Subprime sausage machine proposed to replace Freddie & Fannie

At what point did we all forget the “Private Mortgage Market” was the machine that brought on the subprime crisis? Folks, this is the same machine that perfected the NINJA loan (No Income, No Job, No Assets), and whose financial creativity gave us the pick-a-payment loan, option ARMs, and the very impressive Negative Amortization loan. Yet this is the market we expect to provide the solution? This is the market that is going to replace Freddie and Fannie?

Don’t you all remember the constant stream of MBS downgrade news (More than 30,000 tranches downgraded in early 2008)? Moodys? S&P? AAA to Junk in one shot? Billions of dollars in write downs? Bear Stearns? Credit Default Swaps? Structured Finance? ABS? CDOs? No? Nothing? We don’t remember any of that?

You’ve all forgotten the major players in the non-agency (private) market? Should I remind you?

Countrywide
New Century
Option One
Fremont
First Franklin
Lehman Brothers
Bear Stearns
PHH
GMAC
Aurora

Those don’t ring a bell? Good, we’ve all forgotten. Now lets hand this same private market the keys to the entire US mortgage market. It’ll end better this time.

But wait! There’s more! They’ll also get the backing of the full faith and credit of the United States of America (‘s taxpayers)!

From MSNBC:

Obama bets on private market in housing recovery

When another participant asked what “fills the gap” if Fannie Mae and Freddie Mac, the government’s mortgage finance companies, are eliminated as proposed, the president endorsed the Corker-Warner plan, a proposal he obliquely referenced in his Tuesday housing speech. Sens. Bob Corker, R-Tenn., and Mark Warner, D-Va., have proposed that Fannie and Freddie be replaced by a new institution called the Federal Mortgage Insurance Corp., which is intended to provide a guarantee against massive losses in the mortgage-backed securities, but play a more a more limited role in the overall housing market.

“We’re confident that the private market can step in, do a good job, and the government can be a backstop … but it’s not the dominant player,” said Obama.

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106 Responses to Subprime sausage machine proposed to replace Freddie & Fannie

  1. grim says:

    ..but somehow I’m the biased one, the observer with a vested interest in the status quo, because I think that perhaps our current legislature isn’t qualified to create, from scratch, a system to replace the current, and leave us better off.

  2. grim says:

    Folks, remember something here, Agency MBS issuance fell dramatically as the housing bubble inflated and new mortgage products became available out of the private market.

    In the late 90s, the GSEs controlled something like 80-90% of the US mortgage market. During the peak of the mania (2005-2006), GSE issuance fell to somewhere around 40-50% of the total market.

    So when we all point to the fact that the GSEs are now controlling some 95% of the mortgage market, realize that this is a return to the status quo of the 1980s and 1990s, and is not a new phenomenon at all.

    From 2003 to 2007, the private mortgage market ruled lending, not the GSEs. Unfortunately, the GSEs followed the private market downwards into more riskier loans, but make no mistake. GSE originated MBS performed significant better than non-agency securities, especially the exotics, over these periods. Even at their worst, the GSEs originated higher quality MBS than the private market.

  3. anon (the good one) says:

    Mike, since you are now open minded, and after you are done with Ragnar’s homework reading, watch this:

    Academy Award-winning filmmaker Alex Gibney (Taxi to the Dark Side, Enron: The Smartest Guys in the Room) presents his take on the gap between rich and poor Americans in “Park Avenue: Money, Power and the American Dream”. Gibney contends that America’s richest citizens have rigged the game in their favor, and created unprecedented inequality in the United States.

    Nowhere, Gibney asserts, is this more evident than on Park Avenue in New York. 740 Park in Manhattan is currently home to the highest concentration of billionaires in the country. Across the river, less than five miles away, Park Avenue runs through the South Bronx, home to the poorest congressional district in the United States.

    In “Park Avenue: Money, Power and the American Dream”, Gibney states that while income disparity has always existed in the U.S., it has accelerated sharply over the last 40 years. As of 2010, the 400 richest Americans controlled more wealth than the bottom 50 percent of the populace — 150 million people. In the film, Gibney explains why he believes upward mobility is increasingly out of reach for the poor.

    Ragnar says:
    August 7, 2013 at 2:13 pm

    Michael -hmm, this change of perspective seems to have happened all too fast. Maybe think it over longer. Even better, I suggest reading the novel Atlas Shrugged. By the time you finish you should either love it or hate it.

  4. 1987 Condo says:

    #2..not sure facts will help change some peoples mind’s (sp?)….at least Clot never actually gave up his RE license so he is set to jump back onboard!

  5. Comrade Nom Deplume says:

    [3] anon,

    Post hoc ergo propter hoc. An essential element of socia . . ., er, progressive philosophy.

  6. JJ says:

    Funny I think Lehman, Bear and Countrywide did not sell a single house. Legally in the US Banks are not allowed to directly own real estate brokers.

    Owners hired realtors to find qualified buyers to sell their home. Realtors since they get paid on commission have a tendency to talk people into buying houses they cant really afford. Then with help of mortgage brokers they are in bed with pushed through these loans which was securitized. Then widows and orphans bought this A rated MBS paper and when it all fell apart Auntie Sally was eating Dogfood and the realtor kept his commission on houses he never sold, mortgage broker kept his commission on houses he never should have sold and banks got massive lawsuits and went out of business.

    First step if we go back to private mortgage insurance is to put a claw-back provision in place where for every mortgage that defaults in first five years realtor owes back the commission and same for the mortgage broker. If they dont pay back they should go to jail.

  7. JJ says:

    Realtors are already loosing grip of rental market. Zillow, Trula and Craigslist let landlords advertise for free and VRBO is a small fee.

    Renters dont like paying realtors a large fee and owners know they can get more rent per month on fee free listings.

