AZ Trader posted this in the Mortgage thread: http://www.businessinsider.com/are-home-....

Some quotes:

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Aided by the seemingly limitless desire of banks to lend money


During the two key years of 2004 and 2005, a total of 1.43 million HELOCs were originated in California, while only 1.25 million homes were sold.


an additional 868,000 HELOCs were originated in California during 2004-2005 as "cash-out" refinancings of previous HELOCs.


Remember, there are currently $649 billion in HELOC loans outstanding.

Here's how the scam worked. Homeowner calls mortgage originator to do either a "cash out" refi, or a HELOC. Lender uses their own "in house" appraisers to produce bogus appraisal massively inflating value, then cuts a check to the homeowner. Homeowner takes the cash and parties. Flush with cash, the next house sells for more, artificially inflating real estate values.

Note the lender interviewed, investigated, and qualified the borrower, ordered the appraisal using their own employees, and underwrote and approved a supposedly good loan that was, and is, completely fraudulent. Realtors had no part in this process, whatsoever.

The creation of fraudulent HELOC'S to create "cash" that helped artificially inflate other RE, was solely a function of the banking industry and greedy homeowners.

Did Realtors benefit from higher prices, more sales, and more commissions from buyers flush with cash? - yes they did, along with practically all industries and all Americans, until it crashed. Restaurants prospered, concert sales, las vegas, tourism, auto sales, travel industry, luxury goods, all prospered by the fraud the banks created.

Banks made fraudulent loans against faked collateral, faked by their own employee appraisers, and "no doc" loans they invented. Banks take a HUGE % of every loan they make, that the borrower is always unaware of -it's under the table, and hidden. That's why they love to make loans - it's obscenely profitable, if you know the hidden math.

Don't blame Realtors for crimes that the bankers committed.

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The creation of fraudulent HELOC'S to create "cash" that helped artificially inflate other RE, was solely a function of the banking industry and greedy homeowners.

Did Realtors benefit from higher prices, more sales, and more commissions from buyers flush with cash? - yes they did, along with practically all industries and all Americans, until it crashed. Restaurants prospered, concert sales, las vegas, tourism, auto sales, travel industry, luxury goods, all prospered by the fraud the banks created.

Oh, so when a bank robber blows the vault door and steals some of the money, if you happen along and find an open vault it's fine when you rip some off too?

If you want to assign blame for a robbery, blame the robber - they committed the crime.

If you want to assign additional blame to those who benefited from the criminals largesse, you have a wide swath of Americana to choose from - Claimjumper, Ruth's Chris, Mercedes dealers, computer companies,private schools, charities,hookers, drug dealers, the gov thru higher tax collections, resorts, airlines, tourist spots, your no longer in business favorite sushi place. The list of those in America who benefited from a 30% criminal expansion of GDP (financial services)is endless.

To single out a single group, who had no role in committing the crime, is disengenuous, at best.

Again, once the vault door is blown by a criminal that does not give you license to STEAL THE MONEY INSIDE.

"Other people were doing it" is also NOT legal or ethical justification. In fact, it just makes you part of an organized mob, which can easily be argued crosses the line into Racketeering.

Your incessant attempts to justify exactly that are the POSTER CHILD for why the Realtors need to have their near-monopolies broken up - and that's for starters.

I thank you for conclusively providing this documentation, and hope that some aggressive group of prosecutors or private lawyers find it helpful.

Gen said:

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"Other people were doing it" is also NOT legal or ethical justification.

Of course not. Pointing out that most americans benefited from fraudulent credit creation is factual and accurate. Is your waitress a "racketeer" because you tipped her a little extra from your fraudulent HELOC?

That's preposterous, and your bias is overwhelming your logic.

"Genesis wrote..

Oh, so when a bank robber blows the vault door and steals some of the money, if you happen along and find an open vault it's fine when you rip some off too?

