Its like buying stocks w/ 80% financing. If the stock loses 20% you lost all of your money. If it loses 25% you owe 5%.

What is the difference between making a bad investment in a stock, vs one in a home?

Leverage. If you put all of your money into a 20% down payment on a house and the house drops 20% then you lose everything. If you put all of your money into stocks and they drop 20% then you lose 20%.

Although, leverage swings the other way too. If you put all of your money into a 20% downpayment on a house and it doubles in value then you get a 500% return on your investment.

By EconE @ 78:

RE: Racket @ 76 – Housing, in the mean time, will revert to the mean where it is more correlated with incomes rather than “fantasy” purchasing power brought on by neg-am loans with teaser rates….not to mention “liars” loans..

Out of curiosity, since negative amortization and no doc loans have been pretty well gone for about a year, if not longer, why do you not think that’s already priced into today’s price?

Because people have yet to get used to the way houses need to be priced in this market, there are still a ton of houses that are priced 20% above market. Once this inventory comes back in line with the current market, it will increase supply. When there is more properties at a lower price, the properties that need to sell will have to go even lower.

My point was specific to Mexico. It could also be South America or Africa, but Mexico has to rise economically to the same level and the United States and Canada.

I have a very long ramble about why I believe that, but if the United States inflates it will negatively effect Mexico.

In my opinion the violence we are seeing in the drug trade is the result of more people entering that business model since other sources of income have dried up.

RE: Racket @ 76 – Housing, in the mean time, will revert to the mean where it is more correlated with incomes rather than “fantasy” purchasing power brought on by neg-am loans with teaser rates….not to mention “liars” loans..

Out of curiosity, since negative amortization and no doc loans have been pretty well gone for about a year, if not longer, why do you not think that’s already priced into today’s price?

You have to think about it on a global basis.

There are supposedly over a quadrillion dollars worth of derivatives out there.

Half of them are credit derivatives.

The derivatives are basically everybodys pension plan, 401k etc. etc. The dollars that they are throwing at the companies are used to settle those contracts (Think AIG). Who held those contracts? Who knows….perhaps Microsoft’s pension plan? A teachers union in Nebraska? China?

They haven’t even started throwing money at the Alt-A and Prime Option ARM garbage that people are still holding in their 401k’s/pensions/etc. provided that they didn’t decide to take the penalty hit, and cash them out early in 2007.

Housing, in the mean time, will revert to the mean where it is more correlated with incomes rather than “fantasy” purchasing power brought on by neg-am loans with teaser rates….not to mention “liars” loans.

Will we see inflation. Yeah…you betcha! In due time….just not in housing. It won’t show up in the official numbers that housing is deflatingas much as it is as they don’t use house prices but rather “owners equivalent rent” or something like that. Rents have been falling also by the way.

If you are curious what kind of inflation we will see…go down to Mexico (not a resort) and visit a city such as Torreon. I like to refer to it as the “empty shelf” syndrome. We’ll probably see some of that here too.

It took me a long time to see the credit bubble. It seemed like inflation, but some one here pointed out that wages never kept track. The price of goods could go up because people bought on credit and now the payments are do.

When you take credit out of the equation and cash is king the economy stops until prices decline to cash prices.

As people lose jobs or wages are cut there is less cash for the amount of goods available and prices go down a little more.

The money that the governments have pumped in is being converted to equity or it is lost forever. Either way it will never see the light of day.

True inflation raises all the boats in the harbor. In that process commodities would have to go up in price. The problem the United States is having is that they are now tied to a global economy. That should be painfully clear by now.

Raising commodity prices here has consequences.

The term used most today is stability. Global markets, housing, and banks are looking for stability.

It’s hard to say which one will win.

The money that they are “pumping” in will be a drop in the bucket compared to the “pretend” wealth that made up the derivatives market that will continue to implode.

If they were really trying to “inflate” their way out of it, banks wouldn’t be dumping houses down here in So Cal at 50-80% discounts.

The banks don’t need to care what your house is worth anymore….all with the blessings of the Federal Government.

It’s a win/win for the banks and a lose/lose for everybody else.

Cause and effect are the relata of causality.

As far as the comment it came from a conversation I had with a gentleman from Kenya.

