Here is the second part of this explaining article I found in the magazine "Rolling Stone" Nov. 2010.:
"What's sad is that most Americans who have an opinion about the foreclosure crisis don't care about all the fraud involved. They don't care that these mortgages wouldn't have been available in the first place if the banks hadn't found a way to sell oregano as weed to pension funds and insurance companies.
They don't care that the lender pushed borrowers who qualified for safer fixed-income loans into far more dangerous adjustable-rate loans, because their brokers got bigger commissions for doing so. They don't care that in the rush to produce loans, people were sold houses that turned out to have flood damage or worse, and they certainly don't care that people were sold houses with inflated appraisals, which left them almost immediately underwater once housing prices started falling.
The way the banks tell it, it doesn't matter if they defrauded homeowners and investors and taxpayers alike to get these loans. All that matters is that the homeowners pay their bills.
It's undeniable that many of the people facing foreclosure bear some responsibility for the crisis. some borrowed beyond their means. Some even borrowed knowing they would never be able to pay off their debt, either hoping to flip their houses right away or taking on mortgages with low initial teaser rates without bothering to think of the future.
The culture of take-for-yourself-now, let-someone-else-pay-later wasn't completely restricted to Wall Street. It penetrated all the way down to the individual consumer, who in some cases was a knowing accomplice in the bubble mess.
But many of these homeowners are just ordinary Joes who had no idea what they were getting into. Some were pushed into dangerous loans when they qualified for safe ones. Others were told not to worry about future jumps in interest rates because they could just refinance down the road, or discovered that the value of their homes had been overinflated by brokers looking to pad their commissions."
This is just a part of the article written by Matt Taibbi, Magazine "Rolling Stones, Nov.2010.
Wednesday, March 23, 2011
The Mortgage Crisis - 1.
I found a good article in the Magazine "Rolling Stone", Nov. 2010 about "The Mortgage Crisis Reveals" that explains what happened with loans before the bobble broke in Sep. 2006 and why it happened. As the article is very long I have taken parts out of it that explains so much. Read yourself:
"In the old days, when you took out a mortgage, it was probably through a local bank or a credit union, and whoever gave you your loan held on to it for life. If you lost your job or got too sick to work and suddenly had trouble making your payments, you could call a human being and work things out. It was in the banker's interest, as well as yours, to make a modified payment schedule. From his point of view, it was better that you pay something than nothing at all.
But that all changed about a decade ago, thanks to the invention of new financial instruments that magically turned all these mortgages into high-grade investments. Now when you took out a mortgage, your original lender - which might well have been a big mortgage mill like Countrywide or New Century - immediately sold off your loan to big banks like Deutsche and Goldman and JP Morgan.
The banks then dumped hundreds or thousands of home loans at a time into tax-exempt real estate trusts, where the loans were diced up into securities, examined and graded by the ratings agencies, and sold off to big pension funds and other institutional suckers.
Even at this stage of the game, the banks generally knew that the loans they were buying and reselling to investors were shady. A company called Clayton Holdings, which analyzed nearly 1 million loans being prepared for sale in 2006 and 2007 by 23 banks, found that nearly half of the mortgages failed to meet the underwriting standards being promised to investors.
D. Keith Johnson, the head of Clayton Holdings was so alarmed by the finding that he went to officials at three of the main ratings agencies - Moody's Standard and Poor's and Fitch's - and tried to get them to properly evaluate the loans. But all three agencies rejected his advice, fearing they would lose business if they adopted tougher standards. In the end, the agencies gave large chunks of these mortgage-backed securities AAA ratings - which means "Credit risk almost zero".
Since these mortgage-backed securities paid much higher returns than other AAA investments like treasury notes or corporate bonds, the banks had no trouble attracting investors, foreign and domestic, from pension funds to insurance companies to trade unions.
The demand was so great, in fact that they often sold mortgages they didn't even have yet, prompting big warehouse lenders like Countrywide and New Century to rush out into the world to find more warm bodies to lend to.
In their extreme haste to get thousands and thousands of mortgages they could resell to the banks, the lenders committed an astonishing variety of fraud, from falsifying income statements to making grossly inflated appraisals to misrepresenting properties to home buyers.
Most crucially, they gave tons and tons of credit to people who probably didn't deserve it, and why not? These fly-by-night mortgage companies weren't going to hold on to these loans, not even for 10 minutes. They were issuing this credit specifically to sell the loans off to the big banks right away, in furtherance of the larger scheme to dump fraudulent AAA-rated mortgage-backed securities on investors. If you had a pulse, they had a house to sell you.
