Friday, August 31, 2007

Government says "NO" to Personal Responsibility - "We will do everything in our power to help those persons who didn't read the fine print"

I am so MAD you don't even know!!!!!!! I don't even know where to start. I will just make some bullet points and talk about them. I just want to get this post up quickly as I need to go make some money....not for myself, but for our new 'populist' society that is more focused on pandering to the group, than protecting the individual.

As you probably know, President Bush spoke this morning on the 'mortgage issues' this country is running into. Then I had the 'pleasure' to hear the HUD secretary speak as I was starting to type on my computer. More on that fine bureaucrat later.

This country has 'lost it'. There are no consequences for making bad decisions anymore. Build in the flood plains and don't buy flood insurance, don't worry, the government (read: taxpayers) will take care of you. Same thing applies now to housing. Don't read the fine print, don't understand what you are signing, didn't get rich with 'no money down' real estate, no problem. We will create even more taxpayer funded bureaucracy by having some bureaucrats write some convoluted mortgage legislation that will dictate who gets help and who doesn't. Like our current tax code (we need the fair tax), this legislation will be poorly worded and have more 'holes' and 'gray areas' than the moon. It will be rushed out to the market and it will feel 'good' for the politicians helping out and obviously for the people that get to keep their homes with OPM (other people's money - IE the taxpayers). How are you going to determine who 'knew' what they were doing, and those who 'didn't'? I'm sure everybody will be 'honest' and the people that 'knew' they couldn't afford their loans will step forward and take their lumps and not try to take advantage of the 'special' government program. Are you kidding me???

In one breath Bush says 'no bailout', but I guess 'bailout' only means 'direct grants to homeowners' as proposed by the likes of Hillary and her other Democratic counterparts. Using legislation and creating special government backed loans (all backed and funded by the taxpayers) to help people refinance apparently is not bailing people out. Reforming the tax code so that when lenders 'write down' the mortgage on properties that have declined in value, that won't be taxed as income anymore.

Quick example: you buy 450k home. You have trouble making payments. You refi or negotiate with lender and the property is now worth 350k. That 100k that the lender 'forgave' is currently taxable as income. But under the proposed change, that would be a free '100k'. I know that taxes are a pain (see but why should somebody get a 'free' 100k or whatever the amount is, and not have to pay ANYTHING on it. Again, it is another 'reward' for making bad financial decisions.

I'm sorry, but listen to me VERY CLEARLY here: THIS THING IS FAR FROM OVER. THIS IS WAY WORSE THAN JUST 'SUBPRIME' LOANS. NONE OF THESE BANDAID SOLUTIONS ARE GOING TO HELP THIS PROBLEM THAT HAS BEEN CREATED. These politicians and analysts have NO IDEA what went on the past 5-6 years and the sad thing is, they think they averted disaster.

This was evident when the HUD Secretary Alphonso Jackson spoke on CNBC (PLEASE WATCH THIS VIDEO from CNBC). After listenting to this guy, I was NOT impressed one bit with our government. I read Alphonso's biography, I was left wondering why somebody with a financial background isn't the HUD Secretary. He has political science undergrad, masters in education administration, and then he got his law degree at some point. Anyway, PLEASE watch the video above. Here are few choice quotes I got from the HUD Secretary:

"We will do everything in our power to help those persons who didn't read the fine print"

"We have been discussing this for months, we believe we caught this in time"

"We got it and corrected it in time, if this had gone into 2007/2008 we would have a more extensive problem." (we ARE in 2007 there Mr. Secretary!!)

"I still believe we are going to have a soft landing".

Maybe I don't know how to read a calendar, but I am pretty darn sure that we are about 2/3 of the way through 2007!!! So, yeah, I would say we already have an extensive problem and governement is doing what governement does best...REACTING late with a legislative, burearucratic, tax-payer funded solution. I'm typing this, it just flashed up that congress is proposing a 300 million dollar bailout.

I WILL BE posting more on this topic. These 'experts' and politicians are saying so many incorrect things, I don't know where to start right now. Either way, just think about this: what happens when the alt-a, a-paper, and OPTION ARM loans start to default? It is coming, it will just be later on in 2008-2009. Mark my words...this mess is way worse than just 'subprime'.
Sorry, no bailout for Wall Street, or homeowners. No bureaucratic legislation either. The FREE MARKET has, and will fix this problem. If Wall Street can't make money from the loans, they won't make them!! Once this thing runs it's course, people WILL be more responsible next time around. PAIN has a funny way of helping people learn from their mistakes, but if there is no PAIN, there is no lesson. Wall Street made billions for a few years there, now they need to 'give it back' so to speak. AGAIN, NO BAILOUT FOR HOMEOWNERS, OR WALL STREET!

