As I mentioned in my first post I am IrvineRenter (Inventory Cholesterol), I sometimes have access to information not widely known to the general public. Today I came across something I thought would be of interest to the board. In a conversation with a City Councilman from a city in Riverside County, I was told the following:
- New home permits (and associated fees) are down by 64% this year.
- Sales tax revenues are down 6% – 8% this year.
- As a result, the City is going to slash its budget by 10% which will likely result in layoffs.
It’s different in Riverside County, you know. What is going on there?
IMO, the drop in new home permits is just a sign of the deepening crisis in the housing market. Where is the spring rally? What about all the foot traffic we have been hearing about? If the builders were anticipating renewed strength in the housing market, wouldn’t they be starting on new homes?
IMO, the 6%-8% decline in sales tax revenue is even more alarming. If unemployment is low and everyone is working, why would consumer spending fall off so dramatically? Were the builders and sub-contractors activities accounting for that much of they local economy? What role does the decline in mortgage equity withdrawal have in this decline? Is everyone tapped out? Many of the housing bears have stated the economy is too dependent on real estate and continued Ponzi Scheme borrowing and it is due for a crash. Are they right? A 10% drop in economic activity sounds like a pretty hard landing to me.
On a related but lighter note, my bearish outlook is starting to take a toll on my spiritual life. Last night I had a dream in which I prepared my family for disaster. I outfitted everyone with lead jackets, and we hunkered down behind a thick wall of reinforced concrete. Not long thereafter a nuclear bomb detonated in our proximity. We witnessed the destruction from ground zero. We were the only survivors.
Anybody want to analyze that one? Pardon me while I refit my tin-foil hat…
Perhaps you went to bed watching the TV movie “the Day After?” That could explain the nuclear Hollocaust dream.
I had a strange dream. I was in my neighborhood i grew up in, walking on the walls that seperated out houses, except on the ground, it was filled with aligators.
Figure that one out!
PS love the blog, read it every day at work.
—–
IrvineRenter,
Seriously, do you wear a tin-foil hat ?
Stock up on Ramen noodles.
Irvine Renter,
This article might give you a an idea as to the state of affairs in Riverside County. I am not a big fan of the L.A. Times, but on this particular story I think the behaved like actual journalists, you know, just reporting the facts. Furthermore, I heard, I do not have a way of confirming it, from a title rep. that is San Bernardino and Riverside counties the NOD filed last month mounted to more than 20,000.
A town right on the default line
Foreclosure notices are painfully common in Perris, where easy money built a suburb.
By David Streitfeld, Times Staff Writer
March 16, 2007
Oscar De Leon was washing his car a few weeks ago when he noticed a piece of paper stuck to the front door of the house across the street. He strolled over to check it out.
“You are in default,” the paper proclaimed. “Unless you take action to protect your property, it may be sold at a public sale.”
De Leon, who lives in the Riverside County town of Perris, knew this official notice of foreclosure was bad news. Not just for the home’s owners, who tried to sell for months, failed and quit town for parts unknown.
It was bad for De Leon too, a 28-year-old employee of a food service distribution company. He and his wife, Sandra, pay their mortgage every month, happy they can raise their three children far from the urban problems of Los Angeles.
Two years ago, this neighborhood didn’t exist. De Leon, who bought in June 2005 for $324,000, got the first home on the street, the first house he had bought anywhere.
“I like it here,” he says, “They could offer me a house for free in L.A. I’d take it and sell it, but I’d never live there.”
It’s the age-old dream of the suburbs. Now, it’s at risk in communities throughout the country, thanks to lenders too eager to lend and borrowers who thought houses would dispense money forever, like magical ATMs.
In California, Perris is at the epicenter of mortgage problems. From November to January, 177 homes in Perris’ central ZIP Code have received notices of default, the first step toward foreclosure.
That’s about 1 of 53 houses, the highest level of any ZIP Code in California, according to a Times analysis of statistics provided by DataQuick Information Systems. The neighboring towns of Lake Elsinore and Moreno Valley came in second and third.