Real Estate brokers (I refuse to use the word "Realtors" because not all RE professionals are Realtors) should have been knowledgeable to see the crash coming. Little clues like cap rates and income to price ratios should have been a big clue. There is never any excuse for any agent, whether it be mortgage or real estate, to breach their fiduciary duty to a client by putting them in harms way.

I consider understanding economic forces that drive the market as a form of due diligence. Too many real estate agents saw the market going up, and instead of educating themselves so they could understand the forces that were driving such rapid appreciation, they bought into media, government, and trade group propaganda. Consider this, many agents advised clients to refinance or obtain equity lines in order to purchase a move up home or investment property. I know I couldn't swing a cat by the tail in my area without hitting a real estate / lender that thought they were absolutely brilliant for executing such maneuvers with their clients.

Fraud was rampant by consumers, real estate brokers, lenders, mortgage companies, banking institutions, government agencies, and politicians during the boom. All stole a portion from the vault.

While I appreciated some of the educational sources and support provided by the NAR/CAR, I couldn't buy into much of the propaganda or support the bulk of their lobbying activity. So, I canceled my membership.

Most of my career has been spent on the mortgage side, and while I have dealt with many good agents, I have dealt with more incompetent and border-line predatory agents in my time. So yes, I would consider real estate agents as accomplices. In fact, in CA, there were many companies that provided real estate and loan services which is a double whammy.

Halfbrite: smack has been applied. Thanks for playing.

Dtm said:

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Real Estate brokers ...should have been knowledgeable to see the crash coming

I was a pretty good RE Broker, yet I had no clue to the corruption and fraud being perpetrated in the securitizations and secondary market - none. Did you know your companies "big shots" were selling bogus cdo's, mbs, cds worldwide?

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many agents advised clients to refinance or obtain equity lines in order to purchase a move up home or investment property.

There's that ubiquitous "My Realtor made me do it" again.

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All stole a portion from the vault.

And who was it that broke open the vault Dtm?

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I was a pretty good RE Broker, yet I had no clue to the corruption and fraud being perpetrated in the securitizations and secondary market - none. Did you know your companies "big shots" were selling bogus cdo's, mbs, cds worldwide?

Irrelevant.

Option ARMs, loans with no or near-no down payments, back end ratios over 36% - all are simple things that every Realtor saw their clients doing. Yet none of those Realtors seem to have told their clients that if they proceeded with doing something like that they were doing so against their professional advice.

An actual client advocate (you know, someone who has that alleged fiduciary responsibility you claim?) had the professional duty to advise their clients in writing and in a form that can be proved later that the actions they are taken are unsound and dangerous.

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And who was it that broke open the vault Dtm?

Ah, so you admit to stealing from it?

Thank you.

gen said:

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Irrelevant.

Sorry. I don't understand - Which part are you stating is irrelevant?

I quoted the text. What part was difficult for you to understand, considering that you wrote it?

HOW prices become overheated and over-levered does not change the fact that they have, nor that as a so-called "good broker" you have no business representing a buyer in a transaction where you have good reason to know that they cannot afford the purchase.

Once you reach the point where the only means by which one can afford a purchase is if the price they bought at continues to go up (and this is true of virtually all buyers using "fancy" financing products) how it happens is immaterial to the fact that you are now acting as a professional in assisting someone in doing something you factually know (absent willful blindness) they cannot afford to do, and which factually will ultimately fail and destroy anyone left in their "purchase" at that point in time.

Gen, the text you quoted has 2 thoughts.
1. I was a good broker and had no clue re: secondary market
2. There was massive fraud perpetrated by your companies big shots in the secondary market - did you know that?

Sorry, which "thought" do you deem irrelevant?

The rest of your last post, starting with HOW, I agree with 100%.

Half-Did you ever tell your buyer clients "Real estate never goes down?"

Did you correct one of your associates when you overheard them saying that to one of their clients?

Do you know anyone in your business who told their clients that real estate could and did go down?

Of course, the current problem with realtors is that their professional association is lobbying .gov to take active measures to keep housing prices above where they should be.

Where should housing prices be?--Where buyers in the top quartile of income can afford the average house with 20% down. In states like California that is still at least another 50% drop below where they are now.

