well all things considered, and hope the same for the rest of y'all.
Shouldn't complain ... I always knew one shouldn't mix lights and darks but now I know it firsthand. So it's a learning experience. That's it ... a learning experience.
"Our office had four sales in one week that failed to close because the seller didn't have the cash," said the real estate agent, who declined to be identified because she feared office repercussions.
Office repercussions? Lots of fear in the REIC right now.
CR - back in the 80s I knew a guy who bought a house in Houston during the oil boom then lost his job in the bust. He looked for a job in Houston for almost two years - nothing. Depleted his savings completely....
Eventually he looked outside Houston & got a job in Chicago and tried to sell his home and couldn't because the price declines ate up all equity plus some...
I can't remember the exact prices but it was something like this
Bought the home for $250K, put $50K down payment (he admitted he over-paid, everyone was there back then)... $200K mortgage.
Tried to sell... best offer only $150K. He would have had to bring an additional $50K to the closing and didn't have it.
So he 'commuted' to Chicago for three years until he got a decent job back in Houston.
We'll see similar lunacy in this bust.
We heard of Residential RE pricing being 'sticky' on the downside as owners refused to sell because they did not want to voluntarily take a loss.
Now we have owners unable to sell contributing to the 'stickiness' of the price decline, even though they were possibly willing to take a loss to unload the property.
So is this what you would call being "Priced In". And everyone was so worried about being "Priced Out".
At first, I thought, wow, the lender should take what they can get if the seller wants out. BUT then I thought about it a little more. I can see a whole new scam opportunity emerging here if lenders get too anxious to mitigate losses.
It would work like this: Seller owns the house, has a 400k mortgage, but the house is only worth 375k. Instead of selling for 375k and sticking the lender with a 25k loss, the seller talks to the buyer and gets a 325k offer and a 50k cash payment to seller off the books. The lender gets a 75k loss and the seller gets a final ATM withdrawal of 50k.
This is hardly outrageous considering the scam was just recently worked the other way in the boom. Plenty of cases where the seller was kicking back to the buyer when the buyer paid an inflated price and mortgaged 100%. Buyer then walked away with some free cash and bad credit, I mean worse credit.
dryfly, He probably had a family - I've seen long commutes before when people can't sell. He probably could have rented the Houston house, but he would have been taking a loss - and then could only rent an apartment in Chicago. That sounds tough.
Best Wishes.
M-F
Not so, the lender gets his money at closing, no matter what.
Otherwise it is fraud.
dryfly and CR
yea, but that was back in the day when there were good jobs somewhere.
It is likely there will be no jobs no where to commute to that will pay enough to pay the house note and commuting expenses.
vader - we have seen lots of fraud. And have there been any cases of people getting busted for this kind of fraud? None that I am aware of... where are the police, where are the investigators from the lender. Nowhere to be found that is where. It's a complete free-for-all out there with no cops and no law and no enforcement.
If you know of people getting busted for mortgage fraud, I would love to hear about it. There has probably been billions lost to one kind of fraud or another. Google "super jenae" and you can see her exploits detailed on bubble tracking blogspot. Completely outrageous, and the police never come to arrest her.
Lets just call the little plan I detailed above "short sale fraud". It could be very lucrative. Imagine they typical seller who had a 400k mortgage, and a 500k valuation a year ago. He has seen 100k vanish... look at the temptation to do a short sale for 350k. Who is ever going to bust him? If some loss mitigation person at the lender bites the bullet on a 350k short sale, he can walk with 50k.
Yes it's fraud and I am not advising it. But where is the enforcement out there? Not a government priority, there is no cop on the beat... free market is best you know. Deregulation is the way to go!
Seriously, do you know of any enforcement actions against mortgage fraud?
M-F
Casey Seri
dryfly and CR
yea, but that was back in the day when there were good jobs somewhere.
It is likely there will be no jobs no where to commute to that will pay enough to pay the house note and commuting expenses.
I was there in Houston at the time. The area was in a virtual depression, but the rest of the nation was in a strong recovery.
That's what made the housing situation so miserable -- people who lost their job in the oil bust simply couldn't pack up and take advantage of "Morning in America".
They were trapped by their houses which kept depreciating for years.
Hi M-F,
You could start your search for mortgage fraud here:
Mortgage Fraud and Real Estate Fraud
search by your state or city to see what's happened in your area.
