Real Estate Finance Currents

From dumbed-down to a 3rd world scapegoat nation

2008-09-25T23:21:00.000-07:00

"Old School Politics, Stupid"
No one appreciates being patronized. I will tell you right now, that I won't coddle anyone in this comment. I'll tell you too, that the "Dumbing down of America," is - to use some of Joe Biden's more carefully selected comments from this week - a bunch of Malarkey. It is surely in progress, but by no means has the coopting of America's free will been fully achieved. Americans have gotten complacent and lazy/laissez.

Rembember a couple months ago everyone was after loan officers and Mortgage Brokers - some rightly so, as they were and are crooks - as the subprime scapegoats. That distraction didn't work, so approximately 6 months later, a larger breakdown in the system has been revealed. In comes Fannie Mae, Bear Stears, Lehman Bros, and Freddie Mac. It's not just the Democrat's fault, it's not just the Republicans' fault. America is out of control in how it's given up control.

Meanwhile, T. Boone Pickens has taken the back seat to the weasel-oil salesman-his natural gas business partner "It's abundant...American" Aubrey _______. Of course, now analog tv is not good enough, we now need digital tv. Oh, and digital telephone lines, videophones, and the like.

For what, so we can outsource our personalities, need for intellectual stimulation and interaction, etc? I almost kicked this guy's arse when he didn't respond after opened up with "Hey, how are you?" No answer. "How's it going?" Still no answer. "Have a good evening." STILL no answer. Then, and I shite you not, someone came up as I was gathering my pet food and newspaper, and asked to have a loaf of bread rung. Big man said, "I can't, I got a line." He hadn't even looked at the next customer yet. He could easily have said, "Excuse me one moment, while I assist this gentleman who appears to have forgotten something." Very simple, honest, and courteous to both customers.

Turns out, that customer was from Germany, a tourist no less. No wonder we are despised around the world. Not because of the lack of pleasantries, but rather, the lack of awareness- more specifically, we do not care enough anymore.

I guess that is what 50 years of unchecked prosperity COULD do to you. It doesn't have to be this way though...we can bring about change. Not easily, and it does begin with shared values, and the standards kept on an individual basis/ plus families, in order to once again allow our sense of national character to thrive. Not any sense of misguided national pride, but character - which is real.

Credit here, there, now nowhere to be found!