I left California because of obscenely high housing prices which required insane leverage--and that was in the 1980s!

Half- JESUS lad, you are beating a dead horse. Let the poor creature die. People dont like realtors and there are valid reasons they dont. Maybe you aint one of the bad ones but your denial of the problem MAKES YOU THE PROBLEM !!

"Halfbrite" wrote..

I was a pretty good RE Broker, yet I had no clue to the corruption and fraud being perpetrated in the securitizations and secondary market - none. Did you know your companies "big shots" were selling bogus cdo's, mbs, cds worldwide?

Halfbrite, I didn't have to know specifically about the securitization games that were going on. All I had to do was pay attention to the garbage that was being peddled by every lender that came into my office during the boom. I also observed a spike in FICO scores and loosening in various automated underwriting models, and steering by lenders who offered alternative product approvals with outrageous pricing incentives. I also noted HELOC offers on every conforming and non-conforming loan approval- at one point, lenders offered HELOCs as casually as fast food joints offered fries with a burger. In addition to loose underwriting and irresponsible products, I looked closely at MLS data and paid close attention to financing on closed sales. I also noted that prices rose in tandem with loan limits.

In all fairness, I have an extensive background in lending including QC and underwriting, and remember the prior crash which was brought on by stated income loans and alternative products. When I was underwriting wholesale and saw the credit loosening and alternative products offered, I knew the impact it would have on the market. Then when First Franklin took off on 80/20 loans, I knew it was time to buy before the market spiked. I also knew as other lenders started offering competing products, that it would drive the market upwards as the loan limits increased. I also understood that the products would perform as the long as the market keep going up, but would eventually crash when prices grew to levels that were not sustainable and/or a negative economic event occurred. When real estate bubbles are created by fraudulent lending, they eventually run out of fuel (or energy). And when that happens the laws of economic physics prevail.

So yes, I did know that the bubble was a limited event, and I did see the crash coming. We closed our office mainly because I spent more time talking people out of buying or refinancing. Before we closed the office, I did do some REO management and handle some short sales, but even that created a conflict of interest because I knew that the buyers were ultimately being harmed.

I talked to several agents this year when our lease was up and we had to move, and I was horrified at how many agents parroted the same BS and would give me their spiel out how now is a good time to buy. After listening to the spiels (because I couldn't get a word in edge wise), I'd tell them that I am broker and would discuss certain market dynamics and specific data shown on the MLS. After a while, their eyes would glaze over and they would seek escape. Most of them didn't want to know what is really going on in the market or the economy and did not have the knowledge to engage in spirited debate.

I agree that not all agents are POS, and I also agree that agents alone did not cause the boom and bust. But they certainly did play a role. I do not happen to think that you were one of those agents, and I would put you in the category of good agents. If you did not see this bubble coming, I can understand that you just didn't know. There were many honest agents that didn't see it. With that said, I'm sure that in the future, you will be able to recognize the early signs and warnings of fraud lending bubbles, and act accordingly.

I also hope this discussion doesn't turn into a bashing session.

DTM said:

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I did see the crash coming.

I sure could have used your advice back then. I kept 1/2 my rentals (still own them, still have good equity, but not as much as I did have!) I never had a clue. I relied on 3 economists (yes, 1 was Leslie Appleton Young)and just followed them. I sure wish the economists noted the fraud in the primary loans, the secondary market, the silly appreciation, and put 2+2 together?

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you will be able to recognize the early signs and warnings of fraud lending bubbles, and act accordingly.

Nah, I'll be dead by the time this market recovers, if it ever does.

Prior to 2004, I always knew uw and loan origination was fairly "fast and loose", but nobody got hurt because for the most part, the loans were good loans and the pmi companies were legit. I've never cared much for lenders (to be honest), because of the business model of POC, SRP, Arbitrage, etc., and the big banks were worse than the mortgage brokers. Most in the lending business made 2-6 points per deal, and the stupid Realtors let them get away with it because the agents or their buyers had no clue. In August 2007 when securitization went to **** overnite, I started learning about the secondary markets and cdo, mbs, cds, etc. What an eye opener!