Have a nice LABOR DAY weekend. Something to think about: how many people that are having trouble with their mortgages will be working on Monday to help pay the bills versus just taking the day off?? I'm sure the 'bailout' talk is really motivating people to work hard and make their mortgage payments.

Stay is going to be a bumpy road for the next few YEARS!


Wednesday, August 22, 2007

Senator Dodd and Los Angeles Councilman Alarcon - BAILOUT BUDDIES?!?!?

I told you it was only a matter of time until the politicians started talking BAILOUT for people that bit off more than they could chew. They can't have it both ways (or can they). They can't have 70% 'home ownership' (more like home mortgageship) on one hand, and then use taxpayer money to say that nobody loses a house on the other. The thing is, 70% of the population probably shouldn't be owning a house, and certainly not at the prices that many of them paid. The coming 'foreclosure boom' is going to realign the home ownership percentages to more realistic levels and realign housing prices to levels that reflect incomes.

Creative financing, no risk assessment, and loose credit created this monster...risk assessment, tighter credit, and traditional financing (fixed rate loans paying principal) will rein it back in. If the mortgage industry and the secondary market didn't discard risk assessment the past 5-6 years to get these 'high risk' people loans, they would NOT be defaulting today.

If the homeowner isn't responsible for being able to make the payments they agreed to make, then who is? Seems that many politicians see it as the taxpayers problem. Senator Dodd feels that:

"Americans should not lose their homes, through no fault of their own." - Senator Christopher Dodd

Apparently, biting off more than one can chew is no longer an individual problem, it is society's problem. Who knew that the 'leaders' of our country were so against personal responsibility. Aside from the capital gains tax, 'society' didn't really benefit from the massive property appreciation, so why should society have to foot the bill for the 'bad investments' that were made.

Sadly, it isn't just politicians on the national level that are screaming BAILOUT! Seems that Los Angeles City Councilman Richard Ararcon wants CITY, STATE, and FEDERAL funds to bailout CITY homeowners that cannot afford their mortgages!! Read it here if you don't believe me. Let me rephrase that for you: some local politician wants local, state, and national tax dollars to help the people in HIS area that cannot meet the mortgage obligations they undertook as individuals. But gets better!

Warning that the region is embroiled in a foreclosure upheaval, Alarcon said he's also considering asking lawmakers to declare a state of emergency to direct state and federal money to counseling and loans for people about to lose their homes.

WOW...a "state of emergency". I thought hurricanes, earthquakes, or other natural disasters that were outside human control constituted national disasters. Not a bunch of people that were looking to 'hit it big' buying overpriced LA County real estate with mortgages they couldn't afford.

"We're in a crisis. We don't need bureaucrats who are going to sit on their thumbs and not get things done. Who do we go to in federal government to ask for emergency assistance to help solve this crisis?" Alarcon asked city housing officials Tuesday during an emergency hearing on foreclosures.

Just to make sure I didn't miss anything, I looked up the US Constitution again, and I saw NOTHING about the federal government stepping in and providing 'emergency assistance' to people that made poor mortgage decisions. If I missed something, would somebody please point it out to me.

"It seems to me we'd better kick the federal government in the butt to get into action to help us solve the problem, and I don't think we're doing any kicking now."

I think we better kick a several thousand home owners in the butt...not the taxpayers! They either need to learn from this experience by filing BK and going through that process, or pick up a 2nd, 3rd, or 4th job to fulfill their financial mortgage obligations. I know there are some people that had things happen out of their control (accidents, deaths, etc.) but for the people that were looking for "No Money Down Real Estate Riches", welcome to 'investing'. You take risks...and you reap the rewards, or suffer the consequences (until politicians step in...or at least that is the way it appears).

Now, that said, since Councilman Alarcon wants EVERYBODY in the country to pay for just the people in 'his city' that cannot afford their mortgages, I think that even people outside of 'his' district should let him know how you feel. Here is his e-mail address: After all, he wants YOU to pay for his constituents mistakes!

Finally, I don't know how much good it will do, but I have been informed of on online petition that is against any mortgage bailout. Here is the link if you do NOT want a government bailout of homeowners that are going into foreclosure: NO BAILOUT PETITION.