A few doors away from De Leon’s house sits a second empty property foreclosed on by its lender. “A divorce,” he explains. “The husband couldn’t afford it alone. He was paying $2,500 a month. Ridiculous.”
A few blocks away is a third foreclosure, this one only a frame skeleton abandoned by its builder. A young woman who answers the bell at a fourth house says through the screen door that she doesn’t know anything about the place’s being in default. She pays rent to someone who pays the owner, she says; please go away.
Risky loans
The trouble stems partly from a proliferation in recent years of so-called sub-prime loans to borrowers with shaky credit or erratic income, borrowers who are more likely to miss payments and not catch up. Such defaults are typically in communities like this one — a long way from the high-priced and built-out coast. The Inland Empire is full of new and almost-new homes and commuters who often travel great distances to jobs to pay for them.
The default rate in Perris compares with 1 in 105 homes in Palmdale, 1 in 150 in Van Nuys, 1 in 189 in Northridge and 1 in 283 in Altadena. Many coastal communities have so few default notices they don’t even place in the top 400 ZIP Codes.
There are other signs of distress. De Leon’s development, called the Villages of Avalon, has an unusual number of homes for sale, considering it’s so new that the Google Earth satellite scan still shows much of it as dirt.
At the top of his street, next to the charred shell of a house that mysteriously burned a few months ago, is a house for sale. The house immediately next door is on the market too. A few doors away from De Leon’s home in the other direction is a third house looking for a buyer. Some owners are trying to rent their places out, advertising with little signs on the front lawn.
De Leon fears what will become of his neighborhood if it becomes dominated by renters.
“You get people who don’t care about the neighborhood and don’t take pride in it,” he says.
He’s hardly alone in that view.
“If people start to rent, that’s when you start to worry,” says De Leon’s next-door neighbor, Jose Serrano.
Serrano, 34, grew up in Long Beach. He saw friends die in Long Beach. He still commutes there every day to work on the docks for Toyota Motor Corp. It’s an hour in the morning and two hours coming home, a grind he suffers for the sake of his three young kids.
Like De Leon, this is Serrano’s first house. Like his friend, he is bracing for the future, hoping that even if things get worse now, they’ll get better later.
“A lot of people got in over their heads. They are going to lose their homes,” Serrano says. “The market goes up and down. You have to look at it for the long term, ride it out.”
Good advice, but Perris could be in for a rough trip. Named after a railroad engineer, it began in the late 19th century as a stop on the Barstow-San Diego line. For most of the next century, it was a farming town — sugar beets, potatoes, alfalfa.
Hustle and gloom
Cheap land drew the developers, and cheap houses drew buyers. The market may have slid over the last year, but the hustle remains. The billboards on the way into town extol 11 active developments. Signs on the city streets point visitors to them. So do curbside salespeople holding oversized arrows, and balloons floating over sales offices.
But many intersections tell a more downbeat story. Telephone poles are festooned with signs that say, “Behind in payments? We can help” or “Foreclosure loan specialist” or “We’ll buy your house in nine days or less.”
Lily Quinlan is thoroughly exhausted and a lot smarter about real estate than she used to be. Quinlan, 30, just sold her three-bedroom house on a cul-de-sac in one of Perris’ older developments.
It went on the market last June, for $395,000. Her first agent reduced it to $383,000, then $375,000, then $369,900. Her second agent dropped it all the way to $333,000, where it finally found a buyer.
While the price was descending, Quinlan’s ability to pay the mortgage was becoming intermittent. Her husband left the Navy to start a new job in Florida at a lower salary. World Savings, their mortgage company, started sending default notices.
The couple bought in 2002, as the boom was beginning. At its peak, the house was worth more than three times what they paid for it. But they refinanced and took cash out to do upgrades on the house, and then they refinanced again because — well, Quinlan isn’t sure why.
She’s learned this about lenders and loan agents: “They make it look like they are trying to do all this for you, but the reality is that it was mainly for them. They got their chunks out of you, and then they put you out to the wolves.”
