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by jmax123 from Jersey

Last Post 40 days, 3 hours Ago


AS THE BUBBLE IMPLODES....
Sep 18, 2007 | 9:53 AM
Category: Political
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Although I don’t usually believe in wasting too much time on pointing the blame finger, as it’s much smarter to take the same time and energy to try to fix the problem, I wanted to review some every-day scenarios which led us to the real estate bubble.

SCENARIO #1

A home valued at $350k sells for $380k.   But the realtor knows that no mortgage company would lend $380k on a $350-valued house---even with money down.   The realtor and mortgage rep both have a large commission riding on it, so they find an appraiser willing to get creative so the appraisal can be stretched to 380k.   With the 380k appraisal, the home can sell for 380k with no problem, and everyone is happy, including the entire neighborhood.   When this home sold 30k higher, it set a new precedence on public record for all homes within half a mile.  Now the comparable homes in the neighborhood, just went up 30k in market value.

In this scenario who caused the artificially inflated home prices?    The realtor, the mortgage rep, the appraiser, the seller, or the buyer?

SCENARIO #2

A month later, a similar home a block away sells for 390k-----and so the bubble grows.

The Smiths’ down the street are thrilled, as this is causing their home to go up in value very fast.   They decide to use their new-found equity to take 40k cash out of their home with a refinance.  They use the money to pay off their credit cards, go shopping, and take that dream vacation.    Home values continue to escalate because home flippers are buying and immediately selling higher like mad!   The Smiths’ need money again, and take another 40k cash out of their home.   After the money is spent, and their adjustable rate mortgage payment rises, and they are struggling each month to make the payment to keep their home.  Some months they just can’t make the payment.  Their credit scores drastically drop, and now they are 3-months late and must refinance just to get enough cash to bring the mortgage current and out of foreclosure.   Unless they win the lottery, they can only prolong the inevitable foreclosure for so long.    The Smiths’ become a homeless statistic, along with millions of others that also fell into the “My home works like an ATM” trap.

 

SCENARIO #3

Behind the scenes, the wholesale banks put pressure on their outside sales reps to go out and solicit every mortgage broker's office for loans.  “We need loans to convert on Wall Street to cash premiums!”  Go out there and bring us their ugliest train-wreck deals!  If they had a bankruptcy last week, no problem!   An unemployed borrower?  No Problem!”     The investors in Korea are anxious to invest their money in higher rate sub-prime U.S. mortgages.   $1000 bonus for the rep that brings in 10 new loans today------offer the brokers a higher premium------go get em’!”

So who caused artificially inflated home prices leading to the bursting of the proverbial bubble?   Was it the real estate agents, mortgage brokers, mortgage lenders, house flippers, real estate investors, appraisers, foreign mortgage investors, frivolous refinancers, buyers or sellers?    Or are all of the above contributors to the end result? 

After the correction is complete, will the cycle start all over again?   I think the answer is; only if there are lots of third-party investors investing billions into our mortgage notes again.   (There are hardly any foreign investors now due to the super-high number of foreclosure in 2006.)   If not, lenders will only lend to individuals with perfect credit and income, because it is their own money being invested, not some foreigner’s money.   

I am willing to accept my share of the blame for working in the industry, although it is like going with the flow on a highway where everyone is speeding.    But the imploding of the bubble was caused by a large spectrum of reasons, not just by the people working in the industry.   We are just the pawns in a big game of real estate chess.

 

 

Jane

 

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wnywluke read my blog view my photos
Sep 18, 2007 | 9:55 AM

I have to put most of the blame on the buyer.

A. They were willing to pay the price. If they thought the house was too expensive, they should not have bought it.
B. If you are in an ARM and you put no money down, you are a fool to borrow money on an increase in the "value" of your home.
C. People who had no business buying homes decided to buy homes simply because they were being offered credit.
Writing_With_Power read my blog view my photos
Sep 18, 2007 | 10:08 AM

I'm not sure how to answer. I bought a home and lost it, at the tiem of purchase I had a good job and we were doing good on getting our bills paid. Then TS Allison came through and destroyed a lot of what we had but we picked up the pieces and struggled on for a while, then when we were getting back on our feet i lost my job and buy the time i got one that paid well and i was making good money again it was too late, the house was lost.
jmax123 read my blog view my photos
Sep 18, 2007 | 12:05 PM

Good points Luke!

