Bill Gross said, “We’ve only begun to see the pain from the standpoint of the homeowner in terms of those monthly payments. Defaults and delinquencies will increase as we extend throughout 2007 and then into 2008.”
“A Fed cannot afford to let homes go down by 10 to 15 percent like we saw in Japan,” said Gross, chief investment officer of Pacific Investment Management Co. or Pimco, on CNBC Television.
The turmoil in the subprime mortgage-market is a “$1 trillion problem … there are $1 trillion worth of subprimes and Alt-As and basically garbage loans,” Gross said.
He expects $250 billion of subprime and Alt-A mortgage loans to default and those defaults will fall to the balance sheets of investment stalwarts such as Merrill Lynch (MER.N: Quote, Profile, Research) and Citigroup (C.N: Quote, Profile, Research).
PIMCO: Fed can’t afford to let housing crack – NEW YORK (Reuters)
{ 21 comments… read them below or add one }
I take great offense at your sweeping generalization that appraisers were in on the scam. I am an honest appraiser and can tell you that I have lost plenty of business because I wouldn’t play the game. The way the system is set up, if you don’t hit the number that the lender wants then you are blacklisted from getting any more business from the lender. For years the appraisers have urged the Feds to establish regulations to prohibit the lender from having any contact with the appraiser and that appraisal orders should be sent to a central registry which then assigns the appraisal to an appraiser who has enrolled with the registry. The Mortgage Bankers Association and all of the other real estate lobby have consistently opposed this because they knew that it would stop them from exerting pressure on the appraiser. After the savings and loan debacle 20 years ago, the Feds required appraiser to be licensed in the belief that would prevent appraisal fraud. The problem is that they still allowed the lender to choose whichever appraiser they wanted rather than isolating the appraiser from the lender. Now we see history repeating itself. Don’t blame the appraiser who is at the bottom of the totem pole. The simple fact is that if the appraiser doesn’t play ball he won’t eat. There are plenty of laws on the books that should prevent mortgage fraud. The problem is that they have not been enforced.
Appraiser were in on the scam. Plain and simple. Yes, many were ethical and honored their fiduciary duties as licensed appraisers. But many more did not. When I make a sweeping generalization, that is because I know exactly what went on and I have many, many, many friends and associates that have first hand knowledge (they are appraisers and AE’s, brokers etc.) of what appraisers have done over the years and it wasn’t ethical business practices to say the least. It was quite the opposite.
Again, not every appraiser should be classified in the category. As with brokers and agents etc.
The low man on the totem pole?
I disagree. Based on the numbers above and the volume, it was like fast food appraisals. $100-$150 an hour isn’t too bad and definitely not what I would consider a low man on the totem pole. Yes, when you look at it on a per job basis yes. But your appraisals were what would make or break deals for the others that were in on the scam. Pushing values higher and higher. Causing the massive bubble we see now.
You bring up some great points and you seem like you were one of the ethical ones.
I also believe that they should be shielded form the lender and broker. That is a law that NEEDS to be passed.
I wholeheartedly agree with the fact that none of these laws were enforced and thus we are in WAY OVER our heads. Many heads will be placed on the chopping block and that will include appraisers, as we are seeing now.
Thanks for the comment.
RE: “The simple fact is that if the appraiser doesn’t play ball he won’t eat.”
For those appraisers who would use the above excuse… well, then by all means eat up… eat all the food you want…
but when you get food poisoning there is no one to blame but yourself and those who fed you.
- Paul
I certainly never made the kind of money figures you are citing. Of course I never worked for the mortgage mills either. If you have knowledge of inflated appraisals then you should file a complaint with the state appraisal board and with the Appraisal Foundation, FDIC, Comptroller of the Currency, HUD, etc.
One last comment, I don’t know any appraiser that can do 4-5 appraisals per day. My average time per appraisal is 4 hours (includes drive time). I think your getting a little carried away trying to make your arguement.
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
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.
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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