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What was in the drinking water that caused our borrowers to become idiots and lenders to become greedy?
The question was raised by John Vogel, from Dartmouth's Tuck School of Management, at the beginning of his talk: "What Can We Do To Fix It?" He presented his thoughts at Inman News Real Estate Connect in New York City. The media and other blogs were abuzz with this topic. Here is an article from The San Mateo, California Realtors Association that covers Glenn Roberts, Jr's article from Inman News about Dr. Vogel's talk.
Both Larry Cragun and I were at Real Estate Connect and are writing about the presentation. Since we could not figure out a way to do a joint article and we both felt strongly about the message, we may both write about the same topic.
Professor Vogel not only gave his analysis of our current mortgage/housing problems, he proposed a solution to help fix the problem. It's rare that anyone has presented solutions to the problem and his premise needs to be examined, discussed, and promoted. Two articles may be written on this blog about the same topic and it's a loud and clear message that we believe this is important. National Public Radio did a piece about Dr. Vogel's plan back in June.
Professor Vogel does not believe all the lenders in the land were greedy and all the buyers in the land were unscrupulous. There were greedy lenders and unscrupulous buyers, but they represent 20% of the market. Fueled by the media, most people assume our mortgage problems are a result of foolishness and greed. According to Dr. Vogel, nobody is seeing beyond this.
Some buyers had to buy expensive properties in many areas of the country because people wanted the yard, the good schools, and the safe neighborhoods to raise their families. Buying an expensive home was simply the only way buyers in certain areas could get into a home. In parts of California, for example, a buyer with a $100,000 salary would need to spend $800,000 to purchase a home.
Lenders also experienced a dramatic change in risk tolerance over the last ten years, which allowed subprime loans to come into the marketplace. Subprime lending became 20% of loans being made. There was a tremendous demand because lending institutions/ Wall St. investors believed homes would sell with little risk to the lender.
Here is what Professor Vogel sees in the marketplace today in many areas of the country:
1. A record inventory of unsold houses
2. prices declining from 9-06 to 9-07 on average 5.5% in the country
3. 2008 is likely to be worse. 7.7% down further per Case-Shiller.
4. Two million homes in foreclosure.
Here's John Vogel's solution, called "The Last Chance Mortgage". The goals of this program would be:
1. To share the pain- buyers made mistakes, so no one gets bailed completely out.
2. To deal with current crisis now.
3. To keep it simple
4. To be better off at the end of the day.
How does it work?
For Buyers:
There would be a mass pool of 3% mortgages available to people heading for foreclosure. These homeowners would not get a free pass going for this loan as one would have to give up the chance for future appreciation. Mistakes were made, so this group of homeowners would need to pay some consequences. A small part of this new mortgage payment would be dedicated to home maintenance. This plan would allow the homeowner to stay in home and it would also keep neighborhoods and schools stable. In this way we would all benefit, particularly in the areas where there is a high potential for disclosures. Keeping people in their homes with some money set aside from the mortgage payment to maintain the home would minimize neighborhood blight and help maintain home values.
For Lenders:
Mortgages going to foreclosure would get written down to 80% of value. This would help stabilize the market, providing liquidity and free up capital. More certainty would be created out of the uncertainty in the market. Lenders would also need to eliminate prepayment penalties.
Creating a pool of homes that would not appreciate would provide a stream of affordable housing for people such as teachers, police, and firemen. At the end of the day, 2 million new units of permanently affordable housing could be established, This type of affordable housing would be a new classification of home ownership, somewhere between traditional ownership and a rental. Because the value of the home would be locked in, there would be a set of permanently affordable homes which could be sold, but could not appreciate.
Dr. Vogel believes this would be a cost efficient $229 a month to administer, whereas the existing Section 8 affordable housing program can cost $1400 a month.
In summary, Dr. Vogel realizes there are a lot of details to be worked out. Some families will not be able to even make this program work. Only primary residences would be considered for this program. There will also be an upper limit to the program as it would not apply to multi-million dollar properties.
