The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker

Posted on January 16th, 2009 in Daily Mortgage/Housing News - The Real Story, Mr Mortgage's Personal Opinions/Research

The End of Large Bank Wholesale Lending – A Resurgence of Middle Market Mortgage Banking – Chase…a Leading Indicator

This week, Chase shut down wholesale mortgage lending while keeping retail and correspondent lending alive. I believe this hasty move is a result of terrible performance (low pull-though rates and low margin), despite a soaring loan application volume. This may be the first visible sign of how tough the mortgage industry really is right now and how little of this recent surge in loan applications are actually resulting in profitably funded loans.  As a matter of fact, significant losses can occur when a mortgage bank can’t effectively manage its pipeline of locked and in-process loans. Of note, Credit Suisse recently shut down their wholesale division (Lime) in December. The announcement came out of the blue. This was a new operation formed in 2008 and they only handled Fannie, Freddie and FHA loans with no baggage.

This story just out by National Mortgage News points to the gist of this story – just because rates fall and ‘applications’ are up does not mean loans are ‘funding’ banks are making money.  Moves like this are to get better clarity about what in the pipeline is real and what may actually fund. This way they can manage and hedge their pipelines better and potentially pass better rates onto the borrower. I can’t post the entire story because NMN is subscription – sorry:

“As the refinancing boom gathers steam selected residential funders are beginning to charge “rate lock” fees to both consumers and loan brokers, according to industry participants.”

Wholesale is priced better than retail because it is supposed to be easier on the lender by leveraging an army of mortgage brokers to aggregate the necessary paperwork and qualify the borrowers prior to the wholesale lender ever seeing it. Because this makes the loan process for the wholesale lender much quicker and more efficient, they offer below market rates to the broker. This allows the broker to add in their fees while still offering a market rate to the borrower, but wholesale has turned into a very expensive origination channel since rates turned down in late Nov.

The mortgage application/rate lock fall-out, especially on the wholesale side, is extreme due to a) brokers locking and submitting with multiple lenders, trying to get the best rate and the largest commissions; b) appraisals coming in too low and killing the deal; c) borrowers not qualifying for today’s sensible underwriting standards; d) turn-around times being so long that borrowers switch lenders for better rates/quicker funding, creating even longer turn-times;  e) rates not really being what borrowers hear quoted in the news or up-front by the loan officer; f) lack of reasonably priced Jumbo money. Many of these ‘challenges’ also effect the retail channel as well.

If fall out and profitability in wholesale were not a problem, then why not ramp up that division? It is not like they are lending their own money – all loans now are Fannie, Freddie and FHA and sold/securitized post-haste. The primary cost of doing wholesale loans comes from overhead and risk from hedging and buybacks – much of the same as with retail.

We know that based upon primary vs secondary market prices, many banks are not passing through to the home owner all that they could. Instead, they are choosing to make a great deal of money on each loan. Hey, more power to them. But when up to 75% of all wholesale loan applications fall out after submission by the broker, a major problem is affecting the lender’s ability to perform profitably across their entire mortgage platform.

Of course, not all lenders are running a 75% fall out rate, but three that I track closely have relayed to me that they expect wholesale pull-through rates in the bubble states to be about 25-30% in January. Back during the boom when literally anyone could qualify,  pull-through rates were 75-80%. Now even the best lenders are not running greater than 50%. This is one of the greatest challenges affecting the mortgage space in general, with the worst performance coming from the mortgage broker/wholesale side.

Now, back to Chase… Chase’s decision to exit wholesale was simply a choice to do fewer loans more profitably by focusing on retail and correspondent business. On the retail side, banks have better control of their loan officers because they can fire them if they do a bad job with respect to quality and pull through. In addition, most bank loan officers do not broker their loans out so the bank has a better idea of what will actually get funded. This is unlike wholesale, where the bank is always guessing as to what is real, but still has to hedge the deals. On the correspondent side, banks also have better control than with wholesale because their middle market mortgage banker clients must deliver what they commit to and the bank has recourse to make the mortgage banker buy back the bad loans.

I believe other large banks will follow Chase’s lead out of wholesale over the near-term. This will prove bad for the mortgage and housing industry as a whole, as there will be less competition in the mortgage finance arena. When fewer players control the market, rates will suffer as profitability is focused upon.

However, as large banks exit wholesale and focus on retail and correspondent, it will provide a playing field in which local and regional middle market mortgage bankers can flourish. That is, of course, if they can get the warehouse capacity. Fewer banks and more local and regional middle market mortgage bankers slugging it out on their home turf is great for mortgage and housing. -Best, Mr. Mortgage

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146 Responses to “The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker”

  1. I was hoping that it wouldn’t come to this, but you may be correct no residue. This may be the only viable option at this point. Boy did they screw this one up royally!!! I still argue for prinipal write downs to get some of this in the hands of shareholders at these lenders and off of the taxpayer squarely, but alas it may be too late for that now. The cry babies screaming I want mine took care of that one for us. Too bad the Government listened to their call and not one of soundness for all… go figure. So now we all pay for the excessive greed of a few.

  2. So, let’s see if I’ve got this right. This whole discussion has been about write down before the homeowner leaves the home or after. Or am I missing something?

  3. Dee,

    If the public as a whole demanded principal write downs by lenders and not tax payers 6 months ago when it was needed and again now as it is needed again, then we would be in much better shape. The lenders instead got bailed out in place of the homeowners. This did what it naturally would do and that was to piss off the home owners. Now many will walk and it may be at the point that the lenders can’t do the write downs now. It is too late in other words. So now all tax payers will foot the bill.

    The case could be made that using their powers they simply do as no residue suggest and that is to seize the lenders. It is not without precedence and may be the only action left at this point. That may yield the highest debt to tax payers however, so it has been avoided thus far. We shall see what ensues from here…

  4. Tim Jones Said:

    RE: Dear Crybabies

    I am a renter. Therefore I am not asking for a handout as you would likely put it to a homeowner. The idea behind principal modification is that if the loan is not “fixed” the house is going to get thrown to the wolves of foreclosure.

    When you come to the stark realization that the taxpayer is going to foot the final bill, principal reduction makes sense for the tax payer as the property does not end up as a heavily discounted REO sale.

    Your personal belief may be that homeowners seeking principal reduction should take a flying leap. But should taxpayers not be seeking out the best solution? Telling everyone to go and take a flying leap is the same as suing someone out of principle and not because there is a positive financial gain for doing so. While it may give you personal satisfaction, the wallet is smaller for it.

    I know the man off the street looking in is bound to say WTF, I am not subsidising some losers housing speculation. However taking the time to give the full situation more study might turn you around on the matter.

    Sure, as a renter, I would love to see everyone dump their houses so I can get one on the cheap. At the same time, I understand that taxpayers would be footing the bill for my “cheap home”.

  5. Tim Jones you are my hero! This wins best statement of the thread:

    “You guys are also guilty for offering ‘teaser payments’. You teased the banks that you could pay in conditions less than optimum.”

    LOL!!!!!!!!

    Hey Dee, the discussion is an exchange of ideas on behalf of the 93% of the population that did not participate in blowing bubbles in bubbles areas for bubble stucco-boxes versus pleas from underwater Real Estate investment geniuses (the ones who brought down our entire financial system). As absurd and unbelievable as this may sound…. thay are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you and I to pay for it!

    Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that.

    Stevo, although I think your plan favors the bubble-heads way too much I think it’s much better than other stuff I have heard. Still I bet the bubble-nuts would still not like it. They really just want to keep that fancy house and have us subsidize it, weeee!