I would like to take the time to flesh out the comment, but then I’d be rambling and that would be another problem.

Just my smartass sense of humor, I guess

I’d rather argue the substance of one’s arguments instead of overly analyzing the grammar.

However effect was properly used, and words like affect are used by less than 5% of our population. They are redundant because context allows us to differentiate the meanings.

http://www.stcustards.free-online.co.uk/topp/latin/latin2.htm

Do you mean “the value of a response is questionable”?

“responding” cannot act as the object of a preposition like that.

You want grammar, I got it, bud.

When the Fed buys Treasury bonds, the sky is the limit.

http://blog.heritage.org/2009/03/24/bush-deficit-vs-obama-deficit-in-pictures/

When you pump a bunch of money that doesn’t exist into the economy inflation is a unavoidable consequence.

I will agree with you that nothing spurs inflation more than commodities, and as we are now experiencing housing bubbles.

When we raise the minimum wage to attempt to compensate for these increases instead of waiting for the markets to deflate, we make the problem worse.

I was a big believer in inflation as a way out of the looming financial crisis. The price of goods is a bigger concern. The price of commodities is more to the point.

As oil went up we here in the United States and the Chinese government saw it as a type of game. The same as we look at credit as a game of who gets the most profit wins. If you have money in the bank you have something.

In the Third World the price of oil going up meant a tractor could not till the fields. Cabs stopped running. Vegetables never made it to market.

When bio fuel was the craze we made logos and Willie nelson got on a bus for a national promotion. In the Third World people, and cattle went hungry, and farm land for food went to growing corn for profit.

Inflation isn’t possible today. Manipulation of the commodities market has real consequences. We can live without credit, and we will, but commodities effect lives.

The request for financial information from a seller of a short sale still baffles me. The seller isn’t paying the mortgage and the banks are waiting for pay stubs and tax returns. I’m sure they would want to confirm the hardship, but it’s irrelevant to the investor who has a non performing loan.

There are people who ask for a short sale listing who just want to walk away, but in a Change of Circumstance it would make more sense to prove the change.

The way things are both the Loan Originator and the borrower puffed the loan application in some cases. I think the liar loan concept will be an issue. It would make sense for a bank to try and hold themselves clear by showing financial documentation, supplied by the borrower, that was contrary to the original loan application.

It’s the only reason I can think of. As you say we are in a non recourse State. If the short sale doesn’t go through the investor takes their chances at auction. That’s the deal and a deal is a deal.

I’ve wondered if banks and lenders may pursue borrowers for fraud in the future as a way to collect deficiencies.

Well unless they avoid non-judicial foreclosure, they won’t have a deficiency to collect. A second position creditor might if they didn’t foreclose. But the thing is, the only point to proving fraud is avoiding discharge in bankruptcy, because otherwise they can just sue on the note. And if you sue for less than whatever the current limit is for Chapter 13 unsecured debt, something over $100,000, the debtor could just file Chapter 13 (unless that was changed as part of the bankruptcy act legislation–I don’t remember.)

But short of fraud, answering “no” to the prior foreclosure action could result in a suit over discharge (subject to the same concerns about small amounts leading to a Chapter 13).

The other possibility would be trying to get some sort of criminal prosecution stared, where there might be restitution. I have seen banks try that in the past, but in King County it would need to be a large amount–probably over $1,000,000. In contrast, years ago I saw a smaller county prosecute for a bad check for about $1,000, where the reason the check bounced was an IRS levy after the check was written, but before it cleared.

Sounds like you were not paying attention in the 1970s. If government prints money, and there is little product produced, then the price for that product goes up. The fact that 10% of the population is not working means that there are less goods being produced. All the recently printed money is still sitting in reserves, so the inflation has not hit, but when the economy bottoms out those reserves will enter the economy and kick off inflation.

In my opinion, unless you are very clear about what is on a loan application, If you supply financial information that may contradict a loan application it would violate your Fifth Amendment Rights about self incrimination.

I’ve wondered if banks and lenders may pursue borrowers for fraud in the future as a way to collect deficiencies.