There are a few, M-F, tho I think you're basically right that the resources are not/likely to be devoted that should. But there's the Beazer case; there are some odd cases I've seen like this one from Florida,
http://tinyurl.com/3bfm3b
And there are some prospects like a suspected flip scam here in MI, where persons of interest are still being identified. Even small white collar cases seem to require so much time and expertise.
M-F
The mortgage holder is not going to do a short sale as long as payments are being made.
So the property will need to be threaten by foreclosure before the short sale takes place, and the seller is unlikely to have $50,000 in cash laying round to buy something he can get later cheaper after it goes into foreclosure.
I have too many bookmarks. Forgot about mortgagefraudblog!
M-F
I think people in the future would have no incentive to give the seller 50k as a last ATM withdrawal, all they get from me if I was the buyer is the middle finger. why would I want to assume a higher payment, things work different on the way down
MMG - good point, most buyers may not be able to come up with enough cash to make it worth everyone's while. The seller could offer a decent discount to market price, but then that gets harder to get by the loss mitigation team. So maybe it won't be widespread or large amounts. Still, if you are a buyer, and made a 400k offer, and the seller says how about 350k and you shoot me 25k on the side. Plus, the property tax is lower going forward in all liklihood. I can see people trying to run it by the loss mitigation group to see if they get an approved short sale, maybe make sure the place is a wreck when the appraiser drops by.
Jillayne Schlicke -
Mortgage Fraud and Real Estate Fraud
is interesting... but many of the cases are multi million dollar cases. It makes sense to go after the big ones, of course. But I think in the bubble there were tons of onesy twosy frauds that can't and won't be prosecuted. And I still think there will be a million small frauds on the way down....the big ones are worth catching, who has time for the little ones?
M-F
This is America dammit. Someone is trying to perpetuate this fraud now---bet on it. But since no one but the buyer and seller will profit, it isn't going to be easy. Now if you can just think of some way for the originator to get a piece,...
I'm thinking there also must be some kind of wacky 1031 exchange fraud going on, too, but I doubt if it's as widespread as the liar loan scam. Can you call it a conspiracy if everyone is just passing the buck to the greater fool?
Now... I've been thinking of this for a week or so now and I still can't figure out how I'm wrong with this (though I simply MUST be):
I've read a number of examples where a mortgage payment on a McMansion will reset to, say $2500/month while renting the same floor plan down the road costs $1000-$1250.
So... what happens when an individual decides to walk away from their underwater mortgage @ $2500/month and rents down the street for half the price per month? Doesn't that give them $1250-1500 more money in their pocket every month? Won't that help out the consumer spending? What am I missing here?
OT, but I was reading that the Sept. B/D model has the lowest adjustment(asides from Jan.), so will the jobs number be a blowout to the downside?
expectations are 100k(zero + usual B/D), Liscio says 80k, depending on how many finance weasels got the chop I could see a 10k drop. Last month's B/D had +12k finance jobs, a lower adj. & the announced 45k in financials.....
Campbeln,
That's just it -- they never pay the $2500, therefore there is no $1250 savings. When their teaser payment adjusts, they walk to the rental and keep their costs affordable.
Consumer spending takes the hit, too, because even though they may have the same cash flow they no longer have the credit nor the incentive to buy large durable goods.
TJ/Bear:
[Heh... just thought of TJ/Hooker, agh memories of youth...]
True, but payments don't double at the reset, and (could be wrong here, but) some will streach to make the payments for a few months (though probably with CC I guess, one debt for another).
But there should be some additional head room in the budget from going from the subprime payment (pre or post reset) to rent (esp. if they decide to downgrade from the McMansion).
Course, there's 3 "but"s and 2 "c/sould"s in that statement... so a lot of wiggle room in that! And with the probably use of CCs to deley the invetiable that would compound the issue.
Yet... it still feels to me that many would end up with some additional disposible income... but again I figure I must be wrong!
Thanks TJ/Bear... you're most liekly MUCH closer then I am =)
Pretty interesting presentation from Clayton holdings CEO regarding the current market, the past market, and the future market.
Wall Street Webcasting - Clayton Holdings
Loan seekers find salaries fall short
Despite incomes of $150,000 and more, many homeowners in the East Bay are surprised to discover they are unable to refinance their homes.
Loan seekers find salaries fall short - ContraCostaTimes.com
DarrylR,
Gosh that article really brings it home. I'm in Europe but work closely every day with people who live in the towns in your article and I visit the area a few times a year. These are people with good salaries but who bought the most ambitious houses they could afford then proceeded to renovate. Husbands/wives both drive the latest cars (no public transit out there). More money spent on nannies and the dog nursery (no kidding). Wow.