    Tim Jones….so true and so witty!

  6. Tim Jones you are my hero! This wins best statement of the thread:

    “You guys are also guilty for offering ‘teaser payments’. You teased the banks that you could pay in conditions less than optimum.”

    LOL!!!!!!!!

    Hey Dee, the discussion is an exchange of ideas on behalf of the 93% of the population that did not participate in blowing bubbles in bubbles areas for bubble stucco-boxes versus pleas from underwater Real Estate investment geniuses (the ones who brought down our entire financial system). As absurd and unbelievable as this may sound…. they are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you and I to pay for it!

    Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that.

    Stevo, although I think your plan favors the bubble-heads way too much I think it’s much better than other stuff I have heard. Still I bet the bubble-nuts would still not like it. They really just want to keep that fancy house and have us subsidize it, weeee!

    Tim Jones….so true and so witty!

  7. BertDilbert You are so NOT a renter. Nice try bubble-nut. Guess what Dilby, if kicking you out onto the street so far and so fast that it results in your receiving a scabbed @ss ends up costing the nation $50k more in foreclosure than it would if we fanned you with grape leafs and “adjusted” your mortgage to non-retard levels… do you think for a minute that the 93% of us out here who are not to blame for this mess will choose grape leafs for Bert?

    The dollar difference in taxes to all of us who will pay for your nuttiness is gonna be huge no matter what! But, if we have to chose between writing your mortgage down $150k or kicking you out and letting someone responsible buy your house for $200k less (than your mortgage amount); in the long run which idea do you think sends a better message to future home borrowers? Which idea will keep the responsible 93% from rioting?

    Personally I don’t think it will be that big a dollar difference, I’m just saying that people are ready and willing to pay a little extra to see justice done versus feeding the pig.

    Oh and Bert, if you really are a renter then I am sorry for this rant; but will instead call you a traitor to your fellow renter/hopeful affordable home owner.

    Another Tim Jones truism:
    “You have no right to a price or housing value. It is not the government’s job to prevent you from being upside-down in a mortgage”

    Gotta love it!

  8. Joan Jett

    It has been my experience message boarding for 9 years that when people resort to name calling such as “bubble nut”, “Dilby”, “nuttiness”, and “traitor” that they have “lost the argument” because they have resorted to Ad hominem. Have at it sister.

    http://en.wikipedia.org/wiki/Ad_hominem

  9. Back in 2005 when I started looking to buy my first home, I had no idea there was a housing bubble in my market. I was astonished at the prices. ISo I went back in my paperwork and dug out a good faith estimate from August of 2005. This ought to give all of y’all a laugh. As a first-time home buyer the bank was willing to have me put 5% down, 15% second mortgage (I had/have no idea at what percentage that piggyback mortgage was–didn’t know enough to ask), and no private mortgage insurance. Qualified for a $210,000 sales price on a salary of oh, about $47,000.

    In March of 2007 I was preapproved for a 30-year fixed, zero percent down, no private mortgage insurance loan for $180,000 principal.

    I didn’t bite in 2005 or 2006 or 2007 or 2008. I just could not pay what I knew in my gut were massively inflated prices.

    So I guess I was smart. Many of my contemporaries were not. I don’t know if anyone “deserves” to be bailed out, but it also does not seem to me that it serves our society very well to throw thousands of people out of their homes. I don’t have an easy answer, nor do the illustrious “experts,” do they? Guess it’s because there is none.

    It seems to me that the banks are fighting tooth and nail to reflate the housing bubble because they are leveraged far, far beyond that which we can imagine. They are bankrupt and they want us to cover their you-know-whats.

    We have seen the power of the American consumer shutting their collective pocketbooks. It has rocked the financial system as well. I wonder, I wonder what would happen if, as suggested earlier on this thread, everyone simply stopped paying their mortgage/auto payment/credit cards/any unsecured or secured debt?

    A debt strike, if you will? Ponder that, Wall Street.

    To Mr. Blomquist: you are doing a great public service and write extremely well. Please, please continue to educate us all.

    I am simply astounded at the lack of fiduciary responsibility of our American banking and investment and financial services systems. It’s as if they all drank Jim Jones’s Kool-Aid laced with something with a little more giddyup than sugar. And apparently the Middle Class is now suffering the consequences of one helluva massive hangover.

    Thanks to all here for your most entertaining, educational and erudite remarks. I’ll go back to lurking now.

  10. Don’t take it so hard Bert. Consider this kinda like boot camp, just a little tough love to get the “perpetrators of financial doom upon America” prepared for when the masses realize the people who caused the mess are living in 2700 sq’ stucco palaces for FREE on our tax dime. And….and….wait for it….asking us to pay down their principle so they they can stay for ever!

    I am a bit cranky, as for the last two weeks I’ve had every arrogant realtor I speak with tell me “no, an offer at 3x average wages will not get you even a counter offer on a tiny sh*tbox”. The best part is the streets I have been watching have had 70% of the homes on those streets listed as preforclosures for the past year. Yep, free beautiful homes for them and STILL Joan gets the down the nose look for offering historical values.

    If one of those people get a principle reduction after I’ve been patient for 7 long, long years I’ll cry until I die.

  11. Joan Jett sounds like the real crybaby and if you die because you cry, i wont even say bye bye

  12. “Yep, free beautiful homes for them and STILL Joan gets the down the nose look for offering historical values.”
    I assume this would be the “post foreclosure writedown” that would be advantageous to many in this discussion”

  13. I know this may sound conspiratorial, and maybe a little too far out there, but what if:
    There were entities that came up with a plan that involved creating a method of protecting investors in such a secure environment allowing them to make gobs of money investing in something everyone would want to buy at ridiculously high prices. After a period of time when everyone realized that what they were buying wasn’t worth what they paid, a revolt ensues and the investors and others that may be privy to the plan,could wait for the dust to settle and get these investments back for next to nothing. I know…crazy right?

  14. Hello all:

    Your investment genius’s, speculators and true sub prime borrowers have already been foreclosed on, what is left basically is your neighbors.

    Math-

    70% of the population (77 million families) are homeowners.
    * includes appr. 25 million homes that have no mortgage
    * includes appr. 52 million homes that have mortgages
    * includes appr. 13 million homes already that have negative equity (25% of all outstanding mortgages)

    30% of the population are renters
    * includes the 13% of the population that earn less than or equal to poverty level incomes

    Which leaves 17% of the population (subject to income and credit) available to purchase the massive foreclosures occuring.

    For each 5% decrease in property values, the estimated equal number of MORTGAGED homeowners affected by the 5% decrease is up to 10% more homeowners will experience negative equity, and the entire percentage will experience loss in equity.

    Translation: the prices will never allowed to be reverted back to 2.5 times the income with 70% of the population being homeowners already (77 million households ) to benefit the 17% (18 million households), the government will step in, just like they are doing.(see earlier post about the breakdown of percentages for each income group)

    Problem with the above, is the homeowners mentality about their asset versus their liability, that they feel rightfully so.

    Yes, they did agree to purchase a home(asset) with a mortgage (liability)at the agreed upon price between seller and buyer. This price we all agree was able to be obtained and validated by the actions of the financial sector creating an abundance of “qualified borrowers” thru the several various mortgage products introduced to earn the lenders higher profits, regardless of future risk.

    The underlying problem is the products introduced had no chance of being substained for the long term without the possibility of being able to refinance or being able to sell while they still qualified with the same products available. While prices were rising, this was not a problem, (see earlier post about the increase in foreclosures).

