KUOW Discusses Seattle’s Real Estate Mess

Seattle’s local NPR station KUOW ran an interesting segment yesterday morning called Navigating the Current Housing Market.

KUOW host Steve Scher has real estate agent / appraiser Richard Hagar and Urban League housing director Linda Taylor in-studio to discuss how we got where we are, and what’s going on right now with real estate in and around Seattle.

Here are some interesting excerpts.

On how people got underwater:

[10:00]
Hagar: “So what we ended up with is a lot of home owners, particularly new construction, that would end up with a loan for far more than the house was worth. The moment they got into it, the loan may have been worth $50,000 more than the value of the house, because there was a car, or kickback, or something else thrown in with it. …They started off underwater.”

[11:55]
Hagar: “Sometimes within a complete subdivision, every house would be one of these strange little deals. We saw it up in Silver Lake in Everett. Every single home in the plat sold with a car, or money back to the buyer, or something. Again, so the loan was already for more than the house was worth, the day they bought it.”

Scher: “Did people think they were getting a free car?”

Hagar: “Yeah.”

On who is at fault / who is responsible for the fraud:

[14:26]
Scher: “How much of this problem—of people facing foreclosures, of being underwater—part of it is the crash in the economy, how much of it though is because of fraud?”

Hagar: “A large percentage… there’s a combination. Banks were doing loans that they shouldn’t have done. Borrowers were buying for more houses than they should have… there’s a lot of contributing factors. However, when you go in and pull off the homes that are in foreclosure right now, 80% involve some level of fraud.”
[15:30]
Hagar: “Everybody’s saying ‘the buyer’s lying.’ It’s a combination. Sometimes it was the appraiser, not appraising it right, and doing it fraudulently. Sometimes it was the borrower lying about their income, their occupancy. It could have been that the loan originator was showing them how to do this, was ‘helping’ them with their down payment, cash under the table just before… So there’s a wide variety.”

On “predatory lending”:

[17:11]
Taylor: “I don’t know if it’s predatory lending. Because predatory lending, you have to clearly be deceived. And clearly you know that you have an adjustable rate, that it’s going to change, and your income isn’t.”

Scher: “So people were being blind, polyannas.”

Taylor: “Just misled, I believe. And always told: ‘Don’t worry. You can refinance that later.’ …And then when the economy changed and turned, they couldn’t do it.”

Scher: “So was it predatory, or did people just have the bubble mentality, all the way up and down the line?”

Taylor: “I’ll go with the bubble mentality.”

Even I was told the “don’t worry, you can refinance later” line when my wife and I were shopping for a pre-approval in 2005, just before I started this site. Huge warning klaxons went off in our heads, and we walked away.

One thing that surprised me was how frank the real estate agent Mr. Hagar was. Kudos to him for not sugar-coating the situation like so many other agents attempt to do. You can download the full show from KUOW. It’s definitely worth putting on for a listen while you count the work hours until the weekend today.

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About The Tim

Tim Ellis is the founder of Seattle Bubble. His background in engineering and computer / internet technology, a fondness of data-based analysis of problems, and an addiction to spreadsheets all influence his perspective on the Seattle-area real estate market. Tim also hosts the weekly improv comedy sci-fi podcast Dispatches from the Multiverse.

83 comments:

  1. 1
    Dave Lincoln says:

    OK, I admit I did not listen to the broadcast, as I abhor government radio, but I will say this: Mr. Hagar has a strange definition of fraud. Again, I’m only going by your blurbs, Tim, but he never does give a real example of fraud. The “money under the table thing”? Not right, probably not legal but not fraudulent, as the buyer has got one or both hands on the money too.

    This guy Hagar just sounds like he is saying that anytime a housing buyer acted foolishly or with no regard for the long-term, then there was some “fraud” going on. Bull. Stupid is as stupid does, my friend Forrest’s Mom used to tell me, as we lay in bed together.

  2. 2
    budbrad says:

    I listened to the whole segment yesterday and walked away thinking “These people have obviously never actually called a lender to renegotiate a loan.”

    In actual fact, the customer service people at both the lenders and the housing orgs are essentially clueless AND powerless to actually help you. What they are really good at is reading phone scripts, entering data into spreadsheets, pushing ‘enter’ and then telling you that you don’t qualify for a re-work, without being able to actually tell you why.

