Getting a ‘free’ $450,000 construction job, a paid off mortgage, and $250,000 in cash and scholarship money just wasn’t enough for one Extreme Home Makeover family who is getting foreclosed on 3 years after receiving their new home. How are they getting foreclosed on you ask? Well apparently getting a new home with no mortgage wasn’t enough. After blowing the $250k that was raised to help them, apparently the ‘Buffetts’ took out a 2nd mortgage to the tune of $450,000 dollars which they cannot pay back!! I call them the ‘Buffetts’ with a straight face and not a hint of sarcasm in my voice.

I don’t know the details, and it really doesn’t matter. I use this case to illustrate the lack of financial awareness by the average joe. This goes back to my ‘owning a house is a responsibility…and lots of people are NOT responsible enough to own a house’. I pose this question to you: how many people that are looking to get some of that $300 billion of guvment bailout money made bad decisions like the ‘Buffett’ family??

Should we feel ’sorry’ for these people? Essentially, this family has blown well over a million dollars inside of 3 years. They got a $450k construction job (I am sure the house appraised for more when done) for free, they got $250,000 in donations from generous people, and they took $450k out of the house on a refi. You know how bad I am with numbers, but I think that is $1,150,000 blown through in 3 years. Based on the comments from people in the story, it wasn’t like a freak illness or accident caused hospital bills to eat up that money, it appears to be nothing more than just terrible financial habits.

Maybe they should have been forced to watch a bit more Suze Orman, and bit less MTV Cribs. Either way, I just want you to think if there could be more people out there like them, with a ’sob story’ of losing their home. Obviously you won’t get much sympathy from me, as I am partially footing the $300 billion dollar bill with my tax dollars for people that cannot afford their homes, while I rent mine. If I had known the guvment was going to help my buy a place I couldn’t afford, I would have bought one years ago. Another black-eye (can I say that…or will I offend people) for the responsible people of America.

On to more positive housing news…well, at least for those who saved their money and are looking for a good deal. Appears that housing dropped 15.8% in May from the same time last year. I didn’t believe it until I saw this article, but I guess real estate doesn’t always go up! I thought with the way salaries were growing 15-20% a year, that would have no problem keeping real estate propped up. Guess I was wrong. Maybe I should go read ‘Economic Fundamentals for Dummies’ and watch a bit more Kudlow and Company. Ok I apologize for the dry sarcasm here.

It is just that NONE of this is hard to see or understand, IF you take emotions and feelings out of it. I knowwwww you want that house or car, but the numbers do NOT lie! I know that new guvment program is going to cost hundreds of billions of dollars we don’t have, but man, it feels so good to ‘help’ these people. This country needs fiscally responsible people with integrity to turn things around. We need people on Wall Street, on Main Street, and in government that will make the ‘right’ financial decision even though it might not be ‘popular’ by people that don’t understand the ramifications of poor financial decisions. Sure, a $300 billion housing bailout ’sounds great’ to a large portion of this country, but the precedent that sets is very dangerous, not to mention the long term effects of government policy decisions like that. Sadly, there isn’t a political party that is fiscally responsible anymore. With more and more people being raised on the ‘guvment do it all for me’ mentality, it is going to be hard to get enough responsible voters to actually make a difference.

All I can do is help you to be informed so that you and your family are less likely to fall prey to the unethical people out there, and to not make preventable financial mistakes.

Stay tuned…

SoCalMtgGuy

PS. If you haven’t been here for a while, there are 3 new posts in the past few weeks!!

It is no secret that all the real estate experts were correct, we are experiencing our soft landing. This soft landing is merely weeding out the small and weak companies such as Indy Mac, and possibly 2 even smaller companies that only the most astute financial analyst has probably heard of: Fannie and Freddie.

I don’t have time to rehash all that has happened, but I want to ask some questions, give some insight, and offer some solutions.

Could somebody please tell me where in the Constitution it says that the US Taxpayers are responsible for financing, ‘guaranteeing’ mortgages, or bailing out anybody (private or institutional) that cannot make their debt payments? I think it is an absolute ’scam’ that a ‘private company’ (which is NOT backed by the government, yet given special ‘treatment’ by the government in the form of a GSE) can reach out to the taxpayers to cover their irresponsible behavior while providing liquidity to the mortgage market.