So I figured, if the originators are working within an unethical business model (legal, but unethical), omg what if the big shots at the top designed a way to really screw everyone worldwide? - What if the "hide the sausage" of what lenders actually charge was systemic, worldwide, and peddled to pension funds, insurance companies, and investors globally? Few understand cap rates, and fewer still understand pv of money. That's what I believe happened, and what caused the unsolvable mess we're in.

I do not believe a few bad mortgages caused the problem, at all. I think there is systemic fraud in the financial system, worldwide, with government complicity. I view the few bad mortgages (1-3%) that impaired the income stream of the securitized fraudulent paper, as just the "canary in the coal mine" that shone the spotlite to the world, that there is massive fraud in our financial system. Am I wrong?

And of course, no bashing session - good lenders are even harder to find than good RE Brokers, but the good ones are priceless, and you are one of the best, I'm sure.

Halfbrite, I agree with you in a lot of what you are saying. But, the fact that you liquidated half your properties in 2004 indicates that you did have a clue- unless of course, you were ringing the cash register out of necessity and/or doubling down on the market. However, I get the sense that you did have a clue, and on at least a subliminal level recognized the bubble in 2004. If that is the case, I would say you were ahead of the game.

But, please let me assure you that there were more than just a few bad loans. The reason for the early performance was that appreciation concealed the servicing problems. Servicers foreclosed quickly on stubborn borrowers who refused to sell while other homeowners simply took the cash and ran without destroying their credit. The appreciation pretty much concealed poor performance. As prices increased, less qualified borrowers entered the market, and at one point numerous areas were being upheld almost exclusively by dumb money and fraud.

As to the institutions, I used to joke about whether a how-to-commit-mortgage-fraud kit came free with every broker approval. The products that inundated the market were about as fraud friendly as you can get without lenders actually telling you how to fake tax returns. Do you remember the Zippy cheats on how to get a stated income 100% LTV/CLTV loan approval? What was particularly offensive and legally risky is the lenders turned both a blind eye to RESPA and the fiduciary responsibilities of California brokers. As a DRE licensed Mortgage Company, we were required to disclose all compensation upfront. As a fiduciary, it is a breach of duty to earn a secret profit (aka undisclosed YSP). On loans where my agents failed to disclose YSP, both I and the company would have been required to refund the difference between the upfront disclosure and the amount of YSP that was collected at closing should it be discovered via audit or customer complaint. I repeatedly explained this to a number of lenders, yet I would repeatedly review files at docs that had not been properly disclosed.

No doubt that there was a fraudfest and unscrupulous lending that was incurred en masse. Unfortunately, everyone in the industry turned a blind eye. I can only say that I hope that we don't repeat the same mistakes again, but since the industry still hasn't cleaned up (cough, cough, FHA), I fear that is but a pipe dream. The reality is that whenever there is a large pile of money to be made, you will find a bunch of crooks circling the pile. Consider how quickly this fraud bubble ensued following the previous fraud bubble. As soon as the bubble becomes tediously old news, no doubt short memories will prevail.

On a side note, not all lenders are bad and I know of a few that that have survived this that didn't engage in the fraud. Unfortunately, there is another sinister dynamic underway with the help of HUD which will likely lead to higher lending costs and profits which are exempt from disclosure. The dynamic is the shift to FHA lending and the Credit Watch Termination Initiative which will likely drive many FHA lenders out of business leaving the big banks free to create an oligopoly.

Rather than tightening qualifying criteria (primarily DTI) HUD has simply shifted to a policy that denies insurance for all but the big institutions. They are also seeking indemnification and recourse from lenders that made loans in good faith in accordance with HUD guidelines. While the big institutions are being given token fines and slaps on the wrist, small to mid sized lenders are being taken out of the game.

