http://online.wsj.com/article/SB119803038237438417.html

Since the Housing market peaked in August 2005, we have argued that reported home sale prices dramatically understate the actual price drop of sales. This has been especially true of New Home Sales, thanks to the many builder incentives we have seen.

Today’s WSJ has an article detailing just how pervasive the practice has been nationwide — and how much of these incentives are not disclosed to the various county agencies that track home prices — despite the legal requirements they do so. From Department of Duh: How Hidden Incentives Distort Home Prices.

Ubiq-cerpt:â„¢

“As the housing market slump deepens, disguised discounts are making it harder to tell exactly how much people are paying for homes.

Buyers, sellers and other market participants typically monitor fluctuating home values through sale records that legally have to be listed with county clerks. But incentives offered to buyers — ranging from free cars or furniture to cash rebates — are making those prices less reliable as a sign of what buyers actually paid, netting out the giveaways. And that may be misleading lenders and people shopping for homes, some real-estate lawyers and appraisers warn.”

Some examples where the incentive is not public:

• KB Home, Colorado: $196,000, according to deed.
Actual price = $168,400

Buyer disclosure form: KB paid $27,600 to 3rd firm, which made a cash payment to the buyer.

• Lennar, Florida: $479,000
Actual price = $450,000-459,000

Home buyers received Vouchers to purchase Mustangs, or a $20,000 Harley-Davidson.

• Bennett Homes, Maryland: $600,000
Actual price = $469,000

Originally listed in February 2005 for $635,000; Wells Fargo held two mortgages: first for $479,800, second for up to $120,000. Buyer’s agent said the transaction included a $120,000 “payment by the builder to an organization that collected fees for finding buyers.”

(I always thought those folks were called Real Estate Agents).

I got that same response to my angry rant about the housing bailout. Here was my response to her:

Senator Cantwell, (Or the aide who will be reading this response)

Thank you for the form letter that you returned. Although you did not address ANY of the issues that I outlined in my original letter I appreciate receiving a response.

Contrary to the ideas presented in the letter shown below, I am OPPOSED to any sort of bailout, tax relief, refinance, hug, pat on the back etc. provided to a subprime borrower. This is not a case of a family losing their home or their livelihood, this is a case of reckless lending to ignorant consumers who are now taking no responsibility for their actions. Since you have now told me that you directly sponsored bills relating to this issue, thereby directly supporting giving handouts to these borrowers I would like my own share of the pie. Since these bills will be directly supported by MY TAX DOLLARS, I would like all of the payroll taxes remitted from my monthly paychecks returned in full, by April 1st, 2007. With this tax reimbursement, I may be able to afford an extremely high downpayment on an overpriced house, foreclose on my loan, walk away from a LEGALLY BINDING CONTRACT and not have to worry about any consequences. Thereby starting this whole mess anew…

How about you sponsor a bill supporting any of the following? If these issues had been supported by your office, we would not be in this mess in the first place.

-AFFORDABLE HOUSING

-Higher taxation on multi-family developers

-Mortgage reform (BEFORE the fact, not as a response to a problem. Too little to late…)

-Transportation reform and construction

-Environmental legislation

As with most Senators and State Representatives, I realize that you have to pander to your financial backers, rather than represent the interests of your constituents who originally voted you into office. You have again reminded me of the ineffectiveness of the national legislature, and further undermined my faith in the representatives of the state of Washington. You have lost yourself another voter…

Thank you for contacting me regarding the impending foreclosure crisis. I appreciate hearing from you on this important issue.

The Mortgage Bankers Association has reported that the percentage of mortgages entering foreclosure from July through September of 2007 is more than double the rate seen in those months in 2006. While subprime loans only make up an estimated quarter of loans taken out today, almost two-thirds of foreclosures are made on homes purchased with subprime loans. Each foreclosure can impose damages up to $80,000 to the surrounding community, including the loss of property taxes, the damage done to the prices of neighboring properties, and the cost of foreclosure related services performed by the government.

Without action, over three million homes are likely to be foreclosed upon in the coming years, and approximately two million families affected. With such grave financial consequences, the coming foreclosure emergency must be closely examined, and appropriate action taken.

