The Wall Street high finance folks who contrived a system to endlessly send money to lenders and reward them for making fraudulent loans got what they rewarded. Here are a few Letters to the Editor from Businessweek:
Maria Bartiromo’s interview of Angelo Mozilo (“The heat on Countrywide,” News & Insights, Sept. 10) was tough and insightful. Clearly, Mozilo worked hard for years to build Countrywide Financial. It is sad to see many of his customers suffering under pending or potential future home loss through foreclosure. It also is an unfortunate coincidence that Mozilo has received $100 million by exercising options while many shareholders and customers suffer.This presents Mozilo with a unique opportunity: He could use some of his new riches to set up a fund to help families of customers facing home loss. Think of the suffering he could alleviate for just one child who gets to stay in his or her home. Multiply that by the tens or hundreds of families he could help by setting aside 10% or 20% of his windfall. Hopefully he will seize this opportunity.
Ed Dziadzio
Lexington, Mass.
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It was difficult to read Angelo Mozilo’s interview because of the blinding light of his halo. In his “mission to lower the barriers of entry for…homeownership” he developed “184 programs” designed, in essence, to circumvent the historically proven risk-evaluation standards and reap huge, though temporary, profits for the corporation. The permanent benefit has been the obscene salaries and bonuses for him. The only reason Countrywide is “modifying” loans is to keep a lid on the disasters, not out of altruism. His claims are beyond absurd. Does his company not advertise as well as promote itself within the industry? Mozilo points out that “it’s important to understand that everybody has experienced substantial losses.” Not quite, Mr. Mozilo.
David Horn
Oakland, Calif.
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The problems in the subprime lending market are due to low underwriting standards and then overvaluation of these portfolios. A key question that needs to be asked is how these mortgage originators are compensated. Many times the originator is compensated based on production of loans, which includes the good, bad, and the ugly. Once a loan is on the books, the originator receives his or her commission and goes to find new loans to earn new commissions. The documentation that is created can be subjective, so that loan approval is achieved.I don’t know of a local lending institution that has 184 different programs [as Countrywide says it had]. Each client would need to hire a financial adviser to understand which program is right for them.
Tom Bayer
Springfield, Ill.
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Angelo Mozilo says: “Remember, we didn’t reach out to home buyers. They came to us.” Countrywide is still running commercials saying: “No points! No documentation fee! No title or escrow fees! Absolutely no closing costs, so you end up with more cash.” Either Mozilo defines “reaching out” as “grabbing the arms of people walking by our offices” or he thinks readers are stupid enough to believe Countrywide did not push no-cost cash-out loans. Either one is insulting.
Paul Manoogian
Denver
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and this one, which I thought was very illuminating:
Blame The Debacle On The Rating Agencies
There are three entities that should shoulder most of the blame for the subprime debacle: S&P, Moody’s and Fitch Ratings (“Let the blame begin,” News & Insights, Aug. 6).If these rating agencies had not slapped AAA and AA ratings on the paper, it never could have been sold to most of the buyers. Imagine yourself as German, French, Australian, or Chinese bankers who find out that they cannot even get a quote on an AAA-rated U.S.-originated debt instrument. It’s not just that the AAA paper went down in value. People could not even obtain a quote on it.
These three rating agencies should be fined, placed on probation, or, better yet, barred from the business.
Mike Fitzsimmons
Crossville, Tenn.
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From Paper Economy – A US Real Estate Bubble Blog :
Today, the National Association of Realtors (NAR) released yet another downward revision to their outlook for existing home sales for 2007 along with another dose of truly ridiculous spin.
In an effort to put their absurd bias into perspective I compiled all their forecasts for 2007 home sales into a chart along with a list of prominent quotes supplied with each forecast.
12/11/2006 Prediction: 6.40 million units.
Lereah “Most of the correction in home prices is behind us.”
1/10/2007 Prediction: 6.42 million units.
Lereah “The good news is that the steady improvement in sales will support price appreciation moving forward.”
2/7/2007 Prediction: 6.44 million units.
Lereah “After reaching what appears to be the bottom in the fourth quarter of 2006, we expect existing-home sales to gradually rise all this year and well into 2008.”
3/13/2007 Prediction: 6.42 million units.
