Monday, January 23, 2006

A misleading statistic...and a firewall 'work'around

I want to take this post to show why an important stat is misleading and show people another way to get to this site if they are having trouble with firewalls at work. Not that anybody would ever surf the net from work or anything?!?!?

I like the pic on the reminds me of how many people got through economics. Maybe they shouldn't have slept through all that boring financial stuff. Hopefully this site isn't getting boring for anybody...I wouldn't want that!!!

I know that most people don't go back a few threads to look for new comments, so I want to address this one here. A few days ago, a poster had a comment regarding some info posted by the San Diego Association of Realtors. If you go to the website, you will see a box on the right hand side with the heading "NAR Economic Outlook". You can download a 10 page PDF from there. On page 5 of the PDF, there was the stat that was in question: "However, only 3% of the loans have loan-to-value ratios over 90%, so the foreclosure risk is minimal". The reader was bothered because they thought this number should be much higher...BUT I have very little doubt in my mind that the stat is true! WHAT?!??!? Are you kidding me?!?!?! BUT SoCalMtgGuy, YOU are the one who says people are doing lots of 100% financing...what gives?!?!?

Here is the problem. Loan-to-value (LTV) is NOT the same as combined-loan-to-value (CLTV). That stat is ONLY taking into loans that have an LTV over 90%. That stat does NOT take into account somebody that has an 80% first, and a 20% second for a 100% CLTV. The subprime industry used to do a lot of 95 and 100% 1-loan deals. These deals did not have PMI, and the borrower did not have to take on a higher rate 2nd mortgage. Yes, they paid a slightly higher rate because the LTV was high, but they could also get interest only in the full 95 or 100% of the loan, instead of just 80% had they done a combo loan.

A 100% LTV means 1 loan. A 95% LTV is not the same as an 80/15 which is 95% CLTV. An 80/20 is an 80 LTV loan and a 20 LTV loan, for a combined 100% CLTV loan.

Have I lost anybody???

Many months ago, I used to do a lot of 100% 1-loan interest-only loans. Since then, the rates have gone up dramatically as most investors do NOT want to lend 100% of the value of a property in 1-loan. They would rather do 80/20's in case the borrower defaults, this way they will probably only lose on the 2nd lein. Most A-paper lenders will NOT do a loan over 90% LTV. They will primarily do 80/10, 80/15, or 80/20, and each of these loans will NOT fall into the 3% of loans with LTV's of 90% or more. These loans have high CLTV's, and first leins of 80 LTV.

The same can be said for people that might have taken out a HELOC to push their CLTV over 90%. I have seen plenty of people that put money down on their property, only to turn around months later and pull it out, or get a HELOC.

NOW, does it make sense why that statistic doesn't mean very much. Most people don't know the difference between LTV and CLTV...but now you do. Aren't you glad you didn't sleep through this?

I think I will do a post and point out the 'spin' they are putting on their numbers, as well as the holes in some of their arguments. That could take me a while, so look for that later this week.

I want to thank everybody for the constructive comments on yesterdays post. I think our fellow reader knows what needs to be done, and will find a way to make things work. They e-mailed me and were glad for the support and the comments. I will keep you posted as I hear how things work out. I think it is safe to say we are all hoping things work out for them!

I haven't had as much time lately to read the comments and post over on Ben's blog. I am receiving anywhere from 10-30 e-mails a day, and I reply to every one, so that leaves less time to post other places. I read the articles posted, and try to read the comments on 'hot button' stories. I did see where a reader overthere was looking for me as they were having trouble accessing the site from work because of the firewall at work. Here is another way to get to this site, that should bypass the website f-word filters: . I hope this helps some of you (thanks scprofessor for answering long before I could!)

Keep the e-mails, comments, and feedback coming! I also want to give a special thanks to those of you that have made donations...they are greatly appreciated!



Anonymous Anonymous said...

Have you seen this ?

How many more lawsuits are we going to see ?


1/24/2006 2:22 AM  
Anonymous Anonymous said...

Full URL

1/24/2006 2:23 AM  
Anonymous Anonymous said...

Ameriquest to pay millions to mortgage customers

I hope this link will work.

1/24/2006 7:22 AM  
Anonymous Anonymous said...