    The true “gamblers” (investors, speculators , homeowners looking to make a quick buck) did indeed make money, they bought and sold on the way up, or were already foreclosed upon when prices started declining.

    The negative equity homeowners, we are discussing, is just that, homeowners who are being harmed by the financial sectors actions with the government’s blessing.

    The deflationary cycle of housing is the direct result of the massive foreclosures being sold under what was considered the “market price”, this lowers the “market price” for the area.(again market price was and is directly influenced by the availability of funds, homeowners have no crystal ball to know the termination or continuation of availability to maintain market prices )

    The homeowners affected are being fiancially harmed to lessen the loss potential for the banks in their withdrawal of the products and underselling the market, there is no consumer protection being provided to the homeowner for the harmful actions of the banks.

    Again, I will ask what you prefer, only two possible choices are given:

    Choice #1- bail out the banks , allow them to retain the profits and salaries/bonuses, get the taxpayers to pay these profits and salaries, while taking the losses on the majority of underwater homeowners with more to come. ( the purchase of ALL the toxic mortgages including negative equity, deliquent mortgages and all adjustables mortgages ) No stablization of the market, so the losses will just keep on coming. Prices will continue to drop affecting more homeowners, the government will continue to purchase these toxic assets.

    (side bar- the only way out of foreclosures in the above choice, is for the government to forgive the negative equity AND reduce the payment to 28/36% ratios to avoid massive vacancies and homelessness, at all taxpayers expense)

    Choice #2- systemic refinance of all negative equity mortgages including adjustables to the current appraised value. If current, a new mortgage issued at reduced value. If deliquent, homeowner must prove and qualify with income to eliminate the “gamblers and cheaters”. Financial sectors take the loss, re-enforcing the policy and idea of capitalism, where it belongs. To aid the banks/investors the loss is not taken until the actual refinance is done and can be taken at up to 3x the actual dollar amount of loss to correct their book-keeping (mark to market) systems. Not all banks will fail, but the government will not be able to choose which banks succeed and which banks fail, it will be based on their past business decisions.

    The foreclosures already available and to follow because of insufficient income, can be sold by the banks directly at the reduced value or the government could offer a subsidy/grant to move the property quicker. All refinances and foreclosure sales as well will be recorded stablizing the market at the reduced value.

    The government currently is giving the taxpayers , including homeowners and renters, one option, not a choice. Choice #2 has to be agreed upon soon, or that option will disappear as values decrease further.

    Only Choice #1 is offered, how does that benefit America exactly?

  15. JoanJet:

    Unless your a homeowner already, the 93% of the mortgaged population that is paying on time, doesn’t include you.

    If you are a renter, you are in the 17% of the population and I do see your desire for prices to fall, but no homeowner with or without a mortgage wants that and we make up 70% of the population.

    I am a homeowner, who has no mortgage and I want to see stablization of the market with principal reductions for underwater homeowners at the banks expense, whether they can afford them or not. I believe in capitalism.

    Listen/read some of the intelligent comments here and you will realize it is not about you or anybody else being “smarter” then the current homeowners, knowing a bubble was occurring, nor being priced out of the market or knowing your affordability level. I commend you.

    The USA is headed for the possibility of following Japan ( they lost 90% of their value) or worst yet, a “second depression” which will make the first great depression seem like a recession had occurred. We are currently being “spoon fed” that a recession will likely last two more years at least, even with President Obama’s stimulus package.

    Think of it, if we had over the last two years, a national decrease in housing values due to the banks actions of 25% (bubble states 50%), and we go thru the next two years with another 25% deduction, where will the jobs be?
    Will rentals decrease at the same pace?
    If the private sector account for over 70% of all jobs, and the private sector are the homeowners, after they are foreclosed on, I ask again where are the jobs? (human nature is to protect and survive, they will lay off everyone before affecting their family)

    My plan reduces the principal mortgage balance eliminating negative equity, the homeowner is issued a new mortgage at the reduced principal, it is NOT FREE, they will revert back to paying for 30 years. It penalizes them and doesn’t cost you or me a cent.

    If they are deliquent, they are entitled to the same reduction but they now have to prove income and qualification at 33/41% ( remember the banks qualified a large percentage of these homeowners at 50% ratio’s )

    If they can’t prove sufficient income to qualify, the home will be foreclosed on.

    If the banks can not sell the home within a set period of time at the reduced value, the government will purchase it, as a true toxic item

    My suggestion is to auction them off with a subsity/grant to encourage the “3x the income” borrowers to purchase under the FHA program ( 3% down payment).

    So you see, the only taxpayer funds I am allocating for is for renters. ( there is a reason though, the principal and interest payment the renters will make, is more than double what the subsity would cost, after the principal and interest is paid back. The same as the banks make)

    Our government is attempting to “restart and restore” the lending and borrowing spending that has taken place over the last several years fueling our economy. This will not work for several reasons, the most important being that without the “mortgage products” availability, the income to price index has been exceeded and homeowners are no longer able to fuel our economy.

    Prices can come down to 90% of the market peak value, but what does it really manner if half of our population has no jobs, how will you afford a home then? And will you want one?

    Till then take care, and no resorting to name calling, (especially my friend, BertDilbert, who I personally disagreed with, but respect)

    We are all entitled to our opinions.

  16. Joan,

    “They are calling for principal reductions so they can STAY in the houses they aren’t paying for, and their brilliant plan is to have you
    and I to pay for it”

    Once again Joan you miss the point entirely (read Susan’s earlier post for a nice breakdown). We are in the middle of MASSIVE BANK WRITE DOWNS that you and I and every tax payer for that matter are paying for this already. This is happening while you wait to get yours. You are getting it already… right between the eyes and you don’t even know it. You don’t even see it still, and never did see it coming in the first place. I would much rather have home owners bailed out and pay the damage for the banks that do go under while leaving families in their homes. Less costly to us tax payers and better for society and the economy over all.

    “Oh and Dee, don’t listen to Stu, he thinks the banks still had money in October when the bailout was proposed, or they now still have money that is not TARP money, or they have TARP money and some of thier own, or after they went belly up and then got TARP they now have money that is not TARP or something like that”

    The bail was handled recklessly and without thought as to what the ramifications would be if certain things happened over others due to no safe guards put into place. Well the worst thing possible happened. The banks hoarded the money, and the ones that didn’t spent some on purchasing other companies. The rest went for bonuses, bloated salaries and debt. In other words there is nothing left now. Not much money is left for many to borrow to buy their dream house with even if their dream home becomes available.

    When we should have been seizing the banks doomed to fail and propping up those that were deemed able to stay solvent with short term help, we were just tossing tax payer money at all of the banks with no regard to who it would benefit. Well now we need to bailout the banks yet again they are saying. I say NO!!! Bailout the home owners this time and do it right. Make the lenders responsible and force them to share in the pain along with home owners this time. Tax payers will foot the bill for some of this, but not all of it, and many will be able to stay in their homes.

    Susan, excellent post that many need to read, and equally understand what it says.

    “Your investment genius’s, speculators and true sub prime borrowers have already been foreclosed on, what is left basically is your neighbors”

    People need to look past the nose on their faces and stop worrying about just themselves for a change. We need to stop families from being tosses into the streets. Whether they are renters on a foreclosed home or owners of one many families are now suffering. Jobs are being lost as people lick their chops waiting to get theirs. What they don’t understand is that without a job and $40,000.00 to put down yours in not obtainable. As foreclosures mount with no attempt to stall them from happening it is placing more pressure on the economy which is driving more to become hurt because of this. It is not helping anything or anyone and in the process it is dragging everyone and everything else down with it. That is a smart approach on how to handle this downturn. I am so proud of our Government for thinking in this manner and so happy that the electorate appears firmly behind their own demise… well not really, and I actually find it quite sad to be honest.