As bad as Countrywide and all those lenders were, the banks that had sent them out to collect these crap loans were a hundred times worse. To sell the loans the banks often dumped them into big tax-exempt buckets called REMICs, or Real Estate Mortgage Investment Conduits.
Each one of these Enron-ish, offshore-like real estate trusts spelled out exactly what kinds of loans were supposed to be in the pool, when they were to be collected, and how they were to be managed. In order to both preserve their tax-exempt status and deserve their AAA ratings, each of the loans in the pool had to have certain characteristics.
The loans couldn't already to be in default of foreclosure at the time they were sold to investors. If they were advertised as nice, safe, fixed-rate mortgages, they couldn't turn out to be high-interest junk loans. And, on the most basic level, the loans had to actually exist. In other words, if the trust stipulated that all the loans had to be collected by August 2005, the bank couldn't still be sticking in mortgages months later.
Why does that matter? Because when the banks put these pools together, they were telling their investors that they were putting their money into tidy collections of real, performing home loans. But frequently, the loans in the trust were complete bad. Or sometimes, the banks didn't even have all the loans they said they had. But the banks sold the securities based on these pools of mortgages as AAA-rated gold anyway.
In short, all of this was a scam - and that's why so many of these mortgages lack a true paper trail. Had these transfers been done legally, the actual mortgage note and detailed information about all of these transactions would have been passed from entity to entity each time the mortgage was sold.
But in actual practice, the banks were often committing securities fraud (because many of the mortgages did not match the information in the prospectuses given to investors) and tax fraud (because the way the mortgages were collected and serviced often violated the strict procedures governing such investments).
Having unloaded this diseased cargo onto their unsuspecting customers, the banks had no incentive to waste money keeping "proper" documentation of all these dubious transactions."
Section 1 - to be continued By Matt Taibbi, "Rolling Stone" Nov. 25, 2010
"In the old days, when you took out a mortgage, it was probably through a local bank or a credit union, and whoever gave you your loan held on to it for life. If you lost your job or got too sick to work and suddenly had trouble making your payments, you could call a human being and work things out. It was in the banker's interest, as well as yours, to make a modified payment schedule. From his point of view, it was better that you pay something than nothing at all.
But that all changed about a decade ago, thanks to the invention of new financial instruments that magically turned all these mortgages into high-grade investments. Now when you took out a mortgage, your original lender - which might well have been a big mortgage mill like Countrywide or New Century - immediately sold off your loan to big banks like Deutsche and Goldman and JP Morgan.
The banks then dumped hundreds or thousands of home loans at a time into tax-exempt real estate trusts, where the loans were diced up into securities, examined and graded by the ratings agencies, and sold off to big pension funds and other institutional suckers.
Even at this stage of the game, the banks generally knew that the loans they were buying and reselling to investors were shady. A company called Clayton Holdings, which analyzed nearly 1 million loans being prepared for sale in 2006 and 2007 by 23 banks, found that nearly half of the mortgages failed to meet the underwriting standards being promised to investors.
D. Keith Johnson, the head of Clayton Holdings was so alarmed by the finding that he went to officials at three of the main ratings agencies - Moody's Standard and Poor's and Fitch's - and tried to get them to properly evaluate the loans. But all three agencies rejected his advice, fearing they would lose business if they adopted tougher standards. In the end, the agencies gave large chunks of these mortgage-backed securities AAA ratings - which means "Credit risk almost zero".
Since these mortgage-backed securities paid much higher returns than other AAA investments like treasury notes or corporate bonds, the banks had no trouble attracting investors, foreign and domestic, from pension funds to insurance companies to trade unions.
The demand was so great, in fact that they often sold mortgages they didn't even have yet, prompting big warehouse lenders like Countrywide and New Century to rush out into the world to find more warm bodies to lend to.
In their extreme haste to get thousands and thousands of mortgages they could resell to the banks, the lenders committed an astonishing variety of fraud, from falsifying income statements to making grossly inflated appraisals to misrepresenting properties to home buyers.
Most crucially, they gave tons and tons of credit to people who probably didn't deserve it, and why not? These fly-by-night mortgage companies weren't going to hold on to these loans, not even for 10 minutes. They were issuing this credit specifically to sell the loans off to the big banks right away, in furtherance of the larger scheme to dump fraudulent AAA-rated mortgage-backed securities on investors. If you had a pulse, they had a house to sell you.