Regardless of everything going on, we tend to forget that we are still the envy of the world with our housing market. According to Dr. Vogel, with too much regulation, we will undermine our housing market which is the envy of the world.
I agree with Larry Cragun in the previous post, no matter what your political persuasion, demand that the candidates look at our mortgage woes and Dr. Vogel's plan seriously. If any of the candidates can come up with a better solution, let's hear it. Bottom line, let's ask each and everyone who wants to be our President to come up with a valid fix for this problem. I respect Dr. Vogel for trying to come up with a plan that has a lot of merit. As a nation, we need to move past our discussion of how bad things may or may not be to a solution. Moaning, and groaning, and inaction accomplishes nothing and will only make matters worse.
(As I mentioned in my comment on Larry's last post, I am unfortunately still stuck at the airport, the only good part of this is that I was able to finish this post! Now, if they only could fix the plane or get us a new one, I would be happy)
Posted by Leanne Finlay at 1/13/08 7:18 p.m.
Hi Debra! Hope you're not still on an airplane ... or worse, still at the airport.
I don't see any hope that this idea can work, there are too many steps.
What I think would be better and faster, and still not likely to actually happen is something like this:
Lenders are asked to 1) hire more staff to handle this unusual area of need, and 2) have a mandatory requirement that every loan of delingquent status be given the opportunity to have all past due amounts simply added to the note and paid out of future selling proceeds, and borrower will simply pay 50% of the monthly payments for 24 months, then 75% of the payment amount to be paid mnths 25 - 36, and then 100%. In exchange for this, the borrower agrees that borrower cannot enter into any other mortgage financing until this note is paid in full, and that all payments amounts that were less than amount due are to be repaid directly to the IRS upon sale. The enticement for lenders to do this, besides having it be a mandatory requirement, would be that lenders would get a dollar-for-dollar tax credit for every dollar of payment not coming in during those 3 years. Once the borrower sells, those "saved payments" would be due upon close of sale. If there is not enough equity, borrower must pay if borrower has other assets (retirement accounts would be immune),or if borrower cannot pay,then the lender gets more tax credits from IRS.
Getting the borrower into a new program with a 3% note rate will open a can of worms: we already know these people won't qualify under any ordinary qualification standards, so the reality is, they won't be able to get this new loan.
Just make the fix-it program be simple and open to everyone. If those who aren't really in trouble jump in, they are still going to be faced with repayment to the IRS when they sell.
If any fix has too many hoops and rules, it just isn't going to work for those so in trouble they have no hope of catching up.
Posted by Leanne Finlay at 1/13/08 7:20 p.m.
By the way, I agree with anon18 that taking away the homeowners equity is not going to work. You need incentive for these folks to stay in their homes, and why stay, and why maintain if it's not even going to be 'yours' in the end?
Posted by Leanne Finlay at 1/13/08 7:36 p.m.
Ok, I just went back and re-read Larry's post from this morning. I've been thinking about Mike McConnachie's ideas all day, and like them, which is why I sort of jumped onto his bandwagon with my comments above.
I realize I didn't address fraud in my blanket "mandatory" statements/ideas. Fraud needs to be dealt with but, which comes first? The firebreak to keep the fire from jumping out of control, or the penalty box for fraud?
I think first, get the solution going, ASAP from the sounds of things in the rest of the country, then work on the fraud aspects. No one who accepts a new work-out will be immune from fraud, and certainly, none of the lenders would be either.
I don' know how many of you remember 1968/1969 when the billboards around Seattle said: "Whoever is the Last To Leave Seattle, Turn Out the Lights" ...
While we don't have the problem here of massive amounts of boarded up houses destroying whole neighborhoods, if that is happening anywhere, perhaps we'd better figure out a way to help them as it helps all of us.
Posted by Larry K Cragun at 1/13/08 8:05 p.m.
Lax: I think we need to recognize most of the lenders are history and that the greater good is to think about the economy, the neighborhoods, and get on with the next cycle.
anon 18: this creates a permanent situation where the property never increases in value. Down the road an inner city school teacher could buy it etc. It creates a new type of ownership status, better than rent.