  17. I don’t even know where to start with you people, but this sticks out like a sore thumb so it gets shot down first:

    Susan Day Minerly Said:
    I am a homeowner, who has no mortgage and I want to see stablization of the market with principal reductions for underwater homeowners at the banks expense, whether they can afford them or not. I believe in capitalism.

    Joan said:
    1) Could you be more openly greedy? You don’t even have a mortgage and you want to keep others priced out just so you have more “equity wealth”. Nice.

    2) Bank’s expense??? Banks expense? Huh? Are you people really that dense? There is no more “bank money”, not since mid 2008. BofA, Wells, Fannie, Freddie have ZERO of their own dollars. The money they operate with is TARP tax payer bailout money.

    Please, please understand this, every single principal reduction will come right out the tax payer’s pocket. If you have a Wells mortgage and you coerce them to lower your principal $150k, guess who really gave you that $150k gift? THE TAX PAYER.

    3) Best for last….capitalism would have prices fall to natural market driven levels. The OPPOSITE of captalism would be for Joan to pay for any tax payer program that keeps Susan artificially “equity rich”.

  18. Susan said:
    The true “gamblers” (investors, speculators , homeowners looking to make a quick buck) did indeed make money, they bought and sold on the way up, or were already foreclosed upon when prices started declining.

    The negative equity homeowners, we are discussing, is just that, homeowners who are being harmed by the financial sectors actions with the government’s blessing

    Joan said:
    Susan, you know not of what you speak. I went to auctions for homes last December and was soundly outbid by “investors” who are now underwater by $70k and sceeming for bailout help.

    I would not be one bit surprised if the lady who outbid me (by agreeing to pay 6x earnings) is on this board begging for a principal reduction.

    Not only are the specu-vestors NOT all “already foreclosed upon” they are alive and well right now, bidding up REOs and trying to flip. Even the ones who received a tax payer funded loan rework in 2007/2008 are largely back to not paying, because that’s “how they roll”.

    Only when housing reaches a true affordability level will REAL buyers come in who can afford the payment for longer than a teaser period. Only true housing affordability will allow the consumer to have enough cash left over to buy a few other items and get this economy churning again.

    The experiment of throwing all your eggs into a mortgage you hope to flip to a $80k profit will die in favor of a sustainable, historical 3x earnings atmosphere. Nothing else will see real money in real home owner hands.

    And Susan, bubbles always end the same way, 100% of the time, and they always overshoot to the down side. So if you are still equity rich you might want to sell now because in 8 months you won’t believe how much less your home will be worth 🙂

    The negative equity “homeowners” I am discussing are the ones who live in a bubble state, in a bubble neighborhood, in a bubble house they paid bubble-lisciuos specu-crazy prices for. They are roughly 7% of the population. Yes there are many, many more that are underwater, but the guy in Ohio who is underwater $10k on his sensible $90k mortgage is not on this forum begging for a write down gift or begging the tax payer to prop up his/her phantom equity wealth.

    RE goes up and down, always has. The millions and millions with sensible loans and smaller, temporary underwater situations in non-gambler areas are not the issue. The gross, gross offender is the issue, you know…. the guy who paid $450k for a house in 2004 that anyone with a spare 5 minutes could see on Zillow sold for $140k in 1998. $140k is right in line with 3x earnings and the historical rent versus mortgage ratio, yet you people want the tax paying public to support your gross, gross extravagance and at the same time put an artificial floor under housing prices, pricing us renters out, protecting Susan’s phantom equity and gifting gamblers $150k of tax payer money.

  19. Stu Said:
    We need to stop families from being tosses into the streets. Whether they are renters on a foreclosed home or owners of one many families are now suffering. Jobs are being lost as people lick their chops waiting to get theirs. What they don’t understand is that without a job and $40,000.00 to put down yours in not obtainable. As foreclosures mount with no attempt to stall them from happening it is placing more pressure on the economy which is driving more to become hurt because of this.

    Joan Said:
    1) Go up some posts and read Stevos solution. No one gets kicked out into the streets and bubble-gamblers get treated with kid gloves. Still I have a feeling that his plan might include you becoming a renter and therfor is totally not acceptable.

    There are ways to sort this out without kicking people out on the street, short of gifting them $150k of tax payer money. However Stu, keep in mind that if I stop paying my rent I will be tossed out in 45 days. There will be no forum of concerned folks asking for a Gov. bailout of renters (who make up 33% of the population). When did a housing gambler’s shelter become something we all must defend and pay for?

    $40k down? Wrong, you can still get a FHA loan with 5% down. And yes, “mine” is very attainable at historical price levels. And judging from the auctions I go to there is no shortage of people who can afford your house if it goes to auction.

    Stu Said:
    It is not helping anything or anyone and in the process it is dragging everyone and everything else down with it.

    Joan said:
    Speak for yourself. It will absolutely help me if prices actually are allowed to fall back down to HISTORICAL LEVELS of affordability. Note, all I am hoping is for a RETURN to historical affordability levels. I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all. I just hope to have what others enjoyed for decades before this bubble priced sensible people out of home ownership.

  20. Um…a bit off topic here, but has anybody been watching how close the largest consumer bank (BofA) is to going belly up?

    If the 2-Big-2-fail banks implode, we will have bigger problems.

    I don’t think we have enough time to print our way out of this problem. The ship is sinking too fast.

    I’m watching Geithner explain how he has no plan or idea on what to do.

  21. Volker basically said the system is broken and now it’s sinking. NOBODY has a clue on what to do.

  22. Susan and Stu,

    You both have the whos and wheres backwards. We are not experiencing a severe financial sh@tstorm because housing prices are coming down. We are experiencing this because housing got way, way too expensive in the bubble areas. Prices were simply bid up too high for the wages being paid (wages that have been stagnant for 3 decades).

    Irresponsible people saw the prices going up, they flipped and bid prices higher and higher into absurdity, took out cash refis and opened HELOCS and bought Escalades, boats, vacations…..

    All of that reckless consumption robbed from future, sensible consumption. So the housing bubble had a two pronged time bomb effect on the economy, both directly related ot greed.

    1) Housing got so expensive that REAL wages could not cover the payments so specu-gamblers just stopped paying and the banks collapsed.

    2) When the banks collapsed the housing bubble HELOC/refi ATM got shut off and spending across our economy ground to a halt. Because we were back to being only able to spend what we actually earned; not that fake figure we put on the loan docs so we could “win” the beautiful 2700 sq’ stucco-palace with our 8x earnings bid.

    If prices do not come back to historical affordability then people will not be able to buy houses AND have enough earnings left to consume neccessities and luxuries that keep the economy chugging along.

    Yes responsible and irresponsible alike will pay for the unwinding on the way down to rationality, but it will and must occur. And yes, the poor guy in Ohio or Kansas or Iowa will also help pay for the crazy greed fest that occured in CA, AZ, FL, and NV.

    And Susan, the Gov. cannot prop up housing prices. Sure they can try all sorts of crazy scheems just like Japan did. They can stall and slow the slide, but in the end they cannot force me and the millions like me, to pay too much.

    The gig is up, even the MSM reports a new expert every week saying prices will continue to fall into 2010, people will wait for affordability and then step in with real mortgages that they can pay and intend to pay, at prices that allow money left over for living.

    In the end affordability will triumph, it has to, there is just no other viable outcome.