Even when she was in default over the last few months, the offers continued. “They kept calling and calling, saying, ‘You won’t have any payments for two months.’ And I’m like, ‘Dude, the last thing I need is another refinance.’ ”
She’s sorry to be leaving for Florida. If their house had not increased in value, if it was still worth exactly what they had paid for it four years ago, they could afford to stay. But the boom ruined everything, and so Quinlan was selling what she could at a yard sale before packing for the movers.
Some of the clothing and dishware spread on the driveway belonged to her neighbors, Ron and Dawn Blacic. Their house went on the market this week for $369,900.
“The price you got is going to drag down our price,” Ron tells Quinlan.
“Thanks, Lily,” cries Dawn as she pretends to punch her.
The Blacics, who are moving to Yucca Valley, owe $372,000. They refinanced once, taking out cash to pay for their wedding and other bills. “We figured the value would go up and up, and it didn’t,” says Ron.
After the agent’s cut, the couple will need to bring a check to the table for $22,000 or so to avoid destroying their credit. They’re counting on a loan from Dawn’s parents.
“We want to purchase another home,” explains Ron, who works for a sanitation supply company. “We don’t want to wait 10 years until our record is clean again.”
If the house sells for their asking price, the Blacics will come out about even on their first real estate venture: First the house dispensed money, then they had to give it back. For them, it will be as if the boom never happened.
On the other hand, if the house doesn’t sell immediately, they’ll have to rethink their plan. They can borrow only so much.
The onset of the spring home-buying season is a matter of acute concern to the Blacics, as it will be to many others.
On Tuesday, the house in foreclosure across from Oscar De Leon’s home will go up for auction.
Public records show the mortgage was held by New Century Financial Corp., the Irvine-based sub-prime lender that collapsed this week amid rising defaults.
De Leon doesn’t remember much about the former owners. They had two young kids. The father might have been in construction. They put the house up for sale last fall, barely a year after moving in.
In November, a moving van showed up and the family quietly left. The house stayed on the market; the agent watered the lawn to keep it presentable. Then one day he quit too. The lawn is starting to brown.
“Sales tax revenues are down 6% – 8% this year”
On the larger scale, I wonder how the state legislature will address the collapse of the real estate market. The mothers milk is about to run dry.
gn,
“Seriously, do you wear a tin-foil hat ?”
No, but I always used to laugh at doomsday wackos. Now it seems I have become one… If I start publishing interpretations of Revelations, they you will know I have completely lost it.
Sales tax revenues are down beause people are barely able to make their mortgage payment and can no longer extract equity from their homes to finance their lifestyle/shopping habits.
According to today’s Wall Street Journal, 4.55% of the total mortgage loans outstanding in Riverside/San Bernadino/Ontario were delinquent in Q1 2007. That’s up from 2.05% in Q4 2005.
The national average delinquency rate in Q1 2007 was 2.87%, up from 2.03% in Q4 2005.
The top 5 delinquent areas in the US are:
1) Modesto, CA – 5.62%
2) Beaumont/Port Arthur, TX – 5.57%
3) Merced, CA – 4.84%
4) Stockton, CA – 4.78%
4) Riverside/San Bernardino/Ontario, CA – 4.55%
On the larger scale, I wonder how the state legislature will address the collapse of the real estate market. The mothers milk is about to run dry.
Is that why I’m hearing the Teacher Union ads on the Radio claiming studies show they need 40% more funding to make decent education possible?
Can you imagine, Prop 98 already gives them $56.8 billion, they say they need 40% more.
Tax revenue iand transfers is $94.5 Billion.
$56.8 + $22.7 (40%) = $79.5
$79.5/$94.5 = 84%
Back in 2003 I heard that LA county was in the brick of bankrupcy, but the spike in property taxes help them. Lets see how they deal with the sudden downfall of property taxes.
Lookout Governator, we are in for an ugly state deficit.