This is the beginning of serious regulation of this corrupt RE business.
Corruption and Easy money are widespread when you study all irrational bubble markets.
Class action lawsuits against real estate industry going to be very popular hunting ground for the greedy trial lawyers.
About 12-18 months out is when the real pain starts. Panic is starting to set in and blogs like this expose the insanity.

1/24/2006 7:29 AM  
Blogger David said...

Those misleading B*stards. They are intentionally decieving the public.

Bubble Meter Blog

1/24/2006 7:52 AM  
Blogger drwende said...

Company managers even encouraged loan officers to watch the movie "Boiler Room" to hone their high-pressure sales tactics, the Attorney General's Office said.

Why am I not surprised?

My prediction... by 2010, mortgage lending will be regulated more like securities trading. No more situations where six flunkies work loans under one person's license.

There will be calls to reform the real estate biz, but the National Association of Realtors will swear that it's all under control (waving their code of ethics), and nothing will come of that.

1/24/2006 8:45 AM  
Blogger SoCalMtgGuy said...

bubble butt,

that is a great article...and exactly what I have been seeing the past few years.

I don't think it takes a rocket scientist to see that there will reach a point where there are not enough new people to use ARM's to keep pushing prices higher.

When the payments adjust, it won't pretty.
When they rush to sell, it won't be pretty.
When the go to refi, it won't be pretty.

There is too much weight on too many budgets that are held together with a shoestring.

Stay tuned...


1/24/2006 10:30 AM  
Blogger SoCalMtgGuy said...


Thanks for the info. Could you shoot me an e-mail if/when you get a chance?



1/24/2006 12:01 PM  
Blogger SoCalMtgGuy said...


When you go over 80% ltv with conforming and most A-paper loans, you have to pay what is called PMI (mortgage insurance).

Your broker was pushing an 80/10 so that you would avoid PMI, get a better rate on a the first, but have a smaller 2nd with a higher rate.

For many a-paper borrowers, the blended rate between a combo loan (80/10, 80/15, etc) is usually better than a higher LTV loan with mortgage insurance.

Lets say a lender makes 1-loan to 100%. If the property goes down 5%, and the borrower defaults, then the lender has a lent more money than the property is worth. If the lender does an 80/20, there are 2 loans. If the property drops 5%, and the borrower defaults, the person who has the 80% is still 'ok'. The person who holds the 2nd knows they are taking more risk, and that is why rates on 2nds are higher. They are in 2nd position to get paid off, if/when a borrower defaults.

In the past, if a borrower defaulted, the bank could slash the price, and still get thier money back. But in the past, most people were putting 20% down, and paying off principle.

I don't know what is going to happen to an industry that is throwing around 'funny money' on overvalued assets that are disconnected from the fundamentals.

Does that help?


1/24/2006 12:51 PM  
Blogger Rob Dawg said...

I don't know what is going to happen to an industry that is throwing around 'funny money' on overvalued assets that are disconnected from the fundamentals.

I want to know what's going to happen to everyone next in line. The primary mortgage holder is going to take a haircut up about eybrow level but those 2nds are gone, gone, gone. Who the heck owns a 2nd on a house these days? I want to be as far away from them as possible. CALPERS "said" they were reducung exposure but they are IMO the 2nd smartest retirement adminstrators in history. Are we going to see a domino effect in seemingly unrelated investment communities?

1/24/2006 1:01 PM  
Blogger SoCalMtgGuy said...


I agree with you about the doom and gloom. I don't want to come across that way, and I hope I don't.

I want to use the data that is out there, along with my personal experiences to show people some of what is happening in and driving this market.

I think if people have good information, they will generally be in a better position to make a good decision. When the data says that 82% of purchases in CA from Nov 04 to Nov 05 were I/O or Neg-am, what should that convey to people?

I just think there are waaaay too many people using "buy later" loans banking on appreciation. How it all turns out is up for debate. I just want people to have good information so they can make informed decisions.


1/24/2006 1:11 PM  
Blogger SoCalMtgGuy said...


That is why I started doing this blog. Once I really got into the mortgage industry it made the decision to wait to buy much easier. Sure, lots of people were 'getting rich' around me, but the looks on many of their faces has changed lately. That 4.8% appreciation for San Diego isn't what many were hoping for.