    If the MLS site for a flat fee let folks like me advertise their own homes for sale the whole realtor model would fall apart. NJ is even fighting the redfin model.

    Realtors will go the way of travel agents in like ten years

  8. JSMC says:

    #1

    Grim, aren’t you a realtor? Wouldn’t you (in theory) benefit from easy access NINJA loans? Lot of new homes could be sold that way. I wouldn’t think of that as a vested interest, just the opposite.

  9. Painhrtz - Disobey! says:

    anon yes through the tax system, licensing requirements, regulatory agencies, subsidies etc, etc etc.

    If you pull off your progressive lenses for a sec this has always been the hallmarks of a centralized economy haves and have nots. USSR, currently China, Venezuela, and a host of other socialized economies. government is a negative force for good unless it only maintains the rule of law. Even then it is still governed by individuals who are far from infallible.

  10. Painhrtz - Disobey! says:

    Grim big surprise there should not be equality in lending, only risk assessments. The government is full of idiots with short memories

  11. Anon E. Moose says:

    Anon [3];

    Anyone talking about ‘income disparity’ is nothing but a class warrior, a huckster of green-eyed envy. You’d “Rather have the poor poorer, so long as the rich were less rich.

  12. Comrade Nom Deplume says:

    [2] grim,

    That may have happened but Obama doesn’t want to return to those days. Rather, the end product will be to convert banks into public utilities with largely regulated product offerings and lending standards.

    Further, I always tell my clients that policy informs interpretation and design. One of the underlying democratic policies here, and one that has been evident for a long time, is housing affordability. Another, more remote, policy (except in NJ and a few cities where it’s front and center) is an end to geographic disparity based on affordability and the concominant division or segregation based on class. In short, the dems think that housing is just too damn expensive! And they have tried to address this for decades. I can only imagine that having to cheer on a housing price recovery to foster economic recovery must be leaving a bitter taste in some mouths.

    The easiest solution to out of control housing costs is to regulate prices but that tool just isn’t available. So if you cannot regulate prices, what do you regulate? You regulate the factors that you can control that drive prices up. You regulate availability of credit by getting the banks to agree to a trade: you get the entire business but now we get to tell you how to run it. You also regulate or eliminate factors that make ownership of luxe homes more affordable, like the MID. You think killing the MID is just about revenue? It it were, why does the left want to end it altogether, as was discussed on an MSNBC panel over the weekend? A side effect of killing the MID would be to affect affordability, mostly on the higher end, and free up inventory.

    The dems, and some repubs, tell you that they want affordable housing and, in sotto voce, less disparity geographically. What they won’t tell you is that for this to happen, it means that home values in large swaths of the country will get crushed and stay crushed. And while I gather they aren’t happy at the prospect of seeing that much wealth extinguished, it is a necessary sacrifice for their version of the greater good. But good luck getting anyone on the left admitting that on camera or in print.

  13. Dan in debt says:

    Gator,

    i may have missed the boat. My townhouse was on the low end in the complex, now it’s at the high end. I’ll find out Wednesday.

  14. 1987 Condo says:

    Confused, Middle class shrinks by 10 percentage points, but upper class grows by 6 and Lower class grows by 4…seems out of the 10 points, 60% moved up…isn’t that good?

    From 2011 Pew Report:

    “In 2011, this middle-income tier included 51% of all adults; back in 1971, using the same income boundaries, it had included 61%. 2 The hollowing of the middle has been accompanied by a dispersion of the population into the economic tiers both above and below. The upper-income tier rose to 20% of adults in 2011, up from 14% in 1971; the lower-income tier rose to 29%, up from 25%.”

    http://www.pewsocialtrends.org/2012/08/22/the-lost-decade-of-the-middle-class/

  15. Michael says:

    Guys, I can attest that this is me. I’m not here to play stupid games with you. Who the heck is “pat” anyway?

  16. Michael says:

    Grim- You just made me take out my puke bag. This is the problem with the U.S. economy, it’s freaking rigged with handouts. I can’t get over this. Free market? Capitalism? These bankers are the poster boys for free market and capitalism, yet are quick to take advantage of govt programs that are socialized. We are going to let them have this opportunity at immense profits with limited competition (legal cartel) all at the risk of the taxpayer???!!?? Let me go use this puke bag.

  17. grim says:

    Jobless claims up by 5k to 333k, 4 week average down 6250 to 335k.

    4 week average is the lowest since November 2007.

  18. grim says:

    That may have happened but Obama doesn’t want to return to those days. Rather, the end product will be to convert banks into public utilities with largely regulated product offerings and lending standards.

    Largely regulated product offerings? No, sorry, that won’t happen. There will be subset of the market which will be regulated, primarily due to the fact that the regulation mechanism is will be the qualification criteria for government backed insurance on the loans. However, I sincerely doubt that this will prevent lenders hell-bent on gaining market share from securitizing non-insured MBS, or third-party insured MBS (which will only marginally be better than trash, and only if you trust the insurers).

    The reason the market “is” the GSE market is because the origination, underwriting, and securitization processes are all transparent. All loans in the portfolio need to meet Freddie and Fannie’s strict conforming criteria. Therefore, agency paper is widely understood in the market, and commands the best levels of liquidity. The minute you step outside of agency, everything is an unknown, every security can be different, the levels of due diligence required skyrocket. While standardization would be ideal towards creating a liquid and open market, it begins to enable a situation that allows for “financial creativity”.

  19. joyce says:

    NJ Gator,

    From yesterday… thank you.

  20. Comrade Nom Deplume says:

    [16] Michael,

    The GSE initiative has zero chance of passing, mostly because it will run into bipartisan oppo. Further to my earlier post, while policy wonks want to see froth come out of this market, the same cannot be said for congresscritters. Anything that threatens to slow the flow of credit to their constituents and muni governments (who are as addicted to housing credit and high valuations as an addict to crack) will be DOA on the hill.

