Tuesday, January 31, 2006

Easy money never lasts forever!

There has been a lot of talk here and on the other blogs about the consumer spending that has been financed through the equity extracted from real estate. But what about the people that make the industry possible? What kind of money have many of these people been making, and what is in store for them?

To answer that question, let's look at the growth in the mortgage industry. Take a look at this chart from the Mortgage Bankers Association which shows the amount of mortgage originations by quarter. An origination is a purchase or refinance loan. I went ahead and added up the quarters to give an 'annual' picture of things.

1990 - 459 billion
1991 - 563 billion
1992 - 893 billion
1993 - 1.020 TRILLION
1994 - 769 billion
1995 - 640 billion
1996 - 785 billion
1997 - 833 billion
1998 - 1.656 TRILLION
1999 - 1.379 TRILLION
2000 - 1.139 TRILLION
2001 - 2.243 TRILLION
2002 - 2.854 TRILLION
2003 - 3.812 TRILLION
2004 - 2.773 TRILLION - 2.92 trillion per IMF Pubs
2005 - 3.120 TRILLION - only 2 quarters data from MBAA so IMF Pubs provided the 2005 data

If you look at this data it is pretty easy to see that as the stock market started cranking in the late 90's so did mortgage originations. Things tailed off in 2000 as interest rates were at their highest point in years. As you can see, 2003 was the largest year on record. Almost 4 trillion dollars worth of loan originations. Your interest only loans started becoming popular in 2002 and they took off in 2003 and beyond. There were almost more mortgage originations in 2002-2005 than there were from 1990-2001.

But what does all this mean?!?!? Let me ask you this (especially the people in California): how many people do you know that could do a loan for you? How many people did you know 3-5 years ago?

I couldn't find the article at the moment to provide a link, but something like 40-50% of the job growth in CA has been in the real estate/mortgage/construction industry since 2000. When you see an industry flooded with money like that, what happens. People run into the business for the money!

The whole point of the above data is to show you the size of the mortgage business. Now that you have seen the amount of money that is out there, you know that there were lots of people making good money.

During the boom times, it was not uncommon for somebody with little to no mortgage experience to make 5-10k in their first month...and some people made much more. You had people making 20, 50, 100k+ a month. Yeah, it was mostly the top dogs making 100k+ a month, but there were lots of them. From what I saw, it was pretty safe to say that most people were making 15-30k a month. I don't have stats or anything to prove this, just what I saw on the 'tracking' boards in offices, and from knowing how much people were making on the loans I was doing for them.

It's funny, I had loan officers that wouldn't "do loan amounts less than 500k". They would pass them on to somebody else because it wasn't worth their time to do anything smaller. But do you want to know what is REALLY funny, I was getting calls from some of these same people a few weeks ago for 150k loans in Florida. I said, "I thought you didn't do the small loans". They said, "very funny...in this market, I'll take what I can get".

I'm also seeing a bit more stress on some people's faces. After several good months in the business, many of these people realized they could get a mortgage, and they were making good money, so why not?!?!? The only problem is that that mortgage is a 30 year commitment. 6-12-18 months of good income doesn't mean you can afford that in the long run. When the 20k a month isn't rolling in so fast, that 4000-6000 a month mortgage starts looming large in some people's eyes. I even had one office where the other loan officers pointed to a guy who was stressing out...and I just watched as he was burning up the phones, dialing for dollars. You could tell he was on a mission. I asked one of the guys "what's up?". He said that the loan officer in question had a $4000 a month mortgage and the holidays were pretty rough for him. Rough in the sense that mortgage production slowed down, and there wasn't a big paycheck at the end of the month.

You could only imagine the stories I would hear from the 5000-10,000 dollar weekends in Vegas. The clothes, the cars, the jewelry...it was everywhere in some of my offices. There were 20-25 yr olds rolling in 745 BMW's, Hummers, 500SL Mercedes, Escalades, etc. You name it. The phones were ringing and there was an energy you felt when you walked in. People were making money, and life was good.

That energy is gone from my best offices. Many of the cubicles that used to be full, are empty. The top people are still around, but they are having to work much harder. Some have been in the business for a while, and knew it would slow down some. Some have never known anything other than the 'boom times'. Of the 'mom and pop' shops that worked out of their homes, or had small offices, some of them have closed their doors, or taken the step towards home office.

I will say this, at the same time when these people were making lots of money...and letting everybody know it. There were the quiet people (I really enjoyed talking with these people). The ones driving an older Honda Civics or pickup trucks. These people usually owned the shop, or had been in the business for a while. I think they knew this wouldn't last, or maybe they just weren't the 'flashy' types. Some of these people are probably set for life after the money they made...and the money they saved.