As bad as Countrywide and all those lenders were, the banks that had sent them out to collect these crap loans were a hundred times worse. To sell the loans the banks often dumped them into big tax-exempt buckets called REMICs, or Real Estate Mortgage Investment Conduits.
Each one of these Enron-ish, offshore-like real estate trusts spelled out exactly what kinds of loans were supposed to be in the pool, when they were to be collected, and how they were to be managed. In order to both preserve their tax-exempt status and deserve their AAA ratings, each of the loans in the pool had to have certain characteristics.
The loans couldn't already to be in default of foreclosure at the time they were sold to investors. If they were advertised as nice, safe, fixed-rate mortgages, they couldn't turn out to be high-interest junk loans. And, on the most basic level, the loans had to actually exist. In other words, if the trust stipulated that all the loans had to be collected by August 2005, the bank couldn't still be sticking in mortgages months later.
Why does that matter? Because when the banks put these pools together, they were telling their investors that they were putting their money into tidy collections of real, performing home loans. But frequently, the loans in the trust were complete bad. Or sometimes, the banks didn't even have all the loans they said they had. But the banks sold the securities based on these pools of mortgages as AAA-rated gold anyway.
In short, all of this was a scam - and that's why so many of these mortgages lack a true paper trail. Had these transfers been done legally, the actual mortgage note and detailed information about all of these transactions would have been passed from entity to entity each time the mortgage was sold.
But in actual practice, the banks were often committing securities fraud (because many of the mortgages did not match the information in the prospectuses given to investors) and tax fraud (because the way the mortgages were collected and serviced often violated the strict procedures governing such investments).
Having unloaded this diseased cargo onto their unsuspecting customers, the banks had no incentive to waste money keeping "proper" documentation of all these dubious transactions."
Section 1 - to be continued By Matt Taibbi, "Rolling Stone" Nov. 25, 2010
Saturday, March 19, 2011
CASH HOME SALE AT RECORD LEVELS, INVESTORS ACTIVE!
Here is another article I found in Daily News last Wednesday. That is very interesting and it is also a reason why it can be difficult to get one of the good deals for the normal (family) buyers. Look here and see what you are fighting against.
"Nearly one-third of Southern California homebuyers paid cash in February, an indication that the market remains attractive to investors.
Of the 14369 new and existing houses and condominiums sold in the region, a record 26 percent were purchased by ABSENTEE buyers, said San Diego-based MDS DataQuick.
INVESTORS made most of the cash purchases, although others were made by homeowners who'd paid off their previous mortgage and were downsizing after their children grew up and moved away, officials said.
"Investors are snapping up realtively affordable homes, and a lot of people are parked on the sideline waiting this market out", he said.
There were 4736 home sales in Los Angeles County during February and a record 27 percent were cash transactions, DataQuick said. The median cash price was $200000.
"It doesn't surprise me to about a third of the market is all-cash sales. Home prices are at rock bottom in some parts of the state", said Rober Kleinhenz, deputy chief economist at the California Ass. of Realtors.
Distressed properties - foreclosures and short sales - accounted for more than half of the resale market in February, DataQuick said.
Foreclosure resales totaled 37 percent of the market, down from 42 percent a year earlier.
Short Sales made up an estimated 20 percent of the market last month.
"This spring we'll see an infusion into the market of more traditional buyers, who aren't necessarily purchasing with an investor mind-set" President John Walsh, DataQuick said."
DailyNews 3/16/2011
One thing is sure, that must be a GOOD TIME to buy when these investors are buying up properties!
Marianne Leopold
"Nearly one-third of Southern California homebuyers paid cash in February, an indication that the market remains attractive to investors.
Of the 14369 new and existing houses and condominiums sold in the region, a record 26 percent were purchased by ABSENTEE buyers, said San Diego-based MDS DataQuick.
INVESTORS made most of the cash purchases, although others were made by homeowners who'd paid off their previous mortgage and were downsizing after their children grew up and moved away, officials said.
"Investors are snapping up realtively affordable homes, and a lot of people are parked on the sideline waiting this market out", he said.
There were 4736 home sales in Los Angeles County during February and a record 27 percent were cash transactions, DataQuick said. The median cash price was $200000.
"It doesn't surprise me to about a third of the market is all-cash sales. Home prices are at rock bottom in some parts of the state", said Rober Kleinhenz, deputy chief economist at the California Ass. of Realtors.
Distressed properties - foreclosures and short sales - accounted for more than half of the resale market in February, DataQuick said.