Leanne: I think you wrote this off too fast. This is a matter of will. The fundamentals are good, the government already can manage loans. It isn't a complicated proposal. I think your response shows a too complicated view of it. How can you assume a borrower not qualify at 3%? Thanks for reconsidering.
This proposal would have some details to work out. This professor isn't just throwing out a flip idea. He has worked in depth on it.
Jillayne, When did we ever have a 3% fixed? I lucked out and secured a 3 year arm at wholesale at 3% on the very bottom of the market. The return of that is unlikely, if it did we are back to boom times in mortgages. Gear up your class schedule the return of the loan officers will be at your doorstep.
The fraud issue is was mostly the stated income loan. Aren't we all educated to that one? By the way, that is where the DFI is really racking up the reports to the Attorney General. When they audit a file that was stated and find documentation of a lower amount of income, away it goes to the AG.
Posted by Kary L. Krismer at 1/13/08 10:00 p.m.
Jillayne, I don't think these particular borrowers would ever qualify for 3%. The problem with the market in the recent past was it didn't price for risk. I don't think you're going to see that anymore.
As to the OP, I wouldn't call the buyers unscrupulous. I'd just say they were uneducated or naive. The average person is not as intelligent as the average person thinks. (Yes I meant to say that.)
Posted by Mack McCoy at 1/14/08 12:04 a.m.
Kary, it has been proven, and it's true. Thanks for the reminder.
Great article, again, Debra.
I don't know whether this is a good answer or not. As I wrote on Larry's piece, I do not have the expertise nor the resources to evaluate a program such as this.
Ultimately, I think we have to realize that pursuing Justice will not mitigate the pain of financial losses. Figuring out who should feel the pain isn't going to ensure that they do, and it may not be worthwhile to attempt to inflict it.
Posted by davelosh at 1/14/08 6:47 a.m.
Sorry, Real Estate is a commodity. There are thousands of housing units that were created poorly and sold to consumers. Who's going to pay for those? You? Me? I don't think so. As much as economists need to eat the housing market self regulates. There are more opportunities today than there have been in the past five years and every body wants to fix that. Why?
Posted by Kary L. Krismer at 1/14/08 7:22 a.m.
The market does self-regulate, but people are impatient. They want a solution now.
And given the imperfect information people work with, and lag times, the ups and downs tend to be more extreme than what they should be.
Posted by Mack McCoy at 1/14/08 7:53 a.m.
"The market," it seems to me, "self-regulates" toward its own ends, not ours. The Market should be a tool, not the end-all and be-all. And self-regulation doesn't put six billion back in Bear Stearns' accounts, self-regulation doesn't grab the fees back from lenders and real estate agents who may have committed fraud - it doesn't make things Right, it just makes them different.
The fact is, I don't know seven eight nine ten JACK about how to come up with a "solution." I don't really even know what a "solution" looks like.
But it seems to me that if Wall Street ever needed an incentive to get to work, it's making up for tens of billions of dollars in markdowns.
Posted by Mack McCoy at 1/14/08 8:04 a.m.
$24 billion from Citibank today.
It's a serious problem, and moralizing doesn't cure it.
Posted by Larry K Cragun at 1/14/08 9:27 a.m.
Mack: right on this one - It's a serious problem, and moralizing doesn't cure it.
Posted by Mack McCoy at 1/14/08 9:51 a.m.
= What was in the drinking water that caused our borrowers to become idiots and lenders to become greedy?
I'm not sure it was anything at all.
It must be written somewhere to "let she who is without greed cast the first diamond - my way!" And I'm not certain that trying to buying in an up market is necessarily the mark of idiocy. Spending your free time writing about it when you're employed in another field, maybe!
Andrew Leonard quoted Barney Frank on the issue of mortgage regulation; we don't get a lot of free-market types here so it may be a case of coaching the all-star team, but it's still worth a peek.
