I have been saying for a long time that anybody can get a loan. I have told you that there is a lot of crap going on in the mortgage industry. I saw the credit reports, the 1003’s, the income figures, etc. and was amazed at the loans people were able to get. The thing is, I was looking at numbers on paper…I did not deal with the actual borrowers, only brokers. I ‘knew’ there were shenanigans going on, but I can’t give you the details better than an individual who was DOING the shenanigans. That is why I am going to give you Casey Serin…and let you hear his story. www.iamfacingforeclosure.com

Seems 24 year-old Casey got himself into 2.2 MILLION in mortgage debt…and is about to foreclose on 5 houses.

Here is part of how he ‘did it’. The sad thing is….none of this surprises me. I will go into more detail later.why he is facing foreclosure:
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What happened? Why am I facing foreclosure? Basically, I bit off more than I could chew.

Here is the long story.

I started investing full-time in January of this year. This is after going to numerous real estate investing seminars, reading books and learning from other investors for the past 2 years. Made a few successful deals on the side and was anxious to go full-time. I quit my website programming job and went all out!

In the last 6 months I bought 7 houses in 4 different states, mostly with the help of 100% LTV stated income (liar’s) loans. Most are fixers. I was going to rehab and flip each one within a month or so. Buying was easy, but man was I in for a surprise (or a lesson?).

I grossly underestimated everything. The money it would take to find contractors, run a rehab job, and resell quickly. Add the cost of doing out of state deals. I was not prepared for the huge travel expenses to manage the deals.

I messed up the local deals too. First I didn’t calculate all my costs correctly. Second, the lack of construction experience got me in trouble. The contractors took advantage of me. The first crew on the Modesto deal dragged me out for 6 month and never finished. The worst part is I paid them all of the money.

I did NOT have a solid exit strategy. I thought I would just wing it. You see, I become a “motivated” buyer. The kind they warned us in the seminars NOT to be. They told us to play it safe and start with wholesaling. But NO! I thought I can skip the basics and take a shortcut to the big profits NOW!

Yes, I did buy some of the houses at a discount enough to make a profit. However, I juiced up all of the equity on most of them right away by getting cash at close. So every time I bought one there was a “CHA-CHING” sound and my bank account got fatter. This gave me a false sense of profit and kept me going.

Well, everything went wrong. The rehabs were way behind schedule and grossly over budget. I was too busy flying around the country visiting each job. No time to manage details. I couldn’t sell the houses fast enough. I did sell one in Albuquerque on a round-robin auction. But I got stuck with the rest.

The holding costs on 6 houses is what started killing me. Paying about 15,000 per month in mortgage payments and utilities can really drain ones’ reserves. All the cash I pulled out at close is now gone. And the houses are not selling fast enough to keep me afloat.

As the last resort I went for one more cash-at-close deal. It’s another builder lease-back house in New Mexico from the same builder. The builder and I have become friends and we structured a pretty good deal. I told him I will close with no problems.

I went to get financing figuring I will get it just like before. However, this time my credit score took a dive because of all the maxed-out credit cards. I still pressed on and tried different loan programs and loan brokers. Finally I find the right program and was set to close. A few days before the close the bank denies the loan. Why?

They Googled me! Its ironic/funny/embarrassing. They found one of my early blogs where I was talking about flipping houses. It was pretty hard to find too. It was supposed to be hidden from the search engines.

Flipping (or quick turn investing) is not bad or illegal. What’s bad is applying for an owner-occupant loan but having no intention to live in the house. I have been doing this for most of the deals in order to get better rates and/or 100% financing. It’s actually pretty common and many mortgage brokers will encourage you to do it (along with stated income loans). But it’s plain lying! So the bank denied the loan.

That was the last straw.

Since that deal fell through I started falling behind on payments on all the mortgages. I ran out of money to finish the rehabs. No money to even buy groceries.

I may have to get back to a full-time job just so I can pay basic bills. I AM grateful to at least have my web development skills to fall back on. Or I may do some wholesaling or help other investors to make a little money.

It’s embarrassing to talk about this. Yes it’s my fault and I deserve the consequences. It sure is a tough way to learn though. This will teach me to be more responsible and play smart next time.

I started this foreclosure blog in order to talk about my experience. Hopefully this will help you if you’re in the same situation or know somebody who is.
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I could go on and on about this situation, but I will keep it brief for now. This kid screwed up HUGE! He lied to get loans. He lied about income. He lied about owner occupancy. He wanted to get rich quick. At least this kid is standing tall and admitting his wrongdoings…for that I give him credit. He isn’t grabbing a lawyer and trying to blame everybody but himself for his situation (yet…anyway). He is taking personal responsibility for his mistakes. But just because you take personal responsibility doesn’t mean the consequences of your actions are waved. There should be no free-pass for Casey, or any of the people in similar situations. They deserve exactly what they have coming to them, and there should be NO taxpayer funded bailout of ANY kind.

Spend some time on Casey’s blog and read about his situation. He is NOT the only person that did such things, or that is in such ‘trouble’. Use it as a REAL WORLD example of what happened during this housing bubble.

AND PLEASE…keep the comments civil on my blog and his. Give your honest opinion and criticism, but keep the vulgarity out of it.

I look forward to the comments on this one. I will be active in the comments, and possibly even editing this post to address certain issues. There is just sooooo much I could say, but it is getting late.

Stay tuned….there will be many more stories like this popping up!

SoCalMtgGuy

That was the headline in the OC Register this weekend in the ‘Marketplace’ section. The smaller print after the big headline is “Stats suggest borrowers are handling supposedly riskier mortgages – so far.” The BIG emphasis should be on those last 2 words…SO FAR. Here is the link to the online version: OC Register article - “Don’t blame exotic loans for the housing malaise”

I will expound on things a bit more, but I think a post that I did about 10 months ago will be a good start. I am sure some of you have read it before, but it won’t kill you to read it again. You will notice that some of the numbers in the post are lower than the numbers we are currently hearing today, that is because of more data is available today than was 10 months ago. Not to mention that mortgage resets is not the easiest statistic to compile. Well, here we go…

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Tuesday, December 06, 2005

“Are we there yet??” “What is taking soooo long!?!?”

Like a neverending road trip in the family station wagon as a kid…one poster wonders “when are we going to get there?” (this post was actually taken from Ben Jones blog with the posters permission to use it here)

Former LA Homeowner said…

socalmtgguy and all the rest,

1:21 PM

There is not been any REAL pressure on the market yet for it to start coming down. Yes, interest rates have gone up some, and lending standards have tightened a smidge in some places, but for all intents and purposes, not much has changed. The latest increase in rates doesn’t really affect that many people at the moment.