  21. Michael says:

    3-anon- I already saw that. It def makes me sick. I just don’t understand why someone would need a billion dollars and still want more. It’s rather disturbing. Does anyone comprehend exactly how much money that is? We have people walking around with a net worth of 30 billion!!! 30 freaking billion dollars???? Of course it’s creating a major problem with income disparity. How would it not, when an individual is worth more than some countries. My wife works at Vornado REIT. Talking to some of the big dogs, she was asking why some of the people at the top are still working, the answer she received…..”power”. Never ending hunger for power. It’s an incredible driver of these individuals to keep on accumulating more and more, even though it would be better if they let this money “trickle down” and be a driver for the U.S. economy. Instead this money is sitting offshore somewhere, to avoid taxes, all in the name of profit, to feed this never ending hunger for power. Pretty disgusting, ESP since they use this money (power) to buy out the govt (lobbyists) to achieve an even greater accumulation of money ( power). Croney capitalism at its best.

  22. Comrade Nom Deplume says:

    [18] grim

    I disagree. This market is already more heavily regulated, both directly and indirectly, than many appreciate. Some regulation takes the form of guidance, which is the proverbial offer you don’t refuse. Most regulation is indirect but mandatory, like provisions of CRA, RESPA, HOEPA, TILA, ECOA, and general rules for capital. We are already very close to the government prescribing lending criteria, rather than merely suggesting it and then asking pointed questions if you deviate.

    Much of the lending you complain of was done with the quiescence, and even the urging, of regulators. It wasn’t done behind their backs.

  23. Michael says:

    12-comrad- Very interesting points. I never even thought about that angle. Thinking about it, you have a strong point about the democrats end goal of bringing a more balanced housing market. They def think it costs too much in certain areas (ESP NYC and sf) The sad part is that they don’t realize they are doing more harm by trying to help.

  24. joyce says:

    You can, right now this very second, advertise on MLS for a flat fee as a private individual. I know someone who did this selling their house in Livingston. Has the realtor model falling apart while I wasn’t looking?

    JJ says:
    August 8, 2013 at 8:27 am

    If the MLS site for a flat fee let folks like me advertise their own homes for sale the whole realtor model would fall apart.

  25. Michael says:

    And a report in the New York Times said Booker has a stake of more than $1 million in a start-up social media website called Waywire, highlighting his ties to tech executives.

  26. joyce says:

    Comrade/Moose,

    Even if many generations ago, someone earned their fortune through work… and if it happens sparingly today through honest work… that doesn’t negate the fact that most today earn/maintain/expand their fortunes by using the govt to their advantage. I wholeheartedly agree with Pain’s comment.

    I don’t want to steal anyone else’s property (money) if they earned it honestly. I just want to turn off their revenue spigot (the govt/taxpayer).

  27. Michael says:

    You want to get disgusted, how about the state of robbery in the healthcare industry. What a joke. Health insurance creates an artificial market, where these individuals rob their way to wealth. Sickening.

    http://www.nytimes.com/2013/08/04/health/for-medical-tourists-simple-math.html

  28. joyce says:

    Comrade,
    It baffles me that you and others continue to think Obama wants to do certain things based on his rhetoric when everyone one of his actions points to more and more corporatism, just like everyone else. And that goes for the congresscritters too. Lastly, (from a high level) all regulation inherently hurts start up competition in favor of already established large companies cause they can easily absord compliance costs while the former cannot.

    Comrade Nom Deplume says:
    August 8, 2013 at 8:56 am
    [2] grim,

    That may have happened but Obama doesn’t want to return to those days. Rather, the end product will be to convert banks into public utilities with largely regulated product offerings and lending standards.

  29. Michael says:

    26-Joyce- Boom!!!!

    “I don’t want to steal anyone else’s property (money) if they earned it honestly. I just want to turn off their revenue spigot (the govt/taxpayer).”

  30. Michael says:

    28-Joyce- Double boom!! Keep it coming!!

    “It baffles me that you and others continue to think Obama wants to do certain things based on his rhetoric when everyone one of his actions points to more and more corporatism, just like everyone else. And that goes for the congresscritters too. Lastly, (from a high level) all regulation inherently hurts start up competition in favor of already established large companies cause they can easily absord compliance costs while the former cannot.”

  31. Michael says:

    27- Another great article on the state of healthcare. Actually it’s a must read. From Time magazine.

    “Bitter Pill – Why Medical Bills Are Killing Us”

  32. grim says:

    Regulation? Who needs regulation … the crisis is over. From Bloomberg:

    Serious U.S. Mortgage Delinquencies Fall to Five-Year Low

    The share of U.S. mortgages that are seriously delinquent plunged to the lowest level in almost five years as improving employment and rising home prices move the foreclosure crisis closer to an end.

    The percentage of home loans that were more than 90 days behind or in the foreclosure process fell to 5.88 percent in the second quarter from 7.31 percent a year earlier, the Mortgage Bankers Association said in a report today. That was the lowest since the third quarter of 2008, when it was 5.17 percent.

    “It’s a dramatic improvement over last year,” said Jay Brinkmann, the Mortgage Bankers Association’s chief economist, said in a telephone interview today from Washington. “It’s not back to where we should be. It’s not back to where we were. But it’s a major decline.”

    The housing recovery has given delinquent borrowers a reason to catch up on payments or seek loan modifications as home prices increase at the fastest pace since 2006. The share of U.S. homeowners who owe more than their properties are worth fell to less than 20 percent in the first quarter as values surged in hard-hit markets, according to CoreLogic Inc.