    At least they aren’t telling people to fall behind in their payments, in order to get the lender to work with you. That was happening for months.

  3. 3
    PhinneyDawg says:

    I was definitely one of the home-buyers in 2007 told I would be able to refinance my 10 yr interest only/20 yr interest and principle loan within the next few years easily. It wasn’t a terrible loan (the interest rate was fixed at 6.5%) but we weren’t paying down any of the principle, which seemed like a really bad idea in a declining market.

    Luckily we refinanced to a fixed rate 30 year loan in January, but we only qualified because we had put 25% down on the home and hadn’t lost all the equity yet. Other people probably weren’t as lucky as us though.

  4. 4
    Ray Pepper says:

    I had never heard of Richard Hagar. I looked him up on the NWMLS. Appears he hasn’t sold a home in 2+ years according to NWMLS. Furthermore did he ask Hagar how he participated in this “housing crisis” with his actions of Appraising? Did he ever question his own appraisals? Why he is/was given the Comp Price needed to come in at for purchases and refi’s? Appears Hagar like 1000’s of others is Monday Morning quarterbacking and is as much to blame as anyone.

    What is Hagar’s affiliation with Steve Schur and KUOW?….Why Hagar? Sorry I’m just a bit bewildered today and a bit sick of people looking back and explaining what happened. We all know what happened. Just so many of these “professionals” have so many opinions yet have not worked in their field.

    http://www.youtube.com/watch?v=bU6m5UqLx9M&feature=related

  5. 5
    calvis says:

    I think you can get more insight on why he said what he said on his website.

    http://www.richardhagar.com/

    Looks like he has a vested interest on promoting his agenda. I not saying what he said is not totally correct, but I did find it interesting that he was turning on his brethren.

  6. 6
    waitingforseattletocool says:

    This is an old story, retold a thousand times.

    Where is the new news?

  7. 7
    Groundhogday says:

    Slightly off topic, but I just contacted three different craiglist landlords regarding a move up to a nicer home: all three are renting out their homes “until the market recovers”. Accidental landlords, leasing out their homes at 50% of PITI in the fantasy belief that a year from now everything will return to “normal.”

    THIS IS NORMAL, AND IT IS GETTING MORE NORMAL EVERY DAY! GET USED TO IT!

  8. 8
    The Tim says:

    RE: waitingforseattletocool @ 6 – I think it’s important to highlight things like this, because my impression is that there are still people out there that truly believe that here in Seattle our housing market is just a victim of the national economic downturn, that things didn’t get overheated here and shady deals like those described in the first quote weren’t widespread here.

    The Seattle area was home to just as much of the bubble excess as other places, and when a prominent local program comes out with examples specific to our region, I think it’s worth highlighting.

  9. 9
    Softwarengineer says:

    RE: Ray Pepper @ 4

    I AGREE WITH RAY

    And I don’t always see his viewpoint as agreeable, but he has hit the nail on the head today in my opinion.

    You can call the subprime mess a million names and degrees of mess; the bottom line is when loans go bad ,the bank agreed to lend money to a unqualified buyer who bought a home he/she can no longer afford to resell. Its that simple. One example of bad lending is not the rule, just an example.

    A February 2009 example of bad lending was on an apparrent 3.5% FHA low down to a low income family; she works as a nurses aid with her disabled husband [he lives on supplemental social security at like $600/mo] buying a $280K Marysville house, is the same conundrum, only worse in my opinion. We the People will be stuck with the likely foreclosed home loss, its risk free lending for the bank, yet, the banksters and appraissers all got their take at taxpayer risk expense….LOL

    Even Wall Street Journal is calling the low down FHA loans to anyone and the tax payer takes all the risk; the new subprime mess trying to start a new bubble we thought we cured.

  10. 10
    singliac says:

    RE: Dave Lincoln @ 1 – Yeah, talk radio is so much better. You get to listen to five minutes of ranting sandwiched between 10 minutes of commercials. What could be better? I’m a staunch conservative, so you can’t peg me as some sort of leftist, but I’m a huge supporter of NPR. I heard stories about the dangers of subprime lending two full years before I ever heard it on a commercial news outlet. Funding from the Federal government amounts to 2% of NPR’s income, so I think it’s a stretch to call it government radio. Or, you could listen to talk radio, where you can hear financial gurus like Dave Ramsey tell you why you should use a particular mortgage broker (who happens to be paying Mr. Ramsey large sums of money to endorse their products).