None of the above is scientific, or applies to every loan officer or broker shop. Everybody is different. There are all sorts of people that are in the business. Some are flashy, some big spenders, some are savers. Some care only about the dollar and nothing else. Some will do a loan that pays less because it is he right thing for the client. Some are a combination of the two depending on the situation.

One thing is for sure, there are 3 things that are going to affect the amount of originations the next few years.

1. interest rates
2. lending standards
3. property values.

If interest rates go up, then there will be less refinancing. If lending standards tighten, there will be less people able to qualify for a loan. If property values decline then the loans will be smaller. Smaller loans mean less commission. Higher rates and tighter lending standards will also affect property values. If the mortgage originations decline, so do a lot of people's paychecks.

Don't get me wrong, there is still plenty of business out there as a whole, but we are returning to a more normal market. I think we are returning to a more normal market that is not going to be able to pay everybody what they are used to being paid. If the market goes back to a 2 trillion dollar market, that is about a 33% cut. That cut is going to have to come out of paychecks, the number of people in the business, or a combination of the two. The established people will stay, some will stick it out, many will leave. I don't know when this will happen exactly, but I think the next 6-24 months are going to be very interesting.

What do you think??

I look forward to the comments and feedback!

SoCalMtgGuy

52 Comments:

Blogger Larry Walker said...

I have seen many insiders, mortgage people and realtors, parlaying their easy money by buying and flipping pre-construction condos here in Florida. Many of them made tons of easy money doing this over the last few years but some got greedy and are sitting on multiple units right now that aren't moving. The forced closings just at the time that the big income comes to a halt will bury many of these people. Easy come, easy go. Can you say JDSU, 2001?

2/01/2006 3:43 AM  
Anonymous Anonymous said...

Fools always buy at the top. In march of 2000 NASDAQQ's peak, margin debt was at a record $275 Billion. Then we know what happended. The greed got them all in now they will be selling or going bankrupt as prices plunge.

2/01/2006 5:55 AM  
Blogger crisp&cole said...

Know several of those 20-30k a month guys. Many are now making 4-5 month and they are very worried. They were sooo confident the boom would continue and it was booming because they were so smart.

I have a source who works for a large MB dealer and he stated that the purchsases of MB's by RE people has dired up in the last 30 days.

Unfortunately, the mortgage payments and the "investment" properties and the Patek Phillipe Watches and the etc.... will bring many of these people down. One of these is my own brother, he has seen his salary cut back dramatically. He was making 20-30k per month and SPENT IT ALL.

Hopefully many will learn from the coming bust and learn to live below there means. If not, we will repeat this cycle of boom and bust again.

2/01/2006 5:56 AM  
Anonymous Anonymous said...

Whoa - talk about a dot-com flashback. I was one of the fools in the middle of that bubble, and it was amazing to see how many people with *no* qualifications jumped in (myself included) just to get while the getting was good. The parallels are so strong, I can't help but think it's inevitable that this will end very, very badly.

2/01/2006 6:12 AM  
Anonymous Anonymous said...

2 trilliom mortgage market?
i would tjink more like 1-1.2 trillion..
HAlf of the present..Just like housing values are deemed to fall be half..
By the way how much does mobssmumZiprealty cost?

2/01/2006 6:32 AM  
Blogger dwr said...

"I think we are returning to a more normal market that is not going to be able to pay everybody what they are used to being paid."

Agreed about returning to a normal market, but I think a normal market is one where people actually try to pay off their mortgages. I am fairly certain the next wave of advice from the "experts" will be to pay off one's mortgage rather than "liberating one's equity". Refinancing every 12-18 months will go bye bye.

I can add to your anecdotal evidence about the 20-25 year olds stressing. About a month ago I went out for lunch to a local burger place, close to a university. A couple of "kids" sat down next to me, I assumed they were college students. They then proceed to start talking about how much harder they're having to work to close loans, they're thinking about doing some advertising to bring in work, one of them spent days trying to talk some lady into a loan and she finally said "no thanks" and how dare she do that after all the "work" he put in, etc. These guys couldn't have been older than 21 or 22. It was really quite disgusting.

2/01/2006 6:40 AM  
Anonymous Anonymous said...

A lot of mortgage people are crooked. One of my friend who makes about 65k a year wanted a 365k mortgage (no money down). The mortgage guy stated her income at 95k to get the loan.

My friend was okay with it because it got her the loan.

2/01/2006 6:41 AM  
Blogger lisoosh said...

Am I the only one who wishes I had worked in the business the past few years? (I'd have been the one with the crappy car and the full bank account).

2/01/2006 7:00 AM  
Blogger AZgolfer said...

