Central bankers met in London and had this to say about the housing crisis.
“JPMorgan (JPM.N) thinks the financial services industry is sitting on $60 billion in undisclosed losses.”
Exfrickenxactly. The losses have yet to hit the books and the only reason they are not REALLY assisting homeowners, even though it makes perfect sense, because they do not want to put these losses on paper. Thus causing their stocks to crash and their companies to go out of business.
“The head of U.S. banking giant Citigroup quit on Sunday, taking the blame for expected losses of $8-11 billion before taxes, that on top of $6.5 billion it wrote off three weeks ago.”
At least they reported the truth. Unlike Mr. Angelo Mozillo and Countrywide’s bogus numbers and BS forecast that it will get better next quarter. I would assume, Countrywides losses are close to CITI’s.
“Bank of England Governor Mervyn King said banks would take some considerable time to flush out total losses related to mass defaults on U.S. mortgages least to people ill-equipped to pay.”
Correction. It will take considerable time for them to tell the truth and for the real earnings and loss reports to surface. Meanwhile, the banks of the world will hide the TRUE losses that they KNOW are going to be sitting on their books, EVENTUALLY!
PIMCO’s Gross, characterizes the subprime crisis as a “$1 trillion problem.”
{ 23 comments… read them below or add one }
Moe, what are we waiting for? It seems that we are just sitting-by helplessly and awaiting the expected defaults and blaming everyone for this tragedy that is unfolding and may take our economy with it. I presented a solution to this crisis, at a securitization conference, that involves helping the borrower understand how it is possible to avoid default. There are millions at risk. Let’s not think that the counseling agencies will be able to get to a significant portion of these borrowers who need help. Anyway, even if you modify some of these borrower’s mortgages, don’t you think it wise to guide them not to make the spending and debt mistakes that got them into this mess in the first place? Here is a link to my Powerpoint that I presented to the securitization conference this past Sept., 2007. It offers a solution that should be implemented. What do you think?
http://www.imn.org/esb967/presentations/Sam_Bornstein_D2_430.ppt
Professor,
I do not think that your plan to educate borrowers will work and here is why. These folks are by nature always falling behind on their obligations. They will pay the phone bill one month and not pay it the next. When the phone company threatens to turn them off, then they will pay just enough to keep their phone on. They are always falling behind on their bills. Another reason is that they really have no “skin” in the game. Most of these ARMs were structured where there is zero equity in the house. If they were purchasing a home then they were sold an 80% LTV first mortgage and a 20% LTV second. If they were refinancing a home they already lived in then they would refinance 2 or 3 times in a year, each time extracting more equity in the deal so they could get some play money.
Fred..I see your point, but I am saying that now is the time when we say to this borrower..”Let’s make a deal, we will help you by loan modification, but you (the borrower) will commit to do your part by controlling your spending with guidance”. We now have a unique opportunity to gently guide this financially illiterate borrower. That is the least that we can ask of him/her, especially since we are giving them a “gift” by lowering thier mortgage payment. What is wrong with helping consumers be more responsible?.
There is nothing wrong with helping consumers be more responsible. Nothing a’tall.
HOWEVER…
Helping victims of predatory lending is not giving them a gift. And let’s be clear here. Many of these troubled borrowers are victims of the mortgage industry which includes the lenders and their investors, the brokers and loan officers, the underwriters, the appraisers (Fred excepted), and even the notaries. Housing prices were driven up artificially by the lenders and investors, and this was no accident… it was not sloppy lending practices… these guys and gals know their stuff… it was a deliberate manipulation to increase the amount of credit extended and to make YOOOGE profits.
Of course there are exceptions. Not every borrower is a victim, but sit in my office for one day, listen in on the calls we get (you can’t really ’cause of client confidentiality) and you’d see for yourself. These people put their trust in “professionals,” and they were fleeced.