Here is the thing, if there is not an investor in the US or abroad that will buy a pool of mortgages, why should the taxpayers of the United States buy those mortgages? Let me tell you something, 100% of mortgage companies were guilty of knowingly and/or unknowingly committing and/or passing along fraud. Some were victims of unscrupulous mortgage brokers and couldn’t catch every attempt at fraud, others ‘knew’ it was going on, but applied the ‘if I don’t do it, somebody else will’ logic. Besides, who cares, real estate only goes up…right?

It is bad enough that the government (READ TAXPAYERS) is looking at a $300 billion bailout, an $8 billion dollar FDIC bailout of Indy Mac, but now they are looking at possibly taking over Fannie/Freddie too??? Looks like a socialized bailout in my opinion.

So why on earth is a ‘company’ that is supposed to be private, and NOT tied to the taxpayers (directly…but as a GSE) have exposure to over 50% of the mortgages in this country? And since they are ‘private’, why don’t the have to follow the same rules as other private companies do? Why do the GSE (government sponsored enterprises) get special tax rules (the don’t pay any state/local income tax)? If they are truly a private company, they need to have the same rules other private companies have. They need to survive on their merits, not the fact that ‘we are too big for the government to let us fail’. Another problem is that because Fannie/Freddie are GSE’s people perceive that they ARE backed by the government, even if it is blatantly stated otherwise. If they make bad decisions, they should reap the same consequences of other business. It is OK for regular businesses to fall by the wayside or go bankrupt, why not a bureaucratic juggernaut that has made terrible financial decisions the past few years? I am sure plenty of banks made crappy loans knowing that Fannie and Freddie would take them off their hands and ‘guarantee’ them. Yes, I know they have special standards, but you would be shocked if you saw some of the loan programs those entities offer.

Let me ask you another question: why should the government have any role in helping people buy a home? To me, it is pretty simple. You save your money for a downpayment, and then you find a house where you can afford the monthly payment on your current income levels. If you don’t make enough money to buy a place, you keep saving, or you purchase a less expensive place that you can afford. I don’t think it is the taxpayers job to guarantee your mortgage. If there isn’t a private institution in the free market that finds your risk acceptable, why should the government or GSE (again READ TAXPAYERS)??

This is from the Fannie website: “Fannie Mae has a federal charter and operates in America’s secondary mortgage market to ensure that mortgage bankers and other lenders have enough funds to lend to home buyers at low rates.” Why should people be given artificially low rates?
I know it ‘feels good’ to help the ‘poor’ buy a home they wouldn’t be able to afford, but is it really the best thing? By giving poor people, or people with bad credit artificially low interest rates, you are in a way making the problem worse. I know it is ‘noble’ to give a borrower a 5% loan rate when they should have a 9% loan rate, but that is not the best thing for the markets and certainly not the best thing for the responsible people that pay taxes. CNBC asked the question today: is capitalism in trouble? Capitalism is NOT in trouble, government interference with capitalism IS. For example, with a 9% loan rate, a borrower might be able to afford only a 100k place, but with a 5% loan rate, the might be able to afford a 115k place. Great for that borrower, but not so great for all of the other people in the 6-8% loan rate range that want that 115k house, but cannot afford it without some ‘charity’. Besides, what is the incentive to clean up your credit, save some money, or earn more if you are going to get what amounts to a ‘taxpayer funded’ special interest rate?

This brings me to another point. We NEED to determine the REAL value of real estate. The only way for that to happen is to have a HANDS OFF approach so we can determine where property values really are. This will be based on income, and what people can afford with a real fixed rate mortgage. Propping up property values only makes things worse in the long term. Foreclosures are NOT a bad thing, they are a GOOD thing. For every ‘ex-homeowner’, that has to go rent for a while, there is another person that has saved money and is looking to buy a house at a more fair market value. One persons foreclosed house, is another families new residence. Sucks to be the bank or investor that bought the loan, but they are all ‘big boys’ and should be able to take their losses the same way they take their profits. They made a loan to a bad borrower, or they loaned too much on the value of the property, but often they did both.