SoCal

I signed up for Zipreality. I tried a search and it is not showing the house next door to mine that has been on the market for about 4 months and has had three price reductions. In Phoenix I go into AZ Central and then into resale homes. That seems to be the best. I am also worried that I will be getting a phone call from a realitor in the same way that I got calls when I signed up to Dominica, which also does not work right. I tried my house and the house next door (which sold for 153K 14 months ago and now is on the market for 250K) Am I missing something? Why can't I get these programs to work right?

2/01/2006 7:07 AM  
Blogger Lou Minatti said...

Am I the only one who wishes I had worked in the business the past few years?

No, reading this blog I wish I had gone into the business as well. The difference is if I was making $20k/month I'd continue to live in my current (almost paid off) house and continue driving my (paid off) 1999 Toyota, and save a shitpile of money over 2-3 years.

How is it possible to burn through $15k/month? I guess that's a dumb question. A better question is WHY would someone do that WHEN THEY DON'T HAVE ANY MONEY SAVED UP???

2/01/2006 8:04 AM  
Blogger Eternalflame said...

One things for sure. The party is over but the RE agents are still spinning their fantasy and Joe SixPack still believes there's gold at the end of the rainbow. Everything seems rosy for now but 6 months of an empty spec house with 3 price reductions will bring a few gray hairs.

2/01/2006 8:07 AM  
Blogger Wes D said...

I wonder how many of these mortgage bankers are transient employees, i.e. people that float around trying to hop onto the next big thing?

98-99-00 the same thing happened in my field (technology). I ended up working with some of the most incompotent people around after they learned some key words and got a job. I even worked with a guy who had driven a beer truck, read a book, and got a job making 70K in the IT field. He didn't know his head from his ass, the company folded, and I sometimes wonder where he wound up. I haven't yet seen him behind the counter at our local Circle K but probably will someday. Oh yeah, he also had the shiny SUV.

Where will these mortgage people wind up?

I might have been able to make some extra $$ if I had jumped into the mortgage market a few years ago when they were hiring anyone with a pulse, but when the house of cards collapses (which is underway) I would also been competiting for the remaining jobs with those idiots who are willing to say anything/do anything to get a job. Its' a cut-throat world out here.

2/01/2006 8:10 AM  
Blogger Arioch said...

The same cascading effect will traverse through many other industries as well.

1) Home improvement stores. It seems there is a Lowes or Home Depot every 300 feet. They will begin to dry up as home ATM has powered a lot of their big ticket items (high margin goods). Grass seed and 2x4's will not keep those lights on. Expect closings in 07/08 on "underperforming" stores.

2) Custom construction. Whether it is kitchens, bathrooms, carpet, tile, landscape. Here in Vegas there are more Granite Countertop shops than 7-11's. They were powered by the all mighty ATM.

3) Car dealerships. Enough said, especially high end stuff (MB, H2, Lexus, Cadillac).

4) Pool companies. Tons of those pools were built out of the home ATM, or rolled into the new house loan.

5) Restaurants / Casinos / Clubs etc... Especially here in Vegas, so much of the strip has been powered for the last several years by the Cali home-ATM. Friday night it is rushhour from San Bernardino to Vegas. Endless stream of cars bringing dollars from their house.

The slowdown will cascade through many industries, some will see high mortality rates, some low. The pinch will be felt all over.

2/01/2006 8:20 AM  
Blogger GREG said...

i have been waiting for another f*cked loan officer article to be posted on this sight

2/01/2006 8:21 AM  
Blogger Wes D said...

This comment has been removed by a blog administrator.

2/01/2006 8:29 AM  
Anonymous Anonymous said...

sc:
can you give a breakdown of the takedown?
on a 500k loan who typically makes what
e.g. loan company and
% to officer, mortgage brokerage and % to broker; and
any others
who gt a cut of the
action.

2/01/2006 8:33 AM  
Anonymous Anonymous said...

People are the same everywhere. I worked for a while in resort real estate sales in the mid-80s. Guys would join the sales force, make a few sales, and then mentally annualize that income...and would adjust their spending upward accordingly. They never stopped to realize that our business was cyclical. Once they got themselves loaded up with fixed monthly expenses, they'd start sweating when things slowed down.

Same thing with the idiots you describe...after a couple of months of high income, it never occurs to them that the gravy train could end.

2/01/2006 8:52 AM  
Blogger mtnrunner2 said...

AzGolfer_ I tried ZipRealty yesterday for a house down the street, and it didn't show up because I had typed in the word "xxx Lane", instead of "xxx Ln". So if you look by street name, it must match exactly how it was entered into the database.
ZipRealty was down last name while they updated their site. Guess what they added? A new field: "Only Search properties with reduced prices".
In Poway, that would be 63 out of 246 listings, a full 25%. Since most listings are probably less than a month old, those will see price reductions soon.