- Paul
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Paul… Yopu seem to be “one note Charlie”. Whenever, I make a constructive suggestion to help the borrower you start in your rant..that the lending community is at fault for all ills. Are you willing to admit that ..maybe…some of these borrowers may have know what they were getting into.. especially with the very low teaser rates. Didn’t they expect that the rates would rise?..but oh then they will then benfit from the increased real estate prices and refinance . Unfortuantely, they bet on the wrong horse.. By the way..are you serious when you said..”Housing prices were driven up artificially by the lenders and investors, and this was no accident” ARE YOU KIDDING? Housingh prices were set by the demand, not by the real estate industry. I have no love for the unscrupulous lender, but comeon… there is enough blame to spread around to everyone.
Professor, I am absolutely serious about why housing prices skyrocketed. If you think demand is the factor, show me the population explosion that drove Southern California prices through the roof? Wall Street types and mega corporations have always manipulated markets to their advantage, whether it’s silver and gold or real estate. To think otherwise is naive. Lenders made money easily and readily available and borrowers. The more loans the lender made the more profits the lenders made. Larger loans meant larger profits. I can’t make it any more clear. Your average homeowner would never have paid $700k for a home which sold for $400k just 2 years before unless some lender was willing to value it at $700k and provide a teaser-rate loan for the property. Without such inflated appraisals and easy loans, property values and the loans for those properties would have remained affordable.
And I have admitted that not every borrower was an unsophisticated dupe, but I will say the great majority were.
- Paul
One note Charlie… funny. You need to understand that there are different people looking at our problems from different angles Professor. This is not black and white. I understand where you are coming from and I understand where Paul is coming from. Both valid arguments.
However, I see what Pauls sees everyday and you truly do not see what REALLY happened out there until you move to the legal side and see the scams and just complete raping of people in every which way, shape and form.
There wasn’t a demand of houses, it was a demand for money and greed in a lot of cases. Much of that demand can be spread to all facets of the people that are involved in any real estate transaction and essentially profit from the outcome of a sale. I don’t think you have ever worked in the industry or know what happened out there. But it was nothing short of the wild wild west.
It was demand by deception, that in turn, morphed into semi-real demand for a faulty product (toxic loans) that never ever should have been sold in the first place.
I am calling for a RECALL on loans. That’s what I’m talking about.
Lenders created this Professor. They made the crack (loans) and then yes, the homeowners smoked it (got the loan). Is there a lessor evil here? Of course, the supplier supplied it and if there was no supply, then there would be no smoking. So, he lenders whos supplies were cut off, need to reap the consequences and mark my words, they will REAP BIG TIME!
Hey Moe, we posted at the same minute “8:10″… nice.
Moe, you hit on a great point. The Professor speaks from the Ivory Tower and I, who have spent a little time in Ivory Towers myself, speak now from outside the castle walls.
My cases involve scam after scam, some of them so complex it’s impressive in a sick way… the mortgage lowlifes who used white-out and copiers to create false pay stubs forged documents are amateurs, nailing borrowers one at a time. The top level predators fleeced the masses.
- Paul
I noticed that also Paul.
Impressive in a sick way and top level predators fleeced the masses.
Thanks for the quotes Sir Paul.
Sounds like a great post for my blog.
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Hello – about a year ago I put myself in a bad situation my agreeing to buy a home from Lennar – because of my good credit they said if i could come up with 10% they could get me a loan – I had no job a the time and really needed to sell two homes to have a small enough loan that I really could afford.
Well the homes didn’t sell and they stuck me in a No Doc loan at 8.25%. The loan was thru the builders lender Universal American and was sold to Aurora – I have asked for loan guidelines by Aurora and they will not budge – Any Ideas???
Rob,
Not enough facts in your post to give much of an answer, but one thing that will be very important is whether you bought the Lennar home as an investment or primary residence. As for getting lender “guidelines” that would depend on what you are trying to get… documents regarding the internal workings of a company may not be public information, but certain documents regarding your loan may be available to you.
- Paul J. Molinaro
DISCLAIMER: My posts are for general information purposes only & are not legal advice. Please consult a local attorney for advice with your issue. I try to be accurate, but I make no guarantees. That is, I enjoy taking part in discussions, but don’t hold me to anything I write.
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