Sonoma Housing Bubble

Pulling the cork out of Sonoma's bubbly housing foolishness

Friday, June 15, 2007

It's Not Identity Theft, More Like Identity Rental.

Paging George Costanza! We have Vandelay Industries
on line one, at least that's what it seems in this New York Times article. Back in the day when people were complaining about the Seinfeld finale instead of the Sopranos finale , one of the main characters attempted to fake employment.He claimed to be working for Vandelay Industries as a
Latex salesman, although he is only trying to be hired by Vandelay Industries, the fake latex company which holds Jerry's phone number, so that he is still able to obtain unemployment checks, because that qualifies as legitimately looking for work.

What's going on out there in the "reality based community" isn't that far afield from the old days of Seinfeld. Here's a comeon that would warm the cockles of George Costanzas' heart.

Want to buy a home, but hampered by bad credit, an empty bank account or no job? No problem!

That may sound like an exaggeration of a late-night infomercial. But it is, in effect, the pitch that a number of Web sites are making to consumers, saying insolvent home shoppers can be made to look more attractive to lenders.

The sites, for example, offer better credit scores by hitching customers to a stranger’s credit card, or providing them pay stubs from a bogus company. One has even offered a well-stocked bank account to rent for a month or two.

Industry experts say these sites, which are relatively new, played a role in fueling the rampant mortgage fraud that has caused a huge spike in loan defaults in recent months because people bought homes they could not afford.

“There is a whole underground world — an online cottage industry — that has grown up that allows anyone to commit mortgage fraud,” said Constance Wilson, executive vice president at the financial fraud detection firm Interthinx.

I was reading an article online the other day about a company that sells commencement addresses to high school valedictorians, there are companies that sell term papers, and even fake degress from prestigious "uncredited universities" where one could even claim to be a "marine biologist" (Georges' dream job). It appears that it's now possible to ride through life on a magic carpet on fake paper.
When one looks at the numbers involved in this fraud how can anyone question the rising tide of foreclosures that are being predicted.

An examination of loans made last year, including prime and subprime, in which some sort of fraud occurred, showed that incidents of false tax or financial statements had risen to 27 percent from 17 percent in 2002; fraudulent verifications of deposit had climbed to 22 percent from 15 percent four years ago; and false credit reports rose to 9 percent from 5 percent in 2002, according to a report issued this spring by the Mortgage Asset Research Institute based in Virginia.

If any documents were required, it was unclear whether the bogus documents were created by do-it-yourselfers or whether they turned to the products and services sold over the Internet.

Excactly how does this little gambit work? Weeelllllll.....

One site, RaiseCreditScoreNow .com, offers to add a person to four separate $20,000 credit lines with 10 years of “perfect payments” for $4,000 (although they do not have access to the actual credit line). Doing so could increase an individual’s credit score by as much as 200 points in 90 days, the site says, and make the difference between qualifying for a home loan or not.

People with strong credit scores and a reliable payment history of at least 24 months on various credit accounts can be paid up to $1,000 for each person they add to the account as an authorized user, the site offers.

Several lawyers said it was unlikely that this practice was illegal, although many warned it could open the person renting out their credit card lines to fraud or identify theft. Attempts to contact the Web site were unsuccessful.

Yeah, I'm sure they were. I'd love to meet the doofuses they talk into renting out their good credit for these purposes. I can't imagine anyone wioth a decent credit record that would need 1000 dollars that badly.

Offically, the term is called "Piggybacking" and of course it's "technically not illegal" which explains a whole lot of what we're seeing out there. Of course the FICO people have now gotten wise and in a world beating case of closing the barn door after the horse has not only gotten out, but won the Triple Crown and gone to stud, declare:

Last week, the Fair Isaac Corporation, the company that developed FICO credit scores, said it was trying to shut down piggybacking.

Starting in September, Fair Isaac said people who were added to someone else’s credit line would not benefit from the secondhand credit history in its formula, which is used by the three major credit bureaus.

“There is going to be no way to get around the new system,” said Ron Totaro, vice president for global scoring solutions at Fair Isaac.

I think the operative word for this is "trying". If that's the best they can do they deserve everything they get.

However, this whole mess speaks to a bigger problem. If there has been fraud on this wide a scale, then our lawmakers are going to have to worry about more than just catching the bad guys pulling off the capers. They are going to have to worry about the lawabiding taxpayers out there for whom piggybacking was a ride that ended at the age of 5. Those people are not going to look fondly on any "Mortgage Bailouts"that come out of their pockets. After all, just because you've gotten away with robbing my bank it doesn't mean I have to help you carry the safe to the get-away car.

Wednesday, June 13, 2007

Foreclosure! The New Reality Show!

Ok, we've Survived, lived with Big Brother, Danced and Skated With The Stars, discovered that America's Got Talent, worshiped Idols, and now we're ready to discover that along with talent, America, You've Got Debt!!

Seems that ABC is looking for some unlucky homeowners, or rather home borrowers. You know the ones, the ones with the suicide loans.
Here's part of the come on.

Did you get a teaser loan or an adjustable rate loan and as the payments have increased, you find it harder to pay the bill? Have you tried to refinance your loan and the bank turned you down because your loan is larger than the value of the home or did the bank offer you an even higher interest rate? Are you faced with selling your home or worse, losing it to foreclosure?