Remember, if the bailout starts, it is going to get ugly. Instead of working a little bit harder when things get tough, more people will fold and take the bailout. Let's not forget that we still have 'two more shoes to drop' so to speak, so this is just the beginning of things getting ugly. You better think real hard if 'bailout' is the way you want to go.

Stay tuned...


Thursday, August 09, 2007

Waking up to a CNBC nightmare...the Hillary interview dissected

hillary on CNBCFirst off, thanks to those people that keep commenting and e-mailing me their support even in periods of less than frequent postings.

I know it seems like a lot is happening, and it is, but now that everybody (including people hand-writing fortune cookies in China...which just happen to be holding a couple hundred billion of our mortgage debt) now knows that there were some 'risk assessment' issues the past few years in the mortgage market, I didn't feel like I was adding as much value as when I was one of a few people warning about what was coming.

I was gearing up to get a new post done anyway...then I woke up to my TV the other morning a few minutes before CNBC's Dylan Ratigan was going to interview Hillary Clinton.

Ohhh...where to start. I guess I will start with the mortgage 'solution' as proposed by Hillary. First off she wants increased standards for mortgage brokers. OK, I will go along with that. Since there are NO standards for mortgage brokers right now, some standards might be a start.

"SoCal, what do you mean there are 'NO' standards for mortgage brokers?? ...they have to be licensed...right??" Well, not exactly. A real estate license covers a person to be able to do real estate and mortgage transactions. That license focuses more on real estate than mortgages and finance. BUT the REAL PROBLEM is that anybody can be a loan officer!!! I had broker shops where 1-2 people had their 'broker license (RE license)' and there were 10-100 people selling loans 'under' that license. All of the paperwork would have the 'licensed brokers' name on the 1003 (the mortgage application form), but it was 'Joe-the-loan-officer-that-cold-called-all-day-long-that-dealt-with-the-actual-borrower' who did all the work. It was all of THESE people that were selling loans with no verifiable training or license and met NO standard to become a 'loan officer'. The only standard they met was that the 'licensed broker' wanted another 100% commission person working for them. No skin off their back. If they sold If not, no worries. Didn't cost the 'broker' anything more than maybe some time and phone bills.

Let me make it simple. I have a Series 7 or 'stockbroker' license. I cannot open up a shop and have 20 people calling clients selling them investments under my license, BUT that is what happened in every city in California as you could have people sell loans under your 'California Real Estate License' as long as the licensed person's name was on the paperwork.

Now here is where Hillary starts veering off course. This statement shows she does not totally understand the mortgage industry:

“A lot of buyers think the brokers are actually representing them, when we know the brokers get paid depending upon the size of the mortgage they are able to sell,” - Hillary Clinton on CNBC

That is NOT really true. Mortgage brokers do not really control the size of the mortgage. If you and your Real Estate agent find a property, and negotiate a price of $450,000, that is the size of the mortgage you will get (assuming you don't put any money down, or get a 103% mortgage, etc.). Your mortgage broker can't 'sell you' a $550,000 mortgage for your $450,000 home. Mortgage brokers can commit fraud on refinance deals by working with an appraiser to inflate the value of the property so they can 'help' the borrower take out more money. The funny thing is, the borrowers were usually happy about this. Very few times did I ever hear of a borrower that wanted a specific amount of 'cash-out' on a refi. Usually I heard "as much as I can get", or 'max cash out'. They probably wouldn't be complaining about the extra cash-out if property went up every year like the 'experts' said it would.

That said, don't think the borrowers didn't know what was going on. MANY of the borrowers out there knew, or learned how to take advantage of the 'easy money' available. They knew how to get inflated appraisals and work the brokers. They would call brokers until they found one that would help them. So don't think that every borrower was 'unsuspecting' and just wanted a 'home to LIVE in'.

Let's move on...

Then things get really hairy as she proposes that the TAXPAYERS fund a ONE BILLION DOLLAR federal program that is supposed to help state and local governments help at-risk homeowners avoid foreclosure. She says these programs will go to help 'unsuspecting families' linked to unfair mortgages. I don't want to know the 'standard' for handing out this I'm sure there isn't one, just like handing out credit cards after Katrina. Another 'feel good' program that isn't thought out and becomes nothing more than another billion dollar boondoggle. If you really keep looking, there is another BILLION dollar fund she wants to create as well. As much as I hate to send traffic to her site, you can read her mortgage proposal for yourself.