One factor that must be considered in deciding what action to take is the prevalence of predatory lending practices, which have contributed greatly to the popularity of subprime loans. Almost 90 percent of subprime loans were taken out by those refinancing their homes-not by first-time homebuyers. Furthermore, 61 percent of those who received subprime loans were eligible for more secure prime loans. In most cases, those who were eligible for prime loans were led to believe that the riskier subprime option was the only choice for which they were eligible. This deception must be considered as we try to strike an appropriate balance between helping people who are at risk due to events beyond their reasonable control, and allowing others to assume responsibility for the consequences of their financial decisions.

After much deliberation, I joined my colleagues in the Senate to vote 93 to 1 in favor of the FHA Modernization Act (S.2338) on December 14, 2007. This legislation allows at-risk subprime mortgage borrowers to refinance into federally insured loans, thereby avoiding foreclosure. The Senate passed this legislation after a lengthy process designed to determine a suitable course of action, including multiple hearings by several Senate committees.

Another recently passed measure was an amendment I cosponsored that alters the Mortgage Forgiveness Debt Relief Act of 2007 (H.R. 3648). This amendment will prevent homeowners from having to pay taxes on any debt forgiveness that has been granted. For families that cannot meet their mortgage payments, this helps them to avoid incurring large tax bills. The bill itself extends a provision that permits homeowners to exclude mortgage insurance payments from the income on which they are taxed. These tax relief measures are designed in particular to hasten financial recovery for those who have been harmed by predatory lending. I was pleased to see President Bush sign this measure into law on December 20, 2007.

It may interest you to know that Washington state has some of the strongest regulations in the nation related to mortgage lending. Six percent of Washington state mortgages were subprime loans, compared to 6.6 percent nationally, but of those loans, only 8.75 percent of Washington loans were delinquent in the first quarter of 2007, compared to 13.87 percent nationwide. The foreclosure rate in Washington state as of June 2007 was .49 percent, compared to a national figure of 1.4 percent.

Please be assured that I will continue to monitor the situation, and will follow any developments made on subprime foreclosures. Similarly, I will keep your views in mind if any further legislation regarding the issue should come before the Senate. This is an issue that we must take very seriously, and you should know that I am weighing every option very carefully.

Thank you again for contacting me to share your thoughts on this matter. Finally, you may be interested in signing up for my weekly update for Washington state residents. Every Monday, I provide a brief outline about my work in the Senate and issues of importance to Washington State . If you are interested in subscribing to this update, please visit my website at http://cantwell.senate.gov . Please do not hesitate to contact me in the future if I can be of further assistance.

Sincerely,
Maria Cantwell
United States Senator

Ben Stein is an idiot. Behold his moronic glory!

The highlight of his career was 30 seconds in Ferris Bueller’s Day Off .

His father was at least an actual practicing economist – notable being the formulator of “Herbert Stein’s Law,” which he expressed as “If something cannot go on forever, it will stop.”

Yup.

http://www.expelledthemovie.com/

Nuff said.

You’ll lose your shirt at 40% off. Prices will definitely hit 80% off.”

I don’t ever intend to sell. I could only lose my shirt if I sold.

The next bubble is in ammo. I’m off to buy as much as I can, then I’m going to go and find a cave that’s within a two hour drive of Seattle. Even during a period of anarchy, the commute time to prime looting grounds will be important and closer-in caves will hold their value better.

Gov’nor Gregoire did the same thing with Household Finance a few years ago with their predatory loans. A settlement brokered by other more industrious Attorney Generals of other states allowed Gregoire to jump on the money bandwagon without lifting a finger to prosecute the crooks. People were paid pennies on the dollar for their miseries and the crooks got to walk away free.

Now as Gov’nor she has allowed the same and greater frauds to exist and what is her excuse? She can’t say she did not know. In the past she worked for the man who lobbied for Household; Booth Gardner. Remember him? Something stinks….again.

I expect our two worthless US Senators to weigh in soon with their own taxpayer bailout while they sat idly by refusing to deal with this and other frauds for years.