Donut,
When have you heard from a teacher’s union that schools are well funded? Did you ever see the 20/20 documentary with John Stausal (I think I am not spelling his name properly), Study in America, How Schools are Cheating our Kids? He made the case that money is not the problem with our educaitonal system. He said that part of the problem are the teacher’s unions who foster an extremely protective system for their members and this creates an athmosphere in which innovation and competion are not welcomed because there is not a incentive do better. He talked about a case in, I believe, Tennessee were a judge order for more funding for the public schools in that state. Years after the money was given, studies showed that test scores had actually gone down and many schools waisted the money using it for such things such as building olympic class swimming pools.
And do not get me started with the waist of money that it is bilingual education here in California!
I am sorry, I mispelled the name of the documentary, it is Stupid in America. What you want from me? I am the product of the “underfunded ” public school system. 🙂
I can only think of one thing right now –
When a snowball starts rolling down a hill, there is no way to stop it! It just gets bigger and more devastating!
Unfortunately, Orange County is a high-risk fallout region, in the event of a nuclear exchange. If you’re looking to protect your family, lead jackets and tin foil hats won’t do it. Your family would be safer being relocated to a lower-risk region.
Most of Irvine homes don’t have sufficient yard space, or HOA permission to build underground shelters. I’m not really convinced that above-ground shelters will survive a nuclear air burst, the fires will burn everything down and there won’t be any fire dept or water pressure on the sprinklers.
On a brighter note, since Maruchan ramen is located in Irvine, it’d be easier to scavange dry noodles…
Spring Rally? There is always spring 2008.
Irvine Realtor,
check this one out,
48 Paperwhite, Irvine, CA 92603
Sale History & Tax Info Sale History
03/15/2007: $755,010
06/06/2006: $888,000
step by step this type of sell will be typical of irvine
Source,
This is a property that the lender had to buy back because no one bid at the foreclosure sale. The reason why they put the purchase price lower is because this gives them the opportunity to save a little on property taxes. The previous owner was paying property taxes at the approximately rate of 1.25% out of $888,000, which amounts to around $11,100 per year. Given the fact the trustee sold the property back to the lender they can decide what price they want to state, but this has to be resonable because then the assessor might have an issue with that and reasses the property to how ever they think it is worth. By stating that the property was sold for $755,010 the new owner, the lender, gets to pay around $9,400 per year in property taxes. That is all there is to it. By the way, the lender who originated the loan was Aegis Wholesale Corp. with a 100% financing deal. The lender who purchased the loan, and the new owner, is Aurora Loan Services.
I have to correct myself, this was not a 100% financing deal, the first loan was for $710,400 and the second loan was for $176,100, which adds to a total of $886,500. That is a 99.80 Loan to value ratio. Pretty much the same thing, the buyer put $1,500.00 down. I wonder why he let go of the property when he had so much money in the line? 🙂
MMB,
And you know something else about 48 Paperwhite sale transaction history? The sold price was inflated to $888,000 from a list price of $869,900 after this home was sitting on the market for 108 days.
Inflated price + 100% financing = Foreclosure
Why do I kept seeing this scenario. It works like clock work. I guess lender learned their lession and put a break on 100% financing.
source,
I am a big believer of “bad data” is worst than “no data”. 🙂
nirvinerealtor,
Now that you mentioned it, it might be that the difference between the listed price and the sales price was to “help” the buyer with closing costs. Another incentive for the buyer to just walk away from the property.
The way I see it there will still be lenders doing 100%. I still get the offers, the only difference is that now they be very similar to hard money loans. You know with interest rates 2 or 3 points higher than the regular rates.
MMB,
I think when the Hard Money lenders get burnt, they will exit the business too. Once these lenders get burnt, I do not think they will be as kind as the Wallstreet Institutions.
I am still see evidence of mortgage fraud for profit out there; though not as big of the scale. It’s a modern form of robbing.
“Once these lenders get burnt, I do not think they will be as kind as the Wallstreet Institutions.”
What do mean by this? Kind in what sense? Going after fraud perpetrators?
MMB,
Perhaps you can help me to understand something here. Is it not the hard money lenders are individuals?