This is going to sound bad, but I don’t think 70% home ownership is a good statistic. Owning a home is a great responsibility, along with having children, and voting. Honestly, I don’t think 70% of the population is responsible enough to own a home. If they were, then we wouldn’t have the wave of foreclosures we are currently experiencing. Let me put it to you this way: what if I said we had 70% neuro-surgeon-ship. That means that 70% of the population could be neuro surgeons. Do you think that is a good thing? Does it cross your mind that the standards (what’s that?) might just have to be lowered to get 70% of the population to be neuro-surgeons? I think we are all in agreement (or should be) that 70% of the population doesn’t have the ability to be neuro-surgeons. This is not a good or bad thing, it is just a fact. I know this example is extreme, but I am using it to make a point. Using artificial methods to inflate statistics will NOT last in the long term as evidenced by the ’soft landing’ we are currently experiencing.

Sadly, we are now living in a time where people would rather look to government to solve all of their problems instead of taking responsibility for their actions. Because the masses are this way, the politicians are all to eager to pander to them, hence the bailout, and about 90% of all government programs that are proposed today.

So, what is my solution. It is actually pretty simple. I didn’t say it was painless, no REAL solution will be painless. Take 100 billion of that bailout money (just pulling a number out of the air…just like government likes to do) and contract with a civilian company (I will help start it if necessary) that has the job of going through ALL of the ‘bad loans’ out there. They will then work back through the loan applications to find the fraud that was committed. They will look not only at mortgage brokers, they will look at underwriters, appraisers, property management companies, CPA’s, ‘employers’, etc. All of these people have at least one piece of ‘key’ information that is needed to get a loan approved. I know there were CPA’s selling CPA letters ’stating’ income for people. I know property management companies were supplying false VORs (verification of rent). I know appraisers were inflating the price of property. I know underwriters were ‘working’ with some or all of these people to push loans through. After all, nobody gets hurt right?

Once an individual has their name come up on X-amount problem loans, they start being investigated. Same with companies. The amount can be tied to volume, or just an arbitrary number for individuals. Then you go after these people, and make their lives absolutely miserable. I am not talking about some gray area stuff, I am talking about the repeat offenders, the people that were knowingly building their business on committing fraud and doing bad loans. Go after these people. Take their homes, cars, assets, etc. The money taken from them can be used to ‘reimburse’ the taxpayers for any or all of the money spent on the investigations. If they need to have a license, they obviously get it pulled. Go after the people at the ratings agencies, go after the liars on Wall Street. Go after the people that KNOWINGLY committed fraud and profited hugely from it.

Take their Bentley’s, their mansions, and their fabulous lifestyles that were financed (literally) through fraud and lying. Until there are consequences for fraud and lying, along with consequences for making bad financial decisions, nothing is going to change. Pushing it off on future generations of taxpayers is NOT the answer. How are they going to be able to afford their own homes when they have to pay high taxes to pay off the irresponsibility of previous generations?

Second, Fannie/Freddie lose all their ’special’ government perks and have to become like every other private company out there. This will allow other companies to enter the business and provide liquidity to the markets. If companies want to provide ‘low rate’ loans to certain borrowers. Then fine, but there will be ZERO taxpayer connection to those transactions. We cannot have 5+ trillion dollars worth of loans held by 2 companies where the ‘fail safe’ is the American taxpayer. We need competition. We need companies to go back to assessing risk because there isn’t a ‘taxpayer parachute’ if things go bad. Loans need to be made on ability to repay the loan, not some PC criteria that sounds good. Make people earn it. I know this sounds bad, but all these government programs have gone too far. We need to get back to the basics. We need to get back to a straight forward standard that applies to everybody.

Just try not to think too hard about the TRILLIONS of dollars that could potentially become the responsibility of the taxpayers of the government decides to rescue their own fanny by saving Fannie…and Freddie.

That said, this financial mess is NOT over. Look for another wave of bank failures when the A-paper borrowers start feeling the pain in 2009/2010 when those 5 and 7year ARM’s start to reset. Hard to refi to a fixed rate loan when you are upside down on your property, or have so little equity to qualify for the good rates at lower LTV (loan to values).