  23. Joan,

    “Bank’s expense??? Banks expense? Huh? Are you people really that dense? There is no more “bank money”, not since mid 2008. BofA, Wells, Fannie, Freddie have ZERO of their own dollars. The money they operate with is TARP tax payer bailout money”

    Joan, besides your constant name calling, whining, lack of compassion and over all total misunderstanding of how markets actually work, you are not a bad cheer leader for doing things all the wrong way. Your way is the most costly to the tax payer way, and the most disruptive to the overall economy way. You are very misguided in your thought process…

    Let me ask you a very, very simple yes or no question Joan.

    Are ALL of the banks going to go under, and all at the same time?

    If your answer is yes then we have fiscal Armageddon and it doesn’t matter what we do because you and nobody else will be able to get a loan for a home no matter what it cost.

    If your answer is no (the correct answer just to help you out here) then the tax payer is NOT on the hook for all of this mess.

    You are paying Joan, and right along beside you are each and every other tax payer in this country also paying. Your way we all pay, where as my way we pay, but a lot less then we would have. It is called sharing the blame and the losses. This is something that escapes you for some reason and perhaps it is because you are so eager to see everyone kicked out of their homes that you are fine with paying for it all. Well I am not and most on this board and in my work are not either. Try to see the forest from the trees please…

    “I have a feeling that his plan might include you becoming a renter and therfor is totally not acceptable”

    Nope, you got the wrong guy. I have not had a chance to review Steve’s ideas yet, but 5 years seems too long. We need something done in 5 minutes it seems, never mind 5 years. Also it is a massive Government effort with new agencies and red tape that will choke itself quickly. We need fast but immediately effective approaches to stem the tide. Again why so nasty?

    “40k down? Wrong, you can still get a FHA loan with 5% down. And yes, “mine” is very attainable at historical price levels. And judging from the auctions I go to there is no shortage of people who can afford your house if it goes to auction”

    Why are you such a miserable person? There are plenty of homes for sale for you to try and get yourself into at affordable below market prices today. Why kick another 2-3 million people from their homes? Why do you cry for all tax payers to foot the bill for this? Why do you feel the need to be so nasty, cruel and indifferent to everyone that does not see your flawed approach to this mess as the way to go?

    “Speak for yourself. It will absolutely help me if prices actually are allowed to fall back down to HISTORICAL LEVELS of affordability. Note, all I am hoping is for a RETURN to historical affordability levels. I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all. I just hope to have what others enjoyed for decades before this bubble priced sensible people out of home ownership”

    This again points to your obvious failure to understand what is going on here. Houses are going to fall back to historical levels with either approach. It is just that your approach causes a few things to happen that mine does not do. Your approach for example tosses millions more families (including children and also renters of homes foreclosed upon) from their homes. Mine tries to keep as many in their homes as long as they are not the following: Speculators, Gamblers, Non primary residents, and people who simply cannot afford to stay.

    In the end affordability will win out but at a cost. Is that cost enought to ruin the landscape of the economy as a whole? Is that cost goin to cost tax payers so much that they cannot afford house payments moving forward due to the taxes alone? Will homes be only a luxury for the priviledged? Will the only ones that eventually make money from this downturn the wealthy that benefited from its demise in the first place?

    I think I finally figured you out. You subscribe to the rich get richer and the poor get poorer philosophy. I don’t want to be on that bandwagon. You and your ideals seem to be begging for it for some odd reason…

  24. od:

    Not ‘off-topic’ at all. As a matter of fact, it’s quite On-Topic and apropos to the mortgage mess.

    To your points:

    – For the immediate, you’re correct, time is running short. That is why we’re staring directly down the barrel of a Bank Holiday… I mentioned this months back. Now then, the possibility is coming into clear view. And don’t think for one second that Obama and his team don’t have this option at the ready should banks continue to decline.

    – Secondly, never underestimate the power or the will of the government to print its way out of this situation. It may take a while (few months), but ‘relief’ will come. Just don’t expect those relief dollars to be worth much, or provide the economic stability and/or solutions you might have thought they would.

    – Here’s what yer gonna be looking at: a) A continual decline of ‘asset’ (read: Liability) prices – i.e., housing. b) A rise in real interest rates. c) A rise in everyday consumer goods (have your grocery store prices for everyday items gone down lately…?)

    – We’re going to get the best of both worlds. Too much money chasing too few goods; Increased cost of living expenses and downward-spiraling housing prices! Ya-Hoo!!!!!!

    🙁

    – And the Blackhearts: “I am not looking for some unprecedented fall in prices so I can scoop a home up for pennies, nope, not at all.”

    Me neither Joan Jett. Cause I’m not looking to buy a liability. I’d much rather keep my dividend paying stocks right now and continue to rent. No bling-bling for me – no granite counter tops and jet skis. But like you, when this all shakes out and housing has fallen to what the market dictates and levels out at – whatever that level happens to be, I might be interested in a humble little 1400 sq. ft. abode.

    Until then, it’s time to pack it away as much as you can and get ready to dump those dollars into real assets when the time comes.

    – Mr. Negativity

  25. CC

    “For the immediate, you’re correct, time is running short. That is why we’re staring directly down the barrel of a Bank Holiday… I mentioned this months back. Now then, the possibility is coming into clear view. And don’t think for one second that Obama and his team don’t have this option at the ready should banks continue to decline”

    That is a conspiracy theory with no relevance to today. We have had around 27 banks fail to date. Roosevelt did that when they were suffering from a national run on all banks and many had already failed as a result. That was purely a stop gap measure to allow people to get cooler heads and they did in fact prevail as a result. Well there is a lot more to it than that, but you know that already.

    “Secondly, never underestimate the power or the will of the government to print its way out of this situation. It may take a while (few months), but ‘relief’ will come. Just don’t expect those relief dollars to be worth much, or provide the economic stability and/or solutions you might have thought they would”

    We are in a highly deflationary time right now and even massive printing of money will not change that short term. I would suggest inflation will indeed come, but I suspect that is 2-3 years away given our current circumstances. Look at all of the data and inflation isn’t even remotely in the picture right now.

    “Here’s what yer gonna be looking at: a) A continual decline of ‘asset’ (read: Liability) prices – i.e., housing. b) A rise in real interest rates. c) A rise in everyday consumer goods (have your grocery store prices for everyday items gone down lately…?)”

    Deflation is not a drop in prices, but rather a drop in available capital. As a result prices fall from demand / supply being out of whack. Interest rates will remain low for sometime, but are sure to ratchet up big time at some point, but again that will be a while from now (6 months – 1 year at the earliest in my view). The argument about inflation vs. deflation really has nothing to do with prices. It is the other way around. You will see drops in goods that are over produced to the level of demand that people are looking for them at. Much like housing, oil has come down artificially with a massive sell off leading the way. Now as they cut back production you are seeing stability hit the markets. A floor if you will. Off course the floor needed for the oil producers of the world is more like $75 vs. $35 so I suspect further reductions in out put will occur until we see prices get back up in that range (6 months – 1 year in my view).

    “We’re going to get the best of both worlds. Too much money chasing too few goods; Increased cost of living expenses and downward-spiraling housing prices! Ya-Hoo”

    I suggest we will continue to see what we have been seeing for quite sometime. We are going to have far too little credit available for anyone to borrow. As a result of that money will be extremely tight where as cash is king if you are fortunate enough to have some. Deflation will continue for quite sometime. Goods will drop in value like they have been while retail clings to their existence. Massive amounts of inventory of just about everything else but food and energy will see to it that goods continue to plummet. Energy will slowly rise which will push the cost of food higher with it. Exports and imports alike will slow and domestic sales will eventually rise as a result, but savings is the new mantra so everything will stay seized up for now. I hardly call this the best of both worlds… I call it a massive hockey stick recession is what I call it.