2/01/2006 9:11 AM  
Anonymous Anonymous said...

Upset about missing the big payday by sticking with your old gig instead of going into the mortgage biz?

Relax.

There is always money to be made in this world if you are unethical. A lot of these cats made money by helping their neighbor down the path to bankruptcy. Can't afford the mortgage? No Problem! "We Work Miracles!"

Just focus on ways to make money off the ignorance and misfortune of others.

Work for a bankruptcy attorney...a repo man...or how about starting your own bill collection agency?
All it takes is an 800 number and call yourself "Mr. Smith."

Start some sort of MLM pyramid scheme, or consider pharmaceutical sales. Convince doctors to use your meds and get a cut of the Big Pharma racket. Sales meetings in Hawaii,performance bonuses, fancy cars-just for selling grandma something she desperately needs but can't afford thanks to all the middlemen getting their cut.

Seriously folks...While you're kicking yourself for not cashing in on the stupidity of others, your liver is thanking you for not drowning it in alcohol to help qwell your ill conscience.

2/01/2006 9:16 AM  
Blogger JT said...

Greg,

Here's a F'd loan officer story. I have a friend who's about 24. She was consistently #1 or 2 (makes 30k/month) in the company and recently purchased a new townhome in a very nice area for roughly $780k. "It's a great deal" she exclaimed. She put 30k down and opt for the option arm. I believe her monthly payment is around 6-7k. She'll eventually have to refinance, but of course, she claims home prices always go up. She's leasing a brand new Acura TL for 600/month and was planning to get a new BMW M3. Chanel, Prada, Gucci... the whole shabang! I just recently called to see how she was doing as I warned her about the situation she was getting herself into. "Oh, the market's slowed a lot, plus my boss fired a lot of people who couldn't perform." I'm thinking she'll be bankrupt by the end of 2006. Her total savings account? $20k. By the way, I forgot to mention that she owes taxes(love commission) this April and has NO idea where she'll get the money from.

On a side note, her boss(broker) just purchased a $5 million dollar house and I'm half expecting him to return to his former position as a car salesman quite soon.

2/01/2006 9:36 AM  
Blogger The Oracle said...

How can the loan officers make so much money with the internet providers like DiTECH, Eloan, etc.?

Aren't people using the net to cut down on middle man fees?

BTW; I hate those hicks that do the voiceovers for Paramount Equity (Hayes Barnard) and the other company that says "we're nice people too". Just want to bend over and puke!

Reminds me of George Double Euwe Bush doing loan commmercials.

2/01/2006 9:47 AM  
Blogger ET said...

I work in the stock brokerage/investment business. I began in 1996, just as things were getting really exciting. In 1999, I was making 10-15k/mo in commissions, and bought a convertible BMW, and spent fairly recklessly. Lou, wondering how you blow through 15k/mo? Let me tell you, it's not that difficult. Clothes, drinks, Vegas...

In 2000, after the bust, I went to work for Schwab, non-commissions, making about 4k/mo. Serious reality check time. I learned to live on less, paid off my credit cards, car loan, etc. I now work for a private money manager, and have been fortunate enough to see some monthly commission checks of 10-15k once again. This time I leaned heavily on my experience, and banked nearly all of it.

A high income is nice, but when you earn a lot and blow through it, life is more stressful than if you didn't have that high income to begin with.

2/01/2006 9:58 AM  
Blogger ocbroker said...

HI SoCal

I have at similar story, buddy of mine alos Ins Broker has a close friend who had spent the last 18 years building up his brokerage. NNow not sure if you know ins market but it takes quite soem time to get all the appointments and clientel. so 2 years ago what does here do him & his wife, both go get their RE License and wollar, making top dollar feels great huh. But he closed down his long hard insurance office, gone no more because hte good times are here, OK this guy and a few others I know that mingle togehter all in real estate, they all live in Niguel same as I, this is (was) their daily life style sell a house make a mint, and 3-4 days a week hang out all day at Las Brias or the large Hotel Down in Monrach Point. Getting wasted touting about all the easy money, and oh yeah all of them had their own, Mercedes, Large SUV etc, and this guy I am talking about touting house he has bought 3 or 4 investment properties here in OC. Because htis amrket will never go down blah, blah. Any how he was touting how he had spent about 180k - 200k on his back yard. A swimming pool, with waterfall and jaccuzzi, but thats not all the top of his waterfall is an errupting volcano, yes shoots out flames at night.
Alas as to say these guys were on the good times, last 3 months I ahve seen his wifes open house sign everyweekend at the same house and it is not moving, and no I don;t see this guy arround as much must be getting hard for them both. But hey he can always keep warm by the volcano.