  33. Michael says:

    31-” In a civilized society we would call the latter armed robbery.”

    Thank you for the link

  34. Michael says:

    Shetty is not a public health official motivated by charity. He’s a heart surgeon turned businessman who has started a chain of 21 medical centers around India. By trimming costs with such measures as buying cheaper scrubs and spurning air-conditioning, he has cut the price of artery-clearing coronary bypass surgery to 95,000 rupees ($1,583), half of what it was 20 years ago, and wants to get the price down to $800 within a decade. The same procedure costs $106,385 at Ohio’s Cleveland Clinic, according to data from the U.S. Centers for Medicare & Medicaid Services.

    “It shows that costs can be substantially contained,” said Srinath Reddy, president of the Geneva-based World Heart Federation, of Shetty’s approach. “It’s possible to deliver very high quality cardiac care at a relatively low cost.”

  35. 1987 Condo says:

    #27..I think you need to prudently plan to go abroad for certain medical procedures/operations. Perhaps, one potential bright spot in the ACA (Obamacare) will be the utilization of “reference based pricing”. As the transparency is increased on hospital fees, health plans are starting to cover the more modest “fee” and let the member pay for the difference if they choose a hospital that is charging 3x the rate another group charges. This has the potential to actually “bend” the cost curve.

  36. JJ says:

    If I advertise on MLS for a flat fee I must agree to their policy of buyers brokers. Meaning Joey Bag of Donuts has Grim as a broker and I have to give Grim a big hunk of money just for driving Joey Bag of Donuts over to look at the house.

    MLS should be 100% FREE. Al Capone in prohibition did not control booklegging as tight as the NAR controls home sales.

    joyce says:
    August 8, 2013 at 9:50 am

    You can, right now this very second, advertise on MLS for a flat fee as a private individual. I know someone who did this selling their house in Livingston. Has the realtor model falling apart while I wasn’t looking?

    JJ says:
    August 8, 2013 at 8:27 am

    If the MLS site for a flat fee let folks like me advertise their own homes for sale the whole realtor model would fall apart.

  37. Painhrtz - Disobey! says:

    Every law that was ever written opened up a new way to graft.

    How anybody expects a man to stay in business with every two-bit wowser in the country claiming a veto over what we can say and can’t say and what we can show and what we can’t show — it’s enough to make you throw up. The whole principle is wrong; it’s like demanding that grown men live on skim milk because the baby can’t eat steak.

    There is no worse tyranny than to force a man to pay for what he does not want merely because you think it would be good for him.

    Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.”

    God I love Heinlein

  38. Michael says:

    36-1987 condo- I think we should just get rid of the artificial market created by health insurance. It allows people to not even question their bills. Imagine if the car industry was supported by insurance, you would be paying 100,000 for a Honda civic. Faster we get rid of insurance, the quicker we get rid of the giant rock holding down our economy. Health insurance creates an artificial market, plain and simple. No one would pay 30 to 50 thousand to have a pregnancy. Take away insurance and there would be no way to support these prices( I mean robbery aka legal extortion).

  39. anon (the good one) says:

    @RBReich: Issue isn’t size of the government but who it’s for: hedge-fund and private-equity income taxed as cap gains or your income taxed at higher.

  40. Michael says:

    38-pain- lmao good stuff

    “Throughout history, poverty is the normal condition of man. Advances which permit this norm to be exceeded — here and there, now and then — are the work of an extremely small minority, frequently despised, often condemned, and almost always opposed by all right-thinking people. Whenever this tiny minority is kept from creating, or (as sometimes happens) is driven out of a society, the people then slip back into abject poverty. This is known as “bad luck.””

  41. JJ says:

    My last kid the bill beginning from first OBGYM appointment till check out at hospital was $86,000, wife was on bedrest in hospital for awhile.

    Anyhow I made a $10 copayment. So if delivery was $20 bucks or $200,000 bucks it sill would be $10 bucks for me.

  42. yome says:

    After the latest results from Fannie Mae  FNMA and Freddie Mac FMCC , the two mortgage finance giants are on track to have sent over $80 billion to the U.S. Treasury over the first half of 2013 alone.How big is that? Well, per Congressional Budget Office numbers, it’s enough to cover the entire cost of the food stamp program that has splintered Congress. A farm bill only passed the House after food-stamp appropriations were left out of it.It should be noted that the dividends are unusually large, because Fannie Mae in the first quarter decided to take advantage, for tax purposes, of years of losses. By releasing the valuation allowance, that triggered a $50.6 billion payout to Treasury, on top of the dividends it’s paying.Even without it, the mortgage giants are raking in the cash now that house prices are improving and their share of mortgage finance has increased. At the current rate, the twins as they’re called would be able to offset about three-quarters of the food-stamp program’s $80 billion annual cost.These inflows to Treasury from Fannie and Freddie will make President Barack Obama’s call to wind the giants down all the trickier to implement.– Steve Goldstein

  43. grim says:

    If I advertise on MLS for a flat fee I must agree to their policy of buyers brokers. Meaning Joey Bag of Donuts has Grim as a broker and I have to give Grim a big hunk of money just for driving Joey Bag of Donuts over to look at the house.

    MLS should be 100% FREE. Al Capone in prohibition did not control booklegging as tight as the NAR controls home sales.

    Let me get this straight. You think Realtors are dead, but then you point to the MLS system as needing to be open. The whole point of the MLS is to enable broker to broker cooperation, not to be an avenue for advertising. Without the real estate business and broker cooperation agreements, the MLS systems wouldn’t have any reason to exist.

    You can advertise your house for sale in thousands of different places. There are plenty of free and paid avenues for marketing your property.

    I’d argue that word of mouth is probably the most powerful way to sell your property, especially if you are in a good neighborhood with deep roots/connections.