  26. Stu Said:
    Let me ask you a very, very simple yes or no question Joan. Are ALL of the banks going to go under, and all at the same time?

    Joan said:
    Yes, the banks already did go under. Stu please list just ONE sizable mortgage holding bank that has anything other than TARP money.

    Stu Said:
    If your answer is yes then we have fiscal Armageddon and it doesn’t matter what we do because you and nobody else will be able to get a loan for a home no matter what it cost.

    Joan Said:
    For armegedon update see OD’s post above. The sh@tstorm is here right now, yes maybe I will not be able to get a loan 6 months from now but I am sure giving you a $150k principal reduction will not change that.

    Stu said:
    Nope, you got the wrong guy. I have not had a chance to review Steve’s ideas yet, but 5 years seems too long. We need something done in 5 minutes it seems, never mind 5 years. Also it is a massive Government effort with new agencies and red tape that will choke itself quickly. We need fast but immediately effective approaches to stem the tide. Again why so nasty?

    Joan said:
    Read Stevo’s plan, it does not take 5 years to help, it helps us tax payers right now, by getting those living in stucco palaces for FREE, paying rent to the Gov/fund he proposes. It also offers an immediate solution to the question of what to do with the pre-foreclosure mess without tossing people on the streets and it clearly benefits the house-gambler over responsible people. Still I’m thinking you won’t like it because you may need to become the dreaded renter.

    Stu said:
    There are plenty of homes for sale for you to try and get yourself into at affordable below market prices today. Why kick another 2-3 million people from their homes? Why do you cry for all tax payers to foot the bill for this? Why do you feel the need to be so nasty, cruel and indifferent to everyone that does not see your flawed approach to this mess as the way to go?

    Joan siad:
    You really need to read other people’s view points before you respond to their viewpoints.
    1) Not only are there NOT plenty of affordable homes in my area, there are exactly ZERO, none Stu, not one. I’ve been saying over and over that there are no affordable homes in my area. Prices are still way out of whack with fundamentals, flippers are still out like roaches and that is why I am so angry about any suggestion that we need to do something to stop housing price declines.

    Below market prices to you means $400k for the same model house you paid $450k for? Actual below market value would be defined historically as the average house being price BELOW 3x average earnings, in my area we have a ways to go.

    2) Stevos plan will kick no one onto the street, I am not calling for that either. I just want people who caused this problem to become non-home owners if and only if, they choose to stop paying on their commitment.

    3) All tax payers are already paying for this.

    4) In California responsible renters and home owners who did not participate in the bubble madness have been treated like proletariat members of society. We were scoffed at for suggesting a bubble was forming.

    We watched as these perpetrators of financial doom on America were living La-Vida-Loca, buying all the fancy cars, boats, jet skis, heading off to fancy vacations. All thier extravagances are now being paid for with the bailout money that is being printed to pay the debts they decided to stop paying. We tried to warn them and they laughed at us and went back to swigging mojitos and throwing lavish parties on our dime.

    Stu, just how should I be toward these people? I am not calling for their blood for ruining our entire finacial system and burdening me and every other sensible person with generations of tax burdens. I am just using some harsh words and real facts. Is that too tough?

    Stu Siad:
    Houses are going to fall back to historical levels with either approach. It is just that your approach causes a few things to happen that mine does not do. Your approach for example tosses millions more families (including children and also renters of homes foreclosed upon) from their homes. Mine tries to keep as many in their homes as long as they are not the following: Speculators, Gamblers, Non primary residents, and people who simply cannot afford to stay.

    Joan said:
    BS Stu! I support social saftey nets and at the same time support that under no circumstances what-so-ever should we give a pricipal reduction gift on the tax payers dime. This is not High School golf, there are no Muligans.

    Anyone can go and rent just like me, so no one will be on the streets unless they can not pay anything. If they are out of work I feel for them but we have saftey nets in place, they may not receive enough to stay in a stucco palace but they can come rent with me. Or do you suggest that people who can pay zero get to stay in stucco palaces?

    Stu don’t be so dramatic. Nobody is calling for millions to be tossed out. Again Stevos plan seems to cover your concerns. I think your extreem dislike of the idea of these so called home “owners” becoming renters illistrates my point about the attitude you bubble folks have towards low-life, responsible renters. Its no that bad Stu, people who need to become renters will not die of embarrasment.

  27. C.C., well put. Your personal plan makes sense.

    You bring up a good point about inflation/dollar devaluation. That brings us to three prongs for the time bomb sh@tstorm sandwich the housing gamblers prepared for us. Which is, after the first two prong/bombs settle out we can look forward to extreem inflation.

    Thanks again bubble-nuts.

  28. Stevo, you should add one more thing. Let’s have all forclosure related bad marks taken completely off their credit records after the 5 year period. Usually people will have problems for 7 years or more, as the forclosure never goes off their record it just gets older.

    This will give our economy a breather for the 5 years and then offer a 100% forgiveness to those people who participate in your plan. Then we get a fresh slate and our economy can grow again.

    See, I’m not heartless 🙂

  29. There is nothing heartless about not wanting people to have their selfish, lavish purchases paid for by other people. It’s outright cruel, in fact, to defend such a subsidy as it would obviously be funded by hard-working tax payers, present and future, a sizable majority of whom did nothing wrong other than playing by the rules and living within their means.

  30. New estimate of US financial losses are now $3.6 trillion, with up to half of that from residential real estate. Since the banks began this fiasco with $1.4 trillion in capital, they will need (and get) $2.2 trillion from the taxpayers to avoid going out of business. You got a problem with that, write your congressman.

    So here’s the deal. If my tax dollars are on the hook for a $50,000 loss on a foreclosed home versus a $25,000 loss on a principal reduction, I support the principal reduction with the added bonus of the home staying out of “for sale” inventory, further depressing prices below the “3x” number and triggering even more defaults based on negative equity and costing me even more.

    And who let loose the theory that buyers of foreclosed properties will be any more successful at paying their mortgages than the previous owners?

  31. Redeye, That $25k principal write down may convince the Bubble mortgage owner to keep paying for awhile but when his house falls another $50k he’ll be back at the pig trough. Better to do it right the first time.

    Plus there is the moral hazard issue, since when did forgiveness of principal become part of the rules?
    If Mr. Bubble mortgage gets a $25k principal reduction does his neighbor get one too? I guess that would be the only fair thing to do…oops there goes your $25k savings to the tax payer. But wait there’s more! Now the other neighbor wants a $25k gift too, now our $25k savings is a $25k loss. What? Everyone else on the street wants to know why Mr. Bubble mortgage got a $25k gift and they did not? This $25k gift idea is getting expensive.

    Look at how fast last years reworks have gone back into forclosure. And look at how many of last year’s knife catchers are already looking for the address to mail the keys to. This answers your second question…. anyone is a better bet than a group of people that have shown not once, but twice, that they will bail on their commitment if prices fall.

    Oh and we need to get the historical affordabilty mark of 3x earnings before we need to worry about going below it. Once we get there we won’t need conversations like this anyway as the bubble will be finally dead.

  32. Jett,

    Your question of what happens when the house falls another $50k is exactly what I meant when I asked why buyers of foreclosed homes are assumed to be better able to abide by thier agreements than the previous owners. Negative equity breeds default. If the new owner sees his equity evaporate and then some, the house will be right back on the market.