Just another FB or F*RE.

2/01/2006 10:12 AM  
Anonymous Anonymous said...

Sadly, my brother in law is a 'bandwagoner' loon-officer. He got in the biz about a year ago after being laid off as a 'mechanic'. He called an ad in the paper promising income5-10k a month instantly as a LO.
First thing he did is trade up to a 700k new home on an interest only, 'pick your payment' ARM using his old homes equity. WTF? I guess he fell for that same BS loan he pushed on innocent people.
Same time he took the loan out, he maxed out a HELOC, bought all new furniture, new Escalade. He boasted about the good life and how we were all suckers working for the man. He just got back from a European vacation to see the news of the market slowing down. His wife bragged about what a great time they had and that they already booked the next vacation because after all "my husband will be making so much $ in the years to come, its practically paid for!" Idiot.

This morning,his wife just called my wife to say if we were still going to have our yard sale because they were a tad low on funds. Hmmmm.. MUAHAHAHAHAHA

2/01/2006 10:31 AM  
Blogger SoCalMtgGuy said...

azgolfer,

Use the search functions to find property. If you know a property is 300k, then do a search from 250-350 and find it. If you have the MLS number, then try that. You could be inputting things different from their database, so it won't find it.

Is the property on the MLS? ...or is it being sold FSBO (for sale by owner)?

Also, is the price being lowered on the MLS, or just in the paper/on the sign at the house? If they are not changing the MLS, it won't show up.

It will not give you the past history of properties, just what is on the market now.

All I know is that it works great for San Diego/Orange County and has more info than realtor.com. I don't see why it wouldn't be the same for other areas.

SoCalMtgGuy

2/01/2006 10:56 AM  
Blogger boulder bo said...

socal,

as a broker, i wound things down in my shop considerably over the last 18 months. it wasn't easy encouraging producing loan officers to seek greener pastures, nor was it easy to tell existing customers to rethink their borrowing decisions instead of sliding them into an option arm paying me 3 points on the back. at this point our office is down to four people (from twenty)and that's just where i want it (we've discussed where our opportunities lie). we all have alot of years (maybe too many) in the business and will survive on existing clientele (move up, divorce, death, etc), but the idea that things are going to return to 2003 levels is a pipe dream. those that refinanced into a fixed program are done, those that bought with exotic products are toast, and those that need their yearly equity withdrawal are in for a rude awakening. those half million of us in the business are in for a bumpy ride.

2/01/2006 11:57 AM  
Blogger AZgolfer said...

SoCal

Thanks for the advise. I will try it again tonight when I get home. I did try to search by zip code and by the price and still didn't get the house next door.

2/01/2006 12:09 PM  
Blogger GREG said...

I HEARD LAST WEEK THAT ENCORE AND ACOUSTIC WENT OUT OF BUSINESS CAN ANY ONE CONFIRM THIS

2/01/2006 12:24 PM  
Anonymous Anonymous said...

socalmtgguy,

Slightly OT, but:

On one hand, why would someone offer this?:

http://www.sfgdirect.com/details.aspx?ID=12

Luxury home in the Spanish Trails development. Home sits on the golf course.

Lien Position: 1st
Property Type: Luxury home on golf course
Location: Las Vegas, NV
Loan Amount: $2,100,000
Remaining Investment Amount: $170,000
Appraised Value: $3,300,000
Loan To Value (LTV): 63.64%
Investor Rate: 9.0
Minimum Investment: $20,000

On the other , why would someone invest in this?

thanks,

x

2/01/2006 12:25 PM  
Anonymous Anonymous said...

Time targets for a "bottom" of a RE market? I give it 7-10 years for the cascading to take effect.

2/01/2006 1:29 PM  
Blogger Pointlines said...

Socal:

With bond rates bumping back up to the top of the range of the last couple of years in the last couple of days, are you seeing it flow to yields on your product today? Or does it take a couple of days to trickle down?

Thanks in advance!

2/01/2006 1:58 PM  
Blogger SoCalMtgGuy said...

Bubble Butt...

Subprime is not as rate sensitive as a-paper is.

Most subprime companies will get a new rate sheet 1-2 times per month...maybe more if special occasions.

We got a new one Feb 1st...and it had increases in some areas, but not all.

That is why a-paper is big with electronic rate locks. Contrary to popular belief, it is the bond trading that determine the rates...not the 10yr treasury.

SoCalMtgGuy

2/01/2006 2:33 PM  
Anonymous lemming said...

FROM Today's OCregister.com in the money section...