We all know that in the bubble markets, there is an overwhelming use of ARMs, I/O ARMs, and option-ARMs to be able to “afford” the property. Most of these loans are fixed for a minimum of 2-5 years, with some going as long as 7 and 10 years. The borrowers that are refinancing right now more than likely bought 2-3 years ago, and now their ARM is adjusting, or about to adjust. Assuming they didn’t take out too many HELOC’s (home equity line of credit), they should have plenty of equity to be able to refi at a lower LTV. Some of these people will be impacted, but for the most part, they have enough equity cushion to keep themselves safe.

On the other hand, you have the people that have bought in the past 12-18 months. These people are still sitting pretty with their low payments for another 12-18 months at least. Some of these people have some decent appreciation.

Here is where things get tricky. In 2006 there are approximately 335 billion dollars worth of ARMs that are set to adjust. Let’s just assume that each loan set to adjust is for $500,000. That means 670,000 households are going to have 4 options: refi, sell, foreclose, or pay the higher payments.

Things get really tricky in 2007 as 1.2 TRILLION dollars of arms are set to adjust. That means 2,400,000 households have to pick one of those 4 options. (again, we all know that 500k is a high loan amount, but it will give us a ‘low estimate’ as the number of households that could be effected) Let’s look at those 4 options a bit closer now…

Refinance - Most people will NOT like their mortgage payment fluctuating on a monthly basis, and they will certainly not like the fact that their payments will jump pretty dramatically as rates will most definitely be higher in 2006 and 2007. Rates will still be historically low, but not in the 4’s and 5’s which many of these borrowers will have had.

Sell - This is an option that many people will take. They knew going in that they could not afford the property for 30 years, but they would do whatever they had to do to get a piece of property and start getting the appreciation. There will be many of these people who will try and sell. The only problem is that supply and demand works both ways. The got the appreciation when the supply was low, now they will have to give it back as there are massive increases in inventory.

Foreclose - do I really need to go here? Many borrowers will lose their property because they cannot make their adjusted mortgage payment, or they cannot sell fast enough, or they cannot sell where they won’t be upside down.

Make the higher payment - Some people might not be able to refi because of credit scores dropping, employment changes, or even tightening of lending standards. These people will do what is necessary to keep making the payment. Hopefully the jump in payment will not crush them.

So there you have it. That is one of the things I belive that will be the catalyst for the bubble to burst. Massive people selling will lower prices. Rising rates will force people to lower prices as the same payment buys less house. Tightening lending standards will pull potential borrowers out of the market. Once those stated loans get a bad rap and/or they actually start pricing them correctly, you will remove another section of people from the market.

Once these things start happening, I think you will see the beginning of things REALLY coming down. Don’t fall for the dead-cat-bounce when people start buying in on the first dip.

I hope this helps to shed some light on how much longer “you will be stuck in this station wagon”!

SoCalMtgGuy
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It really doesn’t surprise me at this time that the ‘toxic loans’ aren’t performing worse than the ‘conventional’ loans. You see, many of the people with the exotic loans STILL have the low payment, and the ones that did get into trouble were generally able to sell before they got into any real foreclosure problems. With inventories at least double in many areas, and the sales pace down 25-40% from the same time last year, selling to get out of trouble is going to become MUCH harder…and we aren’t even into 2007 yet. I can only guess that the first half of this article was to squash the ‘bubble talk’ that has become more commonplace in the media today.

The second half of the story is where people should be paying attention. The first half covers the ‘past’ the 2nd half of the story looks to the future. Once there is a reason…like…I don’t know…at least 1.5 trillion dollars worth of mortgages adjusting, that could spell trouble for the future. The foreclosure rate is up across the country from the same time last year. Sure, it is still not a very high number of actual foreclosures, but lets revisit the stats AFTER 2007. Remember, it takes months to gather this data, analyze it, and get it reported to the people. So don’t start jumping on my back when the first wave of numbers comes out in February/March/April of 2007 and say “you said 2007 was the year of reckoning”…much of that data will still be from 2006. Look at the data from late 2007 and early 2008 to see what REALLY happened with all the mortgage adjustments. Remember, 2007 will be a key year, but it will by no means be ‘over’ after 2007. You can’t have a 5-8 year bull run and only a 1-2 year pullback. This thing will take time to run its course.

On a side note, I had another friend who just left the business. He said he had 3 borrowers in the past month or so that got loans, and went 30, 60, 90, 120, default. The loans were all stated 100% loans from 500-800k. I guess the borrowers were hoping to ‘flip’ the property before they could default.

On another side note…I couldn’t sleep the other night, so I was doing a little channel surfing. I came across the show “Million Dollar Listings” which I had heard of, but not seen. Needless to say, I stayed up another hour to watch this show. I actually felt bad for the realtors in this show. The sellers they featured were completely irrational. This one lady bought her home for 1.5 million, did 200k of ‘renovations’ and wanted to sell it for 3 million a mere 18 months later. Actually, it was 2,995,000…or $5000 less. So shoot me for ’rounding up’! The realtor finally got an offer at 2.3 million, but the seller wanted nothing of it. The realtor took the lady to several other houses to try and show her that her house was priced to high. She did NOT get it. There was one she REALLY liked, nicer than here home, she asked how much it was…a mere 1.9 million. She says…GREAT! get me 3 million for mine and I might buy this one! The highest comp to her house was 2.19 million, but she said she would get 2.95 million, or nothing at all. She said she wasn’t in a hurry, and would wait to get exactly what she wanted. Needless to say, the listed was removed, and no sale was made. It was amazing how the sellers were completely disconnected from what their houses were really worth. The other realtors waited about 5 weeks to call the seller and recommend listing at a lower price. After debating firing them, the borrower decided to lower his price, and finally sold his house in the end.

Well, that is all for now. I look forward to the comments and feedback. Look for more frequent postings in the future.

Stay tuned…

SoCalMtgGuy

NOTE: This book title deals with allergies in the home. I think another book could be written with the same name…but along the lines of my post below.

I was restocking one of my accounts in the Palm Springs/Palm Desert area when one of the techs needed me to move out of the way so they could reach some instrument. I said “how are you doing?” They replied “I’m alive.” I said “That is a good thing!” They said “I guess…” in a less than chipper mood as they left the room.

I assumed somebody was just having a busy day. It wasn’t until I heard the next conversation that I found out why.

