Realty Check

Mortgage "Crisis" And Cramer Outburst: Your Emails

As rocker Neil Young said, "Rust Never Sleeps" (actually, he never sang it, but used it as the title of his 1979 album) and neither does the home mortgage "crisis." So, while I'm on vacation, I thought it would be good to post some your recent email replies to me.

From James M:
Having been in the business as both a broker and wholesale lender for the past 18 years in Florida, I'm afraid we have only scratched the surface about our real estate credit bubble. I must say that I fully expect the ultimate spin of this disaster will lay blame on the mortgage brokers and originators for predatory lending practices and non-disclosure for the sake of a quick buck. However, the real issue is the greed for healthy returns by Wall Street that created these programs with a flawed model that still exists even in the prime "A" paper world that I participate in. They created guidelines that were based on collateral value only and never expected real estate appreciation to stop and/or decline.

Larry Bjornson writes:
I’m writing less about Cramer than about the criticism you’ve received. Cramer probably eats criticism with a ladle, but you sounded a little wounded. This is an emotional time for almost anyone that might be influenced by the real estate bubble/crash/healthy adjustment/return to normal. Fortunes will be made and lost in the next couple years and emotions spike when people read or hear any news or opinion that they feel has an effect on their fate.

I am someone who sold his house back in late 2005 (Laguna Hills, CA) because I felt the market had peaked. Because I hope to buy back in at a lower price later on, any opinion or interpretation about real estate that I feel is too positive sends me over the edge. On the other hand, if I had chosen not to sell my place, and ride out the trouble, I’m sure my prejudice would be the reverse.

Will Hutchins wrote:
Is anyone giving any thought to what will happen to Home prices when bankrupt hedge funds finish selling off their CDO's for dimes on the dollar? Aren't the new holders of foreclosed mortgages going to dump those homes on the markets for a quick profit and depress prices even more? It's seems a real possibility to me but I hope someone can prove I'm wrong.

Anthony Liman says:
Homeowners got greedy? Respectfully, I completely disagree. Homeowners didn't get greedy, they got excited. The mortgage industry got greedy. Their stagnant margins and increasing expectations caused the decision makers to get creative in their product offerings. Having been on the front lines, I can honestly say that is exactly what happened.

I was a trading analyst for a subprime company that was the first big victim in the mortgage business this year. Although my responsibility was our conventional/conforming book, I sat through many of meetings where the topic can we increase volume and/or raise margins. The answer to that in this business always surrounds expanding credit guidelines. The motto for most companies is..."If SIVA Interest only ARM volume was down and it was a product with high margins, then hell, offer an incentive to go down to 640 FICO, that will bring in more business". Knowing damn well that someone with a 640 FICO is close to the last person in the world that should have a stated interest only ARM. It didn't matter though, the brokers would sell it and the ignorant or unintelligent borrowers would eat it up to get a part of the America Dream.

Very rarely does anyone decide to take the high road and sacrifice a little in the short term to help ensure the safety of the business. Don't get me wrong, changes were made in the decision making process, but it was just too late.

And from Bob Hendryx:
I almost laughed when I read, "I have people writing into the realty check box every day telling me that I'm overblowing the situation for my own dramatic benefit, as if I'm going to be a more popular reporter if the housing market crashes." These are people who obviously either have something to lose in the financial carnage unfolding or don't have a clue what is taking place.

In my view, you have been pretty close to right on the money with your reporting. I spent 20 years in journalism and know what you're experiencing. There is only one side to this story, and the other side doesn't like it.

The bulls don't want to believe that there is going to be a real estate crash and probably won't believe it until early 2008, when all the resets peak and really begin effecting homeowners and the economy. As you already know, the simple fact is that hundreds of thousands of "homeowners", more accurately "homedebtors", who bought in 2005 and 2006 using the worst of the toxic mortgages are not going to be able to refinance when their resets kick in, because of lower property values and stricter lending terms. This is already baked in the cake.

No emails have been edited, but in some cases I haven't posted the full text for purposes of space. However, the main point of the email is there. My thanks to all of you have written in. Your input is vital, so keep sending.

Questions?  Comments?