  11. 11
    Sniglet says:

    Mr. Hagar has a strange definition of fraud

    This is a great point. The word “fraud” has been used very loosely when referring to the real-estate bubble, and it’s hard to know what people really mean. If you include every sale that used overly optimistic appraisals, wishful income/debt statements, or cash-back incentives somewhere near 70% or 80% of all transactions during the bubble years may have been “fraudulent” in one form or another.

    However, most of these cases would likely be maddeningly difficult to prosecute, and since all parties of the transaction were complicit (including the lenders who willfully closed their eyes to the shenanigans going on), it is difficult to find a “victim” (other than the tax-payer who is now having to pick up the pieces).

  12. 12
    Dave Lincoln says:

    RE: singliac @ 10
    Why do you assume I listen to talk radio? Bad assumption. I don’t mind listening to Rush when a friend has it on, as I usually agree with him. However, I’d rather just have quiet. I don’t know this Ramsey guy of which you speak. I don’t listen to the left-wing fools on NPR, though they do *sound* very erudite and they talk more quietly than Rush, which I like (the quiet, that is). However, I see no reason the US Federal government should support any radio station, newspaper, blog, and I would hope The Tim would do the right thing and turn it down were he offered and Obama-Bail-Out. ;-)

    Maybe it’s best not to take everyone else’s advice, and listen to your own judgment. That’s the reason I don’t own an underwater $600,000 piece of crap in Seattle.

  13. 13
    Boyflux says:

    RE: Dave Lincoln @ 12
    You may want to read this regarding NPR and their funding practices/goverment support:

    http://www.npr.org/about/nprworks.html

  14. 14
    CCG says:

    “Accidental landlords, leasing out their homes at 50% of PITI in the fantasy belief that a year from now everything will return to “normal.””

    Same thing that made people ride WAMU to 0. All one has to do is ask, “Would I buy it again today?” If no, then get out and get the pain over with.

  15. 15
    Groundhogday says:

    By The Tim @ 8:

    RE: waitingforseattletocool @ 6
    The Seattle area was home to just as much of the bubble excess as other places, and when a prominent local program comes out with examples specific to our region, I think it’s worth highlighting.

    Agreed. Denial runs remarkably deep up here.

  16. 16
    patient says:

    RE: CCG @ 14 – I really can’t understand where these owners get the idea from that prices will recover in the next couple of years. It’s like putting $100k on a single number on a roulette table. I’m sure noone would do that but to put $100k on the with the same odds in housing seems to be ok.

  17. 17
    Groundhogday says:

    We know a young couple with an infant on WIC who used borrowed student loan money to purchase a lot in order to build a custom home last year. And they nearly had the construction loan funded before the bank pulled the plug this year. So even in 2008, long after everything started to crumble, someone on welfare could build a custom home with borrowed money. Granted this couple had a good FICO score, but this is CRAZY and far from isolated.

  18. 18
    Kary L. Krismer says:

    RE: Groundhogday @ 7 – Unless there’s inflation, in which case they’ll be very glad they held on.

    During 2007 I was always trying to get our move up buyers to sell their old house rather than rent it. Obviously there’s a bit of self-interest there, but it was what we did when we bought a new better house. And there were two reasons for that. First, I didn’t want to have too much of my asset base tied up in real estate. Second, I wanted to take advantage of the tax exclusion on the sale of a personal residence. I think it’s nuts to pass something like that up. Unfortunately I don’t think I convinced a single client that was leaning towards renting to sell.

  19. 19
    Kary L. Krismer says:

    RE: The Tim @ 8 – I don’t deal much in new construction. I think I’ve only shown one such property in the past two years. Were free cars very common here? I’ve heard about that in places like AZ.

  20. 20
    Irene Dorang says:

    I’d love for Hagar to explain how he’s coming up with his stats on the cases he calls fraud. As other people in this thread have mentioned, he uses the term freely, and then actually says 80% of the homes currently in foreclosure involve fraud. Proof?