I guess it was this persons turn to drive to go pick up lunch, or run other errands for the office. I heard the person quip “I only have 4 dollars in my wallet until I get paid again. I just paid my mortgage and that is all the money I have until payday on Friday.”

I don’t know this person and it wasn’t my business to say anything. I just listened as this all happend about 8-10 feet away from me. Now I know nothing of this persons finances, what their mortgage is, or what they ‘own’…but I do know that the mortgage payment, however big or small it is, is putting some serious stress on this person.

I would assume the property is at least 300k, as that is pretty much a ’starter’ home in the Palm Springs/Palm Desert area. I’m not here to debate this person or their situation…but to ask the question: Does this person own their house, or does their house own them?

I remember just a few years ago that it was OK to move somewhere and rent for a little while before making any decisions. I remember those ‘rent vs. buy’ calculators which have become so ‘outdated’ the past few years as the ONLY option was to buy, buy, buy!

I remember when it didn’t make sense to buy unless you were going to be in the same place for at least 3-5 years. Oh wait, that was before the days when 5-10k per month of appreciation was ‘in the bag’! You see, real estate is generally a long-term investment. It takes time for the real estate to appreciate and for the principal to be paid down. Not to mention the fact that you have 5-7% transaction costs that need to be figured in when buying/selling a piece of property. It wasn’t that uncommon for people to actually RENT for a year or two because there was uncertainty with their job or they were actually going to save money for a downpayment. They didn’t know if they would be moving, getting promoted, or changing jobs. It was the smart financial decision to make because MOST of the time it didn’t make sense to buy a home for a short or uncertain time frame. Not to mention that it is OK to get on your feet, get some money saved, and make an informed decision when the correct time comes.

The problem came the past 5 years when if you waited a year or heaven forbid TWO years, you either lost 100k+ in ‘appreciation’ or became priced out ‘forever’. What most people didn’t realize is that they were competing with the rest of the masses who were also rushing to buy, buy buy…at whatever costs. The lenders were all too willing to ‘help’ people ‘afford’ the ‘American dream’. Don’t make enough…state your income. Don’t have a downpayment, no problem…you don’t need it. Heck, we will even give you 3-25% at closing to help you pay closing costs and even furnish the place. Have a BK, don’t worry…we won’t hold that aginst you. Want lower payments until you get promoted, make more money, or win the lottery…we have I/O and neg-am. You need to buy TODAY because prices are going up…look how rich everybody else is getting.

It is at this point that I loved to ask people: “what happens if property doesn’t continue to keep going up?” You would have thought I just gave the Pope ‘the finger’ the way people would look at me. Heaven forbid this guy actually question the appreciation of housing, but he muttered the ‘R’ word at the same time. What do you mean it can make more sense to RENT than to buy?

For the past few years people quit ‘doing the math’ when making decisions about real estate. Sure, many people made a lot of money, and many more had a lot of ‘equity’ in their property. BUT, we are going to see the other side of a real estate boom starting in 2007. Just like people stood back and wondered why they bought ‘whatever.com’ when it was trading at 180 times future earnings, they will again stand back and wonder whey they paid 2-3 times the cost of ‘renting’ to ‘own’ the same property with creative financing. Just like the stock market, you don’t have the gains until you SELL! Ever wonder why inventories are skyrocketing in many areas across the country??

That gets me back to my original question: Do you own your house, or does your house own you? If you have a fixed rate mortgage that you can afford…and by afford I don’t mean having ‘4 bucks’ in your wallet until payday, then you will probably be OK provided you are not forced to sell due to relocation or other unforseen circumstances. That said, you truly don’t own your house until it is paid off. That is something that I think will become fashionable again some time here in the next decade. I remember when several friends and neighbors made that last payment. They were so excited to be completely DEBT FREE! No mortgage, no car payments, no credit cards…just property taxes and insurance.

If you have an I/O mortgage, you are just renting from the bank and your state. You do NOT own your house at this time. Sure, on paper, it is yours…but if you doubt me, stop making your mortgage payment for a few months and then let me know who REALLY owns that house. With an interest only mortgage, your principal balance isn’t changing and you get the added joy of paying property taxes. Sure there is a tax write-off, but in most of the bubble areas that doesn’t make up the difference between ‘owning’ and ‘renting’. That wasn’t a problem when property was increasing in value every month, but treading water financially when prices are flat or falling is NOT a good place to be, especially when facing an ARM that is about to reset to a much higher payment. Making higher payments on a decreasing asset sounds about as much fun…as renting! Ha ha…just kidding. You get the point.

Like I have said countless times before, 2007 is going to be the year of reckoning. We are going to find out who owns their house, and whose house OWNS them. I bet there will be thousands of home ‘owners’ who will wish they could give a landlord 30 days notice and get on with their lives. But instead, they will be trying to sell an ‘asset’ they over-paid for, in a market where every other person getting OWNED by their house is trying to sell as well. The same people competed with each other to buy these properties with creative financing…and when the tide really turns, they will all be scrambling for the door. If you think I’m crazy, then please tell my why less than 1-2% of all loans in 2000-2001 in California were I/O. Then in 2004-2005 you had over 80% using this kind of financing?

Who is getting OWNED…..YOU, or your HOUSE?

I look forward to the comments and feedback…

SoCalMtgGuy

I just thought I had to share with everybody what I pulled out of my mailbox this week. I got a ‘nice’ 6 x 11 inch card in the mail that says across the top: “RENTERS!” then the next line says “Kiss You Landlord Goodbye!”. Maybe you didn’t catch that, but yes, it said ‘you’ and not ‘your’. So that was my first clue that attention to detail is NOT a strong suit of this ‘luxury’ condo cough-conversion-cough. I assume it is a condo-conversion because of the location and the fact that it says “New Spanish Tile Roofs” as a highlight of the building. Most ‘new-builds’ do not highlight the fact that the roof is new. You can check these condos out for yourself at www.stonemarkatgoldenhill.com.

But lets get back to the “kiss YOUR landlord goodbye!” part of things. Below that it says you can “Own for as little as $1,088*/mo”. That doesn’t SOUND too bad. Heck, it is hard to find a decent place to rent for under $1000 in San Diego. I figured I would check and see what that little asterick (*) had to say. I won’t retype what all of the 23 lines of micro-print had to say, but I will run through the highlights.

Here is the card:

The loan is a CalFHA 2/1 buy-down with a 3.5% start rate and the payments are only $1,088 per month!

Sounds ‘good’ so far… (wink-wink)

This is based on the ‘lowest’ priced unit in the complex of $249,900, and the mortgage is on $242,400 (that would be $7,500 down…or 3%).