On the brighter side Power Tower, when things start bottoming out, you will be able to buy a bigger and better house for much less money. So it's good not to be a homeowner right now. Every black cloud has a silver lining!
Writing_With_Power read my blog view my photos
Sep 18, 2007 | 12:38 PM

This is true about the cloud thing, mine are always full of lighting too. Oh yea, HAPPY BIRTHDAY
jmax123 read my blog view my photos
Sep 18, 2007 | 12:57 PM

Thanks, Power Tower!
Writing_With_Power read my blog view my photos
Sep 18, 2007 | 1:01 PM

I made comments on Candice's blog about your B-Day
wnywluke read my blog view my photos
Sep 18, 2007 | 10:53 PM

Power... sorry to hear about your home. Situations like storms and job losses are not the fault of the homeowner. I don't think the majority of the people in trouble right now have gone through what you've had to endure.
BronxGirl1 read my blog view my photos
Sep 20, 2007 | 9:32 AM

I work for an Attorney and do most of the Real Estate in my office. My boss has talked people out of buying something so inflated, rather than see them homeless, or advised them to deal with a much more respected lender such as Citi, Chase, Wells etc. Harder on the wallet and maybe enough to change the buyer's mind about buying altogether. We are not a mill, we do not handle deals just to get the fee, my attorney actually cares about the people he represents and will not represent anyone in the wrong position - or state of pocket - when purchasing. I blame the real estate people, they inflate the prices for the bigger commission - AND DO NOTHING FOR IT....
helivet333 read my blog view my photos
Sep 20, 2007 | 10:47 AM

You are correct in your assessment Jmax! All bear some of the blame, but scenario #1 is damning and is more rife than can be imagined. Those who provide the services through creative means bear the brunt of the blame. The buyer while certainly culpable usually takes advice from the realtor and mortgage rep,. he has little choice but to accept the appraisal. The rest are at fault as you point out but to lesser degrees.
The real problem is greed and the greedy!
jmax123 read my blog view my photos
Sep 20, 2007 | 9:25 PM

Unfortunately that is true Helivet, home buyers are misled often. There should be a better way to protect consumers from unscrupulous mortgage reps. I have worked with a few 7 years ago at Ameriquest, and I have seen some horrible loans happen to innocent people, who were taken advantage of simply because they were trusting. The most wicked mortgage rep I have seen was a 62 year old lady that people trusted in because she looked like a grandma. She was intentionally grandma-like on the outside, but a baracuda on the inside.
I believe the mortgage business will be more strictly regulated soon. I don't think the banking departments in each state will continue to tolerate this much longer.
The real estate commission doesn't even let you breathe the wrong way, but the banking departments haven't been able to regulate the mortgage industry to protect consumers as of yet. I think this will change soon though.
jmax123 read my blog view my photos
Sep 20, 2007 | 9:37 PM

Bronxgirl,

That's great that the attorney you work for gets involved. Most don't even look at the mortgage paperwork; only the real estate contracts, titles, inspections, surveys, etc. More attorney's should look at the mortgage committments and rate locks.
FREEDOMFREE read my blog view my photos
Sep 21, 2007 | 9:21 PM

HOMES BE , ANOTHER DEGREE ,

OF OLD FREEDOM FEE ,

VOTE FOR FREE , HOMES YA SEE ?? ,

NEW FREEDOM FREE , IS ALL FREE .
RonCsBiggestFan read my blog view my photos
Sep 22, 2007 | 10:37 AM

Hi Jane,
I think that the proverbial bubble burst is a shame :( I remember doing a paper for a Finance class last fall pointing out the collapse of the sub-prime mortgage and the drastic increase in foreclosures. It is sad... I remember reporting that several outside agenices were purchasing these sub-prime mortgages from the lenders and insuring them for a lot of money. They inadvertently would make back door deals on the mortgages that would remove the borrower from the deed on the house, allowing for the new "lender" to capitalize on the equity on the home, and in the event of a foreclosure, collect on the insurance. This is a serious problem. There are probably several families who received sub-prime mortgages due to the unbalanced rise in the cost of living against the stagnant economy without much of an increase in wages. I refuse to buy a house until I know for sure that I will not have to deal with sub-primes myself. What's your take on this one?
jmax123 read my blog view my photos
Sep 22, 2007 | 11:18 AM

Hi RonFan,
I see you are new here, Welcome aboard!
Yeah, thge mortgage industry can be almost as bad as the Boiler Room" movie, huh?
Everyone should check their own credit at least once a year. If your middle FICO score is under 680, you are not a prime borrower. Keep your scores over 700, and you will never have to worry about falling into the subprime trap.
There is only one site that is a truely free way to get your credit report www.annualcreditreport.com, because the "Fair Credit Reporting Act" forces the bureaus to give one free per year. The other sites have hidden subscription charges.
People should know that they can dispute anything that appears negative right online! Each dispute offers a 50/50 chance of getting it permanently removed. Keeping good credit is definitely the key to financial success these days.
RonCsBiggestFan read my blog view my photos
Sep 22, 2007 | 11:31 AM

I hear that.. I have been in the middle of a nightmare for 3 years repairing it because of unforeseen unemployment in 2004. It is back on track now.. thankfully both of my major credit cards offer me programs to check the status of my report ona continuous basis. Thanks for the welcome by the way :)
CMED read my blog
Sep 23, 2007 | 12:01 AM

Greed within everyone causes most problems; recognize greed and eradicate it so we can truly have a kinder and gentler society....this is why I am looking for my Presidential and VP candidates and Congressmen and State Officials to embrace/support a Constitutional Amendment where OWNER-OCCUPIED REAL ESTATE be the basic foundation of society in America...eradicate landlords and real estate entreupreners being middle-men making costs more expensive to the real person/family/business that wants to own. Housing should never have become a commodity as it has....what I propose is the instituting a perpetual 50 year resale cycle built into every property deed that allows for an increase of just $1000.00 per year on the resale price of property for 49 consecutive years and then in the 50th year the resale price of the property would revert back to the original low sale price from when property entered program(or less if in disrepair or owner wishes to sell for less).
jmax123 read my blog view my photos
Sep 28, 2007 | 10:04 PM

Hi CMED

That would defintely stop any future bubbles from forming. But how would renters live? Not everyone wants to be a homeowner. Some prefer the more carefree lifestyle.