    I’d also love to hear from him what percentage of new construction sales actually involved ridiculous kickbacks, like cars and vacations. In the last 10 years I’ve seen things like large screen TVs or a vacation package offered maybe less than 5 times. I always notice it because I think it’s one of the most boneheaded things out there, since obviously the buyer is paying for it, and talk about a depreciating asset. To hear his quote here (I did not listen to the interview) he makes it sound like something that was commonplace – I don’t think it was.

    But, his interview got him written up in Seattle Bubble. I’m not saying it’s not noteworthy, but let’s be real – the more hair-raising your info, the more likely it is you’ll get noticed. That’s why books called Freakonomics sell a lot better than books called ‘Your agent’s not out to get you and oops, there is actually no big real estate conspiracy after all’.

  21. 21
    waitingforseattletocool says:

    RE: Groundhogday @ 15

    I agree with the denial aspect and raising awareness in our provincial Pacific NW, I am just saying this is old news.

    Below is link to at least 40 related stories in the Seattle Times alone. I have heard these stories 10 cocktail parties ago.

    http://search.nwsource.com/search?query=real+estate+mortgage+fraud&from=ST&searchtype=network

  22. 22
    Groundhogday says:

    RE: Kary L. Krismer @ 18

    “Unless there’s inflation, in which case they’ll be very glad they held on.”

    We been over this many times before, but it bears repeating: Unless there is wage inflation, home prices will not go up. Rising gas and food commodity prices pushing against stagnant or falling incomes will only drive home prices down. In this environment with growing unemployment, it is hard to imagine rising wages.

  23. 23
    Dave Lincoln says:

    RE: Boyflux @ 13
    Per your request, Mr. Boyflux, I checked out the link to NPR’s “about” information. They are very, very coy about not splitting up their support amounts into gov’t versus corporate vs. private. However, I see that the Corporation for Public Broadcasting, which is Federal Government, supports NPR, as they do indeed state on the radio, now that I recall.

    Click this:Time to Unplug the CPB http://www.fair.org/index.php?page=2671 and you will read that:

    “Tomlinson’s charges about the liberal bias of public broadcasting coincided with a congressional attempt to make deep cuts in the CPB’s operating budget. The CPB provides approximately $400 million a year to NPR and PBS—about 15 percent of the two entities’ combined budget.”….

    Now, they don’t distinguish between the amount going to NPR and the amount going to PBS. As I said, the government has no business supporting it’s own media. Hopefully Pravda does not receive any of my tax money, but I wouldn’t be surprised these days (by Pravda, I mean CNN, of course).

    Now, back to Real Estate?

    (BTW, my link is Blue in Preview, but not in the post. However, it still is a good link)

    Dave Lincoln

  24. 24

    I took a class taught by Richard Hagar. He owns an appraisal business, doesn’t sell real estate despite his license, and doesn’t take lender appraisals. He’s considered one of the foremost authorities in the country on RE fraud, and teaches state attorneys general about the subject. As a teacher, he’s highly entertaining, and I don’t view him as a scammer at all.

  25. 25
    Dave Lincoln says:

    RE: Ira Sacharoff @ 24
    I don’t see evidence he is a scammer, Ira. I just think he is a liar, if he calls buyer stupidity fraud. However, as I said, I didn’t listen to the interview on the government radio, so I could be wrong about his definition of fraud.

    BTW, I like how you said he teaches “state attorneys general” You are like a Bill Buckley in your command of English. I think the girl at Burger King did not appreciate my command of English when I ordered “two Burgers Deluxe”. She’s all “whaaaa… you wont two Burger Deluxes, sir?” I’m all ” No Ma’am, I would like two Burgers Deluxe, if you would be so kind.” She was like “2nd winda, Honky!” ;-) Even Bill Buckley would get dissed at the BK, if he were alive, and he was one erudite MF.

  26. 26
    mukoh says:

    He is totally unrealistic about the amount of free cars. There were maybe 2-3 deals and that was not wrapped into the loan on top of the purchase price either. He has no facts to what he is saying, just stirring and stirring hearsay is fun for him. Lala land.

  27. 27
    cheepseats says:

    RE: CCG @ 14 – I wish I had bought some of this wamu at the 52 week low…

    http://www.google.com/finance?q=PINK%3AWAMPQ

  28. 28

    RE: Dave Lincoln @ 25

    Thanks. In the class i took taught by Richard Hagar, he made it clear that when he uses the term “fraud”, he’s using it broadly and not necessarily referring to the legal definition.