About the title...I chose it because it grabs attention. I don't care if you are in high school, or a very sophisticated businessman...everybody has been in a situation where they have uttered the words where something or somebody is f'd.

Aside from the title, I don't use any profanity on the blog. There are a few website filters from people's work that have a problem with it, but no negative e-mails about it yet ;)

Thanks for the comments...


1/24/2006 1:53 PM  
Blogger Scoopy said...

OT, but I had to share:

From today's LA Times,0,1094478.story?coll=la-home-headlines&track=morenews

California Sees Surge in Million-Dollar Homes
By Annette Haddad
Times Staff Writer

3:45 PM PST, January 24, 2006

Million-dollar homes were once a sign of real affluence. Now, at least in California, they are getting to be a dime a dozen.

The number of homes selling for $1 million or more in the state surged 47% last year over 2004 for a total of 48,666 properties, according to real estate sales data released today. That is nearly four times the number of seven-figure homes sold in 2002.

Indeed, if you sold a home in California last year, there was a 1 in 13 chance it went for at least a cool $1 million, according to DataQuick Information Systems, a La Jolla-based real estate research firm. Your chances in 2004? One in 20. In 2002, it was 1 in 43.

Sure, Malibu and Beverly Hills got their share. In the San Diego County community of Rancho Santa Fe, one of the nation's wealthiest enclaves, virtually all home sales were in the million-dollar category.

The real news is that $1-million homes are becoming more commonplace in many areas not known for lifestyles of the rich and famous. Take the Glassell Park area of Los Angeles. Eighteen homes there sold for $1 million or more last year, versus only one in 2004.

In San Pedro, the total rose to 18 from four; in Baldwin Hills, it went to 23 from 9. Temple City posted 17. The year before: zilch.

"A million dollars isn't want it used to be," said James Joseph, owner of a Century 21 brokerage.

Adolph Rangel is among thousands of California homeowners who have joined the $1-million home club recently, thanks to the state's 5-year-old real estate boom. In 2004 the 30-year-old mortgage bank branch manager sold a Yorba Linda house for $1.05 million. He had paid $750,000 for it 12 months before.

Last year, he bought a new tract home there for $1.3 million, and on Sunday he accepted an offer on it for $1.55 million.

"It's amazing when you think about it," Rangel said. "Where did all these millionaires come from?"


I've just gotten my popcorn to watch the bubble burst, and now I know the answer to that last question!

1/24/2006 5:56 PM  
Blogger SoCalMtgGuy said...


When you can get a 100% loan to 1.5 million with a 600 FICO, what worries do you have?

I have seen million dollar neg-ams where the payment was in the low-mid 2000's. Sure, that is only the minimum payment, but who cares. You 'own' a million dollar home right?

I have seen several people take out 960k firsts with 250k HELOC seconds to buy 1.2 million dollar homes with NO money down.

I laugh at what qualifies for a 'million dollar home' in many areas of CA today.

Also, having a million dollar loan on a 1.2 million dollar home does NOT make you a millionaire.

That said...I hope you have lots of popcorn...because this is going to one long 'movie'


1/24/2006 6:11 PM  
Blogger Scoopy said...


Several weeks ago I was bidding on a 420K townhouse in Studio City, CA that was a total cosmetic fixer. We were approaching an 80/20 with 5% down and being encouraged to change our withholdings so that we could "afford more and let the taxes break us even" at taxtime.

I know you and others here talk about preaching to the choir, but being steered here and to Ben's bubble site has literally stopped the process and alerted me to the danger of buying *anything* before the balloon deflates, at least enough for us to feel confident about buying.

You are *not* only nodding in agreement with each other here. You are saving a potentially f'd bwr. I have a long way to go before I am able to fairly judge a mortgage or a property and this is one place to get down and dirty truths. Please keep it up.


1/24/2006 6:21 PM  
Blogger SoCalMtgGuy said...


I'm glad I could help! It is people like yourself that I wanted to help when I first started this blog.

You weren't trying to get rich overnight, you were just looking to buy a place to live for crying out loud. So many people bought into the 'buy now, or be priced out forever' line that I have heard so many times.

I'm glad you stepped back. I think you will be happier and have much less stress at this stage of the game.

