1/5 of CA foreclosures weren't owner-occupied

What we knew anecdotally finally has a number: 1/5 of CA of the mortgages in CA that are in default aren't occupied by the people on title. This number could include people who have had to move due to job transfer, etc., but apparently, most of these absentee owners never moved in to start with. They were speculators looking to flip houses, and they lied on their paperwork to get lower interest rates and loans up to 100%. Although this plan may have worked for a few investors when the market was climbing quickly and a lack of available houses meant that inventory sold quickly, the situation changed drastically once more people tried it. Like many other investment fads of past years, the people who got on the bandwagon up to the peak could do well while those who started later lost out. But there's a key difference between this type of speculation and others in that it depended on loan fraud.

Sometimes, investors did it without their loan officer's knowledge. At other times, the loan officer and/or realtor suggested it and didn't explain to the investor that the papers that s/he was signing stated that the property would be owner occupied. In the latter case, the loan officer and/or realtor may have been trying to get a series of commissions, using inflated appraisals, and ultimately the difference in value through straw buyers who would ask for 100k or more back at close of escrow. When the scam works, the con artist makes out extremely well. And if it doesn't, the would-be investors are left with the deed, the debt, and often too much shame to report what happened. After all, it was their own greed that got them into trouble...

LA Times Article on Speculators in Foreclosure

Capital One Gets Out

Capital One has announced that it's getting out of the wholesale mortgage business. They'll lay off some 1900 people over the course of the year as they shut down GreenPoint Mortgage's main office in CA along with 31 other offices. GreenPoint's home page states that the company will honor current rate locks on loans that are "in the pipeline," but no new loans will be made.
There was a note about a related press release on the Capital One website and a link to it. However, when I went there, I was unable to locate the press release, and a search within the site for "GreenPoint" brought up no results. I did find several links to positive articles and press releases, the first one ironically noting that Fortune Magazine had declared Capital One among the top 100 companies to work for. On the other hand, this will probably remain true for those who continue to be employed with them.

The reason for Capital One's decision is that it has become less profitable to sell their loans on the secondary market. There isn't enough money in making loans to keep companies going--they have to be able to package and sell them to someone else. Those investors, however, are nervous after increasing defaults has left them with foreclosed houses and a glut of houses for sale. What this means for real estate, of course, is one less source of loans for anyone who might want to buy and thus fewer able buyers for properties that are sitting on the maket.

For a MarketWatch article, click on the following link:
Article on Capital One

Aggressive Lending Practices and Countrywide's Corporate Culture

The news is out. The questionable loans that were done for my elderly parents and some friends of ours (see entries from 7/25/07 and 7/26/07) were part of an overall corporate culture at Countrywide. This mortgage company not only targeted the sub-prime borrower, they also aggressively went after A paper clients in a manner that was aimed to them into more costly loans and squeeze every last fee out of them. They would then go on to sell the loans at a higher rate than typical because investors on the secondary market found them more valuable due to their potentially very high interest rates on ARMS. The company offered incentives to their loan reps to get them to push more expensive loans, and carefully worded scripts helped them guide borrowers toward signing up.

To read the article on Countrywide's questionable practices, click on the following link:
Countrywide in NY Times

Bank of America to Countrywide's Rescue?

So now the story is that B of A has injected 2 billion dollars into Countrywide (that after they admitted having to borrow 11.5 billion to finance home loans). B of A took nonvoting convertible stock in return--so they can eventually sell them for a lot more (with restrictions) if prices go up. For now, Countrywide's stock value has gone up to $26.25 a share. Last week, shares hit a low of $15, then rebounded a bit after the Fed cut rates. They're still at about half of what they were at their height.

What does this all mean for buyers? Anecdotally, some friends of ours were about to sell their home and buy another. However, last week, they found that because they hadn't received the purchase agreement back in a timely manner, they hadn't been locked into their interest rate. As rates suddenly climbed, they saw their buying power drop about $200,000. They were in a panic, looking for a rental as they had to be out of their house by the end of the month. Today, I talked to them, and they're getting a 30-year fixed for the agreed purchase price--from Countrywide. So yes, this is saving transactions for those who are in the middle of buying and selling.

But this situation also has a dampening effect for those who don't have to buy. It cuts further into consumer confidence. Those who would like to buy their own home worry about buying and then seeing the property lose value. Of course, if they wait for prices to come down as far as possible, interest rates will have risen by then since, as you know, it's about how big a monthly payment one can afford to make. On the other hand, there are those who remember what it was like in the early 90's when people had to move for a job or family, and they couldn't get what they owed. Some friends of ours lost their house and then experienced the humilliation of being refused credit to buy a small tv a year later.

And then there's the reverse side of the coin--people who are waiting for things to get worse, so they can pick up houses on the cheap. They're holding out to see how low things ago (and also hoping that interest rates will stay down), and then they'll buy at just the right moment. However, they're going to need the numbers to work out just right to get rent that will cover a loan (or loans!) for 90%.

So will B of A's move help save Countrywide? We'll have to wait and see if people can make their payments.

Here's a link to an article on Bank of American and Countrywide:

BofA saves Countrywide?

Smile at the Red Light!

Watch out--more cameras are cropping up at Riverside's intersections. They recently put one up on the right-turn lanes from Indiana onto Arlington, heading east. I guess too many people were making the turn from the left-most of them during the red light. Make sure to smile the next time you do that as you'll be videotaped.

Some months ago, a realtor I know was caught on tape running a light. Apparently, the video was clear enough to show her grimace as she realized her mistake too late.

I haven't been able to tell yet if the cameras are having any effect on people's habits. I suppose it's a sign of how much Riverside has grown that I now see drivers running red lights on a regular basis. Lots of our streets have speed limits of 45 and 50 miles an hour, yet we have more and more stoplights popping up to control all the cars. And when traffic gets really thick, it's sometimes necessary to wait through 3 or more light changes to make a left turn, so it seems rather inevitable that several cars at the end will run the red. But I can't come up with any ready explanation for the number of cars that just go through even though they haven't had to wait. Is everyone too distracted by the kids, coffee, and omnipresent cell phone? On the other hand, now that drivers know about the cameras, perhaps they're just looking for a moment of fame...

video on Riverside traffic cameras

Middle Class Refi Victims Don't Get Much Sympathy...

So our friends who got a couple of bad refi's to fix a botched loan (see 7/26/07) tried talking to several lawyers about their options. Two of the lawyers said flat out that they would never have a chance because no one would believe that educated professionals like them would have signed off on a loan they didn't understand. Ouch.

But that's just the point. If you can rip off people who are supposed to know better, and they can't do anything about it because they went to college, then who's left to fight? The elderly, the infirm, the people who are struggling to get into the middle class? How far can they get in a legal battle on their limited time and resources?

In the meantime, our friends report that their original lender's company has gone under. The office is dark and empty. They've tried calling the loan agent himself and keep getting a recording message that doesn't mention his current company's name. He hasn't called them back.

With taxes and insurance, their current mortgage payment is a whopping $4700 a month, and that's interest only, fixed for 5 years. They wouldn't even be able to rent their house out for $3000 a month. Our friends have good jobs, but they have small children in daycare (their other large monthly bill), and they're unable to save at all for the future. Now, there are some people out there who benefited from their misery--shouldn't these individuals be held accountable, regardless of the fact that these two made the fatal mistake of trusting so-called experts to put together good loans for them?