The loan is 3.5% for the 1st year with the seller paying for the 2/1 temporary buydown. Hey, at least you are paying principal with this loan!

The next year, the loan payment jumps to $1,228.21 at 4.5%, and the 3rd through 30th year, the payment is $1,376.32 at 5.50%.

So all in all, this doesn’t sound THAT bad. It is a fixed loan after the first 2 years, and you are paying principal and interest the whole time…but wait! I really like these next parts.

“Mortgage monthly payment of $1,088.48 does not include mortgage insurance of $171.70 and property taxes of $229.08. Property taxes calculated at 1.10% tax rate. Does not included HOA fees. (yes, they put included instead of ‘include’) HOA fees estimated at $171 per month.”

Wow, lets add that up…171.70 + 229.08 + 171 = $571.78 I don’t know about you, but that extra $572 bucks a month kind of changes the picture a little bit. These costs add another 52% to the $1,088 mortgage payment. You can look at it like that, or that the mortgage payment only accounts for 66% of the total cost of ownership. Suddenly, $1660.26 per month doesn’t look at good as $1088…and don’t forget that is ONLY for the first 12 months! Assuming HOA’s, taxes stay the same, you are looking at almost a $2000 a month payment after 24 months ($1948.10 assuming the HOA or taxes don’t increase).

Don’t forget, we are talking about the lowest priced 1-bedroom condo (conversion) in the complex!

But here is where it gets interesting: To qualify for the 5.50% CalFHA program, income limit for low income borrowers is $49,680 for 1-2 persons, $57,132 for 3 or more person in household.

Maybe its just me, but if you are only making about 49k per year, I don’t know that spending $250,000 on a small 1-bedroom condo conversion is the best use of funds. You are going to be spending about 45-50% of your gross income on housing. I know there are worse things going on out there, but come on people…it is just a house! Forget the massive appreciation that lots of people have seen the past few years, those days are OVER for a long time. If you are spending that much on housing, that isn’t going to leave much room for savings, car payments, gas, food, etc. I hope that a 3 person household would not be buying a small 1-bedroom condo conversion, so I won’t even go there right now. I know they must be small because they don’t list the square footage, and the units don’t look big from the pictures. If I were making an educated guess, these places would probably rent from $950 to $1200 per month.

I guess the thing that bothers me is that many people will see the “Own for as little as $1,088/month” part of things, and ‘think’ that is all there is. Aside from putting a LOT of money down, there is NO WAY to ‘own’ this place for $1088 per month. The last time I checked, you HAVE to pay your taxes, HOA, and PMI.

I don’t know about the rest of you, but I hate it when I’m shopping for a hotel room on one of the online sites and the rates look good until you find out there is a $15-20 resort fee, and/or a nice 19% hotel tax or something. If you are going to charge a mandatory fee…just add that to the price of you $129 room. Am I the only person annoyed by this??

Other than that, I am sure that many of you are feeling better and better with the news that is coming out with regards to housing. Our fearless leaders are slowly starting to eat their words. Leslie Appleton-Young and Mr. Lereash are slowly coming around. It is just unfortunate that thousands of people are going to lose tens of thousands of dollars because they listened to those biased cheerleaders.

Stay tuned to Ben’s blog and this one. I am working on a few things that I think you will really enjoy. REMEMBER…this is only the beginning. This is the equivalent of the NASDAQ dipping under 5000…it is just a start. 2007 will be the year of reckoning. You think inventories are high now? Wait until another 1.5+ trillion dollars worth of mortgages adjust next year.

Stay tuned!

SoCalMtgGuy

I have been meaning to do a post about this for a while. I get these “Thought for the day” from the Napoleon Hill foundation. I’m sure many of you are familiar with Napoleon Hill, but for those of you who aren’t, he was the author of ‘Think and Grow Rich’. Napoleon Hill earned the opportunity to work with some of the best and brightest in the world of business. He was inspired by Andrew Carnegie, and became one of the greatest motivational authors in the world. From the likes of Henry Ford, John D. Rockefeller, Theodore Roosevelt to Alexander Graham Bell, William Howard Taft, and millions of successful businessmen around the world, they founded their success on Andrew Carnegie’s philosophy of success that is presented by Napoleon Hill.

There were two ‘Thought for the Day’ in particular that I want to address here. Here is the one that arrived in my inbox about two months ago.

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Thought for the Day
May 19, 2006

BANKERS OFTEN LEND MONEY ON CHARACTER, BUT SELDOM ON REPUTATION ALONE, FOR THEY HAVE LEARNED THAT NOT ALL REPUTATIONS ARE DESERVED.

When considering a loan, a banker attaches great importance to three things: the borrowers ability to repay the loan, the borrowers credit history, and the borrowers character. The first two considerations can be calculated mathematically; the third requires judgment and experience. Prudent bankers have learned that persons of character are always a good risk because they take their obligations seriously while those who spend their resources on the trappings of success should be avoided at all costs. Protect your good reputation as you would protect your home, your investments, and your life. Once shattered, a good reputation can only be regained by those who have developed the courage and willpower to persevere in the face of great odds.

This positive message is brought to you by the Napoleon Hill Foundation. Visit us at http://www.naphill.org. We encourage you to forward this to friends and family. They can sign up for this free service at our web site.
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Take a look at the 3 things of ‘great importance’ to a banker, and lets see if the ‘bankers’ of today follow those rules, or if they have been relaxed a bit. With stated income and no-doc loans, are you giving a banker the info needed to show your ability to repay a loan? With the explosion of the subprime lending markets, are bankers looking at a borrowers credit history the way they ‘used to’? And finally, are the ‘bankers’ of today really looking at the character of the person they are lending hundreds of thousands of dollars?

Napoleon Hill and Andrew Carnegie worked closely with Charles Schwab. Do you think Mr. Schwab would have become the success that he was by ignoring those 3 principles? Maybe the mortgage lender Encore would still be in business if they applied Napoleon Hill’s thoughts on banking to their business. Instead, they lent about 60% of their money to people with undocumented income via stated income loans. Is it really any surprise they went under? They were not the first, and they will certainly not be the last company that tries to ignore the ‘old’ fundamentals in favor of new ones.

People don’t understand that this bubble is going to be worse than any other because never in the history of this planet has money been lent the way it has the past 5-8 years. In previous real estate boom/bust cycles, people STILL had to put money down and get a mortgage that paid down the principal (either through a fixed rate or an adjustable rate). How bad would previous busts have been had people been able to borrow 100% of the money on stated (exaggerated) income?