I heard somewhere, 90% of early defaults are frauds for profit. If so, would all the fraud perptrators be punished at all? Do the loan originators get to buy back loans? Thank you.
ninvrinerealtor,
It depends on a number of things. From what I know if the lender can prove there was fraud on the originator’s end (mortgage broker) they can force them to buy back the loan, but if you have an originator who suddently has to buy, say 5 loans for $400,000 each, that broker would soon have to declare bankrupcy and the lender would be left holding the bag. At this point they have the option of turning the case over the authorities and ask them to file criminal charges, but it all depends on the lender’s williness to move forward and the DA’s acknowledgement that they have a case. The lenders can also go after the appraiser if they suspect there was hancki panking from this particular individual. The benefit on this course of action is that many appraisers are bonded and this gives the lender a financial source to remedy financial hardship.
Hard money lenders can be individuals, but individuals only have so much money to lend and take risks. These lenders are usually edge funds and such who promise their investors large returns, with large risks.
I am telling you, the more I see things develop, the more convinced I am that things will only get worse before they get better.
Mexi, that’s my point. The teachers union is again beating the oh my the schools are sooooo poorly funded, that’s why they do so bad drum. Unfortunately most people fall straight for it.
MMB,
Thank you for your insight.
I think the fraudulant mortgage brokers and Real Estate Brokers do have assets to covers lenders’ losses; given choices of going poor or going to jail, you know which choice they would take. So these guys are back to square one — working for free! One more choice is to “disappear”.
Your thought on my comment?
Donut,
Common sense and critical thinking went out the window long time ago when it comes to education funding. I mean every time there is a proposition on the ballot regarding “school funding” people do not think twice about at voting yes because “it is for the kids.”
nirvinerealtor,
Like I said it before, if the broker files for bk, the lender cannot touch him. On the other hand filling criminal charges is up to the DA or state agency that handles real estate fraud. It is at their discretion if they want to prosecute the broker and with their limited resources they have to pick and choose and focus in the large perpetrators. Furthermore, sometimes some violations are not considered or penalized in the same manner by the state and by the feds.
This reminds me about an article that came up recently on the CNN/Money magazine website in which they were trying to determine the blame for this mess. The author of the article discussed about the blame of the mortgage brokers, the lenders, the regulators, the appraisers, and the real estate agents. But guess what, I was surprise by the common sense of many readers, because many immediately contacted the author of the piece and demanded for the borrowers to be included in the equation. To which the author finally did.
Subprime blame game
Some 2.4 million homeowners are in danger of losing their homes, many because of bad subprime loans. Critics are pointing their fingers at who is responsible – here are the main targets.
By Les Christie, CNNMoney.com staff writer
Mortgage brokers
The charge: Brokers steered borrowers to loans they couldn’t afford.
The huge increase in mortgage originations, including a spike in refinancings, during the first half of the 2000s, attracted a flood of new mortgage brokers into the industry. Despite a lack of experience, many were soon earning six-figure incomes.
When business slowed near the end of 2005, brokers had to find new ways to churn out deals.
“Clients started to get harder to come by and the brokers started shaking the trees a little harder,” says Allen Hardester, director of business development for mortgage broker Guaranteed Rate. Some very poor risks who would have been blown off during better times, got loans.
Critics also charge that many borrowers, especially minorities, whose credit scores qualified them for prime loans ended up in the subprime category.
Years of out-sized home price increases delayed the day of reckoning but when markets stopped their run-up in 2006, it left many borrowers unable to make payments. And the more recent the loan, the more tenuous is seems to be.
“Subprime 2006 loan originations are going delinquent much more quickly,” said Bob Visini, vice president of marketing for First American LoanPerformance. But mortgage brokers have come in for an unfair amount of criticism, according to Harry Dinham, president of the National Association of Mortgage Brokers .
“It’s the lender’s money,” he says. “They’re reviewing the loans. They put loan programs out there and it’s the mortgage broker’s job to sell the programs.”
Bottom line: Were mortgage brokers always careful about matching borrowers with affordable mortgages? No way. But lenders made the ultimate underwriting decision.
Appraisers
The charge: Inflated appraisals put home buyers in immediate jeopardy.