I know his was a little long, and I jumped around a bit. I am on the road for 2 weeks and keep losing my train of thought as I answer phone calls and respond to e-mails. Just be glad that I am posting!

I look forward to the comments.

Stay tuned…

SoCalMtgGuy

Remember when that is all you would hear from Real Estate professionals, mortgage brokers, the MEDIA, etc. Well, I guess it wasn’t true.

I know I haven’t posted here in a while. I have been very busy, and on the road for well over half the time since my last post. I started a business with a classmate of mine from the Naval Academy. We bootstrapped the whole thing and took out zero loans. It has been a lot of work, but it is definitely paying off.

As far as the blog goes, yes, a lot has happened, but I guess I figured that you can ‘read about it’ in a million different places. The difference is that this blog was saying the stuff BEFORE it all unfolded! I think I told the ‘important’ side of the story…when the DAMAGE could have been avoided or mitigated for people that read what I was saying. I still get e-mails from people thanking me for this blog. They are looking back 1, 2, 3 years and seeing how much reading my blog opened their eyes to the MATH behind what was going on. They decided to take a chance on the numbers I was putting out there and the data I was giving people. They took the ‘risk’ of waiting to buy, and for most (if not all) people, it paid off in spades! They either got their house for less money, or a lot more house for the same money, and many are STILL waiting patiently to see where housing prices end up.

I told you what was really going on behind the numbers, and each day that goes by, I am proved correct more and more. I told you that underwriting standards were tossed out the windows. I told you that once the adjustments came, there would be lots of foreclosures and lots of inventory on the market. I said that in 2008/2009 is when things would really start getting interesting. Trust me, there is more to come. We have seen the problems with ’subprime’ and some with Alt-A. Just wait until the wave of A-paper defaults starts coming in 2009/2010. Sure, a lot of A-paper borrowers have made it ’safely’ to a 30-year fixed mortgage, but there are a ton of people that can’t refi because the ‘value’ isn’t there.

We are just starting to see big problems with Fannie and Freddie. I haven’t had time to research all that is going on with those two companies at this time, but I can honestly say that not much will surprise me. Bloomberg is reporting that Fannie and Freddie need a 75 billion dollar infusion of capital to keep going. Will be interesting to see how that pans out. Not sure where they will get the money, maybe they can just ’sell out’ to another Middle Eastern investment group.

Here is another list of things we have seen or are seeing:

- We have seen our own government pass a 300 billion dollar ‘bailout’ to help people that cannot pay their mortgages. (don’t get me started on this one)

- Ghost towns in the Inland Empire Should that really come as a surprise? I know it was discussed here, and especially on Ben’s blog in great detail. So much speculation in an area where there is NO reason why ’starter’ homes were 400k+. It was all creative financing & speculation, and we are seeing how that is ending.

- Vegas is taking a ‘dive’ now that all that ‘easy’ RE money isn’t flowing in. Vegas has a 4-fold increase in bankruptcies and is a nation leader in foreclosures. To make matters worse, hotel occupancy rates are down from 95% to about 80%. Things are so bad that 3 gentleman’s clubs have had to close their doors.

- Wall Street is not doing so well as a whole either. They made their bucks ’selling’ MBS (mortgage backed securities) for a few years there, now it is time to pay the piper.

That said, I will continue to keep some sort of activity on this blog. I know that 4 months or whatever it was, was too long. That said, since this ‘housing bubble’ thing is no longer a secret, would people object to me talking about other things related to finance, business, money, etc., even if it isn’t about housing?

Thanks again to my loyal readers. I look forward to the responses and comments.

Stay tuned…

SoCalMtgGuy

Yes, I know, it has been way too long. But at least we are starting to see some signs that we were in a real estate bubble…right?!?!? I guess when major a major Wall Street investment firm gets bought for $2 a share, something bad happened. But more on that later…

I don’t even know where to start right now. So many ‘experts’ said so much ‘crap’ during those booming 5-8 years (depending on where you lived), that I can’t even begin to wipe the egg of all of their faces. Remember the SoCal real estate experts that said ’soft landing’ and worst case things will ’stay flat’ for a year or two then take off again? Remember all the big financial guru’s on Wall Street using mathematical equations and fancy derivatives to make crap loans look like ‘gold bars’ as they sold them to everybody who would listen? Remember when 70% ‘home ownership’ was a good thing? Remember when you could just refi every year and never have to worry about paying off your house because it always went up? Remember when ‘everybody’ was a real estate investor, agent, or mortgage broker? Remember when all was right in the world?