Its not that hard to forecast the price points at which we’ll hit bottom. Take the historical price-rent spread. Forecast rents and presto, we have a good sense for where prices should be.

Prices can fall far below where they should be, just like they can rise far above where they should be. The price-rent ratio is dependent on prices, so fluctuating prices affect it. Even prices that fluctuate randomly hover around their historical average over a given time period; it takes no skill at all to predict that randomly fluctuating prices that are above their historical average will eventually fall below their historical average.

I only started reading him the last few months, and I can’t believe he is given the stage he is. He’s not a moron, but he thinks a bit too much of his folksy sensibilities. If a world view that makes sense to him in his brain has a nice simplicity and charm, he publishes it. Most of it is malarkey, imho. Rules and thumb and generalities work great until they don’t.

and for some balance:
“the economy is so large and so resilient that the losses will not be enough to cause lasting damage to the nation as a whole. (Some individuals, however, will be ruined.)”

If I were to choose a cartoon to represent the financial events of 2007, it would be the familiar one of Lucy promising Charlie Brown that this time, definitely this time, despite all the lies in the past, she would hold the football firmly in place while he practiced placekicking. Then, of course, she snatches it away and he goes flying onto his backside.

In the case of 2007 and investors, Lucy is, as always, Wall Street. The football is collateralized mortgage obligations, and the placekicking dupe is you and me. But the smart observer is the guy or gal or who knows this crisis won’t go on forever, and the time to buy stocks, mutual funds, and ETFs is when everyone is worried — not when they’re chirrupy and happy.

What Went Wrong

Let’s start at the beginning.

It’s not even six years after the catastrophe of the high-tech fraud and stock collapse, and, after endless professions that Wall Street would stick to the highest levels of probity and honesty, it’s back to the same old tricks. The trick is — as always — to sell “securities” that are not at all secure and are worth far less than the con men on Wall Street say they are.

This time around, the “securities” were immense pools of mortgages issued often with minimal or no credit checks on the borrowers, often on the collateral of homes that were worth less than the loans. Very often, the borrowers had little or no equity in the house, so that as soon as the real estate market went into a cyclical correction of extra-large size (to correspond with the real estate boom that was also of uniquely large size), the borrowers simply left the keys in the mailbox and went back to renting.

In many cases, the borrowers were themselves deceived about the terms of the loans and the likelihood that they could refinance their way out of any problems that occurred.

Crunching the Numbers

No one, and I mean no one, knows how large the losses have been as the buyers of the mortgage pools have seen their investment dry up and blow away. By my rough calculation, with help from the president’s Council of Economic Advisers, about 6 trillion dollars of new mortgages were issued between 2005 and mid-2007. Of this, about 20 percent might have been subprime. That makes $1.2 trillion.

Of that, about a third might default (many more from the last period of the lending binge, when standards simply vanished), which would indicate losses of about $380 billion. Of that, about 60 percent will be recovered when the houses are seized in foreclosure and, after the legal fees are paid, sold to shrewd buyers. That leads to a net loss to pension funds, municipalities, labor unions, hedge funds, and wealthy foreigners of about $150 billion, as a very rough number.

That number may be even greater when upwards of $40 billion in losses on mortgages call Alt-A’s — where the borrowers didn’t have poor credit, but the interest rates reset too high for them to afford — are added. If we also assume that defaults might be even greater on mortgage pools sold since the middle of 2007, the total unrecoverable losses will be about $200 billion to $250 billion. Ouch!

On top of that, there are losses on structured investment vehicles, in which speculators basically borrowed short-term money to buy long-term debt — always risky — and possibly some losses on car loans as well, but that’s not yet clear. There are also losses to hedge funds, which are loosely regulated pools of investments, but their accounting is generally murky.

Still with me? Because there’s light at the end of the tunnel.

The Usual Suspects

But first, here are some amazing facts about this debacle: As far as I know, not one person on Wall Street has been even indicted for, let alone convicted of, fraud. Not one. In fact, the leaders of the major investment banks, banks, and brokerages that sold this worthless stuff — and kept some of it in-house, leading to immense losses for their firms — have been retired with immense severance bonuses.