There is a weakness to being human - we can be persuaded. We buy more than we can store because we're persuaded that sixty kilos of peanut butter for a dollar eleventy is a good deal. We buy counterfeit goods, we buy stuff that children chained to anvils manufacture, we eat contaminated foods, we over-extend ourselves financially, and we even over-extend ourselves time-wise, or haven't any of our pious posters ever kept anybody waiting while they were doing something else?
Posted by Leanne Finlay at 1/14/08 9:57 a.m.
Correct, moralizing won't help. I'm very uncomfortable with this part of the proposal "Creating a pool of homes that would not appreciate would provide a stream of affordable housing for people such as teachers, police, and firemen. At the end of the day, 2 million new units of permanently affordable housing could be established, This type of affordable housing would be a new classification of home ownership, somewhere between traditional ownership and a rental. Because the value of the home would be locked in, there would be a set of permanently affordable homes which could be sold, but could not appreciate."
These homes are not spread out enough across the country to benefit much of anything. Many of these properties are likely to be the typical "problem property" that someone bought, with construction problems, location problems, etc. Would it make sense to have an entire neighborhood of poorly built new houses become "teacher/police/firemen" houses -- no!
If values are frozen, who maintains and upgrades the property when it is time for a new kitchen or bath? Who decides if the family living there can add another wing to the house if mom needs to move in, or they have another kid, or whatever? Why would someone want a transitional place to live that isn't a rental, and isn't an ownership position? Especially if they are buying a foreclosure home: Oh look, Jimmy, that's where our teacher lives, in the foreclosure house" ...
I think that these jobs should have a credit or loan program available to them that is government backed, and let them buy wherever they want, and fully own. Perhaps a very small portion of their equity would be returned to the fund, but subsidized housing is always subsidized housing and not at all the same as ownership.
Pride of subsidized housing vs. pride of ownership?
Posted by synthetik at 1/14/08 10:00 a.m.
o What was in the drinking water that caused our borrowers to become idiots and lenders to become greedy?
"Greed is good" - Gordon Gekko
Posted by Kary L. Krismer at 1/14/08 11:35 a.m.
I wonder why none of the candidates are suggesting removing the interest deduction as a remedy? ;-) :-D
All interest was deductible prior to Reagan if I recall correctly. Removing the residence deduction was thought to be political suicide.
But I will agree tax policy creates some messes. Our health industry situation is largely the result of the tax code (insurance not being a taxable benefit).
Posted by Mack McCoy at 1/14/08 12:09 p.m.
After all the time you've spent on real estate blogs, br, you seem to have not learned a primary lesson - we get paid regardless of the value of homes. The slower the market, the more deals each of us professionals do; the faster the market, the more deals we lose to amateurs.
When appreciation accelerates, so does the value of our portfolios. Our business does not necessarily keep pace.
But, let's short circuit the whole argument right now: real estate agents made the whole mess happen and profited from it the most. OK? Now what?
Posted by Greg Perry at 1/14/08 12:55 p.m.
"Ask not what the taxpayer can do for RE agents, ask what RE agents can do for the taxpayer.
Y'all have been living high off the hog for the last 5-10 years, seeing your commissions triple along with the housing prices and your transaction volumes double.
How are you planning to give back and help make it all better?"
On the Eastside (I don't track other areas) since 2001, the agent count has DOUBLED, yet the the number of transactions has remained the same. Yes, the sales prices went up. When all is said and done, most agents, on an individual basis, anyway fell back. In a nutshell, there are twice as many agents doing the same numbers of transactions. Bili, from the "average" agent perspective, there's nothing to give back.....they're wondering what happened to their business (even during the height of the hot market).
Brokers had swelled ranks......they are starting to see the ranks start to dwindle now.
-----------------------------------------
Back to the topic....
Nationally about 40% of real estate transactions in 2005 were non-owner occupied (speculators, flippers and investors). Was this addressed?
I, too wonder who would value a mandated non-apreciating property. This part at least doesn't sound like much of a solution.
Posted by Greg Perry at 1/14/08 12:56 p.m.
"The slower the market, the more deals each of us professionals do; the faster the market, the more deals we lose to amateurs."