Look at this quote from the CEO of Toll Brothers: ‘It appears that the current housing slowdown is somewhat unique: It is the first downturn in the 40 years since we entered the business that was not precipitated by high interest rates, a weak economy, job losses or other macroeconomic factors,’ said CEO Robert Toll.

The reason this is unique is because the industry completely ignored the fundamentals. Because times were good, they ‘creatively’ stretched the dollar so that short term monthly payments could be kept low. They have about stretched the dollar as far as it will go…50 year mortgages, 1% neg-am loans, interest only, etc. If the dollar has been stretched to its max when the times are good, what do you think will happen if we DO get higher unemployment? higher rates? a weakened economy? Combine any of those factors with the ‘lawless lending’ of the past 5-8 years, and what do you think will happen?

Never in the history of the planet has money been lent out in such large quantities, to borrowers with so little documentation, with such ‘creative’ programs, at such high loan-to-values. The stock market ‘defied’ the fundamentals for a while. Remember all the ‘experts’ saying it was a ‘new economy’ and that you could make money buying companies with NO earnings, that were trading at 180 times future earnings, because it was different this time. Just like the real estate experts that will tell you an ‘income property’ that loses over a thousand bucks a month is a ‘great investment’ because it will appreciate.

Once the banks start holding the paper instead of selling it on the secondary market, look for the above fundamentals to return. The free markets work, and will return to the fundamentals. The ‘investors’ that have been buying all these crappy MBS (mortgage backed securities) will stop buying once they see the junk they have been buying. Once these payments really start adjusting and the defaults start piling up, MBS won’t be as attractive as they once were. When the banks don’t have somebody else to assume the risk, they will tighten their standards because it will be THEIR money on the line, and not some 3rd party.

I will let the following ‘Thought for the Day’ speak for itself.

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Thought for the Day
May 21, 2006

ITS MIGHTY EASY TO JUSTIFY DISHONESTY IF YOU MAKE YOUR LIVING FROM IT.

The subconscious mind makes no moral judgments. If you tell yourself something over and over, your subconscious mind will eventually accept even the most blatant lie as fact. Those whose lives and careers have been destroyed by dishonest behavior began the process of self-destruction when they convinced themselves that one slight infraction of the rules wouldn’t matter. When you sell yourself on an idea, make sure the idea is positive, beneficial to you, and harmless to others. Just as negative thoughts and deeds return to their originator, so do positive ones. When you practice honest, ethical behavior, you set in motion a force for good that will return to you many times over.

This positive message is brought to you by the Napoleon Hill Foundation. Visit us at http://www.naphill.org. We encourage you to forward this to friends and family. They can sign up for this free service at our web site.
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This ‘Thought for the Day’ could apply to any number of things in the mortgage or real estate industry…and even the stock mania of years past. It could be over-stating income, pushing the value on an appraisal, glossing over certain ‘key’ aspects of a loan, or not disclosing an issue with a property…just to name a few. I know that some people made conscious decisions to be dishonest, but many more don’t even realize what they are doing as wrong. The barriers to entry to the mortgage and real estate industry are pretty much nil. You could have walked off the street into pretty much any broker shop and said that you wanted to ‘dial for dollars’ and telemarket for loans…and I think you would be surprised how often you would be accepted. Lots of places would take you in, give you a quick class or two, let you listen to some ’seasoned’ brokers on the phone, then turn you loose. When you have programs like ’stated income’, it just opens the door to a big ‘gray area’ where people can make more questionable decisions.

A loan application is really nothing more than paperwork that demonstrates whether or not a person is a good risk for a loan. If the paperwork makes sense, the loan will be made. The problem is when people look at getting a person a loan as a puzzle, or a ‘problem’ to be solved. Borrower A needs to make X, but they only make Y. How can I get Borrower A to income X? They are sooooo close to qualifying, I will just state their income a bit higher and they will be fine. They will get the house, and the extra ‘couple hundred’ a month I had to over-state their income isn’t going to break them.

You have read the stories about the appraisers that are getting together because they don’t like the pressure put on them to ‘hit values’. That pressure can lead some people to find that slippery slope that is talked about above. If you do the right thing, you get less business. You hit a number here and there, and you become a ‘go to’ appraiser. Then before you know it, rounding up a few grand has turned into getting values tens of thousands of dollars higher.

Don’t forget the power of the group mentality as well. If ‘everybody’ else is making lots of money, and this is how it is done, then it can’t be wrong….right??

Lets not forget the ‘mouths’ of the real estate industry. The ‘experts’ who said that ‘real estate won’t go down’, then changed to a ’soft landing’, then to whatever crap they are spouting now days. Look at the great econoMISSED Leslie Appleton Young of the CAR (Ca Assoc of Realtors) as an excellent example of this. Facts and data be damned, real estate doesn’t go down, and if it does, it is just a short term soft landing with more ‘normal’ appreciation for a while.

I also want to say that there ARE lots of mortgage and real estate professionals that never fell into these traps. These were usually the people that had been in the business for a longer period of time, or had some internal sense of what is right. I had the pleasure to work with quite a few people that had 20-30 years in the business. Many of these people didn’t necessarily like all the ‘goings on’ in the ‘new’ mortgage industry. My whole point is to illustrate that many of the people out there didn’t knowingly set out to be dishonest. In California, over 40% of the job growth in this state was real estate related the past 5-6 years. Anytime such a large number of people run into anything, there are going to be people that get lost in the ‘gray areas’.

I hope this point is coming across correctly. I’m not trying to say the entire mortgage or real estate industry is this way, but it only takes a small percentage of people to influence an industry.

Look at the quality of the company that Napoleon Hill and Andrew Carnegie kept. They knew that the fundamentals were key to long term success. Who do you think will be right? Napoleon Hill and company who place a high value on the ‘old’ fundamentals, or todays crop of mortgage and real estate professionals who say “its different this time”. The last group of stock-jockeys and financial planners that said it was ‘different this time’ are still looking at a NASDAQ that is less than half of its peak of 6 years ago. It will only be a matter of time to see who is right on this one…the real estate ‘experts’ or the fundamentals.

You know where I stand…

I look forward to the comments and feedback.

SoCalMtgGuy

I know, I know, it has been too long. But look at it this way, nothing ‘major’ has happened yet. Most of you that have read this blog for a while know what is coming. Sure, it is ‘nice’ or at least ‘validating’ for people on the ‘bubble side’ of things see inventories rising, appreciation slow or even go negative, and the “oh my gosh, the market turned so fast, I wasn’t able to flip for huge money” stories that are showing up more and more.