    My parents bought, sold, built lots of houses, they never once used a realtor, it was all word of mouth.

  44. grim says:

    My last kid the bill beginning from first OBGYM appointment till check out at hospital was $86,000, wife was on bedrest in hospital for awhile.

    Not bad, between the wife and the kid, we were just shy of a million dollars. One doctor alone billed us more than $10,000 a day, and wasn’t participating in any insurance programs.

    I think the wife racked up somewhere around $650k, and the little one was around $300k.

  45. joyce says:

    JJ
    (37)
    Revealing your true colors once again: you want to profit from other’s work.

    (42)
    Whether your realize it or not (and I’m you don’t and don’t care), you just articulated one of the major problems which is the separation of the cost of care from the patient. Insurance for child birth (without unforeseen complications) is not real insurance. You have at the very least several months notice of this upcoming event.

  46. njescapee says:

    Obama administration using housing department in effort to diversify neighborhoods

    Read more: http://www.foxnews.com/politics/2013/08/08/obama-administration-using-housing-department-to-compel-diversity-in/#ixzz2bOBCobcw

    Ho will this change the defacto segregation in the affluent northeast towns and cities?

  47. Michael says:

    42-jj- holy shit, you proved my point perfectly!!! Artificial market, created by health insurance, leads to unrealistic prices. (Legal extortion) How? The avg dumbass says, “who cares what the price is, insurance pays for it”. They don’t question the charges, insurance is paying. Guess what, you are overpaying for a service and bringing down our economy with it. What the legion of dumbasses don’t realize, is that you are paying for it. When it comes time for a raise and it all goes towards higher health care premiums, instead of increasing your buying power, that leaves you with no way to keep up with a rise in prices in other parts of the economy. So basically, the health care is robbing the other parts of our economy from what’s rightfully theirs, by sucking (robbing) the money dry by forcing to overpay for a service. I’m sick at how ignorant the majority of Americans are. But go complain about overpaying for education, cause its too much money to pay a college professional taking care of your child’s future 100,000 after 20 years of experience. The masses have lost their minds.

    Should we create insurance for education?

  48. anon (the good one) says:

    @Harpers: Est. # of homeowners whose foreclosure-abuse settlements were affected in May by a “clerical error”: 96,000 (Aug ’13, 1 of 2) #HarpersIndex

  49. anon (the good one) says:

    @Harpers: Amount these homeowners were underpaid: $44,600,000 (Aug ’13, 2 of 2) #HarpersIndex http://t.co/T7UCT7fJvJ

  50. JJ says:

    Word of mouth is dead. My realtor was doing word of mouth to rent my place. Meanwhile I got folks from England, Manhattan, upstate NY and the midwest to rent.

    Then I got heat from her, how do I know they will fit into the neighborhood? Did you meet them, did you get pictures, did you get a credit check. She seemed like a dropped her toast butter side down. I was like they pay up front cash, deposit equals my deductable on my renters policy. I checked their digital footprint best I could. It made her very nervous. Then I said I would pay her some money to help me manage property, she was very happy as I opened a whole new avenue income stream she never thought of. Then shock was everyone was high class, A Managing Director at an Investment Bank, a man who owns a mansion in london and a home in Miami who sits on three boards of directors, A famous multi-millionare horse breeder. She was like I dont get it, the folks are not using realtors, booking places sight unseen and paying 100% up front cash with a large deposit all non-refundable.

    My wife tried to explain rich folk just have a few minutes at work, place and ad with tons of pictures, add mapquest, google, give detailed explanations and add a book it now feature to a credit card. She still was I still dont get it. But after I explained to her, I dont get it either, but that is how the market is going, I can rent night and day 24/7 and all you need to be is the emergency number and help me out with little requests I will pay you some. She was like so I am the realtor but you get the tenants, you sign contracts, you collect money. I go yes. And I pay you directly. You kinda work for me as a direct employee. Then a lightbulb went off in her head as if in 55 years I told her something amazing. She was like so you are telling me every single person in town who rents their place directly that we realtors complain about you are telling me I could get paid. YES. Just tell them you are nearby, cell phone on, little things like tenant locked out, they need beach chairs, maybe a restaurant reservation, show them how AC work you get a cut. She said thank you very very much and even sent me a dinner certificate.

    I may be dumb, but I suprised the realtor. Realtors are stuck thinking home selling is their own source of income. It should be your smallest as that is a dying business model.

    grim says:
    August 8, 2013 at 10:37 am

    If I advertise on MLS for a flat fee I must agree to their policy of buyers brokers. Meaning Joey Bag of Donuts has Grim as a broker and I have to give Grim a big hunk of money just for driving Joey Bag of Donuts over to look at the house.

  51. 1987 Condo says:

    #51… Classic!!! “She seemed like a dropped her toast butter side down”

  52. grim says:

    Zillow and Trulia are the two largest real estate search websites used by the public, Zillow currently allows free fsbo listings, trulia does not.

    Why bother even paying a flat fee to get on the MLS? You can get 50% market exposure for zero cost.

  53. chicagofinance says:

    “Be wary of strong drink, it can make you shoot at the tax collector…and miss.”
    ― Robert A. Heinlein, Time Enough for Love

  54. Ragnar says:

    Michael, (48)
    Insurance for education? That’s actually a very insightful question.
    Most of your property tax bill is “insurance for education”.

    You pay a large flat fee for an all-you-can eat government-run education buffet, with the fee based mostly on the square footage of your house. At present, the service provider gets paid regardless of customer satisfaction, so no surprise that you find pubes in the cottage cheese. The fee is so high that few people can afford to consider alternatives.

    Privatize education and incentives will start working in favor of both the customers and the service providers.