The appraiser’s job is pretty straightforward: Put an objective dollar value on a home. But according to Thomas Inserra, CEO of Zaio, an Internet-based appraisal service, inaccurate appraisals have become one of the substantial contributing factors to subprime’s problems.
When a property is valued much higher than its actual worth, a borrower could owe more of the home than it would fetch on the open market. Inaccurately high appraisals also fed the rising home prices, which, by making homes less affordable, ensured that more borrowers would default on loans.
In a stagnant housing market or if prices are actually declining, owing more on a home than its value removes one of the safety nets. It makes it impossible for owners in trouble to tap home equity; there isn’t any.
Bottom line: Appraisers don’t bear the primary responsibility for all the bad loans, but more accurate appraisals could have lessened the severity of the problem.
Regulators
The charge: Government agencies such as The Federal Reserve did not use the authority granted them under the Home Ownership and Equity Protection Act to prohibit substandard lending practices.
Federal regulators came in for a large share of subprime blame during a series of Congressional hearings in March. Christopher Dodd, Democrat from Connecticut and, perhaps not coincidentally, presidential candidate, accused regulators of being “asleep at the switch” when they allowed lenders to push hybrid loans with low initial rates that would spike in future years.
Harry Dinham, president of the National Association of Mortgage Brokers, says, “The majority of these loans were being done by companies like New Century and Countrywide that were not under the control of bank regulators.”
Furthermore, there’s nothing inherently wrong with the loan products themselves, according to Dinham. “They were designed to give the credit-challenged a chance,” he says. “To see if they could make it.”
Regulators were following a policy that they hoped would help increase home ownership, a goal regularly lauded by politicians.
Bottom line: Regulators could probably have acted sooner to stem the worst abuses.
Lenders
The charge: Lenders relaxed underwriting standards far too much and made loans they should have known would not be repaid.
Lenders got increasingly accepting of high-risk loan applicants. They had discovered years ago that they could sell subprime loans in the secondary markets by adding stiff risk premiums to the interest rates they charged.
Even though a far higher percentage of the loans would go delinquent, the higher payments from borrowers still paying back the loans would more than offset the delinquencies.
Rising home prices enabled lenders to maintain this equation for years. Appreciation meant that even borrowers who fall behind might have already built up substantial home equity in those two years, equity they could tap to make up shortfalls.
But when home price appreciation stopped its meteoric rise, it caught up many borrowers with no more home equity to draw on.
Bottom line: Lenders made far too many loans to borrowers they knew, or should have known, would not be able to pay them back. That, probably more than any other factor, will drive an increase in foreclosures during the next year or two.
Wall Street
The charge: Investors bought securitized loans with no regard for whether they met underwriting standards.
Wall Street investors introduced lots of liquidity into mortgage markets during the boom years. That should be a good thing; it made loans easier to come by and helped increase home ownership. But, as demand grew, it seemed that investors would purchase almost any loan, no matter how risky.
As Allen Hardester, director of business development for mortgage broker Guaranteed Rate, put it, “If someone wants to buy rotten fruit, there’s going to be someone willing to sell them rotten fruit.”
Critics, such as Shana Smith, president of the National Fair Housing Alliance, says Wall Street should not be buying these loans with no regard for whether the borrowers could make the payments. According to her, investors have a responsibility to make only those loans that are good for the borrowers and their communities.
Bad loans not only damage the borrowers, they can affect their neighbors as well. When a home is foreclosed on, it lowers the property values of every one around it. Boarded-up homes breed crime, discourage buyers and destabilize communities.
Bottom line: Perhaps not the direct source of the subprime crisis but an enabler of it.
Real estate agents
The charge: Salespeople fed the frenzy.
“I’m frustrated that real estate agents have gotten off scot-free,” says Shana Smith, president of the National Fair Housing Alliance.
According to Smith, agents encourage consumers to buy much more house than they can afford and the agents show them how to do it through the use of exotic mortgage products like hybrid ARMs, interest-only and negative-amortization loans.
“My neighbors just bought their first house,” says Smith. “They carefully figured out how much they could comfortably spend – $325,000. The first thing their agent told them was, ‘I think we can go up to $400,000. We can get you into more house.'”