And this comment by Mack is spot on.
Posted by Mack McCoy at 1/14/08 2:43 p.m.
Yeah, yeah, I saw Norm McDonald on SNL too. "I was going to say that!" "Norm was going to say that, he gets the points."
At 3% commission, it takes 33-1/3 revolutions before you can hear "I buried Paul," or, to equal one house. Doesn't matter what the price points are, a house costs a real estate agent 33-1/3 transactions. Minimum.
I don't know what you mean by "suspicously quiet," do you think we have a secret plan we're about to unleash?
Posted by Mack McCoy at 1/14/08 2:56 p.m.
On second thought, BR, what exactly, do you think is within the power of the NAR to do to "correct the damage?"
Hands in the air, folks. Do you really think that Real Estate Licensees should not serve Flippers? Speculators? What criteria should we use? Do you really think that Real Estaet Licensees should be the gatekeepers for buyer's financials? (Yep, you look good. Nope, not you.)
Do you think that Real Estate Licensees should insure homebuyers against loss of equity?
Really, we're all waiting to hear your suggestions. Well, maybe none of us really care. But the floor is open.
Posted by Mack McCoy at 1/14/08 2:58 p.m.
Gee, maybe if you hadn't been anonymous all these months, one of us might be more open with you.
Oh, did I say "revolutions?" I meant, transactions.
Posted by Mack McCoy at 1/14/08 3:16 p.m.
Debra told me to be nice, but don't be getting all up into my personal biziness, okay stranger?
So, let's have some honest discourse. What's your social security number? No, just kidding.
What you're writing is that you'd gladly help the industry and Western Civilization, but mean old Mack doesn't want to tell a bunch of strangers how much money he makes. Dang. Now I know how Princess Leia felt in that Star Wars movie.
Anybody have any idea how the State would react if we refused to work with a buyer who had a pre-approval letter in hand?
Posted by Mack McCoy at 1/14/08 3:21 p.m.
BTW, for better or worse, the Real Estate Industry will do just fine, with or without your help or mine. So long as there's Capitalism in America, there'll be people licensed and hired to transact it.
Posted by Leanne Finlay at 1/14/08 4:13 p.m.
How about you Bili? What did you earn in 1995 as a percentage of what you earned in 2005? How many hours did you work per week in 1995 vs 2005?
What is it you think agents should do? Experienced agents who have managed to survive for as many years as this group survive because they have developed skill in many things. I believe we all take immense pride in doing our job well, and for the best interests of our client. We would not survive if that were not the case.
You bait bait bait, but offer little.
Posted by Larry K Cragun at 1/14/08 7:19 p.m.
Lax; In professor Vogels proposal the bank takes a 20% write down on the mortgage. Thanks for getting us on topic.
Mr. Bili Ruben should we write a new post just about you so you will stop the whining on other important topics. You seem to continue surface and go to the same silly issue without regard for others.
Posted by Mack McCoy at 1/15/08 12:38 a.m.
Mistakes were made during the run-up, too.
People make mistakes, including the posters to this group. It was a mistake not to buy real estate when you had the opportunity in 2000 simply because you thought prices had peaked, for example.
Solutions are not mousy-sounding mutterings like, "maybe somebody should do a little something, give back a little here and there."
I have written that I am not qualifed to offer a solution to this problem, which is not the same thing as being unqualified to recognize drivel.
Posted by Mack McCoy at 1/15/08 12:48 a.m.
Oh, BTW. Vogel's wrong on one thing, if I read Debra's post correctly. People did not have to buy expensive homes for any reason. They chose to, as much as they could afford.
As a real estate agent, you could not convince somebody to buy a smaller and cheaper house that would suit their needs when there was a bigger and more expensive house within their budget. And still cannot, I suppose.
Nobody has to buy an $800,000 home, that is truly a "lifestyle choice." Maybe they should, maybe they'd be better off if they did, which is different than "has to."