The media is doing a great job in its role of ‘lagging indicator’, by warning people about the pitfalls of creative financing and adjustable rate mortgages. Too little, WAY too late. But then again, if they had tried to tell people to not use interest only ARMs to buy homes they couldn’t afford a few years ago, people would have laughed in their face. Real estate only goes up….duh!

That said, let’s look at the ‘old way’ that most people used to buy property. Lets use the ‘new standard’ for homes/condos/townhomes in most areas…the ever popular “Starting at only $400k!!” I am going to use ‘rough’ numbers here to illustrate a point…so just bear with me. I am also going to assume these people have NO other debt that would figure in their debt ratio…no car payments, no student loans, no credit card bills…pretty big assumption….but it will only help make the point when you see how much most people are spending on housing.

In the ‘old days’, you would need an 80k down-payment to buy a 400k home. If you were an individual or family making 80k a year, if you saved 10% of your gross income JUST for a down-payment, it would take 10 years to save your 80k. I know that most people would have invested the money along the way, so let’s just say they put in in fixed income because they didn’t want to lose any money. So figuring in the investing, lets say it would take about 7 years for them to save the money needed for the down-payment. A $320,000 mortgage at 7.5% would yield a principal and and interest payment of $2237.48 per month. Throw in another $400 a month for California taxes, and that brings the total to a rounded off $2640 per month…and that is NOT including any HOA or association fees that most condos and housing developments have today. That 80k a year translates to $6666.67 per month (GROSS). That housing payment is 39.6% of gross income…and remember, we are NOT including any HOA or other maintenance. Throw in a $250 or $300 HOA, and we are pushing a 45% debt debt ratio, JUST on housing. That doesn’t leave a lot of money to save for retirement, disability insurance, other investments. Not to mention the new Escalade payment, the Best Buy card, Visa, Mastercard, the SDG&E bill, and the gas card. That is why the ‘old way’ was to keep housing costs at 30-35% of gross income. To really ‘afford’ this house, you would need to be making at least 100k a year. If you are making 100k a year, a $3000 a month housing expense puts your housing debt ratio at 36%. That is not too bad assuming you don’t have a lot of other debt.

The problem is that the median income in California is about 50k a year…well short of the 100k+ needed to really afford these 400k “starter homes”. Again, crazy me was actually assuming people had some ’skin’ in the game by putting down 20%. So remember that the mortgage numbers above are for a 320k loan.

With my new job, my territory consists of San Diego, Orange County, Riverside, San Bernadino, Palm Springs/Palm Desert, Temecula, and everything in between. So needless to day, I have seen most aspects of Southern California housing. From Crystal Cove and Newport Beach all the way to the 909 and Indio. Today I was driving the ‘back way’ from Temecula to Palm Springs. I was driving through Hemet and I was completely amazed at ALL of the housing developments that all had starting prices of “400k”. I didn’t spend much time there, as I was just passing through, but all I saw were gas stations, fast food, and your basic shopping center type stores. I by no means saw the potential for thousands of the 6-figure jobs that would be needed to purchase the hundreds and hundreds of homes that were for sale “starting at 400k”.

These same homes are all over the desert communities. I know that there are quite a few people making 100k+, but there is no logical reason why every new home or condo should ’start’ at 400k!

I know we have done it before, but let’s look how MOST people are/were ‘affording’ these 400k starter homes. First off, most are not putting any money down. The lenders I used to work for had 80/20 combo loan programs, but they also had 100% 1-loan programs, that could be interest only as well. Take a 400k loan at 5% Interest Only (a typical rate of 2 years ago), and you get a payment of only $1666,67 per month!! Saweeeeet!!! Throw in some takes and you are about $2000-2100 per month. With the ‘relaxed’ lending standards, the lenders I worked for would take a ‘full doc’ debt ratio of 55%…and a stated income debt ratio of 45-50% depending on the loan. Take the $2100 payment at a 55% debt ratio you only need to gross about $3850 per month ($42,600 per year) to ‘afford’ a 400k loan. The income needed would be higher on the 80/20 loans because the 20% seconds were NOT interest only, and were at higher interest rates. I won’t even get into the neg-am and other creative financing at this time. Check out the archives and popular posts for more info on those loans.

The scary part comes with the ’stated income’ loans. Go to this website www.mbarl.org and click the ‘facts’ on the left hand side. When a recent sample of stated income loans were compared to IRS records, it was found that 60% of the loans had income exaggerated by 50% or more! Now I know that the study was only a pool of 100 stated loans, and many of you won’t believe it, but from what I saw on a daily basis I don’t doubt this stat one bit. There were broker offices that only did stated loans. Some brokers would laugh when I asked if the borrower was going full doc or not.

HOW else could things get sooooo out of whack from actual incomes???? Come on, I’m waiting.

During the past 5 years, down-payments have slowly faded away…but lending standards have faded into oblivion.

It will only be a matter of time until the fundamentals return. Making a low teaser payment for 2, 3 or 5 years only works when prices go up. Many people are going to have that sick feeling in the pit of their stomachs when their teaser ARM adjusts and their property is worth 100k less than they ‘paid’ for it….and there is nothing that the great econoMISSED Leslie Appleton-Young can say to take that feeling away.

Why save for 6, 7, or 8 years and get a fixed rate loan when you can just ’state’ your income, not put any money down, and make 6-figures in appreciation a year??? Eventually you come to a point where the dollar can’t be stretched anymore. You come to a point where the massive ‘guaranteed’ appreciation isn’t there. You come to a point where the mentality shifts. Actually…we are just getting there now.

I look forward to the comments and feedback…

SoCalMtgGuy

I know, I know….it is taking tooooooo long between posts. I wish I had the time to post more often, but those of you that know what I am doing now, know that I have a lot going on, and that it pays a ‘bit more’ than blogging. I do have a few things to say and some quick advice. So let’s get started!

I know that many of you are excited because you are starting to see more and more articles that suggest the ‘ride is over’ and that the bubble is ‘deflating’. Just scan down the articles on Ben’s excellent bubble blog, and you will see that things are changing. That is nice that the media is finally starting to get a clue, but my response is ‘YAWN’. The media is a lagging indicator. This thing was WELL in the making a good 2-3 years before the media got a clue.

You are probably wondering about the title of this post ‘YAWN…’, but that pretty much sums up how I feel about things. Granted, I don’t have an ARM adjusting…I’m renting for 1/2 to 1/3 the cost of ‘owning’ with a fixed rate mortgage. I have minimal debt, I’m no longer employed in a real estate related industry, and I can honestly say I have a positive net worth with a year+ of living expenses in the bank. I would pay off my debt, but I’m getting a higher rate of return in my savings account. Those things, combined with my knowledge of what I believe is coming, allows me to YAWN at what is currently happening.