“When the real estate agent can show how she can get you into a $400,000 house, your eyes get big.”
Real estate agents are salespeople and, just like any salespeople, it is in their best interest to move up their customers into a bigger, more expensive product.
Bottom line: Real estate salespeople are not always scrupulous about fulfilling their fiduciary responsibilities to their clients. They sometimes persuade consumers to overspend and take on mortgage payments that may ultimately be unaffordable. But borrowers, too, have to take responsibility for staying on budget.
Readers write in:
Borrowers are to blame!
Our original blame-game story only mentioned the responsibilities of borrowers in passing. That we did not devote a full page to borrowers rightfully provoked much comment from readers. They charge that those now in trouble were trying to get something (a nice home) for nothing (no saving for a down payment, no worrying about monthly payments).
E. Pong wrote, “Your article leaves out the most critical culprit, the HOME BUYER!! Why does the main-stream media paint them as mindless victims? They certainly did their share of neglect and greed by buying homes, cars, furniture they couldn’t afford! It’s time for people to start realizing they are personally responsible for their actions.”
Greg Beitel wrote, ” Even as a liberal democrat I am stunned that the list of entities responsible for the subprime lending crisis does not include the borrowers who signed up for the mortgages. In the end, they are responsible for deciding that they could afford the mortgage and signing the papers. No one forced them to take on a loan the couldn’t afford.”
From P. Milewski: “The Blame Game story about the rise in foreclosures omitted a very culpable participant, the borrower. Too many borrowers were victims of their own greed, sometimes willingly participating in the misrepresentation of their qualifications and at other times accepting risks when they were unprepared to accept the consequences.”
A. Seibert wrote: “Yes, many people were improperly tempted by easier and bigger loans, but in the end, it’s their responsibility to look after their own behinds, get educated about things, and make their own decision that is right for them.”
Jason Savage wrote in to pinpoint a particular reason to blame borrowers: “A significant percentage of stated or no income borrowers inflated their income to qualify for certain loans. Borrowers with Hybrid loans either knowingly or unknowingly accepted the risk of future payment shock. Some took a gamble and lost.”
In their defense, however, it must be pointed out that many borrowers were drawn into making untrue income or assets claims by unscrupulous brokers. Some borrowers report getting their loan applications back and seeing that their incomes had been widely inflated.
Still, many readers expressed their beliefs in good, solid American virtues of personal responsibility and rugged individualism. Wrote K. Saylor: “I am afraid that the weak minded conclusions you espoused in this article is leading it to become, ‘America – Home of the incompetent and irresponsible.'”
Bottom line: There’s certainly lots of responsibility here, especially for the borrowers who were less than honest about their finances. Others can be blamed for not being more pro-active or diligent about obtaining the right kind of loan for themselves. It’s also true, however, that consumers tend to be very naive about home buying; very few of us do it more than every 10 years or so. It’s a complicated transaction that many are not really up to and they rely on industry professionals to guide them though it.
MMB,
Thank you for your clarification.
Borrowers are to blame, yes. However, why did they get involve in the first place? Well, let’s see.
As a listing agent, I get offers from the scammers. Guess what?, the agents who represented these buyers could not tell me anything about the buyers. These agents could not even remember how to spell the buyer names correctly. I figured out quickly that the buyers probably are straw buyers. When I ask to run the buyer’s credit due to 100% financing, these scamming agents left quickly.
I believe there buyers who got talked into buying while they should not.
I am telling you, everywhere I look, I see scammers! It is a big problem for the industry. DRE can take their licenses away, but the scamming agents operate business as usual anyway.
I am proud to say my RE broker screen for sign and frauds and terminate quickly. Of course, I would not mention my brokerage firm.
nirvinerealtor,
That is one of many forms of fraud, straw buyers. There is fraud in which you have buyers with the williness to buy, who are not told the whole enchilada, either by their agent or loan officer. Months latter they come to find out that things are not what they were told and this is where things get ugly. I think this is a mayor factor of all this meltdown.