Come on people, as big of a mess as this is, it is REALLY very simple. By lowering the standards and using the stupid ‘American Dream’ tagline, millions of people who should not have been able to buy a home, entered the marketplace. These people had to use ‘creative’ financing (I/O, stated income, NINA, Option-ARM, I/O ARM, SISA, etc.) to ‘afford’ their property. This had the effect of pushing property prices higher which is ‘good’ for the people already in the game, but bad for families and others that had to ’stretch’ to be able to purchase a home they otherwise would have been able to afford. Once we hit that ‘70% home ownership’ (don’t get me started…more like ‘70% home mortgageship’), the standards couldn’t really be lowered ANY further to accommodate any more borrowers.

Personally, I could care less what percentage of the population ‘owns’ a home. Just like not everybody has the ability to be a doctor, not everybody has the ability to own a home. What if medical schools applied the same ‘ownership’ logic to med school??? I know they might want more doctors, but how far are you willing to lower the standards to allow 70% of the population to enter medical school???

Sounds crazy doesn’t it. But this country did the exact same thing, just with home ownership. They lowered the standards and let MILLIONS of people buy homes when they didn’t ‘deserve’ that privilege. So you have a millions of homeowners playing in a game that a few years ago they would not have been allowed to play in. They used their creative financing and depended on annual price increases to ’save them’ when they sold for profit when those payments adjusted beyond their reach. The only problem is that real estate did NOT continue to appreciate on an annual basis. In fact, it did something it ‘never’ does…it went down!!!! (insert big gasp here)

With refinancing out of the question (Got Equity?), and selling for a loss not an option, people started foreclosing. So as fast as many of these people entered the market, they started to leave. Now we are seeing foreclosure rates up 400% in many ‘untouchable’ areas. Moody’s has said there are almost 9 million homeowners that have mortgage balances equal to or greater than the value of their property. I see that number growing every month for at least the next few years. Property values are still NOT in line with income. Based on the lack of savings by the ‘average joe’, I don’t see many having the typical 10-20% down payments that are going to be required to purchase homes in the future as ‘risk assessment’ has returned to the market.

Another nasty little side effect of all that ‘easy credit’ can be seen in the auto industry. Here is a good article that covers the amount of people ‘foreclosing’ on their cars by just ‘giving the keys back.

Here is another gem for Gary ‘In the Bag’ Watts and the rest of the California ASSociation of Realtwhores. Looks like SoCal is down 17.9% from last year, and even the Bay area is down in the double digits as well. Since the median income in California is about 48k, does it suck when your clients property loses 80-100k or more in a year? Inquiring minds want to know. Do you just give them old copies of your newsletters, and tell them it will come back in the ’summer’? After all, I wasn’t so fortunate to own property that appreciated more in a year than I made from working. Who knew condos and tract homes wouldn’t continue to go up 50-100k per year forever?? Ok, maybe I did…but bloggers didn’t know what they were talking about.

Not really much I need to say about Bear Stearns. They were the life of the party…while it was still going on. Now they are like the life of the party that drove drunk into a tree and got killed, and everybody at the party is ‘wondering’ how it happened. Duh…

A quick side note: lowering interest rates is NOT going to save housing. Housing rates were where they were because the banks quit pricing in risk. By pricing in the risk according to a borrowers ability to pay, interest rates could be zero, but the banks will have to charge a premium for the risk they are accepting by making the loan. It might feel good and help some people out, but all it is doing in the mean time is devaluing the US Dollar in the international market place.