I see that most of examples you wrote about above are involve either or both (usually both?) of the parties defrauding the bank itself or the future holder of the loan. In that case, I agree that many people should go to jail. We don’t really have a justice system in this country, as any man who has been in family court could tell you, but we still have something of a legal system. So, I’d like to see many people go to jail, and to avoid overcrowding, they could take the place of the pot-smokers who ought to be let out. OK, I’m letting political views get into my post again, I see.

Anyway, good explanation. From the TV news, one would think that it was always the poor (but always stupid) buyers that were getting defrauded by the big, bad bankers. I never believed that, as I don’t take the position that the average person is stupid or naive. Maybe after socialism takes a good hold that will indeed be the case, as people will not take responsibility when they are not given responsibility.

Jail time all around, is what I say.

Afternoon,

Let me start by saying I teach a series of classes the best is called How to Identify and Prevent Real Estate and Mortgage Fraud. This class is 6 hours in length. Why so long? It takes that long to go over the 25 most common frauds that are part of a real estate transaction or mortgage loan. Then I have more specialized training for law enforcement, prosecutors, auditors and investigators. Their classes are very focused on a step by step look at common frauds. They take the specialized training after my 6 hour class.

My point of this explanation is to say that I can’t possibly answer all of your questions here, but I’ll give it a shot at providing a 5 minute explanation to complex problems.

#1 Definition of Fraud and my use of the term. I’m simplifying here so don’t go too technical on me:
A misleading statement, a white lie, a misrepresentation of a fact is just that…… a misrepresentation. Oops, no harm, no foul.

IF that misrepresentation, misleading statement or white lie alters a lending decision involving a loan through a federally controlled or audited agency (Bank) it becomes fraud. Did the misrepresentation cause a bank to lower an interest rate, reduce the amount of the downpayment or approve a loan for someone that they would normally not have? Then there is the evidence of fraud. Fraud can be charged as a state crime of theft in the first degree, theft by deception or a half dozen other charges. Fraud can also be charged federally.

Example: When a misrepresentation is part of a loan application (form 1003), appraisal (form 1004) or purchase and sale agreement and that information is transmitted across a state line and a bank alters a decision based on that misrepresentation, then that white lie becomes the charge of Wire or Mail Fraud, a Felony punishable by 30 years in prison and a $1,000,0000 fine. (USC Title 18; Part 1; Chapter 63; 1343)

Potential misrepresentations that can alter a lending decision and become fraud:
>Occupancy (owner, second home or investment are the 3 choices), was the right box on the 1003 marked?

>Income. Did the buyer overstate income? Why? Did someone coach the borrower to lie?

>Source of income (Drug deal or working 9-5).

>Source of downpayment (bank account or builder under the table)

>The purchase price of “real estate”

>Incorrect value conclusion by the appraiser

>Failure to disclose concessions or all addenda used during the purchase.

>Non-disclosed fees by the loan officer and/or bank

and dozens upon dozens more.

Fraud can come from the loan officer and banker, just as easily as it can come from the borrower, agent or appraiser.

When I said fraud, as Ira indicates, it’s a broad use of the term. After all it’s radio and we have to keep responses short.

#2 How extensive is the problem.
Massive! The good news, the problem in Washington is not as massive as the problems are in Arizona, California, Florida, Nevada, Michigan, Georgia, Illinois, Colorado and select cities.

This is not new, I’ve been involved in profiling fraud crimes, in Washington, for law enforcement since 2002.
In 1996-2003 one of the nations largest real estate and mortgage fraud problems were based in Spokane. New Century Mortgage created more than 1,000 bad loans. Now, prosecutors are not going to prosecute all 1,000 loans, they select the easiest. In this instance they selected 25 loans and went after: The loan officer, the agent, escrow agent and appraiser. This case became the example used in my training.

#3 The “Proof” question.
My figures are based on FBI reports, which I receive monthly. I also receive reports from The Financial Crimes Enforcement Network (FinCEN) and weekly briefings from the International Association of Financial Crimes Investigators (IAFCI), for which I am a member. I have daily conversations directly with law enforcement officers and prosecutors across the US. I typically spend 1-2 hours every day profiling real estate and fraud crimes with these people.
My 80% statement – That is supported by: FBI reports, random sampling of loan officers, my personal experiences in providing litigation support for civil as well as federal prosecutions of these cases.