    As far as Bill Buckley: although he was much further to the right than i am, i loved the guy and thought he was a hoot. His son Christopher is a brilliant writer and hilarious.
    And Dave Lincoln: Not to worry…There will be a place for you in the re-education camp.

  29. 29
    Boyflux says:

    RE: mukoh @ 26RE: Dave Lincoln @ 23
    Point taken.

    RE: Irene Dorang @ 20 and RE: mukoh @ 26
    I don’t have much experience with the situation of builders here offering incentives because when I arrived last year I wasn’t looking for housing. That said, in Florida, the land from whence I relocated, builders were indeed including vehicles & TV’s & HOA’s & “the kitchen sink” just to get people to buy vacant homes. It was rampant in new construction communities. I would venture to guess by mid 2007 at least 50% of developers were using this method to attract buyers in South Florida.

  30. 30
    Urban Artist says:

    I have a friend who bought a 500+ K house and she was a Grad student. Her husband worked but he isn’t in a high paid job. I couldn’t believe it, I never thought to buy a house when I was a student. I guess some people can handle more debt than I would be able to. My question is….are there some areas in Seattle that won’t really decline much in price?

  31. 31
    patient says:

    RE: Urban Artist @ 30 – I highly doubt it since the downward drivers as the death of crazy financing and unemployment hits everywhere. This is a national phenomena not a local one. Prices will likely continue to fall everywhere at least until the economy turns and/or prices are close to be on par with renting.

  32. 32
    Kary L. Krismer says:

    RE: Urban Artist @ 30 – Yes there are some areas that don’t drop much. Those are the areas that didn’t go up much when things were good.

    From memory I think there were 2 NWMLS areas that didn’t drop YOY in March and 4 in April. There very well could have been mix changes however, and some of those might have been low volume areas.

    Conversely there are areas that have dropped a lot more than the average for King County.

  33. 33
    David Losh says:

    RE: mukoh @ 26

    You are so right. People were swindled for a lot less than the price of a car. Most people were sold a Plasma TV with a house attached for $350K to $500K. Once you spent over a half million some people also got a trim package upgrade, but don’t tell the guy next door. They paid full retail and got nothing.

  34. 34
    Jillayne says:

    Hi All,

    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.

  35. 35
    Jillayne says:

    Groundhog Day: “We know a young couple with an infant on WIC who used borrowed student loan money to purchase a lot in order to build a custom home last year”

    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.

  36. 36
    Ray Pepper says:

    RE: Jillayne @ 34

    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.

  37. 37
    what goes up must come down says:

    Dave Lincoln you commented on something you didn’t even listen too — now I know why the right wing is in trouble.

  38. 38
    Jillayne says:

    Ray, the homeowner who called in to KUOW did not speak about a financial need. She just wanted the bank to lower the principal balance. Are you suggesting that millions of us will ruthlessly default in order to get a loan mod?

  39. 39
    Ray Pepper says:

    RE: Jillayne @ 38

    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!

  40. 40
    Dave Lincoln says:

    RE: what goes up must come down @ 37 – That’s what I said. Maybe you should read what I wrote earlier before you comment. I stated that “based on the blurbs from Tim, blah, blah, blah”

  41. 41
    Dave Lincoln says:

    RE: Ira Sacharoff @ 28
    “There will be a place for you in the re-education camp.” Yes, indeed, I will be up top in the guard tower. I’ve got my app. in already. When I am up there, keep me supplied in PBR and you will be OK, IRA ;-)

    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.

  42. 42
    David Losh says:

    RE: Jillayne @ 34

    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.

  43. 43
    lilypad says:

    RE: budbrad @ 2 – “At least they aren’t telling people to fall behind in their payments, in order to get the lender to work with you. That was happening for months. ”

    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.

  44. 44
    Racket says:

    RE: lilypad @ 43

    “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.

  45. 45
    Racket says:

    Scratch that, others bad financial planning.

  46. 46
    David Losh says:

    RE: Racket @ 45RE: Racket @ 44

    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.

  47. 47
    Mark says:

    RE: The Tim @ 8

    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.

  48. 48
    Racket says:

    I never said how smart I was, but thnx for pointing that out.

    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?