Having to change your withholdings so that you could afford an 80/20 loan on a fixer-upper is NOT a good place to be in my opinion. Not in this market, not at this time. The days of making 100k in 3-4 months are over in all but the most extreme or special circumstance.

Keep saving money, and watching the market, the fundamentals cannot be defied for too much longer.

Best of luck to you!


1/24/2006 6:33 PM  
Blogger Scoopy said...


I thought the withholding thing sounded like a stretch. But you know, my spouse and I harbor guilt for not having the "things" that couples traditionally have, like security and a home. I can feel that little nut of shame in the background, telling us that if we *can* own a house, then we can *afford* to own a house. And we're smarter than that! Much smarter! But more powerful and subtle issues are behind this psychotic market.

My parents were depression babies who didn't know how to transmit the knowledge that they'd been raised with -- the idea that wealth is earned, at great odds. What happened to me (and probably a lot of others) is a rebellion against the depression baby fear.

Frankly, my dad *can* afford new f**king dishtowels. But he cannot stop hoarding and scrimping. He's not crazy to do so (I guess), but growing up he gave me a million eye-rolling moments with his fixation on scrimping. It seemed like an obsession. I'm sure that in many cases it is.

Who knows, maybe that's where this generation of dipshit spendies came from. A senseless rebellion against the shell-shocked depression babies.

1/24/2006 7:05 PM  
Blogger Wes D said...

I was in a business meeting last week with a CEO from a mid-size company, an ex bank executive, and a retired CEO from a software company. Those three very intelligent, highly educated men were speculating on the Florida housing market. Two of them have decent size houses in FL. One guy said to the other than he belived RE wasn't going to decline because of the intrinsic value of real estate, ie the ability to come home to a house each night. The other guy remarked that he agreed and the whole thing was blown out of proportion. I kept my mouth shut lest I blow a business op with them.

The ex-CEO and I went out to dinner that night and after a couple drinks we started talking about the housing market. He was shocked to hear that many people were taking out IO and neg-am mortgages. I began telling him stories from this blog, stories about my friends who are F/Bs, and certainly convinced him that there may be something to this story of a bubble.

My guess is a lot of people don't follow up with the news or certainly believe the realtor talking points. I've finally convinced my dad this thing is going to blow.

We will all be free soon. Free of our assets and our jobs. I'm going to save up about $5k cash so I have enough cash to get to Montana and spend some time camping. Might not be a bad idea to get first dibs on a prime living/camping site in one of our beautiful national forests as well.

1/24/2006 7:42 PM  
Anonymous Anonymous said...

what's wrong with baldwin hills? wouldn't mind living there at all.

i was at a party in view park last weekend. the houses are nice.

1/24/2006 7:44 PM  
Anonymous Anonymous said...

scprofessor: thanks for taking us to school! This is reminding me of the good 'ole days of bklawyer over at Ben's. It's amazing to me how many Californians have this idea that you can just "give back the keys" if you get underwater -- they seem to not realize that (a) it only applies to purchase money, (b) that it only applies to the primary lien (right?) and (c) that any debt forgiveness is considered by the IRS to be income on which taxes will be assessed. (!) It would be really (really!) interesting to know how much mortgage debt in California is currently covered by the one action rule -- my guess is that it's something like 30%, or perhaps even less. Has someone quantified this?

1/24/2006 8:41 PM  
Blogger SoCalMtgGuy said...


You only have a 3 day recision period on refinances in the state of California...not purchases.

I agree that this country lacks a whole lot of personal responsibility.


1/24/2006 8:45 PM  
Blogger SoCalMtgGuy said...


I think there are a few realtors that post over on Ben's site...from the LA area I believe.


1/24/2006 9:41 PM  
Blogger SoCalMtgGuy said...


I don't have the specifics on that stat. I think I heard it about Fannie or Freddie's loans, but I'm not sure. Without knowing that, I can't really add anything more.


1/24/2006 10:04 PM  
Anonymous Anonymous said...

tinyurl won't work. It just redirects. It takes you back to - at which point the filters will catch it.

1/24/2006 10:18 PM  
Blogger SoCalMtgGuy said...


Thanks for the input. I know that it has helped some get around it, but I'm by no means an expert on how the different filtering programs work.


1/24/2006 10:54 PM  

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