    And that equity will evaporate and we will overshoot 3x earnings if the 10 million at risk mortgages go REO over the next five years. At that point, the price won’t matter because even if you have a job, you won’t be able to get a loan and will probably have moved to a better place…like Mexico.

    The issue here isn’t houses, it’s deflation. Once the expectation of lower future prices sets in, purchasing decisions are delayed until we see prices stop falling. But with everyone waiting and nobody buying, prices keep falling. Japan is just enjoyed its 18th consecutive year of falling real estate prices. They’re still waiting for a bottom that will never come.

  33. I somewhat understand the idea of “principal writedown”. There just need to be lots of string attached to it. I.E. they can’t sell for profit for the next 5 years, why 5 years, make it 10 years so that way they can’t profit period. I would hate to see someone get a 50k break, then 6 years down the road sell the home for 100k more than they originally bought and pocket that extra. True, prices will not increase like it did. But just knowing “what if” they sell and make profit. By making it 10years will ensure that they will think twice about walking or getting the modifications. Take it another step, if they walk before that, they would have to return that “principal writedown” regardless of the situation.

    I read lots about principal writedown to give buyers of 2002-2007 a break. I don’t see much about giving the new buyers a break aside from the 7500 tax credit… I have a relative and some co-workers who have been house hunting for the past months and have been outbid left and right. Keep in mind all their offers have been list price and above. So there a lot of people out there with money who want to buy but are getting outbid.

    I would love to see some ideas for new home buyers instead of principal writedown first. True price and interest rates are lower, but price isn’t low enough or now banks requiring more than 10 or 20% down payment.

  34. Fascinating debate here.

    I forgot to mention that every third home I looked at over the past few years was owned by a realtor/agent.

  35. Joan,C.C. –

    This is all in vein. There will be a government-born solution and it will involve your tax dollars. Whether this means a central bank giving home loans at 1%, principal reductions or more convoluted bank bailouts to save the top dogs – it WILL happen and you WILL pay for it.

    I understand this is frustrating, and I’ll admit that if I spent the past seven years on the sidelines in my rental yelling in occasional outbursts about the coming apocalypse after being emasculated by my friends’ F150s and boats purchased with a heloc secured by vaporous equity that never existed in the first place, I’d be quite pissed.

    But the fact remains: There are not enough “prudent” renters to occupy the 60% of homes that will be foreclosures risks. This little caveat is going to be the great equalizer.

    Face it; there are only two coming scenarios. You may have an edge with the latter:

    1. Homeowners are given a handout in the form of low interest rates and/or principal reductions.

    2. A central bank will forgive foreclosures for those who lost/lose their homes between 200x and 2012 and offers them standardized loan terms to purchased again.

    The government wants you to own a home. This is precisely why mortgage interest and property taxes are deductible from your federal taxable income. It’s a game, and it’s admittedly unfair to the “prudent” renter.

    The only solace I can offer you is that as the coming redistribution of your earnings materializes into policy, your overall burden wont increase.

    After all, you have been taxed to death to support “greedy saps” such as myself who pay less than 10 percent federal taxes despite bringing in 6-figures. And that’s because we play the game. And like most defective games, the rules change often… and to those who play, what a glorious change it will be.

  36. Greetings Benzy –

    #1. No solace for me is needed nor wanted.

    #2. Never said outright, nor inferred to those such as yourself, as ‘greedy saps’.

    #3. ‘Redistribution’ has been going on for a long time in the U.S., nothing new there. The prudent mind has hedged accordingly throughout those years. I take it that includes you.

    #4. The government may want me to ‘own’ many things. Thankfully however, I still have choices and may decide what I want to own or invest in at any given time, regardless of how much they take.

    #5. As much as renters such as myself will end up ‘paying for it’, so too will renters such as myself check-mate those payments by staying out of debt and investing in real assets that bring a real return on investment.

    Ballsy try Benzy. Comes up a bit short though in my book. I’ve been face first in the mat and stuffed enough faces myself to know what’s real and what’s not. You need to bring it a bit harder next time Pard –

    Peace –

    C.C.

  37. When this is done.. we are going to call this the GREATST DEPRESSION..

    I thought OB said we need responsability, and collective effort… where is my 100K????.. TARP for renters and new buyers!!!

    YOU MAY SAVE SOME..DELAY THE PROCESS (A MAYBE).. but in our economy where demand is not there.. PRICES WILL CONTINUE TO DROP!! while tax payers foots the bill.. and food prices will continue going up…

    WHERE’S MY BAILOUT?? 100K… I WILL HELP AND PROMISE TO BUY TODAY.. YES I CAN AFORD THE NEW PRICE

    … HELLO EX OWNERS CALLING!!! 100k BAILOUT, AND WE WILL BUY HOMES TODAY!!!!

    meanwhile (because no alternative, and learned a lesson)
    I’m SPENDING 0!!
    I’m saving 40%
    my 401 k is in INFLATION!!! THAT’S RIGHT.. we’re going to see it.. (AND NOT IN ASSETS.. you get the point).. expect your home to quadriple in price.. in 2035!

  38. WHOE NEEDS A LOAN ANYWAY.. I’LL BE BUYING CASH IN 2 YEARS!..WELL BE LUCK IF PRICES DON’T DROP BELOW 1998 PRICES.. KEEP MESSING WITH THE MARKET! GREAT JOB OB!

  39. C.C. Can we abstain from stuffing faces long enough to enjoy the glory?

    For me, you’ll be paying for 25 % of my loan value and/or my wife will be buying our house from WaMu for half we paid for it! A win-win.

    But all the people homeless, and former S-Class-driving piggies putting around in Hondas?

    There will be plenty of faces in the mats. You’ll feel right at home.

  40. Test?

    This is not directed at anyone in particular, but no matter what Mark/Mr. M writes about the thread always ends up being a discussion about whether or not America should bail out homeowners who are facing foreclosure.

    I don’t mind this debate, but we should keep on point. Mark (MR. M) provides some great information that should be discussed.

    The title of this article is
    The End of Large-Bank Wholesale Lending – Time For the Mortgage Banker

    As a 2nd generation real estate and mortgage broker who closed down his office in Jan 2004; this article hits a very sensitive issue for me. To those of you who believe in “free market” capitalism and our Constitution this should be extremely important to you as well.

    Corporate America has run rough shod over consumers and small business for decades. Their ability to do so has been aided by our laziness and ignorance. More intentionally and directly lobbyists have been well paid to convince/bribe our representatives that unrestrained outsourcing is for the greater good of America via lower consumer prices.

    I say BS; outsourcing was more to influence foreign investors to accept IOUs for their citizens hard work and their Nation’s raw materials.

    The recent/continued success of America has been about Ponzi finance/data manipulation; manufacturing debt instead of products. Wages have been declining for almost a decade, GDP is a fantasy and inflation has been grossly distorted. (owners’ equivalent rent)

    Do I blame borrowers for this crisis NO.

    Our government has been a terrible role model about living beyond its mean and prosecuting white collar crimes. In addition, loan officers who were contractually obligated to qualify borrowers began coercing their agents how to commit fraud.

    Never before has Corporate America been able to get away with such horrendous crimes and the destruction of an industry. This was a perfect conspiracy by the Lenders, i-banks and rating agencies. Establish incredibly reckless guidelines and enlist agents and borrowers to do the dirty work.

    All they had to do was to let borrowers and agents “state” a borrowers income and look the other way when fraud was exposed – on occasion the fraud needed to be concealed. Unfortunately, most agents and millions of borrowers joined the conspiracy and became the perfect scapegoats.