I have more to talk about, but that will have to wait a bit longer. I have been terribly remiss in making new posts as I have been extremely busy, and this blog isn’t the priority or money maker it once was. This blog served it’s purpose for millions of readers BEFORE this collapse in housing started. Based on the thousands of e-mails I have received, it seems I helped out a LOT of people. I was upfront and honest the whole time. I didn’t get rich, but I sleep well at night. I don’t have the guilt of lying to property owners, investors, hedge fund managers, rating agencies, or the media so that I could make a buck. Heck, I guess some of them got so rich they probably don’t care. Guess I will never know.

Stay Tuned…

SoCalMtgGuy

Wow, what interesting times we are in right now! American’s largest lender Countrywide was teetering on the brink of bankruptcy. American Express has to write off a measly 480 million that borrowers didn’t/couldn’t pay. Citibank and Merrill Lynch are having some pretty large write downs. I mean, what is a few Billion here and there. What I find EXTREMELY interesting is this sentence regarding the Merrill Lynch situation:

“The loss was almost three times bigger than analysts estimated and resulted in the first full-year loss since 1989, sending Merrill down 10 percent in New York trading, the biggest decline since the 2001 terrorist attacks.”

Wait, the analysts were off? Never, no way, I don’t believe it. How could the all powerful analysts that completely underestimated the stock bubble miss this one too? How could all the MBA’s and Wall Street ‘geniuses’ screw this up to the tune of tens of billions of dollars? Maybe because they have a vested interest in keeping things going as long as possible. Either way, it doesn’t matter. Just take everything that the analysts, or any other person with a vested interest says with a grain of salt. Speaking of, how is Gary ‘In the Bag’ Watts doing right now? Haven’t heard much from him or Leslie Appleton Young lately. I guess 15% appreciation is NOT ‘in the bag’ this year. But what do I know…

What has been interesting up until this point is that ALL of the mortgage mess has been the fault of the ’subprime’ borrower. Now I know better, but you would think it was just the people with poor credit ruining the economy and the mortgage backed securities market for everybody. Then the news hits today “Wealthy may be next in line in home crisis”. Oh really? But I thought if you had a 700+ FICO score then you could easily afford the payment on a 1.2 million dollar mortgage?!?!? So credit score does not necessarily equate to income? Who knew?

That said, even if you could get a 100% 1.2 million dollar fixed loan at 6.5% your payment would be $7584.81 per month, PLUS taxes and insurance. I don’t know Chicago property taxes, but in California, that would be an extra $1200 a month. With insurance you are probably close to a total payment of $9000 a month. Even at a 50% debt ratio with NO other debt, you would need an income of 18k per month. To use the ‘old’ debt ratios of about 35% of your income to a mortgage, you would need to make $25k a month. I am not as familiar with the Chicago area, so I will apply this to California. A million bucks doesn’t buy much more than a tract home in many parts of California. The fact that you would need an annual income of 200k-300k for 30 years to truly ‘afford’ those houses is out of whack to what REAL incomes are.

The problem is that for the past few years, you could get 1-1.5 million dollar loans with NO money down, and very little documentation. The ‘creative’ financing with option-ARMs could make that $7000-8000 mortgage payment less than $3000. So THAT is how the ‘value’ of many of these properties reached those levels. Lets not even get into all the people that were living WAY beyond their means by living off their house of ATM.

Things in San Diego are definitely down. I was talking to a friend that used to work the VIP bottle service at one of the ‘high end’ downtown hotspots. She said things were ‘dead’ and that the amount of people that used to come in for $400 and up bottle service ($1000-3000 per VIP booth) has completely dropped off. That doesn’t mean a whole lot as it is just some anecdotal evidence, but I know for a fact that a lot of money that was being thrown around was from mortgage brokers and real estate agents. Now that those 10-30k monthly paychecks are not rolling in, it is hard to justify dropping $500+ bucks on a night of drinking at the club.

Lets get back to the ‘wealthy’ people. You probably saw that the $3 billion dollar Cosmopolitan property in Las Vegas is probably going into foreclosure. I’m not sure, but I would bet that foreclosing on a $760 million dollar loan can hurt even the wealthiest of people. Who knows the details, but I believe that many ‘wealthy’ people made similar mistakes as ‘typical’ homeowners did, they just did it on a larger scale with a few more zeros.