Argent Mortgage cuts 15% of jobs, citing consolidation

Argent Mortgage Co. said it laid off 15 percent of its work force, or about 660 people, on Monday, citing "a more challenging economic environment." Irvine-based Argent is a sister company of Ameriquest Mortgage Co. that focuses on lending through independent mortgage brokers.

"In cyclical industries such as mortgage lending, periodic work-force reductions are not uncommon," Argent said. "This consolidation increases our efficiency so that we remain competitive for the long term."

Company spokesman Chris Orlando declined to say how many of the Argent job cuts were in Orange County. Leonard Barrales of the Orange County Business Services Center, which assists laid-off workers, said the number was about 200.

The news comes after other local mortgage firms, including Greenlight Financial and Aurora Loan Services, also reduced their work forces in recent weeks.

Ameriquest laid off 10 percent of its staff, or about 1,500 people, in November. Ameriquest lends directly to consumers.

2/01/2006 2:58 PM  
Anonymous Anonymous said...

Now that I think about it, I don't recall seeing any of those "Lost another loan to DITECH" ads in a while.

Even if they're the only casualty of this new environment, we've already come out ahead.

2/01/2006 3:54 PM  
Blogger FauxCaster said...

There's no such thing as an out-of-work actor in SoCal anymore. They're all loan officers. I kid you not.

2/01/2006 5:46 PM  
Blogger Sensible Lender said...

Yes, its amazing to see again. No one wants to look at the past cycle here in SoCalif. I have to constantly tell people about the last cycle as if it happened a century ago. Prices peaked in 1990 after a big runnup in the late 80s. Prices then dropped for about 6 years, hitting bottom end of 1995 to beginning of 1996. Houses dropped 35% and condos about 50% (more or less, depending on area and price range.) We saw 1990's price again in 2001, 11 years later.

I saw people in the loan business lose jobs, marriages break up, houses lost. Many people left the business forever after several painful years. I remember driving around with pages of printouts of foreclosed properties that I had to report on. It was a terrible time, with these events seared into my brain so that I will never forget.

The excesses of the last few years far exceed the last cycle. I don't like to predict or even think about the possibilities this time, but I am very concerned. As long as mortgage people saved half of their income, kept their debt low, furthered their education with classes, they will survive it.

2/01/2006 6:07 PM  
Anonymous Anonymous said...

I know a Guy in St. George UTah big in real estate. He owns Golds Gym drives a yellow hummer. Something fishy has happened the gym had its power shut off for the 2 time by the utility company, all the Gold Gym members now come to the gym i attend.

Everyone in St. George thought this guy has to be doing well, he was opening a new gym with an in door track next month, nice car, growing business in growing town. It looks like he is in the F--d borrower boat.

2/01/2006 7:11 PM  
Anonymous Anonymous said...

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If you don't know anything about this, try:

www.zealllc.com

He posts a free article every Friday and you can sign up for his newsletter. I'm a very satisfied customer.

2/01/2006 7:39 PM  
Blogger The Inspector said...

For those that said they would have banked the money if they had been in the profession. As was pointed out, most who made the money probbly did it with less than honorable intensions. I saw some of the new honest ones that were career adjusted because they did not produce enough/got frustrated by the boss saying that he wanted the pre pay included. Being one of the honest ones would have been so hard and with the money around, if you drove the old pickup, the clients you were trying to sell might have percieved you as just trying to sell them something. While you do not think you are judged, you are in a world of excess. If your client is driving a BMW, and you a pickup, he may likely not respect your choices unless your qualifications set you far apart. (and reputations take time) Realtors drive nice cars to say "Use me, I am successful". Of course success has gone to many of their heads. I had one realtor tell me she would have done so much better if she had been in the mortgage market. Many of the realtors are jealous of the Mortgage people because of the refi's.

I thought I would pipe in for a moment about what I see at present. First I will say that I see many of the buyers (soon to be FB's) are out of their minds with unrealistis expectations. I am a Property Inspector in the San Francisco Bay Area. I feel that so many of the buyers and sellers are in denial about property values. (people buying houses ten times earning, give me a break) On the other hand, I also see some that are just moving up and can afford the houses but many moveup buyers are not using equity in their down payment, they ask me about remodelling of the houses. Old houses can be old but if it ain't broken why fix it just because is is not your style. What happened to function. And for those of you that do not know, granite is on the way out and in five years, it will be, "oh granite again, that is so dated".