Example: As part of a quality control check, we were invited into a loan office. We randomly pulled 10 loan files out of drawers and found “misrepresentation” of facts that if the lender were aware of, would have altered the lending decision – fraud, in 8 out of 10 files. Almost every time we have performed this test, the conclusion was the same (give or take a few points).

FBI’s latest report along with a congressional report outright state that “of the properties that are in foreclosure today, we have found that 80% of the files contained fraud.”

#4 Stupid things sellers do.
In several select subdivisions in the Everett and Puyallup areas, every home sale included some level of illegal kick-back to the buyer (before, during or after the sale), ever single home. These very same homes now experience high rates of foreclosure and bankruptcy.
I’m not saying that EVERY home in EVERY subdivision. This information is based on select subdivisions with desperate seller/builders. Here in Seattle we have been living a sheltered life compared against Phoenix or Orlando. Currently in Orlando more than 1,000 condominiums, from a single developer are in foreclosure. Each and everyone of them included a car or $75,000 cash payment to the buyer sometime during the transaction (RESPA Banking Law violations; CFR Title 12). Freddie Mac has an extensive investigation into this developer and similar investigations are underway here.

Read this story and know why a massive portion of their loans on new construction purchases are non-performing:
http://seattletimes.nwsource.com/html/businesstechnology/2009199152_webwestsound08.html

My class on “How to Identify and Prevent Real Estate and Mortgage Fraud” is approved by the State for instruction to real estate agents, real estate appraisers, loan originators, mortgage brokers, escrow agents, the Bar Association and law enforcement officers and is approved in about 20 other states. The information has been vetted by numerous government agencies. For the past 5+ years, I’ve provided this training in the hope that people will become educated and stop doing stupid things.

When I teach this class, its very common for people to get all wigged out and start saying that “This can’t be illegal” or “That’s common so it can’t be wrong” and an hundreds other foolish statements, most of which simply proves their ignorance about the law. (Hence the reason for the class)

“This can’t be illegal, everybody’s doing it” is exactly what these people in Bellevue were saying, before they received their indictment:
http://seattletimes.nwsource.com/html/localnews/2008929122_webmortgage26m.html

Now go do your NMLS search on the names and see what pops up.

As a prosecutor friend of mine says: Sometimes, some people just have to go to jail.”

Really 20%? You don’t have money in the stock market do you? Bonds? Treasuries? Cash?

Because in your second comment about the dillution of the dollar you are pointing out that the stock market needs to go down another 2000 points, maybe a bit more.

At one point you are crying about paying 60% in taxes and the next you are talking about bad financial decisions.

Help me out with that.

BTW the fish guy is using his savings. The same for the developer I talked with last Sunday. The same for the Boeing employee and the Starbucks executive. Interesting though that the Starbuck’s IT person I spoke with today has job security.

Detroit was actually a pretty desirable place to live before it became a cesspool.

Well, no, not everyone.

“More to the point, why in the world would two students with an infant even THINK about building a custom home?! Sorry, but this is just crazy”

Dear Mr. Opinionated Know-It-All Judgmental Know Nothing:

During the bubble everyone thought buying the biggest home they could afford was a source of income. And yes, you are offending everyone with your attitude. Grow up.

It’s not a horrible time to buy speculatively. Interest rates are low, the tarp money is keeping credit loose, and some people are desperate to sell.

If you can get a house that is 30% down, then get it even further down, what would be wrong with that?

With the dilution of our dollar, we should experience inflation which will drive up home prices ( but, unfortunately not our economy) so in your speculative assessment you should include inflation as one of the variables to determine whether or not you should purchase a home in our economic climate.

I don’t think its a bad idea, I personally think that it’s as big of a gamble to wait, as it is to buy at this point in time. That is with the assumption that you are getting your next property at a bargain rate.

Ghost towns are rare, I have a hard time seeing seattle as being one because its a desirable place to live. Detroit was a cesspool far before the auto industry tanked.

Maybe they qualified using the non-student’s full time income.

Talked to my wife last night about this… turns out BOTH are students. One an undergrad, the other grad just supporting herself on temp/hourly wages. Sorry, but there is no way they should have been able to afford the house. More to the point, why in the world would two students with an infant even THINK about building a custom home?! Sorry, but this is just crazy.