  49. 49
    Groundhogday says:

    By Jillayne @ 35:

    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.

  50. 50
    Racket says:

    “Yet they are trying to convince me it ’s the perfect time to buy. Why?”

    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.

  51. 51
    Mark says:

    RE: Groundhogday @ 49

    “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.

  52. 52
    ElPolloLoco says:

    RE: Mark @ 51During the bubble everyone thought buying the biggest home they could afford was a source of income

    Well, no, not everyone.

  53. 53
    ElPolloLoco says:

    By Racket @ 50: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.

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

  54. 54
    David Losh says:

    RE: Groundhogday @ 49RE: Racket @ 50RE: Racket @ 48

    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.

  55. 55
    REBlogger says:

    By Richard Hagar SRA

    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.”

  56. 56
    Dave Lincoln says:

    Mr. Hagar. Thanks for taking the time to elaborate. Some of us refuse to listen to government radio, so ummm, they, did not hear that interview. I guess I assumed that by fraud you meant fraud on the part of the bank officer, real estate agent, etc. against the buyer, if it makes any sense to state it that way. I should say, I assumed you meant the loaner is defrauding the buyer.

    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.

  57. 57
    David Losh says:

    Speaking of fraud an interesting thing keeps coming up in short sales. banks are asking for financial information about the borrower in addition to the Change of Circumstance or Hardship Letter. I never give them anything concerning my sellers, but a lot of agents do.

    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.

  58. 58
    what goes up must come down says:

    Mark wrong Groundhog is not offending EVERYONE.

  59. 59
    what goes up must come down says:

    Racket if you are waiting for inflation you may be waiting for some time as people here have pointed out it is hard to have inflation with unemployment rising.

  60. 60
    jon says:

    “it is hard to have inflation with unemployment rising. ”

    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.

  61. 61
    Kary L. Krismer says:

    By David Losh @ 57:

    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.

  62. 62
    Kary L. Krismer says:

    RE: jon @ 60 – I still think a lot of that wasn’t true inflation, but merely the price of a commodity (oil) working it’s way through the system. But I have no doubt that you could induce inflation through fiscal and monetary policy even during a period of recession.

  63. 63
    what goes up must come down says:

    Jon how does that money get into peoples hands? Does the government just hand it out on the corner? I have no doubt we will see inflation again I am just not sure we won’t see it until after deflation has hit.

  64. 64
    David Losh says:

    RE: Kary L. Krismer @ 61

    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.

  65. 65
    David Losh says:

    RE: jon @ 60RE: what goes up must come down @ 63

    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.

  66. 66
    Racket says:

    “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. ”

    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.

  67. 67
    deejayoh says:

    RE: Racket @ 66 – when someone makes a statement that confuses “effect” and “affect”, the value of responding is questionable.

  68. 68
    jon says:

    RE: what goes up must come down @ 63 – “how does that money get into peoples hands? Does the government just hand it out on the corner? I have no doubt we will see inflation again I am just not sure we won’t see it until after deflation has hit. ”

    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/

  69. 69
    Dave Lincoln says:

    RE: deejayoh @ 67

    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.

  70. 70
  71. 71
    Racket says:

    RE: deejayoh @ 67

    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.

  72. 72
    Racket says:

    Sorry I mean to type Wasn’t used.

  73. 73
    deejayoh says:

    RE: Racket @ 71 – FWIW, it was more a jab at the substance than the grammar…

    Just my smartass sense of humor, I guess

  74. 74
    David Losh says:

    RE: deejayoh @ 67

    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.

  75. 75
    EconE says:

    RE: Racket @ 66

    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.

  76. 76
    Racket says:

    Well the dumping of houses will cause deflation, but the money used to cover the bank losses will cause inflation.

    It’s hard to say which one will win.

  77. 77
    David Losh says:

    RE: Racket @ 76

    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.

  78. 78
    EconE says:

    RE: Racket @ 76

    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.

  79. 79
    Kary L. Krismer says:

    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?

  80. 80
    David Losh says:

    RE: EconE @ 78

    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.

  81. 81
    Racket says:

    By Kary L. Krismer @ 79:

    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.

  82. 82
    Alan says:

    RE: Racket @ 48

    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.

  83. 83
    Racket says:

    Your comparing apples to oranges.

    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%.

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