[Rhodes22-list] Economics

[Brad Haslett]

Mike,

Where were they living before they bought their home?  I doubt they were
homeless.  I truly feel for these people but what they did is just plain
dumb.  We can't all live in Aspen, and that is precisely what happens when
cheap money runs up the cost of real estate, little people can't afford
homes.  Public housing?  Right, what a great success that has been!  The
market is correcting for an unsustainable situation and everyone needs to
take a time-out.  The lesson here is two-fold: (1) don't lend money to
people who can't pay it back (2) don't borrow more money than you can pay
back.  It is that simple.

Brad


On 3/27/07, Michael D. Weisner <mweisner at ebsmed.com> wrote:
>
> Hank & Brad,
>
> OK, IN THE LONG RUN everything seems to go up (except maybe telephone
> rates).  This has been the mantra of Wall Street, if you can just hold on
> LONG ENOUGH!  The problem is that these investments are people's
> homes.  How
> do people expect to pay a mortgage payment that is 1.5 times your monthly
> take home?  What will you eat?  With what do you heat, light and insure
> the
> home, not to mention have a life?  It is just incredibly stupid to think
> that refinancing and moving up can solve this.
>
> How different is this from the automobile purchasing or credit card
> schemes
> (24%+ interest!!) from "reputable banks" that exist today?  Must we pass
> legislation to regulate all of these unethical businesses?  Is it all just
> about the money?  Hopefully we won't wake up too late.
>
> Mike
> s/v Shanghai'd Summer ('81)
> Nissequogue River, NY
>
> From: "Hank" <hnw555 at gmail.com> Tuesday, March 27, 2007 11:56 AM
> Brad,
>
> Not all were speculating, or at least they didn't realize it.  Many folks
> were fed misleading information by unscrupulous brokers whom they trusted
> to
> have their best interests at heart.  They were scammed just as much as
> folks
> conned into investing in pyramid schemes and the actions of the brokers
> should be just as illegal.
>
> Hank
>
>
> On 3/27/07, Brad Haslett <flybrad at gmail.com> wrote:
> >
> > Mike,
> >
> > Something I never understood is how can anyone think that real estate
> can
> > go
> > up at rates above the general economy forever.  Bill E, our resident
> > expert
> > on real estate, is correct in that it always goes up, IN THE LONG
> > TERM.  You
> > have to have enough cash on hand to cover your bets if you bet
> > wrong.  Real
> > estate is no different than any other economic issue. I feel sorry for
> > these
> > people but they were speculating, not investing.  If we're going to pass
> > laws to protect speculators, hell, I'm ready to start shopping for
> > marginal
> > oil wells again.
> >
> > Brad
> >
> >
> > On 3/27/07, Michael D. Weisner <mweisner at ebsmed.com> wrote:
> > >
> > > Hank,
> > >
> > > Unfortunately, the situation stretches to all home buyers.  Senator
> > Chuck
> > > Schumer recently pleaded for tougher regulation of lenders here in NY
> > > (
> > >
> >
> http://www.newsday.com/news/local/wire/newyork/ny-bc-ny--schumer-mortgager0325mar25,0,6895247.story?coll=ny-region-apnewyork
> > > ).
> > > No group of borrowers is immune to this kind of scheme.  There are
> > > terrible
> > > stories of recent retirees who were persuaded to "buy up" to luxurious
> > > townhomes using loans that were "too good to be true" and indeed
> > > were!  They
> > > have now lost valuable equity at a time when they cannot really afford
> > to.
> > > Many are forced to return to work just to keep their homes!
> > >
> > > Although I am a believer in "less government is better," I realize
> that
> > > these promoters are so unethical and the "marks" are so gullible that
> if
> > > we
> > > can't educate "the people," we may actually need to regulate the
> > industry
> > > further.
> > >
> > > How much is that new sailboat?  And the loan is how affordable?  No
> > > thanks,
> > > I'll keep my R22 not only because of its great sailing characteristics
> > but
> > > also because IT IS PAID FOR!
> > >
> > > Mike
> > > s/v Shanghai'd Summer ('81)
> > > Nissequogue River, NY
> > >
> > >
> > > From: "Hank" <hnw555 at gmail.com> Tuesday, March 27, 2007 10:01 AM
> > > You'll love this story from the Wahington Post that highlights a woman
> > who
> > > is in tears, but she is losing her $410,000 home that she bought with
> an
> > > income of 28,800 a year.  Obviously, she was pretty foolish to think
> she
> > > could afford it, but the realtor and the mortgage broker should both
> go
> > to
> > > jail for fraud in my opinion for cinvincing her that she could swing
> it.