    Real medical insurance is against catastrophic events. The rest of it is some sort of weird affinity marketing program.

  55. Michael says:

    I’m really surprised that the avg American cries about taxes, because they see the bill directly, but are silent on the healthcare issue because the costs are indirect. They lack the critical thinking skills to get past the fog and mirrors of the healthcare industry. Lets flip out about “Obama care” because it will raise taxes but ignore the ripoff pricing of healthcare. There really isn’t hope for this country. I’m pretty sad right now.

  56. Michael says:

    55-Ragnar- I see what you are saying but I don’t agree. Property taxes are only placed on property owners. Healthcare affects everything, from your taxes to your wages, and is paid indirectly by everyone. You don’t see schools paying 100 dollars for a 12 pack of pencils, which is what is going on in the healthcare industry. Mark ups of 1,000%. For example, test strips: patient was charged $18 each for accu-check diabetes test strips. Amazon sells boxes of 50 for about $27, or .55 cents each. This is freaking highway robbery and no one gives a flying f-ck!

  57. joyce says:

    Michael,
    Do renters pay property taxes?

  58. Michael says:

    58-Joyce- directly no, indirectly yes. Thanks for bringing that up. People like jj, who say they don’t care about cost because insurance covers it, is no different than a renter saying he doesn’t care about property taxes because he/she doesn’t pay it, the landlord does.

    Also, you get a hell of a lot of services for your property taxes. It doesn’t all go to education.

    Besides, anything bought for education is owned by the community. These healthcare costs are just making people stupid wealthy. It does nothing for the community but eat it from the inside out. It’s a get-rich quick scam. It has better markups than a crack dealer in Paterson.

    Look at top 10 list for best jobs in the next decade, almost all tied to healthcare in one way or another. Gee, I wonder why. But the realtor busting their ass for a small commission is a rip-off. People are idiots.

  59. 1987 (4)-

    I did not renew my license. Frankly, I wish I had never been in RE.

  60. Brian says:

    In Connecticut, they assess your motor vehicle when you register it, then you pay a tax to your municipality based on its worth. Your personal property is also assessed, and you are taxed based on it’s market worth.

    58.joyce says:
    August 8, 2013 at 1:02 pm
    Michael,
    Do renters pay property taxes?

  61. Virtually everyone I met in the RE business was mentally defective and had issues with the truth ranging from simple mendacity to outright soci0pathy. I actually tried to be selective with taking on agents and still managed to fill my office with thieving, back-stabbing losers who couldn’t score in the 10th percentile on a 5th grade intelligence test. In the 12 I owned a RE company, I had two good, honest, hard-working agents.

    Caveat: I exclude grim from this screed. He’s a part-time guy, but he has more on the ball than 999 of 1,000 street dog agents in NJ.

  62. JJ says:

    I favorite part about School taxes is who gets to vote on them.

    For instance. Take Long Beach NY. Tons of Rent Stabilized Buildings. School tax vote comes everyone in building votes yes. Why not, better schools for their kids and landlord pays for it. Unlike non-rent stablized buildings landlord just eats it.

  63. JJ says:

    n 2013, a new normal….
    Most of the well-paying permanent jobs, lost in 2008, were never recovered. The jobs created today are part-time retail jobs with minimum pay. These jobs don’t create home buyers, they create city-dwellers. This is the main reason, first time in the 100 years of U.S. history that city are growing fasters and suburbs are shrinking. Retail workers can’t even think of buying home, they are trying to make both ends meet and save time on commute by live in cities.

    Macro factors and real pictures….
    The housing prices were super-hot primarily in investor class market i.e. $100-200K. Houses, which needs buyers with a real job will require a loan of $450K, sitting on market and getting lowered faster by sellers. Sellers are seeing the real picture not the piture painted by media. They realize that there are no buyers for $400K houses after July 2013 …

    1.Gross inflation is above 16% (which includes Gas, Grocery and Rent which affects you and me) not cooked formula to reach to a magic number of 2% inflation
    2.There will be NO 30 years loans after Fannie and Freddie, which are already in the process of elimination.
    3.Jumbo loans will not be backed by government soon soloans higher than $400K will be expensive or even hard to get
    4.Interest rates will start rising by end of 2013 and will be 7% within 2 years.

    What do buyers think…..
    Buyers who waited for 3-4 years and saved were patient. Buyers who bought in 2013 were smart but not patient but the buyers who will wait for another 1-2 years will be very smart and patient. These buyers understand that there are no buyers after June for the houses higher than $400K. they know if they wait and buy a house after Housing Bubble Version 2.0, (when he interest rate will be higher & prices lower) Their monthly payment might be the same but their tax bill will be way too lower and they will never be underwater. Housing prices will correct with Bubble V. 2.0 and after bottoming, they will be just going upward.

  64. Michael says:

    64-jj- great point. I’m a landlord but I don’t have to deal with that bs law. Although, I don’t really raise rent on good tenants. It’s bad for business. Rather have the renters respect me as opposed to destroying my property out of spite. Also, not raising rent, causes the tenants to stay, instead of leaving at the end of the lease for greener pastures. Raising rent $25 or minimize risk of losing a months worth of rent at 1200.

  65. Michael says:

    65-jj- well said, you make some very strong pts!!

  66. Michael says:

    64-jj- The more I read this post, the more I can say that you are making way too much sense. You really broke that down in an amazing way.

  67. JJ says:

    Michael, since you are a landlord I am doing a ref check, what questions should I ask

  68. Anon E. Moose says:

    Michael [59];

    Yes, the tax is passed through to the renter, but there is still a practical economically imposed upper bound on what can be charged for rent — no one was or is making NINJA loans to renters.

    In the apartment I sat out most of the bubble, I calculated that — after property tax — my landlord clear about 1-1.5% on their capital, before any maintenance. They probably could have done better investing in CDs.