Deed restrictions similar to that are currently being used in some low-income areas, where the city or county offers down payment or rehab grant assistance programs, on the contingency that the buyer cannot sell the property higher than predetermined on the deed.
The buyer is also restricted, so if they try to refinance, they can only lower their rate or term, but no cash out is allowed. This deed restriction usually stays in effect for 3 to 6 years.
Any home seller can place a deed restriction on the property. For example a person can sell a house and restrict the buyer from ever chopping down trees on the property; or selling higher than stated. Why the seller would care if he no longer owns the property is irrelevant to the fact that any seller can do so. It will take away from the marketability by adding such restrictions though. A seller's or development builder's deed restrictions stay in effect permanently.

Many people have used their real estate buying, selling and trading up strategies to build their nest egg for retirement. I guess that could be seen as an unfair advantage to those not having the time, money or courage to do the same. Also, not knowing when the music is going to stop, makes real estate investing like a game of musical chairs. It's always a gamble.

Supply and demand is what drives the real estate market. That's an interesting idea you have, but if dee
CMED read my blog
Sep 29, 2007 | 8:49 AM

There could be government managed 'shelters' in every school district for those who want/need to 'rent' for a time but stability and commitment should be the underlying basis to housing/business property positioning (it should be where people decide they will put down roots), co-ops would be the entity to satisfy having a supposed carefree lifestyle. People may have used time, money, and seemingly courage to use real estate to build their personal nest egg for retirement but I think it is an immoral/dishonest activity, since it is self-centered, displacing the right for all people to have a home of their own; being priced-out of the market and what option is left?, people are then left with having to have to rent(and rents are too high these days too because of investment people sticking their hands in the picture just for personal self-centeredness financial profit, and this exasperates the problem and the government is made to tax the people and fund 'rental subsidies programs'--where people are looking to be on Federal government HUD Community Development Section 8 Programs to have a roof over their heads). Because a seller DOES CARE is exactly why they would want to place in their property deed the verbage to keep property pertetually affordable, for s/he realizes the situation and wants to keep the property from being swallowed up by the growing population that thinks being a middle-man/have no real interest in the property except to get some cash from it 'flipping' is moral, that being a (slum)/or otherwise landlord is moral(lording it over others--not providing anyth
CMED read my blog
Sep 29, 2007 | 8:51 AM

(too long! Con't)
Because a seller DOES CARE is exactly why they would want to place in their property deed the verbage to keep property pertetually affordable, for s/he realizes the situation and wants to keep the property from being swallowed up by the growing population that thinks being a middle-man/have no real interest in the property except to get some cash from it 'flipping' is moral, that being a (slum)/or otherwise landlord is moral(lording it over others--not providing anything that wouldn't be there already without them in the picture); because a person DOES CARE would a seller place such a covenant to be passed along to every subsequent owner; If many were doing this than the marketability would not be effected, it would be the accepted/normal venue. Caring Is Relevant and if people will not do this caring on their own accord because they are blind-sighted by love of money than government ought to Step up and advertise to older folk to consider 'willing' their property to an 'Affordable Housing/Business Buiding Program' in their area along with obligating developers to build a specific number of affordable units annually as a condition to having the right to do business in the area.Period. This is where I stand. This is why I want to see some State and Federal Constitutional Amendments recognizing Owner-Occupied Real Estate as a basic right of any living person on planet Earth.
CMED read my blog
Sep 29, 2007 | 9:01 AM

Housing should never be a commodity...People need shelter from the environment....People need a home base of operations, a safe haven. People have a right to this, and this right should not be manhandled and corrupted and manipulated into some shady scheme of power politics and pain. I should like to think that we all want God's Kingdom to Come; I know its far better than the dog-eat-dog scrambling around to survive that so many deal with presently---we need to make the world a better place to live in
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jmax123

I believe every great person, at some time, was encouraged by someone who had the ability to see their hidden talents, and cared enough to lead them to see it too. Without this caring person in their past, we may have never known many people that we admire today. "FLATTER ME, AND I MAY NOT BELIEVE YOU. CRITICIZE ME, AND I MAY NOT LIKE YOU. IGNORE ME, AND I MAY NOT FORGIVE YOU. ENCOURAGE ME, AND I WILL NOT FORGET YOU. (Sir William Aurthur)"

Member Since: 3/14/2007


 

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