A realator broker friend of mine recently had a call from a woman that was threatening Legal action because she could not afford her house and the value increase was too little. The agent employee working for this realator/broker was presumably promising riches to this woman. My friend was trying to difuse the issue by providing a substantially reduced fee for helping her to sell the property. I remember reading a few years ago about the legal the fallout that may include the realators, loan agents, appraisers and others involved in the transactions. They may be subject to legal actions of fraud and misleading clients. Yes they have a due diligence to their clients. Some of these finacial gains by these groups may be subject to legal issues. While there is insurance for the firms, the misleading and fraud may end up with legal actions going back to those that have assets if they did not properly represent their clients. The insurance policies for these firms will also not be big enough. The home inspection community will also have issue as those providing a poor inspection were not the huge targets when values went up and people did not need to pursue the inspectors unless there were significant problems. I already know of some inspectors that are having legal issues saying that the people would not have purchased if they knew the problems were as bad. Hence, they are looking for a scape goat, and next may be others (realtors and loan people). I know a loan agent that is having problems because the property had problems after they closed and my inspection clearly identified the problem. The buyer said the agent/loan person did not properly advise him. BTW: The buyer claimed a construction background. That being said, legally, if there are some cases to set presidence, the doors may swing open. I have been in my profession long enough to see the rise and fall of the dot com and now will see what happens to the housing. The last few years slowed for me with realtors seeking to make things easy with no inspection or inspectors that were new or just a drive by types. This past winter was my slowest in nine years. Surprisingly for me, I expect a rise in business with the fall of housing because my quality work will now be appreciated. I recently have had realators that did not use me for years call me again for inspections because of their concerns about better representing clients (they stopped because I killed some deals). Also, My profession is one that has been advertised as easy money and I will tell you, that if you are trying to provide quality, it is far from easy. I await the exit of all those new easy money inspectors.

I guess this is a partial venting for me. I have tried to talk to several realtors about the bubble issue and only three of them even acknowledge the possibility (all long time agents); one of them has had had little business with buyers the last two years because she makes her buyers look at the cost of owning if things do go down. Most of the realtors I try to talk with have a reaction of "I don't want to hear about this."

2/01/2006 7:58 PM  
Blogger SoCalMtgGuy said...

The inspector...

EXCELLENT POST!


I also want to agree with the other posters about the lack of integrity. I'm not the type of person that can screw somebody financially to make a buck...or even lots of bucks.

The option-ARM loan is a perfect example of that. Lots of brokers sell the low payment, and that is it. They stuff the borrower in the loan with a pre-pay and make 3 points on the back...that is 15,000 on a 500k loan. That also doesn't include any origination fee, or other fees charged.

With my financial background, I would have been a terrible loan officer the past few years. I couldn't put people in loans they would not be able to afford. Or put them into option ARMS without making sure they understood how they worked.

Some brokers are very careful with those loans, some just chase the bucks.

Stay tuned to see how it all pans out!

SoCalMtgGuy

2/01/2006 9:05 PM  
Anonymous Anonymous said...

$20K to $30K a month is a lot of money, folks! Yet, the FED and the economists can't recognize that this is distorting the economy. I mean who wants to produce or invent anything when you can make this kind of easy money by just pushing paperwork.
No wonder, we are losing our manufacturing basis. I don't know when all this will end, but when it does, I think our nation will be in for a rude wakening.

2/01/2006 10:23 PM  
Blogger mtnrunner2 said...

I didn't realize people were paying 3 points (plus a prepayment penalty) on those option ARMs. I've only held 30 yr fixed mortgages, no prepayment penalty, no points. I've never paid points. Origination fee was a couple grand. California Mortgage Mart - lowest rates! Only do fixed, though.

I just found out my new neighbor is getting into the loan business. She is excited about the opportunity. Her friend has regular clients, and a local lender informed them that he would be using them to process all the loans. The neighbor was going to make $1K/month, but now says that $3K - $6K/month is more likely. They're putting people into fixed rate loans (from variable). She was reviewing a no-doc application from a realtor who claimed $15K/month income. I told her if the realtor really made that much, she would have W-2s and tax returns to prove it. She nodded, as she understood that the realtor was just lying. What will be that realtor's income in 3 months? SoCal, how likely is it that the neighbor will make that much money? I told her the mortgage companies are laying people off. Perhaps she'll be one of the few lucky ones who survives.

2/01/2006 10:51 PM  
Blogger SoCalMtgGuy said...

Mtnrunner2

There is a difference between paying point...and a broker making points on the back.

If you pay points, you are 'buying' the rate down. Makes sense if you plan on staying put for a while and are getting a fixed rate loan.

On the option-ARMs that is how the broker could get 3 points rebate on the back end from the lender...by selling the 3 year pre-pay penalty.

Sure, they could do it with no pre-pay or 1 year, but that eliminated the fat 3% they would make on the back end.

Hope this clears things up.

SoCalMtgGuy

2/01/2006 11:04 PM  
Blogger Arioch said...