So these people will no longer be able to afford how much money worth of house again?

That whole “saving for a rainy day” lesson that we learned as children is real, and its pouring outside now.

The fish guy is smart. Sell high, and get out , or diversify before you lose everything.

To answer the last question is simple. Roll up your sleeves and do whatever it takes to make money.

My wife took a pay cut this year, and we lost 20% on our retirement portfolios.

Everyone is having to compromise.

What is the difference between making a bad investment in a stock, vs one in a home?

I agree with Tim. The message needs to be repeated and repeated again.

Most people here, even knowledgeable ones still have their heads in the sand. My friends all believe the economy will be lousy for 10 years. They show me the listings of beautiful homes that are down 30+ percent. A year ago they were sure houses could never come down. Yet they are trying to convince me it ’s the perfect time to buy. Why? Because they haven’t personally seen vacant, abandoned neighborhoods in the areas where they travel. Guess, most people have to experience the pain personally before it sinks in.

Really?

Well good for you. You are so smart. Do you have a good job or run a top notch business? I’m just asking because you are so smart you’re paying taxes. Good for you, thank you.

Did you read the comment before you made the comment about how smart you are?

“her husband took a big pay cut in order to keep his job”

I have a client who lost her job two weeks ago that she has had for 23 years. Her husband works for the same company. Another client last week lost a great job in advertising and the company is planning on closing within two years. A client I spoke with yesterday in the fish business saw the recession coming and sold his house. He is sending out resumes because the business he built since 1991 is running on fumes so he will close.

Hey, you’re a really smart guy maybe you can give us all some pointers on how to keep jobs that are disappearring or running businesses that are losing customers.

“She got her loan modification and is now able to stay in the home she loves and never wanted to walk away from. But man, there has to be an easier way than keeping an honest family in limbo for 5 months.”

There is an easier way, buying what you can afford, and not relying on the full amount of your income to pay your bills.

When did we stop feeling sorry for people that didn’t get to have their cake and eat it too. We feel sorry for people who live in apartments, when those apartments provide better shelter than 90% of the world call home.

I pay greater than 60% of my income in taxes, and now I get to pay even more because of everyone else’s bad financial planning.

That happened to a friend of mine—her husband took a big pay cut in order to keep his job. She called the bank to talk about a modification and was told they couldn’t do anything because she was current in her payment. (This was last fall, about a month before Obama was elected.) The customer service agent actually told her if she stopped paying, then they could help her. So she did stop paying, and continued to call them several times a week trying to work out a deal. Long story short, after a few months she’s in active foreclosure and the bank says they still can’t help her, but now she’s got late fees etc. on top of the payments she owes. She talked to 20 different reps and each of them didn’t have a clue, they just read from a script and took down her information half a dozen times. (She’s worried about identity theft from her info being out there with these stupid reps.) They told her not to make a payment, not even a partial payment. Had she been able to wait (and known what was coming!), she could have qualified for Obama’s Making Home Affordable plan—if her payments had been current, as they were in the beginning. Luckily for her, she’s a bulldog and never gives up—she contacted a government agency for help, actually got the phone number of the investor who owns her loan, and the investor put her in touch with someone at her loan servicer who could really do something with her file. She got her loan modification and is now able to stay in the home she loves and never wanted to walk away from. But man, there has to be an easier way than keeping an honest family in limbo for 5 months.

Goodness!

Lenders will have to do something. $60K is nothing. There are tracks up North in South Everett where the homes are not only $60K less but 400 sq ft bigger with up grades and larger lots.

In city town homes that sold for $425K are now competing with new town homes selling for $385K. That’s the world of new construction. Builders can sell for less and still make money.

Then we have the number of people who were encouraged to refi. People are doing it today. Debt consolidation seconds turning unsecured debt into seconds makes more fodder for foreclosure than bankruptcy.

Loan modifications are a joke. I know some people get them, I don’t understand why, but they do. I talk with lenders and Loss Mitigation departments four days a week now. A few months ago I had a long conversation with a gentleman at Chase about a loan modification where he knew nothing. He was working at Home Depot until he was laid off then got a job at Chase.