Foreclosure resales totaled 37 percent of the market, down from 42 percent a year earlier.
Short Sales made up an estimated 20 percent of the market last month.
"This spring we'll see an infusion into the market of more traditional buyers, who aren't necessarily purchasing with an investor mind-set" President John Walsh, DataQuick said."
DailyNews 3/16/2011
One thing is sure, that must be a GOOD TIME to buy when these investors are buying up properties!
Marianne Leopold
Fixed Rates for Mortgages drop for first time in months!
Very good for you buyers! Read this notice I found in Daily News yesterday:
"Fixed rates for mortgages drop for first time in months.
Fixed mortgage rates tumbled this week and the 15-year loan dipped below 3 percent for the first time in three months.
Freddie Mac said Tuesday the average rate on the 15-year fixed mortgage dropped to 3.97 percent from 4.15 percent. The last time the rate was below 4 percent was in mid-Decembter.
The average rate on the 30-year fixed mortgage fell to 4.76 percent from 4.88 percent the previous week. It hit a 40-year low of 4.17 in November."
One more good reason to buy!
Marianne Leopold
"Fixed rates for mortgages drop for first time in months.
Fixed mortgage rates tumbled this week and the 15-year loan dipped below 3 percent for the first time in three months.
Freddie Mac said Tuesday the average rate on the 15-year fixed mortgage dropped to 3.97 percent from 4.15 percent. The last time the rate was below 4 percent was in mid-Decembter.
The average rate on the 30-year fixed mortgage fell to 4.76 percent from 4.88 percent the previous week. It hit a 40-year low of 4.17 in November."
One more good reason to buy!
Marianne Leopold
Wednesday, March 9, 2011
Be careful, Buyers!
I found this letter in our Magazine: Realtor and I think you should hear about it, too.
"Be Careful, Buyers!
An agent in my office recently had a deal in which the clients on the other side of the transaction carelessly posted information online - and it cost them big time. A couple who had made an offer on a home shared a detailed account of their deal on a social networking site. They severely compromised their negotiating position by writing about how badly they wanted the house, and event the actual amount they were willing to pay!
Posted Jan. 31 by CB,YPN L,BL."
Please read the other article I have just posted about given too much information to the public sites.
Marianne
"Be Careful, Buyers!
An agent in my office recently had a deal in which the clients on the other side of the transaction carelessly posted information online - and it cost them big time. A couple who had made an offer on a home shared a detailed account of their deal on a social networking site. They severely compromised their negotiating position by writing about how badly they wanted the house, and event the actual amount they were willing to pay!
Posted Jan. 31 by CB,YPN L,BL."
Please read the other article I have just posted about given too much information to the public sites.
Marianne
Protecting Your Privacy on Social Media Networks
Protecting Your Privacy on Social Media NetworksSocial networking sites like Facebook and Twitter have exploded in popularity. People love sharing their personal news and views about what’s going on in their lives.
But stop and think for a moment. This information—some of which is very personal—is going up on the Internet. Outside of your trusted circle of friends and relatives, who else is viewing what you post? Spam bots, vindictive acquaintances, and even criminals may take an interest, too.
With these caveats in mind, we’re here to present some helpful hints to keep your social networking a safer, more rewarding experience:Read the social media site’s fine print - In the 21st century, information is the new currency. You wouldn’t just hand out your banking account information, so why would you give away your privacy rights on social networking sites?
Pay particular attention to what you are agreeing to share when you sign up or log into your account. Many sites push you to agree to terms that are best for them—not you. Take a moment to wade through any legalese. Some of it may exceed your personal comfort limit. Make sure your permission choices are right for you.Keep your full name and address to yourself -
According to a 2009 report by Legal & General, a UK financial services group, over one-third of social media site users have posted when they’re going to be away from their home*. If this sounds like an open invitation for criminals, you’re right. Avoid posting such private details.This same advice also applies to posting your children or grandchildren’s full names.
In a 2010 article, Consumer Reports reveals that 26% of social media users post sensitive information about their children, including photos and names**. Avoid being one of them. Everyone in your trusted circle should know the children’s names anyway, so the information is redundant.
And speaking of photos…Think twice about posting revealing photos - Even if you don’t explicitly reveal a child’s name, you may be revealing too much in what appears to be a harmless photo. Consider this scenario: You want to post a digital photo of your 15-year-old granddaughter in her new cheerleader uniform. In the photo, she’s standing in front of her school’s homecoming game. What’s wrong with this, you ask? If the photo contains the school’s name, either on uniforms or in the background, a stranger wouldn’t have too much trouble tracking down her location and identity. Consider blurring or cropping such revealing details, if you know how. If not, maybe that isn’t the best photo to share.