IF the government IS going to help people, here is THE STANDARD that needs to be used: Only people that put 10% or more down, got a full-doc loan, with a 15,20 or 30 year fixed-rate mortgage should be eligible for any sort of help...and that is IF the taxpayers should help at all. I know that 'sh!t happens', but government shouldn't be in the charity business with taxpayer dollars, and certainly not to help people that made poor real estate decisions.
While we are at it, I should just address a few things she has in her 'plan' to address the mortgage industry. Of course, it is always good to find a 'victim' that needs to be 'saved' by government and politicians. I just scanned the US Constitution case I missed something the first 100+ times, but it says nothing about government helping to make sure you can afford your home. Here you go...from Hillary's site:

New Hampshire resident Kristi Schofield joined Senator Clinton in Derry today. On July 31st, Kristi and her husband Paul lost their home of eight years in East Hamstead, NH because it had been purchased by the bank at a foreclosure auction. Yesterday, their mortgage company asked them to be out of the house in 17 days. They had planned to raise their three children and spend the rest of their lives in their home, but their adjustable rate mortgage payments continued to climb from $2,400 to its current level of $6,000 a month.

"We tried to do the right thing and continued to make the payments as long as we could with our savings and what earnings we had from unemployment, temporary and part time work. My husband had a good job, we had a great home. We were living our dream. Hillary Clinton is standing up today because she wants to help protect the American dream," said Schofield.

I don't get it, how are they losing the home NOW, after EIGHT years?? The ONLY way they could have a mortgage adjust from $2400 a month to $6000 a month is if it was a 'neg-am' or option-arm loan. There is NO way a basic ARM loan would have the payments go up that much. I am willing to bet they didn't get an option-arm loan 8 years ago, so that means they refinanced and pulled some money out along the way. I don't know the RE market in New Hampshire, but I would bet that property appreciated over the past 8 me crazy. Either way, a $6000 a month payment would put their mortgage balance somewhere between $800,000 and $900,000 dollars (depends on too many unknown variables). What I want to know is what these 'victims' did the past 8 years. How many times did they refinance? How much cash did they pull out? Besides, since when was being able to live in an 800k house guaranteed as part of the 'American Dream'? The complete and total lack of personal responsibility in this country makes me sick. But what do you expect? The politicians are all too eager to 'help out'...but with OPM (other people's money). Sad...

In response to another question regarding lenders 'exploiting' borrowers, here was her reply (sorry for the all caps...that is how it was on the CNBC site):


First off, I have seen some big mortgages, but NEVER one with 700 pages, and certainly not that much fine print. There is a lot of paperwork, but there are some 'key' documents that are pretty much STAND OUT that you need to pay attention to. But even if there were 700 pages of fine print, TAKE SOME F%@#ING PERSONAL RESPONSIBILITY and don't sign until you, or somebody you trust, or other hired expert tells you it is OK to sign. The 'I didn't know what I was signing defense' is complete BS. If you didn't know what you were signing...DON'T SIGN!! Funny how there were NO problems with these mortgages when everybody was 'getting rich'.

Most prepayment penalties are only 1-3 years, usually the length of the 'fixed rate' part of the ARM loan. If you are buying the house to live in, you need to be there for at least 3+ years for it to make sense financially in a 'normal' RE market. So don't buy property with short term mortgages if you don't have a long-term plan and you can't afford them once they adjust! I know, I know...the plan was to 'flip' the property and make 6-figures. I just don't see how a 2 year pre-pay penalty puts a borrower in an 'impossible position'. The borrowers KNOW this going in, and they know they will have to refi, sell, or deal with fluctuating payments in 2 years. Besides, nobody said the borrower HAD to take a 2-year loan, or a loan with a pre-payment penalty!! Guess what, the rate was LOWER with the prepayment penalty. You don't know how many times I would hear the borrower tell the broker they didn't want a pre-payment penalty...and then when they heard the new, higher rate, they would take the prepayment penalty. They didn't have to have the penalty, they could have had a higher rate instead, it is just numbers. You either pay with a higher rate, or you pay with the prepayment penalty. If they 'ban' pre-payment penalties, then the investors won't buy the loans. If they won't buy them, the lenders won't make them. If the lender doesn't make the loan, then guess what, Joe-wanna-be-homeowner...won't be.