  69. JJ says:

    Investing is a binary event. It would be interesting to know what they sold to buy the place.

    For instance I bought my place I sold bonds in April/May. Bonds are down like 5% due to yields rising. I already made 5%. However, selling ten year treasuries to buy real estate Spring 2007 would have been a horror show. Selling Stocks Spring 2007 to buy RE not as much. Also when someone sells RE we only know if it was right thing to do once again if we know the rest of the binary equation. One who sold their House Spring 2006 at peak and bought junk bonds, mbs and stocks got creamed.

    Anon E. Moose says:
    August 8, 2013 at 3:17 pm

    Michael [59];

    Yes, the tax is passed through to the renter, but there is still a practical economically imposed upper bound on what can be charged for rent — no one was or is making NINJA loans to renters.

    In the apartment I sat out most of the bubble, I calculated that — after property tax — my landlord clear about 1-1.5% on their capital, before any maintenance. They probably could have done better investing in CDs.

  70. Michael says:

    68-jj- one of the most important parts of the process. Im assuming you are going to speak with their previous landlord. I would highly recommend that you focus on character. Do they pay on time? Have they ever had trouble with paying before? Very very important, how many times would they call with a problem. Nothing worst, then some freak who calls you with every little problem they have. I raise the rent quick on those as$holes. Did they have a lot of company over? Were they clean and did they leave the apt in the same condition as they received it. Obviously, do they have steady jobs? These are the questions that I focus on. Nothing worst than a selfish prick that destroys your apt!! So don’t get stuck with one. If they look shady, they prob are shady. Good luck!!

  71. Michael says:

    JJ-I only know real estate as an investment vehicle (multi family rentals). It’s a fabulous longterm invest. Im wondering what do you think about the stock market? Rigged or worth it for someone like myself with limited experience to jump in? Back in 08, I was going to jump in on a stock I had followed. Sirius. I knew their satellite network was very expensive, and their stock had dipped to .10. My wife and I went back and forth to purchase 30,000 worth at that price. Of course, because of all the doom and gloom reports, we chickened out. The stock is currently at 3.80 and I’m left with a disgusting feeling every time I see the stock price or go in someone’s car with Sirius. It reminds me that I have no balls and missed my chance at getting stupid lucky. It seriously makes me want to puke.

  72. Michael says:

    69-anon- You are missing a major factor in being a landlord. It’s not for people trying to get rich quick. It’s all about a 20 year or more investment. The factor you are missing is tied to inflation. A landlord doesn’t make his big money only on rent collected but also makes most of their money on rises in home prices. I consider real estate the only way to invest. Everything else seems too risky, although stocks do look damn appealing.

    I think stocks are better, if you know what you are doing, and have a ton of cash. Multi houses, you get to use the banks money to make your money. It’s a beautiful thing. I will never ever rent.

    It does help that my younger brother, 31, is extremely gifted and has had his plumbing license since 26. He still works for a company, but is slowly getting his business (Pure flow Plumbing and Heating llc) going. He is starting his business the right way. Not just diving in, but building it up, based on quality work and referrals. He went to Ramapo College for two years. He did not fail out. He had great grades, he just sat down and realized that the suit and tie was not for him. I told him that if you are not going to do the college route, you need to either get into plumbing or electrician field, with an end goal of getting your license and starting your own business. Told him you can’t ever get wealthy working for someone, all you are doing is making them money, no matter how much you make.

    Got a little off topic, but my point was that I am fortunate to have my brother help me with any problems with the multi.

  73. JSMC says:

    #74

    He went to Ramapo College for two years.

    So did I, and I’m the same age as him. Did he go between 2000 – 2005? I might have seen/met him around campus. (I was deeply involved in the Student Center my last two years)

  74. Anon E. Moose says:

    JJ [70];

    I agree that there is a flip side to the equation to be considered, but 1) I didn’t see their books; and 2) the basis for comparison is not what they sold — there is only one past and it affects all alternatives equally — but what they could have bought at the same time and how it performed over the same period.

    They seemed like nice enough people and were for many years; a few changes were that hubby worked for Domino and got laid off when the LIC factory closed; the bubble pop seriously crimping their ‘Donald J. Chump, Jr.’ aspirations (Example – they had a legal 2-family in Nassau Co, listed @ $850k; sold 18 mo later @ $630k); and the wife — who really held the balls in the household — went all psychopause driving out a tenant (me) who hadn’t missed a month’s rent in several years. As far as I know my apartment sat empty until they sold it.

  75. JJ says:

    Legal two families rarely sell for a prem. They are usually in second or even third tier neighborhoods.

    Two family houses, condos and coops generally have less appreciation. On LI the old saying buy the worst house in the best neighborhood still holds true.

    Down in some neighborhoods you see folks buy very small capes, ranches from estate sales on good size plots. You get them cheap in a downturn do a quick home depot base stuff fix and rent it out to cover your nut, wait till market turns and sell it to a builder or someone looking to do a mcmansion or do it your self.

    Funny it is amazing sometimes when you see home sales in 1999 vs. 2005 the rise in those six years were insane.

  76. Michael says:

    75-jsmc- sure did. So did my sister, she is turning 30 this year!!!! Michele and nick!! She is a realtor part-time for Caldwell banker and teaches at Eastside high school. Hence, why I know the teacher bashing is uncalled for. I know the truth, not the myths! She is up against a wall, with unattainable goals being pushed on her by the state on a regular basis. Hate hearing people put down inner city teachers, when they have the hardest jobs in the world. Lets see how good a college professor does, if the class does not do their hw, does not care, does not complete any papers, and fails the exam! But it’s the teachers fault. Overpaid baby-sitter. Wait, correction. A baby sitter gets paid more and doesn’t have to teach!!