Posted by Mack McCoy at 1/15/08 1:16 a.m.
common1sense, whether it is or is not the fault of real estate agents almost doesn't matter, because the one thing real estate agents could have done differently is ...
refused to sell people houses they were qualified to buy.
Yes, boys and girls, ladies and germs. Nowhere in the Western World - to my knowledge - is it expected, demanded, and required that a real estate agent requalify a buyer before "letting them" buy a home.
People buy real estate - not just homes, but vacation property, office space, farmland, industrial sites, retail - for a myriad of reasons. Many of them "overextend" themselves to do so.
To make real estate agents the gatekeepers for the financial qualification of prospective buyers seems to me to be a cure worse than the disease.
Posted by Kary L. Krismer at 1/15/08 7:54 a.m.
biliruben wrote: "My main point is that there was a lot of money made during the run-up in prices. Maybe Agents didn't get the lion's share of that when compared Wall Street slicks and lenders, but agents did all right I think (though I have been foiled in knowing for sure). Correct me if I'm wrong."
As Mack pointed out, the mistake was not buying more real estate in 2000. Did agents know that then? No, none did (although some might have guessed).
I've said this elsewhere, but buy and large agents don't go around convincing people to buy real estate. People want to buy it for one reason or another (baby on the way, new job, etc.) Agents go out and find the property for the buyers, and then help negotiate a price.
I'm not really sure why and agent should feel bad about anything, unless they did make some predictions as to where the market was headed in order to convince their clients to buy. I can honestly say I've never done that, although I will mention factors that will make a resale easier.
Also, everyone is focused on the subprime people that are in trouble. I'm not sure what the percentages are, but I'm sure there are a lot of subprime that managed to turn their lives around. They'd make their mortgage and other payments on time, and then no longer be subprime. Others didn't change their ways. I don't think agents should get credit for the former, or blame for the latter. I don't even think they should get credit for helping give the people a chance, because that's exactly what the banks were doing too, and I don't think they should be given that credit.
The point is, I think a lot of people blame agents not realizing what they do. All agents do is help people buy the best property they can find at the lowest possible price, and they help people sell at the highest possible price (both subject to time constraints and needs). They don't get paid to make predictions where the market is headed. They deal in the here and now.
Posted by Kary L. Krismer at 1/15/08 8:02 a.m.
Mack wrote: "common1sense, whether it is or is not the fault of real estate agents almost doesn't matter, because the one thing real estate agents could have done differently is ... refused to sell people houses they were qualified to buy. Yes, boys and girls, ladies and germs. Nowhere in the Western World - to my knowledge - is it expected, demanded, and required that a real estate agent requalify a buyer before "letting them" buy a home"
Not to mention they'd just go through another means of buying a house.
Now mentioning that banks are too lax in their lending standards, and that they probably don't want to get a loan for as much as they qualify for, that's another matter. But just telling people they shouldn't buy--that's not going to work.
Posted by Larry K Cragun at 1/15/08 9:06 a.m.
common1 sense gets it: Our society was on a roll, eager to be on the ownership bandwagon. If lenders wanted to give someone a loan, who can blame them for taking it?
Yeah billiruben: Vogel's plan is largely a tax-payer funded bailout. I disgusting as I find such a prospect, I suppose the low-income housing aspect makes it a bit more palatable.....except on this: I think in most cases the homeowner would be better off walking away. Obviously you have never had to walk away and deal with the consequences. It isn't easy to recover from that action.
Karys comments are important: (where this comment is)_I've said this elsewhere, but buy and large agents don't go around convincing people to buy real estate.
Mack nails it:
refused to sell people houses they were qualified to buy.
NOW: to the point of these two posts... Is Vogel offering a viable solution? I say yes. If so, now what?
Posted by Mack McCoy at 1/15/08 1:20 p.m.
I'm just trying to cut through the hand-wringing. Yes, it's bad that this and that and the other thing happened, and that him and her and the other guy are getting away scott-free while her and him and the other guy have to pay ...
By now (for the third time), we've all read the NYT Magazine article, and realize that we all make decisions of justice (and blame) based on our prejudices, which is fine - but it helps illustrate how impossible it is to accurately determine just who should be liable for what.