Go back and read the almost 100 posts that I have made. It shouldn’t come as any surprise to what is STARTING to happen. Lets take a look at a few things, and I will give you some advice.

Inventories are rising rapidly, sales are slowing 20-40% in many areas, foreclosures are up, and guess what, we still have a LONG way to go. Remember those 2+ trillion dollars of ARMs (adjustable rate mortgages) that are going to adjust in 2006 and 2007?!?!? Well, about 500 billion of that is supposed to adjust in 2006, and the remaining 1.5 trillion or so in 2007. Again, these are tough stats to gather and monitor, but lets just look at them as ballpark figures. Here is an old link from Nov ‘05 that had the numbers at 330 billion in 2006 and 1 trillion in 2007. I have seen it as high as 2.3 trillion for the same 24 month period, so lets just use my ’round’ numbers and understand they are not exact and that some will refi/sell/etc and not be a part of the data set anymore.

If $500 billion are supposed to adjust in 2006, and we are halfway through, lets just assume that about $250 billions dollars worth of mortgages have adjusted for people so far. We have already seen skyrocketing inventories in places like San Diego, Las Vegas, and the Tuscon/Phoenix areas. We are already seeing articles about foreclosures increasing 40-70% in some areas. What do you think is going to happen over the next 18 months when we have the remaining 1.75 trillion dollars worth of mortgages adjust??? Do you think things are going to get better or worse? Do you think most Americans are fiscally responsible?? …financially literate??

YAWN…

Some people act surprised that mortgage companies are going under or laying off lots of people. This should not come as any surprise either. Let’s see, sales volume is down 20-40% depending on the area. If there is a 20-40% decline in the amount of home purchases, guess what?? There is also a 20-40% decline in purchase mortgages. With the Fed staying the course and continuing to raise interest rates, do you think that bodes well for a large amount of refinancing? Not really. From the people I am talking with, finding people that can afford to refi their ARM into a fixed rate mortgage is the latest marketing push. The problem comes when people cannot afford fixed payments and/or have large pre-payment penalties from their ARMs. Most pre-pay penalties amount to 6 months of interest.

Lets not forget the massive job growth in the mortgage/real estate industry the past 5 years. If purchase transactions and refi’s are slowing down, do you think it might make sense for the industry to contract as well???

YAWN…

As I have shown mathematically many times before, buying a house in many areas does not make any financial sense. How long did you think that could go on??

Go grab some some old news articles from the .com era. I want you to re-read the articles, but substitute the words “preconstruction home” for IPO and “condo” where you see ‘.com’. Just as there was a mentality of “you can’t lose” with an IPO, the same mentality applies this time to ‘preconstruction’ pricing. Let me ask you this: how many of those IPOs are now ‘worth’ less than their IPO price??? Think that track home that was bought at the peak of the bubble in Vegas/Phoenix/Inland Empire won’t go down??

If you think a piece of property can’t drop below the IPO or ‘preconstruction’ price, then keep on buying. If you think there might be a shred of logic to my argument, keep reading.

Condos have become like .com stocks. For the past few years, it didn’t matter where the condo was, or how good the construction was…it went up. Just buy condos…they are great investments. The same thing used to be said for the .com stocks. It didn’t matter what they did, or if they made money…they were .com’s so they went up. …until people realized that they were WAY over-valued. A stock trading at 100x future earnings is like a property that rents for 1/3 of the mortgage payment.

Are you seeing any similarities yet??

I’m not saying things are exactly the same…but there are certain fundamentals that is/are/were lacking in both of these bubbles.

My advice is this: if you don’t own a place and you are in a ‘bubble area’, be patient. Just because that 400k condo is now 350k, doesn’t mean it is a good deal. If you have an adjustable rate mortgage that isn’t fixed for the next 7+ years, I suggest you try to refinance into a fixed rate mortgage. I see this problem looming for many people on the horizon: they bought a piece of property with little to no money down and now their mortgage is adjusting. They need to refinance, but property values have declined, and they are ‘upside down’ on their home. This isn’t necessarily a problem if you have a fixed rate mortgage and plan on staying for a while. But it is a terrible place to be when you ARM has adjusted, you are struggling with the payment, the value of your house is down, and you cannot refinance. If you can afford a 30-year fixed, do it. Buy the rate down as much as you can. The break even point is about 3 years for rate buy-down points. Refi now before property values take a dive. It will make refinancing easier and you will get better rates the lower your loan-to-value (LTV).

I have some stories and other things touch upon…but I will get to those next week. It has been a long week already, so I’m going to get some sleep.

YAWN…

I look forward to the comments and feedback.

SoCalMtgGuy

I know, I know…people want me to post more often. Well, I hope to post more frequently when I stop ‘drinking from a fire hose’ with my new job. That said, things are going well with the new job…and things are starting to fall ‘in line’ with what I thought would happen with this bubble. I still feel like I am beating a dead horse. This bubble should NOT be a surprise to anybody.

Look at it this way: if you give a 16 year old kid the keys to a new Porsche Twin Turbo, what are the odds that he will ‘over extend’ the speed limit a little bit? How cool will he look while he cruises past everybody by barely pressing his right foot? How will the novice handle that car when he is no longer on the perfect straight road and encounters the first curves and bumps in the road? Will our novice panic…what will they do? How will our ‘novice’ handle the car with little to no real experience in a vehicle like this? What are the odds that the novice driver crashes that car? Sure, I know that not every 16 year old that gets the keys to a fast car ends up wrecking it…but it shouldn’t come as ANY surprise to anybody when it DOES happen. (as I was typing this, there was a news story about a teenage driver that lost control of his Mercedes Benz on the 56 freeway and launched 100ft down an embankment through a fence and into a residential yard.)

The same thing applies to this ‘liquidity bubble’ that manifested itself in the housing market by way of the mortgage business. You have a bunch of financial ‘novices’ getting mortgages that allow them to ‘over extend’ a little bit so they can get into a house or condo (interest only, neg-am, option-ARM, stated loans, etc.). Many of these people were real ‘cool’ as their house shot up in value with little to no effort on their part. Then there were a few bumps in that ‘perfect’ road to riches that started popping up. Just like no road stays straight forever, nothing appreciates in a straight line like real estate has the past 5-9 years depending on where you live.