From the posts of folks who know RE people getting into deep kaka, I can see this happening easily. They are people, just like those that fell for the home ATM making SUV's boats and other crap magically appear.

Even though they are in the business, they can fall for "irrational exhuberance" the same as anyone else.

2/01/2006 11:18 PM  
Blogger wtHell said...

mtnrunner,

a realtor will not have a w-2 as they are considered self-employed. They may have a 1099

2/02/2006 8:36 AM  
Blogger mtnrunner2 said...

wtHell- a realtor should still have an income tax return, right? She should show that to apply for the loan.

SoCal - Why would anyone purchase a loan with a 3-yr prepay penalty????

2/02/2006 1:37 PM  
Blogger SoCalMtgGuy said...

Short answer...

lower rates...and that is what they were 'sold'.

SoCalMtgGuy

2/02/2006 1:39 PM  
Blogger billy said...

Fact 5: It not a very good idea to sell, rent and invest the difference in stocks because a widespread and steep decline in prices in real estate will likely result in a recession and lot of red ink on wall street.

It seems to me that trying to find an good hedge against the coming bubble bursting will be difficult in light of the following:

Fact 6: Investing in short term CD or bond will likely not to be a good alternative either because FED may lower short term rate in the aftermath of widespread and steep decline in prices in RE.

question1:
By the way does anybody know what happen to the tenants when an investor-owned house is foreclosed by the bank?

Question2:
And how many people who are on the sidelines (renting) have the discipline to systematically put their positive cash flows into mid-term government bonds every month?

2/02/2006 1:46 PM  
Anonymous Anonymous said...

billy said...

Fact 5: It not a very good idea to sell, rent and invest the difference in stocks because a widespread and steep decline in prices in real estate will likely result in a recession and lot of red ink on wall street.

***********************************
Maybe, maybe not. Stock market decline in 2000 - 2002 was followed by a steep rise in real estate prices. The opposite may happen when the RE market declines. Stocks are first and foremost businesses. If the business is recession-proof (think consumer staples, utilities) and the price of the stock is reasonable, there is not reason to believe the investors in those types of companies will suffer even if the broad stock market declines.
***********************************

It seems to me that trying to find an good hedge against the coming bubble bursting will be difficult in light of the following:

Fact 6: Investing in short term CD or bond will likely not to be a good alternative either because FED may lower short term rate in the aftermath of widespread and steep decline in prices in RE.
**********************************
EXTREMELY false. IF you plan on investing in short-term CDs and keep rolling them every three to six months (which is a bad strategy in ANY environment), then you lose when interest rates go down. If you do the intelligent thing and ladder your CDs, you won't be investing short-term. Also, smart people will get back in real estate from CDs after home prices get walloped.
***********************************

question1:
By the way does anybody know what happen to the tenants when an investor-owned house is foreclosed by the bank?
***********************************
If the tenants signed a lease, they will more than likely be protected for the duration of the lease. If month to month, they may have to move out.
***********************************

Question2:
And how many people who are on the sidelines (renting) have the discipline to systematically put their positive cash flows into mid-term government bonds every month?

***********************************
Not many have that discipline, but I would think someone would be rather stupid to invest in mid-term government bonds right now. Take a look at the yield curve right now. Anyone going out longer than three to four years is not getting any compensation for tying up their money for that time period (and in reality, the sweet spot is the 6-month treasury, but you still need to ladder your bonds).
What might make more sense is to spread your money around in liquid or semi-liquid investments that hedge against inflation (metals, commodities, non-US currencies/bonds) in addition to US conservative stocks and short-term treasuries and online savings accounts.

There is no easy answer on where to put your money right now, but spreading it around will help protect you in the event that a recession which includes inflation hits.

2/02/2006 1:46 PM

2/02/2006 2:39 PM  
Blogger wtHell said...

mtnrunner, most banks will want two years worth of tax returns in a full doc loan. The realtor more than likely was not making that kind of money more than two years ago. Plus there are more than enough brokers who pay their employees under the table. (Bunch of crooks!)

2/02/2006 2:39 PM  
Blogger mtnrunner2 said...

wthell - you can get a full doc loan with a pay raise. It doesn't matter what you made last week, as long as you can prove what you make from now on, your ability to pay the new debt. Realtors are not paid under the table. Escrow companies, which pay them at closing, record everything. The only reason for the realtor to go no-doc is that she is lying about her income!!!!

And if you don't qualify in spite of the loose standards (50% of take-home pay allowed for mortgage), then how can they ever expect to make the darn payments anyway????

2/02/2006 5:59 PM  
Anonymous QUALITY STOCKS UNDER 5 DOLLARS said...

Thats what everyone thought.

3/08/2013 7:40 PM  

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