"It's a little game that you both play, They pretend they don't see you, you pretend you don't ditch."
It was great today to see some serious coverage of the housing issues still as bad as they have always been. Numerous channels picked up on this NY Times story about the people just not paying their mortgage anymore and getting up to 400 plus days of a free ride.
This of course is not news to readers here, but it was nice to see a full court press on the item. Some good takes:
The Housing Time Bomb
The Reformed Broker
Clusterstock
All well worth a read.
Market Ticker had the best line of the day:
If the banks can refuse to admit that a defaulted loan is in fact in default and get away with it why should the person responsible for paying that loan in fact pay? There is no need to do so for the bank to claim it's good! Sauce for the goose, Mr. Bankster.Great point.
Warren Buffet had a often used quote about gold a while back that was:
"Gold gets dug out of the ground in Africa, or someplace. Then we melt it down, dig another hole, bury it again and pay people to stand around guarding it. It has no utility. Anyone watching from Mars would be scratching their head..."
I should think we could find bookkeepers here on Earth that would see the mechanics of extend and pretend, mark to myth, and delaying foreclosures as pretty stupid as well as fraudulent. But it's the way it's done.
I do not really think I can add anymore to this story. The distortions in the economy are huge. As of late the TED Spread (a measure of interbank lending) has moved up. At the height of the crisis it was said banks were afraid to lend to each other for fear of what the other bank may be holding as assets (or liabilities). I always thought that line was junk. The banks know full well what other banks are holding and thus if they are afraid it is because they know full well their own poor balance sheet. How much more bad mortgage paper can be out there? The FED bought quite a bit and all new paper comes from the government. Just how bad is this?
I would call for a new "Stress Test". Just do one large bank, anyone will do. Send a real team of 200 examiners to just go over the mortgage side of things (first, seconds, etc) and then let's see how that comes out.
As I was thinking about this piece today a quote kept coming back into my mind form the classic film "Fast Times at Ridgemont High":
What is this fascination with truancy? What is it that gets inside your heads? There are other teachers in this school who look the other way at truants. It's a little game that you both play. They pretend they don't see you, you pretend you don't ditch. Who pays the price later? You.
Fitting.
Have a good night.
There's plenty of blame to go around in this mess, from lenders who knowingly made faudulent loans to borrowers who knowingly took them out.
ReplyDeleteIt's one thing to blame the creditors. It's another to blame the debtors. It's still another to blame the brokers, realtors and appraisers. The simple fact is that everyone is at fault.
I've been harping about fraud since I got into the real estate business, right when the bubble was taking off. Frankly, I could not believe what I was seeing. Because, you know, I try to be an honest guy, just do my job, not rip anyone off. It doesn't benefit me in any way to lie to anyone. But everywhere I looked I saw lending fraud, appraisal fraud, brokerage fraud, fraud all around.
It was very depressing, because I kept thinking, what's wrong with these people? I started saying back in 2002, look, these houses are way overpriced, these appraisals are way overvalued, these loans have negative equity and negative amortization, these buyers cannot possibly pay off these notes because their debt-to-income ratio is way too high. And I was treated like a heretic.
Now I feel totally vindicated. I had to go to a meeting the other day, and I met this realtor who said, "I don't have any listings under $300,000." As if that were a badge of honor. (She only deals with the supposed rich people, you see.) Oh, really, how many listings do you have?
"Six."
Wow. I have four listings over $300,000 and over thirty under $300,000. And they're all repossessed.
This is what I'm talking about. Would you rather sell a few homes or a lot? I'd rather sell a lot. Doesn't matter to me what the list price is, what the condition of the home is, what the ultimate sales price is, it's all money to me. If I list and sell 120 homes in a year, with prices ranging from the low ten thousands to low hundred thousands, I'll make a hell of a lot more money than if I only listed and sold say 12 in the low hundred thousands or higher.
This is what is bothering me. Yes, there was a lot of fraud going around. It is the great failure of government that the perpetrators have not been prosecuted and convicted.
That does not excuse borrowers who took out loans they knew they could not afford. Those people deserve to lose everything.
Still, it is the panic that seems to be possessing everyone. Oh, no, my house is underwater! So? That's only a problem is you're forced to sell it now.
I understand the resentment. If I were conned into taking out a fraudulent loan, I wouldn't feel any obligation to continue to make payments. I'd skip town. But I haven't been connned, and so I make regular payments on all the debts I owe, without complaint.
However, these days it seems to be chic to not accept any responsibility for one's decisions. All these people are walking away, because that's the in thing to do. I cannot abide that.
I think the key disconnect here has been how banks saw home loans. Any fool watching the home flipper shows saw full well it was a lotto ticket during the boom and if it did not pan out people would walk. Instead they relied on charts and models that said people would stop paying everything else, but not their mortgage. Another broken model.
ReplyDeleteI would agree people were getting in way over their heads, but that is a job for thos emaking the loans to figure out who is nuts. That was not done and here we are.