2008-08-16T18:23:00.000-07:00

The real predacious fellows are the silent killers, the big boys. A predator is a killer by nature, but sometimes death comes more slowly. A skilled predator also chooses their victim, and if wise, doesn't over-hunt, ensuring that enough prey remain so they don't starve in the future. This is apparently not so, however, in the world of lending. The big cats (Lions, tigers, etc.,) gorged themselves at all levels, and are now in hibernation. Having removed themselves from circulation, and separating themselves from a nation in a rut, they are the unseen and forever to remain unsung heroes of capitalism for most. I figure now that the small predators, (the housecats) i.e., predatory mortgage brokers, are out of the game,it might get a bit easier to get Alt-A and A-Paper loans funded. Not only was I wrong, but worse still, working products that - when used properly - help deserving potential homeowners get into that home are now being phased out! So what gives? Why do the people in charge insist on doing open heart surgery with a bowie knife? Do they think that they are that good? Is it a blinding god-complex? Or are they just extraordinarily arrogant and greedy? Dickens and his Ebenezer Scrooge comes to mind. Sure, everyone knows that the credit crunch is on, and has been for some time now. Could this be over-doing it though? Seems to me that it really is. First, credit was too easy to come by, because banks underestimated the actual risk associated with putting all their eggs in the subprime basket when it came to turning massive profits. Let's call it what it is: they got greedy, and stuck consumers with the bill. The major banks making MAJOR money by encouraging unhealthy (long-term and through oversaturation of the products in question) actually made a bad bet, and now even honest, full doc capable home-owning hopefuls can't even get funded. Something reaks of a multi-billion dollar pyramid scheme here to me. How about you? We all remember the pyramid 'investment clubs' of the early to mid 1990's. Like travelling snake-oil salesmen, people started these pyramids openly 'among a select group of GOOD friends' but still following the formula of 1)Rope 'em in, rope in plenty and rope 'em in fast; 2)Capitalize on peoples' hope that it is - or will finally be - their turn to achieve their version of the American Dream, and 3) Get out after you get paid. When the pyramid collapses, (sometimes with the help of the IRS or other government agency) you can get off scott free, and P-A-I-D by explaining away their lack of profit-sharing with "you waited too long for it to be profitable for you." Of course your investment doesn't pay off! When your pyramid is built upon a foundation of too- good-to-be-trueness, you are practically guaranteed to lose: Notice that the pyramid is an upside-down funnel. Gravity forces solids to trickle down. It doesn't work though, when pyramids replace gravity with greed and substances affected by gravity, with money. Money + greed/ the early bird gets the worm = you D-O-N-T get P-A-I-D. Of course the major players in the investment banker game got paid. At least originally, their gamble seemed to have paid major dividends. In the long run though, their lack of attention to (albeit willingly and with purpose) the details did them in. Ultimately, overestimating the wisdom of placing their faith in proper underwriting practices - by the bankers processing applications - resulted in a raw deal. I do realize that chances are, you already know most of this. Along with the devil though, the difference this time is revealed in the details. The credit crunch started as a subprime crisis, at first blamed only on mortgage brokers and loan officers. Understandable as a mistake, though misguided it was. This first group of players were both willing and unwitting dupes on the ground level of a VERY grand scam, er um...scheme...(please excuse me,) scale. In any case, it turns out that there is plenty of blame to go around. I have already mentioned the brokers, and loan officers - the bridge between the consumer shopping for the loan, and the local bankers who made the decision to approve risky loans. That raw deal I spoke of earlier, was one of their own creation. If you don't believe me, just think back to my opening complaint regarding the availability of credit. It was originally up to these same people tightening the reigns - assuming they were able to hold onto their jobs - to loosen them when the time came. As part of the system used to regulate the supply and demand for both credit and money in general, that was their duty - to regulate, not decimate, or exploit. The happy medium is the SOLE purpose of that regulatory system! The bankers responsible for those loans that would ultimately end up packaged with other loans as the support system for mortgage backed securities (MBS's,) robbed the bank on the wrong day across from the donut shop. Those profitable deals, whose unlikely level of profitability was of course tied into their riskiness ended up accomplishing several things. First the risk was passed on through the terms of the loan- not grandfathered in as some would have you believe. So everyone from the mortgage broker/loan officer to the underwriter got their top commission and/or bonus. The brokerage firms /investment bankers made theirs too. The homeowner got their home, but without the benefit of understanding or appreciating the gravity of not paying attention to the latter half of this phrase: 'You ARE getting the good deal you think you are NOW, but you also have to stick to a schedule to come out ahead.' A sub-prime mortgage was not a bad investment across the board. There were of course, clear cases in which buyers were taken advantage of in refi's and new mortages alike, with terms that put them at a disadvantage and really brought limited tangible benefits for the homeowner/ buyer. Apart from enabling them to strip the equity from their homes, when it was not always in their best interest to do so. Also not advancing the laudable goal of clear thinking, was the motive of lining the pockets of the top players - both mortgage brokers and investment brokerages.By adding more honey to the pot, the last 5 years or so presented both a sweeter life and a more persuasive siren call for all involved. For the buyer, the temptation was to ignore the future rate-hike and burn through "their money." For the bankers and brokerage firms, you can guess the phrase most uttered back in that day: "More, more, more!" When the easy money ran out, just like the reverse funnel, er pyramid, those late to the game, or late to get out, lost out. So the big boys decided that if there wasn't any big money to be made on risky loans anymore, they would practically stop lending altogether. Share the risk and the loss, and hardly any of the financial benefits, huh? Sure some mortgage brokers make insane amounts of money during this period. What about the business model remaining a sustainable one though? http://www.cartoonstock.com/newscartoons/cartoonists/dbr/lowres/dbrn229l.jpg At the end of the day, we all share responsibility for the lending system's shortcomings - at every stage of the process, someone is, and should be held accountable. Not for every move made by every player pulling strings we can't even see, never mind hope to control. Rather, we all have duties that come with our positions in the food chain. Part of accepting that position and performing those duties is assuming responsiblities for our failures, as well as our achievements, which includes restraint. Punishing the whole team (borrowers and their brokers/ loan officers) for not matching their own avaricity. You can keep your dog from attacking the mailman or prevent him from drowning in the pool by using a choke-chain. You can also just plain choke her to death with it. So banks, loosen up the money bags for full doc, qualified buyers. We're starving over here, and everyone still stands to get what they want out of the deal - just not to the point of insanity. This time, we're all pretty much in the same boat- no pyramid/ slight of hand here. There is no cash flow, when the guy at the bottom of the funnel (upside down, remember) has decided he is full, and that no one else deserves a chance to win and cash out their chips.