Since we're never going to do that, any remediation is going to have undeserving winners and losers. After the handwringing, you just have to do your best and move on.
To the General Public, I ask: what is it that you want me - or your local real estate agent - to do?
- "Uh, you should do a little something."
Really? Like what, exactly?
In the meantime, help is on it's way, which should please Bill Virgin - $30,500,000,000 in foreign "investment" from our dear political allies around the world.
Posted by Leanne Finlay at 1/15/08 1:41 p.m.
It's mind boggling to read that Citi has already written off more than $10 billion for their 3rd quarter.
How much more is coming? The Feds are at least doing the right thing by getting cheap money to the banks. That's a big help.
Now we need the banks like Citi to actually answer their phones and actually help their customers.
Posted by Mack McCoy at 1/15/08 2:15 p.m.
Dear reader, I do not mean to speak for Debra, but if you write what you would do to address this problem, I think that would be very well received. I know I'm much more interested in that than being told what Ishould do about this problem!
Posted by Kary L. Krismer at 1/15/08 2:56 p.m.
Leanne, I'm not positive, but I think the 10 billion is an estimate of what their losses are. When companies expect losses they write them off up front, and that makes their numbers look better going forward. This would be sort of an adjustment to bad AR reserve.
Posted by Kary L. Krismer at 1/15/08 5:26 p.m.
I'm having a hard time finding a decent article, but from what I can determine they wrote off 18 B in subprime, 4 B in consumer, and as a result had a quarterly loss of 10B, meaning that they actually had a profit for the quarter from operations. It's only the estimates driving them into the loss situation.
They also cut dividends to preserve capital, and have raised at least 12 B in new capital. But those are not income/expense items, and don't affect profit (but the latter would affect earnings per share since the capital was apparently raised in stock transactions (mainly from the middle east!).
Posted by davelosh at 1/15/08 7:09 p.m.
This is really insane. Yes, I have told people not to buy. I've told people not to sell. I give the best advice I can based on my experiences. The last five years I didn't do to well in the real estate business. I bought and sold some.
What does a write down mean? Did you happen to see that the international division of Citi was up considerably? Did you see the year end profit report? Did you read that the end result was some poor people are losing thier jobs, and wait for it... the dividends are going to be a lot less.
Hey, what were the profits for CitiBank, CitiCorp, WaMu, or those hedge fund peoplein the past five years? OMG the ASIANS are investing; there's a gambling group, no stereotype intended. The United States is a bargain, and for sale. Grow up, Real Estate is a commodity; save your white picket fences to corral your pink ponies. If it ain't broke, don't fix it.
Posted by Leanne Finlay at 1/15/08 9:13 p.m.
Hi everyone, I'm still thinking about this situation.
What I wonder is how many of the delingquent mortgages and foreclosures also have high credit card debt that started out at zero % or whatever intro rate the banks wanted to offer, and then zoomed up to the nightmares of 22%, 25%, 30% etc, not to mention expensive add-on fees such as 'overlimit fee', 'late payment fee'.
My guess is that those people might actually be able to make their mortgage payments if their credit card debt would be 10% interest rate or lower ... and those fees! What's with that? These cc companies already are charging excessive interest rates, should the add-on fees be allowed?
Perhaps part of the solution could be to require all cc companies to charge 12% or less, no exceptions, no late fees, no overlimit fees. Just close the account if it keeps being late or overlimit. 12% seems too high, but I have no idea what rate would be affordable enough for those in debt to pay, and those in the position of having lent, to get paid back.
It seems to me that the foreclosure crisis goes hand-in-hand with the credit card loan-sharking business.
I also believe that a lot of the foreclosures aren't sub-prime loans, but have seen no stats on that. I say that because there are a lot of ripple people with jobs tied to the housing market who have lost jobs, therefore income, therefore they also are candidates for not being able to keep up with debt: housing, cc or otherwise.