Let me explain why this disturbs me. A friend of mine was quoted around 4.75% by their big bank servicer on a FHA streamline refinance at a 1% cost plus fees (this was several weeks ago). Although we are not actively doing loans, we get still get rate sheets and have wholesale contacts urging us to set up shops, so we checked around on pricing and found that 4.50% or lower at no cost could easily be accommodated on a jumbo FHA loan. This is why we are entertaining getting back into the game.

Personally, I would prefer to deal with insurability/salability issues, non-performing portfolios, or disputing FHA insurance denials as it would be a more challenging. But saving a few hundred homeowners a month from being screwed by the big banks on government refinances would have its rewards.

What I am basically saying is that the games and BS haven't stopped and the taxpayer's and consumer's wallets are far from being closed. Only the name of game and taxpayer liability has changed.

In regard to real estate, replace location, location, location, with cap rate, cape rate, cape rate. I still see real estate as an epic investment providing the numbers work. Furthermore, I hope that more people roll their investment funds out of the stock market into investment trusts and procure assets that insure a return of as well as a return on their investment.

Cbg said:

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Did you ever tell your buyer clients "Real estate never goes down?"

No, of course not.

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Did you correct one of your associates when you overheard them saying that to one of their clients?

Actually no - I never heard one say that. To be fair, if they were that stupid they were never my associates.

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Do you know anyone in your business who told their clients that real estate could and did go down?

Yes, every agent, on every deal. (the ones I ever considered my "associates were only the top 10% - the other 90% were morons.)

Cgb, there are a lot of dumb, unethical Realtors. The public often hires a "friend in the business", then when they get screwed it gives all Realtors a bad name. When hiring a Realtor, to handle the most important financial transaction many will ever do, you really need to do some serious due diligence in hiring.

"Halfbrite" wrote..

Cgb, there are a lot of dumb, unethical Realtors. The public often hires a "friend in the business", then when they get screwed it gives all Realtors a bad name. When hiring a Realtor, to handle the most important financial transaction many will ever do, you really need to do some serious due diligence in hiring.

And there you have it. Wish i had the ability to summarize so succinctly and eloquently. Enough bagging on HB except for the term "Realtor" (I truly do cringe when I hear that considering NAR's history of lobbying). Some agents don't lobby or support lobbyist activities and prefer to let free markets and factual information prevail. Again, enough bagging on HB, he's a TF'r.

dtm said:

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(aka undisclosed YSP).

gee, honest, it's right there on the HUD-1 disclosed as POC.

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everyone in the industry turned a blind eye.

Realtors too I'm sure, but prior to 2004, maybe not so much.

But here's the 650T question: What was the primary cause of the ongoing meltdown of securitization, easy credit, and our economy?

Was it a shortage of cash flow in the fraudulent securitized product - a few bad mortgages?

Was it systemic fraud at the top of the financial services market for all securitizations, pension funds, insurance companies, that the cash flow deficiencies of mortgages uncovered?

Or was it the 40x leverage of derivatives being skimmed daily in the bankers casino, that the mortgages uncovered?

I think it was #3, but honestly, I'm not that financially smart. You would know, that's your area of expertise. Tell me, PLEASE!

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But here's the 650T question: What was the primary cause of the ongoing meltdown of securitization, easy credit, and our economy?

THERE NEVER SHOULD HAVE BEEN EASY CREDIT.

What you're really asking is "who made the free lunch go away?"

THERE IS NO SUCH THING AS A FREE LUNCH!

Drill that into your head.

# 4: Pandemic fraud on all levels. The underlying economic circumstances were ongoing and masked by the bubble.

Thank you for the kind words, dtm. Coming from you, they mean a lot to me.

Gen said:

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THERE NEVER SHOULD HAVE BEEN EASY CREDIT.

Agreed. Good grief, it's scary when I start agreeing with amateurs - twice now!

Ouch HB, Gen is hardly an amateur. Believe it or not, Gen is very savvy in regard to a number a issues on credit, real estate and lending. Please, please, rethink your comment and give credit where credit is due. Gen is not the enemy and its best not to pull on the lion's tail.