I Can't Knock the Hustle, aka, "What Kind of Hustler Are You?"

2008-07-12T11:07:00.000-07:00

If it seems too good to be true, it probably is. This topic brings to mind a scene from the movie "Blow." Yes, you can glean lessons about life from a movie about the origins of the West Coast cocaine blizzard of the 70's and 80's. The scene goes like this. Johnny Depp's character George Jung (who is in this scene a child,) is asking his dad about making it big - having loads of money. I don't remember the exact question asked by young George to his dad, but here's the response:

'When you're on top, it's never as good as it seems.' "Money isn’t real, George. It doesn’t matter. It seems like it does, but it doesn’t."."

For more, check out:

http://www.filmmonthly.com/Video/Articles/Blow/Blow.html

http://www.moviequotes.com/fullquote.cgi?qnum=11562

http://www.moviequotes.com/repository.cgi?pg=3&tt=209527

Well said, and a very poignant if not timely reminder for Real Estate and Mortgage professionals still in the game. Young George was ambitious from a very young age. Who doesn't want to attain a level of success that brings financial freedom? The question is though, what are you willing to sacrifice, to negate, and to ignore; in order to get what you want. Do the ends justify the means? Are you paving the road to Hell with good intentions? Even and especially in this leaner, MEANER market. Be aware, beware, and be vigilant in limiting your exposure to fraudulent business practices, and ensuring that you do not build, maintain or stitch together your dwindling business on a foundation of fraud. Here is what happened to me, and almost got me caught up in what might be one of the greatest threats to our various specialties within the world of real estate and real estate finance. Schemes that look innocent enough, but are in fact, devious and quite damaging both to the moral fiber of our respective industries, and down the road to our entire nation's collective quality of life.

I am a relatively new agent, in that I don't have decades of experience, and this is my first time witnessing the down portion of the cycle in our business as an active licensee and participant. (I have been an Appraiser for 5 years, Mortgage Broker for 3, and a Real Estate Agent for 1.) Recently I had a former loan officer that I have known for years, but only recently found out was a loan officer in the last few years; approach me about first using my credit and then progressing to asking me to find other straw buyers. From the start something told me that this had all the trappings of a fraudulent buying scheme. As others have stated, I questioned my own nerve, wanting to believe this was just a way of making money that I was not aware of, but that was legal, and a common practice. From the start, just enough was explained about the process to get me interested and to begin the process. From what I understand, this guy has done this several times.

The more I asked about the legality of this "system," the more I kept hearing speeches that took on a hustler specific tone and "rhythm." A word of caution that once again speaks to the gall these scammers have; when I asked whether or not this was legal, the person trying to recruit me to join the ranks of the Injustice League, responded with this gem: 'It might not be ethical, but its legal.' That was my first clue. So I googled some of those terms used, and cross referenced several of them with "fraud" and "mortgage scams." Low and behold, I came across a a couple of articles that may be of some use to those of us who are less experienced with the 31 flavors of mortgage fraud, and therefore more succeptible to deception, and more insidiously to being convinced to becoming unwitting accomplices to its many manifestations. Many of us could make a lot of money if we were so inclined, with the caveat that we would also have to be willing to commit fraud, and essentially morally/ethically bankrupt. Lucky for me -- not to mention for my clients and for the already crippled housing market -- that I am neither dumb enough not to ask questions nor desperate enough to jeopardize my sense of morality, professionalism, and long term success for short term gains. Here they are, and I hope they help.

Aaron J. Feit

Mortgage Broker, United Banc - Miami Beach, FL

Sales Associate; Realtor, South Beach Real Estate - Miami Beach, FL

Appraiser, First Atlantic Appraisal Services - Miami, FL

786-260-7628

ajfeit@mac.com

http://realestate.msn.com/buying/articlenewhome.aspx?cp-documentid=546052

http://www.mortgagefraudblog.com/

http://www.netnewspublisher.com/35-million-foreclosure-assistance-scam-busted-in-maryland/

http://www.magicbullets.com/forum/showthread.php?t=299

http://www.capitaltexas.com/EthicsinRealEstate

http://www.courier-gazette.com/articles/2008/07/06/mckinney_courier-gazette/news/wnews01.txt

http://www.flippingfrenzy.com/about_fraud/index.html
07/12/2008 12:39 PM by Aaron Feit (SBG Lending Inc., DBA United Banc) Edit Delete