We do NOT need government telling the lenders what they can and can't do...the FREE MARKET is already doing that!!! The lenders are not making those loans anymore because there is NO MONEY IN IT!!! Just ask Bear Stearns! I spoke with some people in Capital Markets this week, they told me that NOBODY is buying MBS (mortgage backed securities). This was further confirmed by Cramer ranting tonight on his show (I usually don't watch his entire show, but the first 10 minutes were all mortgage talk, so I had to watch). The lenders NEVER would have made those loans if there weren't people buying the paper. Now, there are NO people buying the paper, and guess what, NO loans are being made! Funny how that works. The free market has it's issues, but none of them are as bad as guvment 'solutions'.

A few more points. There is NOTHING guvment, or the financial industry can do right now to 'fix' this. It just has to run it's course. People need to go BK. Hedge funds that got too aggressive with mortgages need to reap the consequences. People need to be fiscally smarter, think for themselves, and not run with the herd. There is nothing that can be done to support property values where they are in many areas, and borrowers do NOT need to be rewarded with taxpayer money for over-extending themselves.

I hate to say it, but this thing is going to be ugly, and we are a good 2-3 years from even thinking about the bottom. We finally started reaching critical mass with 'subprime' foreclosures, but we haven't even begun to hit the alt-a and a-paper sham loans. They are starting to pop up, but they will take longer. Most alt-a and a-paper borrowers were doing 5, 7, and even 10 year ARM loans. 5 years seemed like an eternity when things were good. Appreciation was guaranteed! Well, I know several people with 5 year ARMs and all of a sudden 2-3 years doesn't seem so far away...especially the way things are headed. Sadly, I think many people are going to be in for a nasty surprise when their 5 year interest-only ARM starts to adjust, and they realize that their property is worth the same or less than it was 5 years ago, and their mortgage balance hasn't changed one bit! Tell me how it felt to RENT from the bank and the guvment (you do have to pay property taxes when you own)...instead of a landlord.

On a quick side note, it looks like Europe now has a pretty good idea how bad our debt is. I will try and post more frequently now that major companies are going under, hedge funds are going under, markets are halting trading, and things ARE finally starting to happen.

Here are my 'solutions' to stem this from happening again. Have a private company establish a set of standards to become a Licensed Mortgage Specialist. This person needs to meet certain educational requirements and take an extensive test that covers math, mortgages, and situational based integrity questions. The license would have some sort of continuing education and a certain number of mortgage complaints would impact maintaining the license. It would be like a Series 7, in that you must have one to call, pitch, market, sell, talk mortgage products with potential clients. This license would be completely separate from a RE license, and the RE license would not allow people to do mortgages. Secondly, in addition to all the other pages that are already there, I would make a simple ONE-PAGE disclosure statement with all the pertinent loan information. It would be spelled out in simple ENGLISH (not spanish) and cover things like rate, payment, high adjusting rate and payment, broker commission, prepayment penalty, and other important terms. Of all the other pieces of paperwork, this piece would have the 'main' parts of the mortgage all spelled out so 'anybody' could understand it.

In closing, as bad as it was waking up to Hillary Clinton on my tv...I would rather be forced to see pictures of her cleavage (don't ask me why that was nationwide 'news') than have to see the results of her proposed guvment programs.

Stay tuned...


Tuesday, August 07, 2007

Uhhh-Ohhh… The most creditworthy borrowers are defaulting now

Well, well, well…I hate to say “I told you so”, but imagine my surprise (or lack thereof) one morning last week when I saw the following headlines on the Drudgereport.

COUNTRYWIDE: Rise in mortgage defaults among most creditworthy borrowers…

California defaults hit 10-year high…

Wisconsin foreclosures up 23%…

MOODY’S: Housing difficulties cause for concern but no systemic threat…

The one that grabbed my attention the most was the ‘rise in mortgage defaults among most creditworthy borrowers’. I knew this would happen, but I had not seen any hard data yet to prove it. I have contacts in capital markets that have told me lots of ALT-A loan pools are in double digit delinquency, but I had not heard much about the ‘A-paper’ loans that go to the ‘most creditworthy borrowers’.

I know this info is about a week old, but from my standpoint, it isn’t really surprising or news to me. That said, I am working on a new post that deals that should help discuss this situation in detail. I have had the little picture-in-picture window on my computer tuned to CNBC the past few months, so I am very familiar with what the financial pundits are saying about the subprime mortgage mess. I have some feedback of my own, so stay tuned for that.
Thanks for stopping by and for understanding that this blog is not a real source of revenue for me, and that is why I have not been posting as frequently lately.

Stay tuned….