You can imagine where it goes from there, Cynthia McFadden or John Quinones on the couch looking concerned, eating coffee cake and tsk tsking.

Wonder how many will take them up on their offer? There shouldn't be any shortage of candidates according to this headline.

RealtyTrac Report Shows More Than 176,000 Americans Entered Foreclosure in May

According to the article :

In another sign that the housing market is taking a major tumble, Americans across the country are getting foreclosure notices at a record pace.

New data released this afternoon indicates that one in every 656 homes in the United States went into foreclosure during May.

That's a lot of people but only the tip of the melting iceberg.

That is the highest figure they have ever recorded in their monthly report and is 90 percent higher than the numbers from a year ago.

"Such strong activity in the midst of the typical spring buying season could foreshadow even higher foreclosure levels later in the year," said James Saccacio, CEO of RealtyTrac, in a release accompanying the data.

Of course all the experts are saying , "they predicted this", yada yada yada. Sure. I guess that's why so many lenders hit the deep six.

Six of the nation's largest lenders who specialized in these high-risk borrowers filed for bankruptcy earlier this year after investors lost confidence in the $600 billion subprime market when default rates started to rise.

ABC shouldn't have annnnnnny problems finding subjects for their show. When it comes to hitting the financial wall, America's Got Talent!!

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Saturday, June 09, 2007

The One, Two Punch.

Tony Soprano and his crew may not be the only ones getting whacked. According to USA Today (and you know if you read it there.....)Realtors are taking it upside the head too. After LA Law went on the air years ago, it was written that law schools saw a sudden surge in applications. It appears that the same thing happened with Realtors and the rise of the Home and Garden Network.
In many markets across the country, the glamour of the go-go days — when investors bought homes sight-unseen and lenders didn't require down payments — are gone. In those areas now, the job of an agent is one of chasing leads, marketing like hell and chauffeuring hesitant buyers to open house after open house.

"Since the first of the year here, I've shown more homes than all of last year, and worked more hours on a regular basis," says Beach, 39, one of the top-producing agents at Coldwell Banker Elite.

For many of today's agents, this is the first housing downturn they've ever seen, and it's become a belt-tightening test of their staying power. Nearly 25% of Realtors nationwide received their real estate license in the past two years, just as the market had peaked and was turning south.

At least there's never a shortage of criminals to keep all the lawyers busy. Not so with the numbers of house shoppers, though somewhere not too much farther down the line the two worlds might intersect with a resouding crash. Many people who go into RE have careers that make the Mayfly look like Methusalah, but surely those piles of cash pouring in more than make up for it , right???

Realtors with two years' experience or less earned a median income of just $15,300 last year, according to the National Association of Realtors. After taxes, association fees and marketing costs, they pocketed a mere $9,400.

Oh. Well. Never mind. well then what was the attraction anyway?

During the real estate boom, Stafford County was one of the fastest-growing bedroom communities in the Washington, D.C., area. Working-class families flocked here in search of more affordable homes, and the local housing market exploded as developers bulldozed miles of trees to make way for sprawling neighborhoods and strip malls. The median home price here more than doubled from $172,000 at the end 2001 to a peak of $403,840 in May 2006, according to Metropolitan Regional Information Systems.

That means the typical seller was writing a 6% commission check for $24,230.

I think operative word here is was. To understand how this breaks down in the real world the article explains the cold hard realities.

Many homeowners don't realize that when they sign a listing agreement to sell, they aren't actually signing a contract with the agent. Their contract is with the real estate company's broker, who is legally responsible for the agent.

The broker gets the commission check from the seller, then splits it with the agent, who's an independent contractor. It's common for new agents to take home just 50% of their commission. More senior producers might pocket 70%.

On the sale of the median-priced U.S. home of $220,500, if the seller's broker received a 6% commission ($13,230), half would go to the buyer's broker. The sales agent might get as little as $3,308.

Out of that, the agent must pay the cost of marketing the home. And when home sales drop, marketing consumes more time and more money.

Now using Sopranos logic, just figure that for every drink or lap dance sold at The Bada Bing, T gets his taste , some body is left with the ice cubes. Speaking of ice cubes....
In a post below I mentioned that Realtors up in Sacramento had been turned into Mosquito Control personnel. Caterer can now be added to that list.

spending two days in her kitchen making soups, salads, cookies and other dishes for an open house for other agents. She printed the menu on posters and delivered them to rival real estate firms.

With a growing glut of homes for sale, she felt she had to do something to tempt local real estate agents to come see her client's $735,000 home in Stafford. On the day of the open house for the agents, she raffled off $5 lottery tickets every half hour; she didn't have enough money for bigger prizes as other agents did.

Still, Hiles spent five months marketing and showing the home before it sold in spring 2006. She got two more listings. Yet they just sat on the market.

Of course around here we've seen just how far a lavish outlay of food can get one. Remember the Hotel Chauvet "auction"?

When a deal closes, the agents often give their buyer a flowering plant, little goodies for the kids and a $50 gift certificate to cover the costs of changing the locks on the house.

They've also been known to pay $400 for a home warranty, which protects against certain unexpected repairs. And soon after the buyer moves in, the agents stop by to give them a framed watercolor painting of the new home.

I must confess I was once given a set of cheese plates (6 of them) by a Realtor I'd purchased a house from in LA, but then I only put down about 30% in cash. Nowadays I could probably get her to come in and clean it for me twice a week.

My Zimbio
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