> > >
> > > I really believe there should be some form of civil or criminal
> > penalties
> > > for brokers who act this way.  People go to them expecting sound
> advice,
> > > which many do give.  However, there are some that will say anything to
> > > ensure that they get their commission check and while it may be
> > > technically
> > > legal, it shouldn't be.
> > >
> > > Hank
> > >
> > >
> > >
> >
> http://www.washingtonpost.com/wp-dyn/content/article/2007/03/25/AR2007032501323.html
> > >
> > >
> > > *Foreclosure Wave Bears Down on Immigrants*
> > >
> > > Economic Success Story Turns Sour as Thousands May Face Losing Homes
> > >
> > > *By Kirstin
> > > Downey<http://projects.washingtonpost.com/staff/email/kirstin+downey/>
> > > *
> > >
> > > Washington Post Staff Writer
> > > Monday, March 26, 2007; Page A01
> > >
> > > Immigrants are emerging as among the first victims of a growing wave
> of
> > > home
> > > foreclosures in the Washington area as mortgage lending problems
> > multiply
> > > locally and across the country.
> > >
> > > Nationally, 375,000 high-interest-rate loans were made to Hispanics in
> > > 2005,
> > > and nearly 73,000 of them are likely to go into foreclosure, said
> > Aracely
> > > Paname?o, director of Latino affairs for the Center for Responsible
> > > Lending.
> > > About 1.1 million homes in the United States are expected to go into
> > > foreclosure in the next six years, and many native-born Americans are
> > > likely
> > > to be stuck with burdensome loans. But immigrants are getting hit
> first
> > in
> > > part because their incomes tend to be lower and many have lost
> > > construction
> > > jobs.
> > >
> > > Homeownership rates among immigrants surged in the first half of the
> > > decade,
> > > making their prosperity an economic success story. Now it is becoming
> > > apparent that many people managed to buy homes in an inflated real
> > estate
> > > market by turning to unusual new mortgages only now receiving scrutiny
> > > from
> > > regulators and legislators. Many of these loans start with attractive
> > low
> > > "teaser" rates but feature payments that can suddenly increase.
> > >
> > > Unfamiliar with the U.S. mortgage market, unable to speak or read
> > English
> > > well and vulnerable to the blandishments of real estate professionals
> > who
> > > told them property values always rise, many immigrants are struggling
> to
> > > deal with high mortgage payments as their homes sag in value, making
> it
> > > harder to escape the loans by selling.
> > >
> > > Tysons Corner mortgage broker Jose Luis Semidey, who has a popular
> > > Spanish-language real estate talk show on Radio Universal, is being
> > > deluged
> > > with calls from desperate homeowners who are falling behind on their
> > > mortgages. The calls started in late 2005 and have steadily risen; he
> > now
> > > receives 40 to 50 calls a day from throughout the area.
> > >
> > > "I see more coming," Semidey said.
> > >
> > > Paname?o agreed. "I'm being flooded by phone calls from throughout the
> > > country from people begging for help," he said. "The best I can do is
> > > refer
> > > people to attorneys to get assistance."
> > >
> > > Nahid Azimi, who immigrated to the United States from Afghanistan 22
> > years
> > > ago, recently stood in the upstairs hallway of her home in Loudoun
> > County,
> > > silently sobbing as she removed the last of her personal items from
> the
> > > $410,000 townhouse in South Riding she bought with pride last summer.
> > She
> > > said she was persuaded to buy the house by an Afghan real estate agent
> > she
> > > considered a friend and by an Afghan mortgage broker who promised to
> get
> > > her
> > > a good loan.
> > >
> > > Instead, Azimi, a cashier at Giant who makes $2,400 a month, found
> > herself
> > > strapped into a no-down-payment loan with payments of $3,800 a month.
> > She
> > > knew it would be impossible to make the payments, but the mortgage
> > broker
> > > promised to refinance her loan to make it more affordable. Azimi
> > couldn't
> > > qualify for the refinance, however, so she got a second job to try to
> > > cover
> > > the costs, borrowed money from her friends and tried unsuccessfully to
> > > sell
> > > the house. Then one day in November, she collapsed at work, in part
> > > because
> > > of the stress.
> > >
> > > Today, she will call the loan servicing company and offer to give back
> > the
> > > keys.
> > >
> > > "I can't do it anymore," said Azimi, 44, a U.S. citizen. "I cannot
> > afford
> > > it, and I don't want them to come one day and put my stuff on the
> > street."