Just look at the numbers coming out of Orange County today. You can check out the numbers for yourself, but just notice that sales are way down from last year, and that inventories are up pretty much across the board (not on the chart). Note: don’t let the 22% down payment figure fool you. DataQuick doesn’t know if the 20% down payments were cash, equity from another house, or a 2nd mortgage. With the proliferation of 100% or 80/20, 80/10/10 financing, it is easy for me to speak from experience and surmise that the average ‘homeowner’ is not putting down 22% in cash, but rather using piggyback second mortgages. It is harder to track Orange County on ziprealty.com than it is San Diego because it lumps OC and LA together. But you can look at San Diego and see that they are about to go over 19,000 properties on the market. Just remember, when everybody was ‘cruising’ to easy riches, there were 2900-4000 properties on the market.

So, rising inventories is the first ‘bump in the road’ that people are experiencing. This doesn’t really show up on most peoples radar screen. Again, most of these people are novices and have very little knowledge of the real estate industry or the mortgage that is driving their real estate riches. Even if people know that their ARM will adjust, or that they can’t make the minimum payment on their option-ARM forever, they have no idea the ramifications of these decisions in a market that doesn’t always go up.

Here is a perfect example of the nonsense that illustrates why there is a bubble and why prices HAVE to come down.
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List Price: $469,000 - $469,000
ZipRealty will give you up to $2,814 cash back.*

Bedrooms: 1
Full Baths: 1
Partial Baths: 0
Square Feet: 828
Lot Size: N/A
Year Built: 2005
Listing Date: 03/17/06
On Market: 33 days
Type: CONDO/TH
Status: ACTIVE
MLS #: 066024054

Description
Perfect opportunity for an investor! This stunning unit is rented at $1600 per mo. Until jan. Of 2007. Some of the features include 11 foot ceilings, beautiful upgraded hardwood flooring, stainless steel appliances, upgraded granite counter tops, and more! You must see to appreciate this amazing unit!

HOA Dues: $312
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Let’s look at some numbers here on this “Perfect opportunity”. Lets say a ‘genius’ investor wheels and deals and gets a ’steal’ on this property at $450,000. Lets say they have $90,000 for the 20% down. Their mortgage payment on a $360,000 loan with a 6.25% 30 year fixed will be $2,216 per month. Throw in another $375 per month in property taxes (this is a low estimate using 1% of the purchase price), and $312 for HOA, and you are looking at a grand total of $2903 per month. I know, I know…you could put less money down and get an I/O or option-ARM mortgage and lower the monthly payment. This MIGHT get you to break even in the short run, but that is about it.

SO, you spent $90k for the ‘privilege’ to lose $1303 per month (yes, I know I’m not figuring in the tax picture…but I’m also low balling taxes and not adding in insurance). If you don’t see a problem with this ‘investment’ then I think your math and economics teachers did you a real disservice. See my post titled A population bankrupt in math.

See what I’m talking about?!?!? I have about had it with stupid people meddling around in the financial/mortgage industries. The sad thing is that somebody will probably be convinced this is a ‘great’ opportunity. They will crunch the numbers using a low ‘teaser’ payment that is interest-only or an option-ARM. I don’t see how anybody with a brain and/or any integrity could say something as stupid as ‘Perfect opportunity…’. Oh that’s right…it IS a 100% commission business. Do or say whatever is necessary to ‘close the deal’….right???

Lets get back to our ‘road’ so to speak. We are experiencing the increasing inventories at this time. The next step will be the eventual decline in prices. This will happen when people have to sell. People don’t seem to have a problem with ‘making’ 50-100k in equity when a property down the street sold for more. How do you think they will handle it when it goes the other way? What happens when the people that bought many years ago decide to sell and move away. They don’t need top dollar because they bought their 700k home for 150k a long time ago. They can ‘take’ 550-600k and be happy. What happens to the comps when houses start selling for less? I don’t know how the banks will handle it, we have never had 100% financing and this much ‘funny money’ sloshing around in such a short period of time. What is going to happen when you have thousands and thousands of people upside down on their homes? What is going to happen when the interest only period ends, the ARM adjusts, or the neg-am option ARM recasts…and the person cannot refi because the latest comps are less than what they currently owe?

Here is my prediction: I think San Diego will see 1000+ condos on the market in downtown, and 30,000+ properties on the San Diego MLS by then end of 2007. The only thing that will keep those numbers from happening is some rather large reductions in prices.

We will see how close my predictions come. Be patient people…this thing is going to get REAL interesting in 2007 and take YEARS to really play out. Save money, be patient, and be informed.

Here are a few quick things I wanted to put out there for you…

I was in a shopping center last week running some errands. All of a sudden I heard somebody calling my name. I turned around and recognized the face, but I could not immediately place the name. It was one of the loan officers from one of my old broker shops. Apparently things were getting pretty slow, and the owners were trying to ’steal’ loans and close them themselves to get paid. The days of there being ’so much business I can throw a few loans to the newer people’ are over. That is not the funny part, the funny part is that this loan officer was back to running two cell-phone kiosks at the local shopping centers. I know people have joked before about what all these loan officers are going to do when things slowdown, well, I guess this is how one LO was going to handle things. They also told me that of the 20+ loans they had in their pipeline, they were only able to get 2-3 to actually fund. They got into the business for the ‘big money’, but were a tad late to the party along with thousands and thousands of others. “Would you like an option-ARM or interest only?” is now replaced with “Do you want a bluetooth headset with that???”.

But don’t despair, Accredited Home Lenders doesn’t see things going the other way. They just dropped a cool million dollars for a 3-day ’sales rally’ in San Diego. They flew in every sales rep in the company, put them up in the Manchester Hyatt downtown, gave them all a $100 pre-paid ‘credit card’, and had entertainment planned each night at such venues as the House of Blues. I have a few friends that work for them in several areas of the country. They called to let me know they would be in town. They pretty much feel the same way I do about things, but they are sticking things out for a while longer. They told me of the ‘million dollar’ tab for the 3-day event, as well as some of the rah-rah-rah that was being used to pump everybody up, and keep them motivated. I’d like to see the 5 year reunion of this event, and see how many of the same people are still around. The loose credit has to tighten up and so will the entire mortgage industry when that happens. You can only lend money to people with spotty credit at high LTV/CLTV’s when the markets are rising. It is going to be interesting so see how the industry copes with the eventual price drops as inventory keeps increasing at a rapid pace. Just remember, 2007 is the year when a majority of the 2 trillion dollars of adjustable rate mortgages do their thing…adjust!

So, there you have it for now. I will do my best to post more frequently.

I look forward to the comments and feedback.

SoCalMtgGuy