The former head of Merrill Lynch — who led his firm to near ruin by selling this garbage, and led his clients (whom he had a fiduciary duty to always put first) to disastrous losses — was given a retirement package of about $160 million. The people at the banks who supervised this meltdown were routinely paid multimillion dollar wages per year.

A Peek Ahead

Here are two even more amazing facts: Despite this massacre — which went far beyond where I originally thought it would go — the stock market is still up for the year by a few percentage points, even though financial stocks are by far the largest sector of the S&P. Even more amazing, the economy is so large and so resilient that the losses will not be enough to cause lasting damage to the nation as a whole. (Some individuals, however, will be ruined.)

The losses of $200 billion or so amount to only about 2 percent of bank credit, and far less than the percentage of total credit available domestically and from foreign investors. The Federal Reserve is available at the flip of a switch to replenish the lost liquidity of banks, and new, wealthy foreigners are still lining up to invest in our financial entities.

There will obviously be an economic slowdown, and possibly even a shallow recession. But we’re extremely blessed to have good fiscal stewardship from our government and top-flight guidance at the monetary-policy pentagon (the Fed). Unless they make major mistakes, we’ll get through this in halfway decent shape.

Get Over It

Still, the lessons for us are keen and cut like a knife. But be brave — these periods of crisis are inevitably the time to buy, even if you have to wait years for the crisis to sort itself out. It takes guts and counterintuitive thinking, and if you don’t have the stomach to do it, no one will blame you.

If you do jump into the pool, be sure to diversify, give yourself guaranteed income from variable annuities and annuities, and stick with proven entities like very largely varied index funds at home and abroad. As you all know, I particularly love the emerging market funds and ETFs for the long haul.

Oh, and the next time Lucy offers to hold that football, kick her instead.

You’re mostly confusing the national picture with the local picture. Nationally, some “bear” economists started to make much more noise around the summer of 2005. Due to YOY pricing measures, we didn’t really see until 2006 that this was indeed around the peak if not a little early.

WA is late to the party, of course…

Markor, I guess you are being sarcastic — sense your last post seems to go against everything else you have been saying.

My point is that trying to predict how far the market will fall, esp. by when, is just wishful thinking. It might be easier to predict that the market will fall, but look at how many people, even economists, were off by 2+ years on that (during which prices rose).

I’ve wondered about that myself. The problem with the SIVs and CDOs is that there’s no market for them because everybody’s afraid the underlying mortgages will default en masse. If that fear turns out to be unfounded or overblown (granted, that’s a big “if”), I’m sure we’ll see all of these big investment banks discreetly restate the value of these investments and claim they’ve had another banner quarter/year/etc. with record profits.

once my coworkers and parents start talking about how they wish they weren’t trapped in a home loan and how houses are really risky investments that should only be considered if you really like the place and plan to live there for 10 years and just can’t stand to rent anymore, then it will be time to buy.

that could take 10 years.

the prototypical $10/hr machine operator in SoCal who is $200k underwater on a $600k loan is still doing everything possible to keep his loan because he knows that real estate always goes up and doesn’t want to lose his investment.

this despite 2 years of declines. psychology about houses will be slow to change.

psychology about condos will change much faster since they aren’t really part of the American dream. but i don’t really want to live in a condo

If they are able to clean up their balance sheet in one or two ‘bad quarters’ it sure makes the next few quarters look a lot better after the deadweight has been dropped.

Who knows? Maybe it even gets them some cheaper money from the Fed so they can make even bigger margins on loans to regular joes like you and I?

I’d say half of what you see in ‘losses’ at the banks right now is house cleaning and grand standing.

RE is a racket and I root for companies like Redfin who throw a wrench in the system.

Imagine if we had all the social support money (its many billions in this state per year we’ve spent to support/supply cheap/illegal labor to housing contractors, farmers, landscapers, etc) we’ve spent in schooling, medical, etc….to help slave master illegal companies and corporations in Washington State?

It makes that $1.2B Tim brought up a complete joke.