> > >
> > > Some lenders allowed people to take out loans without verifying their
> > > income
> > > or their ability to repay. Traditionally, lenders have made loans only
> > to
> > > people they thought could pay them back. Banking regulations forced
> > > lenders
> > > to adhere to strict lending policies, not just for the protection of
> > > borrowers but also to protect bank depositors, who would be hurt if
> the
> > > banks collapsed. But in recent years, lenders have found alternative
> > > sources
> > > of financing for the loans by turning to investors who bought the
> loans
> > as
> > > packaged securities. These kinds of loans are not supervised in the
> same
> > > ways as loans made by banks and held in their portfolios.
> > >
> > > Laissez-faire regulatory policies made other government agencies
> > reluctant
> > > to intervene.
> > >
> > > "The market changed so investors were setting the standards for
> > qualifying
> > > people for mortgage lending," said Allen Fishbein, director of housing
> > and
> > > credit policy at the Consumer Federation of America. "They had a
> higher
> > > appetite for risk, which led to the lax standards that are resulting
> in
> > > delinquencies. The regulators should have been more concerned about
> > > protecting consumers than about protecting financial institutions."
> > >
> > > Officials at the Mortgage Bankers Association were unavailable for
> > > comment.
> > > In previous interviews, they have said that loosened credit policies
> > > allowed
> > > more families to become homeowners and that reputable lenders do not
> > make
> > > loans that cannot be repaid.
> > >
> > > Many immigrants initially welcomed the lending changes as the only way
> > > they
> > > could afford to buy.
> > >
> > > Places where immigrants cluster have been particularly hard-hit.
> Semidey
> > > said that the most calls are coming from Manassas, Woodbridge and Dale
> > > Cityin
> > > Virginia and Gaithersburg, Germantown, Capitol Heights and Langley
> Park
> > in
> > > Maryland. But one recent caller was the owner of a $1.5 million home
> in
> > > McLean, a restaurateur who has seen her business slide in recent
> months
> > as
> > > the slowdown in the construction industry pinches the pocketbooks of
> her
> > > Latino patrons. Another was an illiterate carpenter who bought a
> > $750,000
> > > house in Ashburn Village, Semidey said.
> > >
> > > Francisco Santos, 31, who lays tile, makes $60,000 a year by working
> > seven
> > > days a week. He became convinced that real estate was a can't-lose
> > > proposition after the value of the townhouse he had bought in
> Woodbridge
> > > in
> > > 2002 for $95,000 climbed to $230,000. He and his wife, Linda, a
> > homemaker,
> > > traded up to another house and banked part of their profits. The
> > > Spanish-speaking real estate agents with whom he negotiated the
> purchase
> > > persuaded him to borrow against his equity to move up again.
> > >
> > > "They called me every day; they said we can do more business, that
> it's
> > a
> > > good time to do it," he said in a mixture of English and Spanish.
> "They
> > > talked very sweet into my ear. I believed. I believed these people,
> and
> > I
> > > did this business."
> > >
> > > So Francisco and Linda went to visit a spacious red-brick house on
> Lord
> > > Culpeper Drive in Woodbridge, with its master bedroom suite and
> > > well-equipped kitchen, priced at $540,000. Linda nearly swooned with
> > > pleasure as she looked around the interior. She thought: Here was her
> > > dream
> > > house.
> > >
> > > They decided to buy the house, which was fairly easy because the
> > Santoses
> > > had excellent credit, equity in the other house and money in the bank.
> > The
> > > mortgage broker made things even easier by doing the settlement in
> their
> > > home, something many Hispanic families find more comfortable. That
> also
> > > made
> > > Francisco's life easier because he typically works until 8 at night,
> > > making
> > > it hard to get places during normal business hours.
> > >
> > > He tried to rent out their former house, but the tenants didn't pay
> > their
> > > rent, so the Santoses used up their savings to keep up payments on the
> > two
> > > houses. They put the houses on the market but found no buyers. When
> they
> > > couldn't make payments, their credit rating deteriorated.
> > >
> > > The stress on the family mounted as collection agencies began calling,
> > > over
> > > and over. With two small children and another one on the way, the
> > > pressures
> > > grew. The couple quarreled, and Francisco Santos said he sometimes
> > yelled
> > > at
> > > the kids for little provocation.
> > >
> > > "I feel terrible," said Santos, a legal immigrant. "I'm trying to keep
> > > control because my wife is pregnant, and I don't want her to feel bad.
> > > It's
> > > difficult. I was thinking about my kids, and their opportunity to have
> a
> > > good life. My wife, she says, 'Why? Why?' "
> > >
> > > The loan servicing company, American Home Services, will foreclose on
> > the
> > > new house Saturday. The Santoses will move back to their old house and
> > > hope
> > > that they will be able to leave the problems of the new house behind
> > them.