I spoke with some people on Wall Street and at the higher levels of some financial companies. The outlook is not good. The dollar is dropping in value and the talk is that the big R is coming. NO, not recovery, but RECESSION. A contact of mine in capital markets said that the loans made in 2006 are performing HORRIBLY, with some delinquency rates hitting as high as 24%! And those loans won’t reset until the 2009-2011 time frame. The reason these loans are sooooo bad is because these were the loans made to people when the companies were doing ‘anything’ to drive volume. They got their volume, but the quality is terrible.

The downward price pressure is going to make things even worse. Just wait until late 2008 and 2009 when all the alt-a and A-paper 5-year ARMs from the boom times of 2003 and 2004 start to reset in the face of down property values. It is NOT going to be pretty, and this thing is going to be ugly for at least the next 5-10 years as this whole mess gets worked out. You cannot hand out 500k-1million dollar loans to people with such little risk assessment and expect things to end well. Even the people that can afford to ‘wait it out’ will have to do so for years. It is going to take a long time for incomes to reach a level that makes these recent home values attainable. If we go back to debt-to-income ratios at 40% or under, that will further put pressure on the markets as it will remove lots of ‘potential’ borrowers from the market. It needs to happen. It doesn’t make sense that people should have to spend 50-55% of their gross income on housing.

I know this post was a little scattered, but I hope it covers some of what has been going on. I have been following things, but I have been working hard on building the new business and doing quite a bit of traveling which has been nice.

Thanks again for reading my blog!

Stay tuned…

SoCalMtgGuy

I hope everybody had a Merry Christmas and is looking forward to fun New Year’s celebrations with friends and family.

For those of you that have been reading this blog since 2005, you know that my feelings regarding housing and the economy were not very positive as a whole. You cannot have hundreds of billions of dollars lent out to people that have no ability or inclination to make their ‘adjusted’ payment. Well, it seems there are a few more people that agree with me now…they just happen to be much ’smarter’ and have a much larger reading audience.

Here are 3 good articles to carry you through to the new year. Funny how these 3 articles were together on the front page of the Drudgereport.
Home prices post record annual drop… (duh…we knew THAT was coming!)

PAPER: Housing foreclosures largest since Great Depression… (I have asked people many times: when was the last time that Interest Only mortgages were popular? It was the late 1920’s…right before the Great Depression!!)

CHEER: Ambrose Evans-Pritchard: Bank Crisis may make ‘29 look ‘walk in park’… (Hmmmm… 1929 eh? See the previous sentence.
Stay tuned for more in 2008!

SoCalMtgGuy

I don’t have time for a long post right now, but I will expound on this later.

Today marks the day that America goes bankrupt in more things than just it’s finances. We are bankrupt in personal responsibility, integrity, risk assessment, and admitting our mistakes. But look at the bright side…I have found the ‘next BUBBLE’ that exists in pandering, blaming others, and crying to politicians to save people from their own poor decisions.

By pushing this off 5 years, you did nothing more than make this worse for the long term. We will not be able to get to the real market value of these ‘assets’ by government stepping in and selectively helping irresponsible people. Not to mention the message it sends to the rest of the country.

Read the comments at the bottom of this article about the situation. Looks like more people than just me are pretty fed up with things. Here is a quick sampling:

dear mr. president - i have been advised of a rent increase in my rental apartment - i can’t afford to pay the increase (and maintain my overextended lifestyle) but i wopuld like to stay anyway - do you think you could add a rider to your little mortgage rescue plan that saves my aprtment for me - thanks - oh and after that could you put a freeze on my cellphone bill - thats too high also.

boy are we all suckers for getting fixed rate mortgages -or waiting until we could afford a house before we bought it- or saving our money - or being fiscally responsible - who knew our president would be effectively subsidizing peoples mortgages - who knew that the government would bail out the people who bit off more than they could chew

I am absolutely disgusted by the pandering of our politicians…both to Wall Street and the borrowers that made poor financial decisions. We didn’t share in the profits for those 5-6 years of Real Estate bubble madness…but now it is OK for us to share in the losses.

There will be more to follow later on. I need to gather my thoughts, get some more work done, and get a workout in. I take personal responsibility for more than just my ‘financial’ health.