My experience in auditing has been that where there's a transaction, there's potential fraud. Bigger profits attract and then require smarter criminals.
In New Hampshire, a politically connected RE developer started an environmentally destructive development right next to the Pemigewasset River after the market had turned in the late 80's. He bled a huge salary and the project went bankrupt. I suppose we'll see that one a hundred times again this time.
U.S. attorney probing Bear hedge funds' collapse: report
U.S. attorney probing Bear hedge funds' collapse: report - MarketWatch
The U.S. attorney in Brooklyn has started a criminal investigation into a pair of hedge funds that had positions in mortgage-backed securities and subsequently collapsed at Bear Stearns Cos. ...
EU banks forecast no improvement in funding
Further tightening of lending standards expected, ECB survey finds
EU banks see no improvement in access to wholesale funding - MarketWatch
Top news for yahoo finance just now (just before the jobs report).
Expired
Barclays Withdraws $84B ABN Amro Offer
Barclays Withdraws From Bidding for ABN Amro, Citing Lack of Interest in Its Offer
Pier (Loans) aren't even being built anymore.
Bureau of Labor Statistics Data
BLS revised Aug from -4k to +89K?
RBS, Fortis & Santander are gonna pick apart the ABN AMRO bones, a pyrrhic victory except for Santander.
anybody got the job #?
"In construction, residential specialty trade contractors shed 15,000 jobs over the month"
Only 15 000 lost in construction?! BLS must have used AGAIN their number one number provider subcontractor, a company called Random Hatters Inc.
Confession time is still on:
Washington Mutual Says Third-Quarter Profit Fell 75% (Update5) - Bloomberg.com
Washington Mutual Says Third-Quarter Net Income Declined 75%
The Seattle-based company said in a statement that it will record a $975 million loan-loss provision and losses and writedowns of $410 million on mortgage loans and securities.
Is the +110k all scholteachers?
REBear,
Yes, what a hoot - and that pop in the futures MUST be related to the robust economy - can't have anything to do with the yen moving from around 116.4 to 117.1 at that moment...hey arbogast, you around?
Thanks energyecon,
So the feds may raise rates. Remember they said next time the rates could move either direction.
Yes....and here is the meat of it according to Rex -
"Jobs continued to be lost in the manufacturing and construction sectors, offset by growth in public schools, health care and food service."
So, we will be driven to the moon by teachers, nurses, and waiters who's mortgage payments are resseting 50% higher. Definitely something to get excited about.......oh yeah, financial services fell by 14,000.
The Thompsons bought their home in 2002 for $271,000 and financed the purchase with a $272,250 loan, county files show. In 2004, they obtained a $54,000 equity line of credit. In July 2005, they obtained two new loans totaling $441,000.
While it's possible that they used the 170k MEW to feed orphans in Africa, it's more likely that money was used to buy the latest and greatest toys.
I wonder how many people read that paragraph and thought it sounded reasonable that these people LTVed 100+% and then piled on all that additional debt.
You don't have to go back to the oil bust in the 80's to see this "commute" deal going on. I'm "commuting" from my Minneapolis to my "real home" in Michigan. Ditto for at least 5 friends who've left families in MI, living in tiny apartments and keeping the house payments back "there" current. MI is a wasteland and getting worse. (They just put a sales tax on services that have even whacked the astrologers and tarot card readers ... now we're supposed to just guess at what comes next?) Not much commuting because cost of travel eats living costs. We're the new migrant workers. Well paid but stuck in situations with no end in sight.
Similar to Jack D, but in reverse. Moved wife and kids to TX to buy (originally from TX) and still work in CA. Live w/ my FIL and like a migrant, I send money home, just don't use money orders.
We are doing pretty well all things considered, and hope the same for the rest of y'all.
"I send money home, just don't use money orders."
Shouldn't complain ... I always knew one shouldn't mix lights and darks but now I know it firsthand. So it's a learning experience. That's it ... a learning experience.
Check out what Fannie Mae is posting for fraudsters getting busted. I find it encouraging that some of the snakes are getting arrested.
https://www.efanniemae.com/utility/legal/antifraudupdates.jsp
Florida short sales may be a selling short and Florida short sales is not expected before the short selling of a Florida short sales.