> > >
> > >
> > >
> > >
> > >
> > >
> > >
> > > On 3/27/07, TN Rhodey <tnrhodey at hotmail.com> wrote:
> > > >
> > > > Dave,
> > > >
> > > > Although I think Bush has been a terrible President I can't begin to
> > > blame
> > > > him for the looming housing mess.  Plus they couldn't do anything to
> > > cool
> > > > down real estate because that was driving the economy. Most of the
> > > > sub-prime
> > > > lending was well within the law. There were a few exceptions and
> these
> > > > were
> > > > huge. You may remember Ameriquest running SuperBowl ads a couple of
> > > years
> > > > ago.. At one point they actually were the "Official Lender of the
> > > Rolling
> > > > Stones"....pretty funny when you think about it. They suffered their
> > > > second
> > > > huge loss in a class action lawsuit (over $500 million) and shut
> down
> > > > their
> > > > retail division over a year ago. Basically loan fraud. Although this
> > is
> > > > part
> > > > of the problem now it is not the real problem. Dumb ass consumers
> are
> > > the
> > > > problem.
> > > >
> > > > The laws that cover lending costs for the most part are HOEPA and
> > RESPA.
> > > > RESPA is the good faith disclosure stuff that includes the "Good
> Faith
> > > > Estimate" and "Truth in Lending" that every mortgage lender is
> > required
> > > to
> > > > send within 72 hours of application. HOEPA covers predatory costs
> and
> > > APR.
> > > > Many states have their own laws that go beyond the Federal
> standards.
> > I
> > > > don't think we need new laws. People should read their closing
> > > documents.
> > > > All loan details are disclosed. If the loan has an adjustable rate,
> > > > balloon
> > > > payment, or negative amortization it is fully disclosed. People are
> in
> > > > denial and greedy for a home they can't afford.  For the right
> person
> > in
> > > > the
> > > > right market these loans make sense. For some they mean
> > > > foreclosure…..buyer
> > > > beware but we should have the choice.
> > > >
> > > > Admittedly pushy lenders "sell" these loans but it wasn't like they
> > had
> > > to
> > > > break any legs to get people at the closing table. Let the chips
> fall
> > > and
> > > > .no bailout! For those with cash and good credit there is going to
> be
> > a
> > > > booming real estate market in a few years.
> > > >
> > > > Wally
> > > >
> > > > >From: "Brad Haslett" <flybrad at gmail.com>
> > > > >Reply-To: The Rhodes 22 mail list <rhodes22-list at rhodes22.org>
> > > > >To: "The Rhodes 22 mail list" <rhodes22-list at rhodes22.org>
> > > > >Subject: Re: [Rhodes22-list] Economics
> > > > >Date: Mon, 26 Mar 2007 18:54:53 -0600
> > > > >
> > > > >Dave,
> > > > >
> > > > >Our rental apartment in Beijing is currently rented, but, perhaps
> we
> > > > could
> > > > >kick the current tenant out so you can live in a socialistic
> fantasy
> > > > land.
> > > > >On the other hand, we demand the rent on time and we don't care
> about
> > > > your
> > > > >whiney ass excuses.  The Chinese are adapting to capitalism and
> have
> > > quit
> > > > >trying to control every little nit-noy detail of  life.  That's
> > > probably
> > > > a
> > > > >good approach when you have 1.3 billion (billion with a B) to worry
> > > > about.
> > > > >You amaze me with your ability to discern every little persons
> needs
> > in
> > > > >this
> > > > >country and what they need to protect themselves from
> > > themselves.  Dave,
> > > > I
> > > > >feel a need for a bowel movement.  Should I wipe tonight or will
> the
> > > > >gubment
> > > > >take care of that for me tomorrow? If I do need to wipe, could you
> > give
> > > > me
> > > > >a
> > > > >heads up on the density level of paper to use?
> > > > >
> > > > >Brad
> > > > >
> > > > >On 3/26/07, DCLewis1 at aol.com <DCLewis1 at aol.com> wrote:
> > > > > >
> > > > > >
> > > > > > Wally,
> > > > > >
> > > > > > While there are times I'm tempted to agree with your assessment
> > that
> > > > >both
> > > > > > political parties suck, I  think it's worthwhile to try  to
> > identify
> > > > the
> > > > > > problem
> > > > > > - and from my perspective, that leads straight to  Bush.