And what about that picture of your new expensive flat screen TV, or your family room full of gifts around the holidays?
Advertising their whereabouts may needlessly paint a target on your house for criminals. When in doubt, just share your photos privately with a trusted few.
Finally, recognize that maintaining your privacy online isn’t easy - There are people out there who want—and will do just about anything—to get your private information. We know this statement may send a cold shiver down your back, but the only way to keep information completely private is to lock it away—whether it’s stored securely or just kept in your head. Many employers now scan social media sites.
If you’re posting views they wouldn’t appreciate—like talking about how much you hate your boss—then you might want to step away from the keyboard. Once information is out there, it’s like water: It finds a way to run its course toward freedom.
Don’t let what you share today come back to haunt you tomorrow.Social media sites can be a great way to stay connected to old friends and help you make new ones. Just keep your privacy shades drawn to the appropriate level.
If you’re concerned about maintaining your privacy online, think about installing Norton 360™ Version 5.0. For the privacy of your kids, you can consider Norton Online Family, which gives you insight into your kids’ or grandkids’ online activities so you can teach them good Internet habits.
"Social Insecurity - What Millions of Online Users Don’t Know Can Hurt Them," Consumer Reports Magazine, June 2010
But stop and think for a moment. This information—some of which is very personal—is going up on the Internet. Outside of your trusted circle of friends and relatives, who else is viewing what you post? Spam bots, vindictive acquaintances, and even criminals may take an interest, too.
With these caveats in mind, we’re here to present some helpful hints to keep your social networking a safer, more rewarding experience:Read the social media site’s fine print - In the 21st century, information is the new currency. You wouldn’t just hand out your banking account information, so why would you give away your privacy rights on social networking sites?
Pay particular attention to what you are agreeing to share when you sign up or log into your account. Many sites push you to agree to terms that are best for them—not you. Take a moment to wade through any legalese. Some of it may exceed your personal comfort limit. Make sure your permission choices are right for you.Keep your full name and address to yourself -
According to a 2009 report by Legal & General, a UK financial services group, over one-third of social media site users have posted when they’re going to be away from their home*. If this sounds like an open invitation for criminals, you’re right. Avoid posting such private details.This same advice also applies to posting your children or grandchildren’s full names.
In a 2010 article, Consumer Reports reveals that 26% of social media users post sensitive information about their children, including photos and names**. Avoid being one of them. Everyone in your trusted circle should know the children’s names anyway, so the information is redundant.
And speaking of photos…Think twice about posting revealing photos - Even if you don’t explicitly reveal a child’s name, you may be revealing too much in what appears to be a harmless photo. Consider this scenario: You want to post a digital photo of your 15-year-old granddaughter in her new cheerleader uniform. In the photo, she’s standing in front of her school’s homecoming game. What’s wrong with this, you ask? If the photo contains the school’s name, either on uniforms or in the background, a stranger wouldn’t have too much trouble tracking down her location and identity. Consider blurring or cropping such revealing details, if you know how. If not, maybe that isn’t the best photo to share.
And what about that picture of your new expensive flat screen TV, or your family room full of gifts around the holidays?
Advertising their whereabouts may needlessly paint a target on your house for criminals. When in doubt, just share your photos privately with a trusted few.
Finally, recognize that maintaining your privacy online isn’t easy - There are people out there who want—and will do just about anything—to get your private information. We know this statement may send a cold shiver down your back, but the only way to keep information completely private is to lock it away—whether it’s stored securely or just kept in your head. Many employers now scan social media sites.
If you’re posting views they wouldn’t appreciate—like talking about how much you hate your boss—then you might want to step away from the keyboard. Once information is out there, it’s like water: It finds a way to run its course toward freedom.
Don’t let what you share today come back to haunt you tomorrow.Social media sites can be a great way to stay connected to old friends and help you make new ones. Just keep your privacy shades drawn to the appropriate level.
If you’re concerned about maintaining your privacy online, think about installing Norton 360™ Version 5.0. For the privacy of your kids, you can consider Norton Online Family, which gives you insight into your kids’ or grandkids’ online activities so you can teach them good Internet habits.
"Social Insecurity - What Millions of Online Users Don’t Know Can Hurt Them," Consumer Reports Magazine, June 2010
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