Stay tuned…this thing just got extended a few more YEARS!!

SoCalMtgGuy

I have been out of town for a rather large portion of the past 6 weeks. I have traveled all over the country and to our neighbors in Canada. I will say that it sucks to go to Canada and see “.90″ taped to cash registers so ‘we’ would know that the US Dollar was only worth 90 cents to them.
I don’t have time for a long post, and honestly I don’t know what else I can say that I haven’t already. I will reiterate that this ‘thing’ is going to be way worse than the Fed, Wall Street, and most analysts predict. I have said it many times before…the ‘data’ these people are analyzing is trash. They are analyzing numbers but have no idea what is really behind those numbers.  Remember a few months ago where many ‘experts’ said this was quickly working it’s way through the system?  Were they right?
Since it has been a while, let’s look a few things quickly:

Now have the Treasury Secretary Henry Paulson chiming in on the ‘mortgage mess’. I don’t know if these people really are clueless, or if they have a ‘financial’ interest in always being late to the party with their comments. I know they don’t want to start a panic, but would it have been so bad for them to tell people to only buy what they can afford when the real estate bull market was off and running? Come on people, this is NOT rocket science…it is basic high school math. I don’t have a lot of time, but let’s look at a few comments from Secretay Paulson.

Paulson said that government and the financial industry should provide immediate help for homeowners trying to refinance current mortgages before they reset at much higher rates.

Just how should government do this? Government gets money from 1 source…the taxpayers. So any type of guvment assistance is coming from taxpayer dollars. I reread the US Constitution again, and no mention anywhere about taking money from people that can afford their house and taxes, and giving it to people that cannot afford the mortgages that they legally signed onto. I don’t care what fancy terms the government ends up using, there should be ZERO bailout of banks or borrowers. I know there will be repercussions…just like doing 21 shots of vodka on your 21st birthday. It sucks when the party is over and you are are wrecked mess…but learn from it, and don’t do it again if you don’t like feeling like crap.

What I really want to get into is how the financial industry can help things. What are they supposed to do? The financial industry keeps getting pressured to ‘refinance’ borrowers no matter what. But tell me how the heck you are supposed to do that??? Let’s do something that is obviously old fashioned…let’s crunch some numbers!!!

Let’s look at a homeowner that is going to foreclose on their $450k ’starter home’. Let’s say they did a 3 year 100% interest only ARM at 5.5%. That puts their mortgage payment at $2,062.50 (not including taxes, insurance, or anything like that). Now let’s assume their mortgage adjusted and they have to start paying principal and the rate jumped to 6.5% (which could still be low…but for the sake of numbers it will be fair). Do not forget that because they made an ‘interest only’ payment for 3 years, they have to pay off the loan in 27 years. Let’s look at the new principal and interest payment at the higher rate for the $450k loan. The new payment for the next 27 years paying principal and interest is now: $2,949.99. Outch!!! I don’t know too many people that can afford another $800+ a month when their mortgage payment adjusts.

To make matters worse, not only are property values dropping, but so is the value of the dollar. Buying a $500k house that loses 20-40% in value is like getting punched in your stomach…combine that with the fact that the value of the dollar has conservatively dropped 10% is like getting kicked in the balls afterwards.

BUT, getting kicked in the balls isn’t so bad if you get a 160 million dollar ‘parachute’ afterwards. Yes, you know what I am talking about.

I actually saw an article where they used the word ‘trillion’ to describe the amount of potential damages caused by this ’subprime’ mess. Sadly, I am not surprised one bit. Every level of government in this country from the city, state, and federal level is in debt. They spend on emotion and not on logic. And somehow we are surprised when businesses and individuals do the same. The only difference is that individuals cannot just ‘print money’ or use the power of the ‘gun’ to generate higher tax revenues.

Anyway, I am going to continue posting here as I have time. Don’t worry, if and when something major happens, I will be here to discuss it.  Don’t worry, I am following what is going on.  This thing is going to take YEARS to pan out, so don’t lose sight of that.  I am focusing on my other business, and things are going well.

Stay tuned…

SoCalMtgGuy