  77. Michael says:

    77-jj- you must have never been to jersey. There are vibrant multi-family neighborhoods in nj. I’m not talking about the ghetto, like Paterson. That is a bad investment to purchase a multi-family in a ghetto area. Good look collecting rent and forget about your house going up in value.

  78. Fabius Maximus says:

    #79 Michael

    Be careful how much personal information you give out on this site. about yourself and your family

  79. joyce says:

    Michael,

    Did you figure out yet that JJ copied and pasted #64 ?

  80. Fabius Maximus says:

    #51 JJ

    I have rented like that all over the world. you can get ripped off, but in reality, if you are going to the trouble of listing and jumping through hoops it is probably legit. A lot of people will go back to the same area over and over so will have an idea where your place is located. If it doesn’t pan out you book a hotel and claim off your credit card. Any time I travel I always have a backup plan. Before I leave the house for a trip I check for three things, ticket, passport and credit card. That is the basics anything else packed after that is a bonus.
    I used to travel a lot and had a few simple rules. If I was going for work, there was a minimum standard of hotel I would accept. If I was going over three months I would short let a furnished apartment. I had the authority to book my own travel and expense changes. I landed into Kuala Lumpur once at what turned out to be the start of Ramadan, Chinese New year and Diwali. I got a cab from the airport and downtown was like a ghost town. The hotel was closed, so I drove straight back to the airport and got a puddle jumper to Singapore. I was drinking slings in Raffles 4hrs later.

  81. joyce says:

    According to a report in the Asbury Park Press, a new ad campaign dubbed “Stronger Than The Storm” stars Christie and his family. The ad campaign is costing taxpayers almost $5 million. The price tag comes in $2 million higher than a bid denied by the Governor’s administration from a competing firm. The ads are part of a $25 million dollar state tourism fund given to New Jersey in the Sandy relief bill.

    “The contract documents shine new light on the role Christie administration officials had in the new TV commercials, which are controversial because they give Christie more exposure during a gubernatorial election year, and also because they introduce him to voters in other states in advance of a possible 2016 presidential campaign. The top official on the selection committee, appointed by Christie, once received a $49,000 loan from Christie when he was the U.S. attorney for New Jersey.”

    The heavy payday for MWW (the firm winning the bid) is $2.2 million higher than what was sought by the competing firm, Sigma Group. Shannon Morris, president and owner of Sigma Group, said she doesn’t have a clear understanding of how her firm lost the bid. Of the four bidders, MWW and Sigma were selected based on technical scoring by state officials for a final round of negotiations. They were also the two lowest-priced bids.

    “I don’t know how you can qualify that as the best value for the state,” Morris said of MWW’s $4.7 million contract compared to Sigma’s $2.5 million offer. “You have two equally reputable firms and it’s debatable if one is better than the other. And in a competition like that it should come down to price, especially when you’re dealing with something as sensitive as Sandy recovery funding. To make a decision that spends $2 million more on agencies leaves me scratching my head. I don’t understand it.”

    Here comes the interesting part about the two bidding companies. The two bidders had different views on how the campaign should be run. MWW proposed putting Christie in the ads. The other bidder, a team headed by the Sigma Group, did not. MWW won the contract- regardless of their demanding $2.2 million more. Is it possible that the official, who received a $49,000 loan from the Governor, made a bias decision in choosing ads that featured the Governor during his reelection?
    http://benswann.com/christie-spends-4-7m-in-sandy-relief-funds-on-pseudo-campaign-ads-featuring-himself/

  82. Juice Box says:

    Some “hacker” per POTUS

    I’m surprised he is still breathing.

    http://www.wired.com/threatlevel/2013/08/lavabit-snowden/

  83. Comrade Nom Deplume says:

    [80] Fabius

    Michael,

    For the second time this week (and you will learn that this is exceedingly rare), I agree with Fabius. Too much information.

  84. Comrade Nom Deplume says:

    [62] scrapple

    “Virtually everyone I met in the RE business was mentally defective and had issues with the truth ranging from simple mendacity to outright soci0pathy.”

    I say the exact same thing about BIGLAW.

  85. Juice Box says:

    re: 87 – just like High Skool!

  86. Juice Box says:

    re: #81 – so you aren’t guilty or unoriginal thought?

  87. joyce says:

    Not without citation.

  88. Juice Box says:

    re: 84 – The second I saw Ralph Kramden on those commercials I knew it was for a presidential campaign. I have met Ralph by the way and the other empty suit in the highest office. They both will clean out our banks accounts if given the chance. Sad thing is there are few other viable choices.

  89. Juice Box says:

    re #83 – Fab seems like you landed on tough times..

  90. Juice Box says:

    re # 90- I know you and JJ online don’t see eye to eye in fact nobody here has. He camps out here to pass the time.

  91. The more Christie overexposes himself, the more we come to see he’s just a fat, loud dolt who takes on easy opponents who can’t defend themselves.

    He is not the face of NJ or the embodiment of its attitude. To me, he’s just like my jerky loudmouth neighbor who drinks a little too much at barbecues and talks way too much and too loudly.

    I’m no Cory Booker fan, BTW.

  92. Comrade Nom Deplume, Bostonian says:
  93. JJ says:

    Today is last day for a few weeks. Off to the islands. I have to let other folks worry about the collapse of real estate.

    Joyce mostly likely does not even pay taxes like me and Micheal. I always find that amusing welfare folks making under 150K complain about tax dollars being spent. Meanwhile folks making over 150K rarely complain.

  94. chicagofinance says:

    Would that be Staten, City and Long?

    JJ says:
    August 9, 2013 at 8:51 am
    Today is last day for a few weeks. Off to the islands.

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