    Now it is the End of Wholesale Brokers; next will be Bankers and along the way the Lenders will be pushing to be able to sell real estate.

    In many bubble markets unless you as an agent peddled fraud and or encouraged buyers to purchase homes that were grossly and fraudulently inflated you could not compete.

    My industry has been destroyed despite my countless warnings to regulators, legislators, law enforcement, media, prospects, clients, etc.

    Unlike prior industries or careers that have been destroyed by outsourcing and Congress’ approval; real estate professionals have been done in by a conspiracy and fools from within the industry.

    SideNote:
    Am I the only who thinks this is a bit odd that the insurance companies became so involved and exposed to this trash. Could it be that insurance companies were insolvent before they ever sold a CDS or purchased MBS? Were Pension funds going to be able to handle longer life expectancies? Hmmm

    The focus should NOT be bail outs; it is rule of law. America is already bankrupt; no more cash out refi’s

  41. Insurance Companies is where the real fraud began !

  42. “If my tax dollars are on the hook for a $50,000 loss on a foreclosed home versus a $25,000 loss on a principal reduction”

    Stop right there. That is bullshit to suggest that foreclosure is more expensive. FIRST: if the house is sold at current market value, that means that reducing the principal to current market value would be the EXACT same thing, cost-wise. SECOND: only a fraction of people are walking away. A much larger amount of people would apply for principal reductions. Use common sense, think about it. Principal reductions are exactly like giving people bundles of cash. Who would NOT partake in that that is eligible? They all would.

    Principal reductions would cost an ungodly amount compared to foreclosures.

  43. Michael Blomquist Said:
    January 22nd, 2009 2:45 am

    Great post, white collar criminals have been getting a slap on the wrist for decades for stealing tens or hundreds of millions of dollars while drug dealers get far worse sentences. After plea bargains, it looks to me as though white collar crime pays pretty well.

    Unless the nation realizes white collar crime can be far more damaging than a drug dealer, we are not going to have change. If your house gets burgled, it is recoverable. If your life savings gets ripped off through investment scammers, I am sure that those who got scammed would have settled for a burglary to replace a TV or jewelry.

    Here we have people who got ripped off in housing where the banks were creating false markets at both ends of the spectrum. When someone puts a down on a house, it pretty much constitutes their life savings. The investors in MBS have gotten wiped out as well. Where is the line of people who are going to be doing time for this?

    Homeowners are just plankton in the grand scheme of things, the big fish who have the level of responsibility are just going to walk. Sure some people lied on their documents and I believe they should be penalized as well to some degree. At the same time, banks should have not accepted these loans without performing due diligence.

    What you hit on is rule of law which I have said from the beginning is missing from society. Prosecuting drug dealers is easy compared to white collar, yet as we can see, white collar can destroy a country.

    This crisis is going to destroy insurance companies along with pension funds that had invested in financials and the secondary hit of insurance companies. That leaves us paying for the following.

    Bank losses.
    Insurance company losses.
    Pension fund losses.
    *** Your personal housing hit if you have one.
    *** Your “bad economy” hit via wages/business income.
    *** Your new state taxes, personal, sales tax and business. These are additional kick ins above recapitalizing pension funds which we will bear.

    So even if you are just a renter during the entire bubble years, you are going to be taking a hard hit for all of this.

    Another thing Michael, I was reading years ago on OTC derivatives. They were used to insure assets to allow them to qualify to be on a balance sheet where without the insurance, the assets would not qualify to be there or discounted. If the asset was guaranteed, they would be able to carry the asset at full value or higher than normal. By increasing the value of the asset on the balance sheet, I assume that they were able to lend more.

    I am taking it that you were forced out of business because you refused to engage in a dishonest practice? I have competitors that do it all the time.

  44. Sorry Kevin, but market value is not a determining factor in whether or not a borrower is offered a reducton in their principal balance. The sole factor in re-underwriting a loan for the purposes of modification is the borrower’s ability to pay, i.e. their income. NO bank will write a new note for, say $250,000, if the current market value is only $250,000. Cash in hand beats additional risk in this environment. And I’m not just talkng about the risk of default, but the risk that today’s low fixed rate of interest will not cover the risk of tomorrows high variable rate of inflation.

    Bottom line: The bank will take the path of least loss when faced with a non-performing asset. This is a case-by-case decision, not some rigid ideology. The rigid ideology of making loans to anyone with a pulse is what got them into trouble in the first place. When foreclosure represents the least loss then they will foreclose. When modification represents least loss they will modify. When principal reduction represents least loss they will reduce principal.

    That’s how the free market works. If we could just get you, W, Barak and the rest of the “I know better than the market” socialists out of the way, the market will find true value. And yes, you may not think so, but you are a socialist. You want to impose your social values of “not giving people bundles of cash” on an agreement between two consenting parties.

    That’s the thing about the free market. It’s not important that you agree with it, only that you respect it.

  45. As far as principal write-down, how about a denial to anyone who cashed-out (refi’d) their equity during these bubble years? They would be exempt from getting a write-down. I am not sure of the logistics for this (or the expense for approving/disapproving people.) But it would help appease those who see the tax payer as paying for all those SoCal BMW’s and toys.

  46. BertDilbert,

    Thank you! It is nice to know that some one gets it. We are well beyond a financial crisis. Unless we wake up to demand that Congress restores rule of law we will be cooked and in a very dangerous conflict with our foreign creditors. This is borderline treason, was highly foreseeable and preventable.

    Yes, not only was I forced out of business, but after due diligence had loaded up on puts/leaps on a few lenders. Providian Financial which was purchased by now defunct WAMU, WAMU and CFC.

    I don’t know what business you are in and what possible claims you have, but there are laws for unfair competition, especially when it hurts consumers as well.

    In my markets over 35% of loan originations were Option ARMs during relevant times. I am confident that 95% of all these borrowers were NOT qualified for those loans. I have alleged that these loans were predatory products (below market costs) similar to dumping micro-chips.

    Obviously, loans are different than Microchips in that I nor the Defendants own the chips/loans, but we manufacture them with other people’s money. All Defendants have stopped originating Option ARMs.

    I would estimate that 50% of all borrowers who obtained any financing in relevant markets during relevant times 2004-2007 were NOT qualified. This clearly had an impact on prices and my ability to uphold fiduciary duties or to supervise my agents to see that they did the same.

    As evidenced in prior posts I was one of the only brokers in the Nation warning of these fraudulent loans instead of exploiting clients and the American Dream of Homeownership.

    There are numerous on point cases that provide ruling supportive authority.

    There was no market in the Nation that was as inflated as my county, especially for the average wage earner.

    I am happy to debate my claims with anyone who is interested : )

    Redeye: Good god man/woman; what on earth are you talking about?!?

    Two consenting parties?

    Taxpayers have not agree to bail out homeowners and the banks are insolvent. They have NO say in this per taxpayer funds.

    As servicers they do have flexibility with investors funds, but there are numerous law suits against Countrywide and other servicers by investors who claim they did not agree to settle law suits and or modify loans.

    My biggest fear and most likely the reality is that GIANT PONZI schemes exist in the mortgage pools. Once a loan is repaid via sale or refinance the investors are supposed to be made whole. Given the mess we are in; it is highly possible that loans have been paid off, but NOT paid in full to investors; only used to make interest payments.

    In addition, it appears that loan mods allow the investors to amortize that loss over the life of the loan instead of taking the immediate hit like when a REO is sold.

    Losses at the banks will continue for many years and this will wipe out trillions in pension and insurance funds once this is all done.

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