Seattle is really one of the best places to be living right now. Our unemployment figures just came out -- we've got lower unemployment than last December. Maybe the ripple effect will show up here, but at least for now, we have a teeny part of the burden, at least in terms of foreclosures and job losses.
We've got to press for sensible and fast resolution for those areas and individuals that have been so deeply hurt.
Posted by Mack McCoy at 1/16/08 12:30 a.m.
All that I know about this issue is based strictly upon what I have read. In my long and illustrious career, I have only had one client call up and say, "how far behind in the payments do you have to be before you're too far behind?"
The thing that pleases me is that most of the voices here have stated that help is a good thing.
I truly hardly read the other blogs, but awhile back I saw that one of the noted bubblebloggers in our area stated, essentially, that the foreclosed homeowners were getting what they deserved. I couldn't help but have the thought that he was expressing vengefulness at the thought that those who had not heeding his warnings should not suffer the consequences.
- - - - - - - - - -
In the future, I Predict: nothing much will change. Here's why:
1. Real estate agents are never going to re-qualify homebuyers. We stopped qualifying them when loans evolved into a staggering array of "product."
2. The borrower is not in an agency relationship with the lender, they are a customer. The lender's job isn't to advocate for the borrower, and the lender isn't obligated to provide "the best" or "the safest" deal to the borrower.
This isn't going to change. What may change is the resale market's opinion of sketchy loan packages, but lenders are always going to be free to take on additional risk if the price is right.
Oh, Mariners in six over the Metsies.
Posted by Kary L. Krismer at 1/16/08 8:22 a.m.
Leanne wrote: "My guess is that those people might actually be able to make their mortgage payments if their credit card debt would be 10% interest rate or lower ... and those fees! What's with that? These cc companies already are charging excessive interest rates, should the add-on fees be allowed?"
To the extent you're right about the credit card debt (and I suspect you are), it's another reason why the foreclosure situation might not be as bad as anticipated. The solution you didn't mention is filing bankruptcy. As long as the people are not behind on their mortgage payment (or can get it caught up quickly), they could file Chapter 7 and totally eliminate that credit card debt. As long as they don't have well over $120,000 equity (in WA), they would be likely able to keep their house.
Note that when Citibank wrote off a lot of mortgage debt, they also wrote off another 4 billion for consumer debt. With the houses no longer being ATMs that can be used to pay off credit cards, I suspect credit cards will be a very significant exposure to banks (I'm assuming none of that is assigned the way mortgage debt is assigned).
Posted by Kary L. Krismer at 1/16/08 8:24 a.m.
Most credit cards are based out of state (e.g. e.g. BOA moved their operations out of state over 10 years ago). Usury laws don't apply.
Even with in state lenders, there are so many exceptions to the usury laws that it's hard to find a violation. In 20 years of practicing debtor/creditor law, I think there was one in any of the offices I was working in at the time.
Posted by Mack McCoy at 1/16/08 1:43 p.m.
Wow. TMI, if you ask me.
Back on topic - what do you think, specifically, I - or any of the other agents on this blog - should do? A "Call For Action," if you will.
You did read the NYT piece, didn't you? Tell me - lie to me, and tell me - you did.
Posted by Mack McCoy at 1/16/08 2:18 p.m.
Hmmmm. The "Short Sale." Isn't that where they are going to walk away without any money? Isn't that where the lender is paying the commission?
So I'm wondering - if I'm given the choice, should I give the Noteholder a break on the commission (it's a 'short' sale, so the homeowner is out of equity), or should I press for a full commission and turn around and donate it to, let's say, Washington Trails Association?
Just a thought. I'm not much of an outdoors person, but in all sincerity - our hiking trails are a big part of our quality of life here in Seattle, and the maintenance and repair for those trails is severely underfunded.
Anyway, there's a question: if you have the opportunity to lawfully direct the earned commission back to the noteholder, or to collect it and pass it on to a charity ...
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Posted by Larry K Cragun at 1/13/08 4:29 p.m.
Thanks for pushing this along Debra. Go to it guys and gals. Ask questions, say your mind.