> > > > > >
> > > > > > I think there are at least 2 offices in the Dept of Treasury
> that
> > > have
> > > > > > cognizance over mortgage lending practices: the Office of Thrift
> > > > > > Supervision
> > > > > > (OTS), and the Office of the Comptroller of the Currency (OCC).
> > > > > > Additionally,
> > > > > > there may be offices in HUD and the Federal Reserve that
> > > are  supposed
> > > > >to
> > > > > > regulate/oversee banks, lending,  and especially
> mortgage  lending
> > (
> > > I
> > > > > > think the Fed
> > > > > > has an Office of Bank Regulation).  I believe OTS  and OCC issue
> > > bank
> > > > >and
> > > > > > credit union  lending guidelines, renew charters,  request
> > > > legislation,
> > > > > > inspect as
> > > > > > needed, and act as a bully pulpit to be sure the  financial
> > > > institutions
> > > > > > don'
> > > > > > t get too far out of line as they try to make a  buck.  Either
> > > office
> > > > > > could
> > > > > > have called a conference with lending  institutions and made it
> > > clear
> > > > >that
> > > > > > if
> > > > > > lending practices weren't tightened  bank/credit union renewal
> > > > charters
> > > > > > were at
> > > > > > risk - it's that simple.    The public (you and I), and hence I
> > > assume
> > > > >OTS
> > > > > > and
> > > > > > OCC,  have known of  NoDoc, NINA, negative amortization,
> > etc  loans
> > > > for
> > > > >a
> > > > > > long time.  The  OTS and OCC choose to do nothing about the
> > > sub-prime
> > > > > > lending
> > > > > > abuses - this is  not why they get paid.  I think Dept of
> Treasury
> > > > >screwed
> > > > > > up -
> > > > > > surely they  saw the problem evolving, to my knowledge they did
> > > > nothing
> > > > >to
> > > > > > stop
> > > > > > it.  The  Directors of the OTS and OCC, and the Sec of the
> > Treasury
> > > > are
> > > > > > political  appointees.
> > > > > >
> > > > > > Also, if the current sub-prime/ARM mortgage issue came out of
> > > nowhere,
> > > > >you
> > > > > > might excuse the current administration and it's appointees for
> > > being
> > > > > > blind-sided by it, but that's not the case.  The NoDoc/NINA
> issue
> > > > > > has  developed in an
> > > > > > industry that is prone to problems.  You may recall the  S&L
> > > mortgage
> > > > >mess
> > > > > > (I
> > > > > > think in the 80s?) - that cost the taxpayer many  billions of
> > > > > > dollars.  Given
> > > > > > the history of problems in the mortgage  industry, I'd expect a
> > > > >competent
> > > > > > administration to be alert and actively  monitoring the mortgage
> > > > >industry
> > > > > > to be
> > > > > > sure it was following sound lending  practices - but clearly
> that
> > is
> > > > not
> > > > > > the
> > > > > > case. The current mortgage mess is  different from the S&L mess,
> > but
> > > > it
> > > > >is
> > > > > > about
> > > > > > mortgages, mortgage companies  that are chasing profits as hard
> as
> > > > they
> > > > > > can
> > > > > > with "innovative" products, and  oversight agencies that are
> > asleep
> > > at
> > > > >the
> > > > > > wheel.  There's really no excuse  for the Bush administration
> not
> > to
> > > > >have
> > > > > > been
> > > > > > aware of the developing problem,  the issues were well
> publicized
> > > and
> > > > >the
> > > > > > industry has a history of  problems.
> > > > > >
> > > > > > I think the Bush administration should have been aware of the
> > > evolving
> > > > > > problem and taken clear positive action to prevent excesses -
> > that's
> > > > >part
> > > > > > of  what
> > > > > > the OTS and OCC directors get paid to do and it's what Sec Treas
> > > gets
> > > > > > paid  to
> > > > > > do.  I think this is just another example highlighting the lack
> of
> > > > core
> > > > > > competency in the Bush administration.
> > > > > >
> > > > > > As I recall, the S&L bail out cost we taxpayers many 10's of
> > > billions
> > > > >of
> > > > > > dollars.  Let's see what the sub-prime/ARM fiasco is going to
> cost
> > > us
> > > > > > -  it may
> > > > > > cost us nothing from the Treasury, it may just tank our net
> worth
> > > > > > and  trigger
> > > > > > a recession.
> > > > > >
> > > > > > JMO
> > > > > >
> > > > > > Dave
> > > > > >
> > > > > >
> > > > > >
> > > > > >
> > > > > >
> > > > > >
> > > > > > ************************************** AOL now offers free email
> > to
> > > > > > everyone.
> > > > > > Find out more about what's free from AOL at http://www.aol.com.
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