These people read from a script. Underwriting is brutal. The process makes a short sale look easy.

Our entire economy, possibly the global economy, is in the hands of banks. Warren Buffet is getting to be my favorite example of our banking system at work. The same guy who brought us a talking lizard is saving Wells Fargo.

Oh, if we have a real cultural revolution like the Chinese, I want to state right now that I want to be a “struggler” not a “strugglee”. You’ve just got to apply early, at NewKindlerGentlerRedGuards.CR.Whitehouse.gov

I was never a big fan of Buckley – but, dang, the man knew his English, ya gotta give him that.

We have already been tested on this. Have your forgotten? The masses that got in line for free government Cheese? Even those who didn’t need the cheese got in line.

Now were talking something far more burdensome—upside down Mtg’s across America nearing 30%. Combine that with property taxes, insurance, and upkeep and people will do everything to better their financially burdensome position.

Some will ruthlessly default and thousands HAVE BEEN doing it. The fact remains–We are a mobile society. People MUST sell due to divorce, health, jobs, better opportunities and they do NOT have the funds to bring to close. This will go on for many years. People will seek out every avenue to better their financial position including walking in very large numbers. We have seen nothing yet in our foreclosure rates and bankruptcy’s filed.

So to answer your question………………..YES!

Jillayne, we all need Loan Mods and the fact is this. A high % of those who don’t get it in the coming years will add significantly to the short sale parade. They are all coming back Jillayne slowly but surely.

Just today in our PNC office I was listening to a Mtg Rep requesting a Loan Mod on HIS rental. He let his home foreclose last month and moved into his rental. Its now owner-occupied but he paid current. The Lender is Wachovia and he was told the usual. They cannot help him unlessssssssssssssssss. you guessed it…..he was LATE on a payment……………

Guess who’s not getting paid next month Jillayne?

The public is not stupid. Its not a matter of IF….just when……I applaud all of you who are doing everything correctly and paying everything AS AGREED. But, I hope there doesn’t come a day when you are placed in a position that you must cross over to the “dark side.”

We have a very difficult decade ahead of us.

The federal Equal Credit Opportunity Act prohibits a lender from making a credit decision based on several catagories: Race, religion, national origin, gender, color, marital status, age, whether you have exercised your rights under the act, or if you are receiving income from public assistance.

Lenders are directed to ignore the above and make credit decisions based on credit-worthiness of borrowers.

I have processed several loans in my career for people receiving government assistance. If they can afford to repay the loan, we grant the loan.

Now the last decade was insane. Everyone got a mortgage who wanted one. This family could have found one of the last remaining stated income loans. Maybe they qualified using the non-student’s full time income.

I heard the NPR episode while driving on Thurs and was trying to figure out a way to text The Tim: 94.9!!

Like Ira, I am familiar with Richard. He has a good reputation in the industry and was one of a few who took huge risks by speaking out, LOUDLY about problems with mortgage brokers threatening appraisers unless the appraiser hit the value needed. This was years ago. I’m guessing the earlier part of the decade; 2001-2003. Yes, there was fraud going on even way back then. This meant a loss of income from those high roller mortgage brokers who could easily manipulate a weaker appraiser.

Mortgage fraud generally falls into one of three catagories:

1) Consumer fraud such as borrower misrepresentation

2) Commission fraud such as an LO or Realtor misrepresenting information to the lender

3) Fraud for profit which consists of systemic transactions by a group of industry pros who attempt to steal a significant amount of money. Think of the latest case that we heard about around these parts. I believe the mortgage broker’s name is Vladislav Baydovskiy.

So when Richard says that fraud was widespread, perhaps he’s combining all three definitions.

I almost died when I heard the phone call from the homeowner who was requesting a loan modification. I cannot remember now exactly what was said, but I remember thinking, there’s no way this person is going to get a loan modification. Oh, wait I remember now. She had purchased a home up north and now the builder is selling the same home in the same plat for $60K less…..and she asked the non-profit rep about a loan mod. The non-profit gal suggested that there was a good chance of getting her loan modified.

Yeah, right. Why don’t we all call our lenders and ask them to reduce our principal balance, just because values have dropped. No wonder people who really need help can’t reach anyone in loan servicing.