Yes , homelessness is on the rise and its getting far worse. Every time a low income development disappears, there’s more tents at in the Kirkland/Issaquah tent cities. Most of the homeless are mentally ill, but some aren’t. A lot of them have missing teeth. 13% of them are American veterans, with missing limbs.

The King County Housing Authority has plenty of “dirty little stories” about legal Americans getting evicted and homeless because they are mentally ill, but the MSM is in denial too. We’d rather spend social support money on illegal Seattle companies/corporations hiring slave labor rates. After all, this is the right thing to do.

P.S., I know of a legal citizen homeless lady in Issaquah who was evicted because she was mentally ill. They put her in jail too, then released her and dismissed the charges, after they threw her and her kids on the street. I used to bring the family bags of food by the way. The low income units to prevent homelessness are drying up fast and we’re all in self-centered denial!

Exactly. If prices are *another* 10% down next December, then great. If they’re down 2%, that’s awesome too. More houses on the market? More choice!

As has been stated repeatedly, there is a huge difference between what one “wants” and what one “expects” to happen. I expect that this is only the beginning.

Just think a few mere months ago Nostradumb*ss, Angie, and others said that foreclosures were a near impossibility in fine old Seattle — hmmm, how things change.

Spring time will be more and more interesting.

I would probably make a deal for 40% off of a house in North Seattle. … Things will definitely be better next December.

You’ll lose your shirt at 40% off. Prices will definitely hit 80% off.

Well, it would depend on the deal, of course, but it seems like a waste to start shopping now. There’s no rush when prices are going to drop all through 2008 and beyond. I would probably make a deal for 40% off of a house in North Seattle. Those houses are currently around $450-600K. I would want something under $300K. I do not currently see any listings on craigslist in that target range. Therefore, I’ll save money and wait a year. Things will definitely be better next December. How much better? Who knows. Who cares? It’s time to sit on the sidelines and wait for the idiocy to end.

http://www.trulia.com/WA/Bellevue/

Wow, that says a lot about you to call these monkeys slick. I know how to pump gas and drive away, I guess I am pretty slick, too.

Not sure if u need a login.

Okay, DFI does a fairly good job. I interact with them on a regular basis. HOWEVER, we ALREADY HAVE lots of money coming into this state thanks to President Bush’s FHA Secure program which earmarked money for HUD-approved Housing Counseling agencies across the US, including here. If you go to HUD.gov and click on “talk to a housing counselor” you’ll see thousands of these agencies all across the US.

That same money could be better spent by DFI to REGULATE the mortgage brokers. Something the federal government doesn’t really get involved with, unless the mortgage fraud case is so severe it gets referred to the FBI.

The rest of the proposals mirror what the federal government is currently trying to do, with the exception of the foreclosure rescue scams.

“Require a one-page disclosure of loan fees and terms, and documentation that refinances benefit borrowers.”

Hello? is anybody there? We ALREADY HAVE this, sans the “benefits borrowers” clause, which the federal government is currently working on. The forms are called the Good Faith Estimate and the Truth In Lending Regulation Z form.

This money could be better spent training the loan originators how to properly complete these forms, how to explain the content of these forms to the borrowers, and, well, what the forms were designed to do. I teach LOs every day. 98% of all my students do not know how to complete the GFE the way HUD intended, and absolutely do not know the content of the TIL disclosure form.

Give the money to DFI, but give it to their enforcement unit.

This plan flies entirely in the face of the federal government who have been running around confused for years now.

I would say the federal government has done an excellent job of making the rich richer, and letting the rest eat cake. Bush said “I represent the haves and the have mores” and boy has he!

…and it’s Magnolia, too, to continue our Magnolia chit-chat from the forum.

I also agree that Top Ramen is delicious. I enjoy Top Ramen with hot chili sauce and an egg, spicy egg drop soup style. For $.50 and a cooking time under 5 minutes, I can’t imagine much better.

At any price, it is quite tasty.

How about we just ban making the minimum payment?

Whatever the case, this would cut another 15% off the sales volume and force a considerable number of recent home buyers into refinancing to a significantly higher monthly payment.