Lereah “Although existing-home sales will be marginally reduced due to subprime lending restrictions, they should be gradually rising this year and next.”
4/11/2007 Prediction: 6.34 million units.
Lereah “Tighter lending standards will dampen home sales a bit, but by less than a couple of percentage points from initial projections.”
4/30/2007
Lereah Leaves NAR for Move.com
5/9/2007 Prediction: 6.29 million units.
Yun “Housing activity this year will be somewhat lower than in earlier forecasts.”
6/6/2007 Prediction: 6.18 million units.
Yun “Home sales will probably fluctuate in a narrow range in the short run, but gradually trend upward with improving activity by the end of the year.”
7/11/2007 Prediction: 6.11 million units.
Yun “Home prices are expected to recover in 2008 with existing-home sales picking up late this year.”
8/8/2007 Prediction: 6.04 million units.
Yun “With the population growing, the demand for homes isn’t going away – it’s just being delayed.”
9/11/2007 Prediction: 5.92 million units.
Yun “Patient buyers in most areas who do their homework will recognize that housing remains a good long-term investment.”
10/10/2007 Prediction: 5.78 million units.
Yun “The speculative excesses have been removed from the market and home sales are returning to fundamentally healthy levels, while prices remain near record highs, reflecting favorable mortgage rates and positive job gains.”
11/13/2007 Prediction: 5.5 million units.
Yun “In some ways, the extended real estate boom from 2001 to 2005 created unrealistic expectations that housing is a short-term high-yield investment… 2007 will be the fifth best year for housing on record”
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Also, for anyone looking for a nudist Realtor (a very specific niche market) try this site.
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Additional morons still available at NAR, if needed. Someone wants to keep “MLS” from becoming a generic term. Yes, absolutely, we don’t want something like that to happen. Good thing they want to work on it now. This is the sort of important work that can occupy a lifetime. Make some rules attempting to stop agents from doing it while various national companies go right on using the term MLS all they want.
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Brian Brady says:
I clicked the link to find a FULLY CLOTHED real estate agent; very disappointing.
November 16, 2007 — 1:11 am
Marlow says:
Scroll down, my friend.
BTW, Russell, why would you hide the most interesting nugget right in the middle of your post? I guess it’s a reward for reading that far 🙂
November 16, 2007 — 2:16 am
Allen Butler says:
Wow. That is disgusting. I am glad that you are vigilant in keeping us apprised of the bullshit. Good stuff.
November 16, 2007 — 7:59 am
Jim Gatos says:
She’s a “nudist” Realtor… LOL…
I suspect Brian Brady had to resort to “undressing her with his eyes”, LOL.. but I really couldn’t bring myself up to that level, no pun intended..
Even with no clothes, that realtor would still not be in a “nude” state.. With all that makeup she had on her face, a chisel would be a handy “tool” to have around, again, no pun intended.. LOL
Maybe the cold weather is beginning to affect me, LOL.. Who knows..?
Jim
November 16, 2007 — 1:33 pm
Susan White says:
Home pricing trends for Florida do raise an eye brow. It looks like a disaster..Look at what is happening….
http://orlandorealestatetrends.wordpress.com/
November 16, 2007 — 1:40 pm
Athol Kay says:
Well if you were a nudist looking in FL… who the heck else would you call?
November 16, 2007 — 4:13 pm
Arlington Virginia Condos — Jay says:
Brian Brady you are too damn funny.
The NAR thinking about banning the use of “mls” at my website is mindbogglingly asinine and therefore no surprise to me that they would be wasting my dues on such a juvenile debate. Can’t wait to see what guidelines arrive for blogging.
November 16, 2007 — 7:58 pm
Robert Kerr says:
One thing not mentioned in those letters: in 06, quite a few major lenders began pitching ARMs as “fixed payment” mortgages. That’s right, fixed payment, not fixed rate.
The ads were very misleading.
I know a lot of finance professionals are now squealing like Ned Beatty in Deliverance over HR3915, but, IMO, their past behavior demanded a heavy-handed regulatory response from Congress. Abuse demands regulation.
I don’t expect any lenders here to see it that way; they’re still neck deep in denial.
Thank you for the breath of honesty on this subject, Russell.
November 17, 2007 — 9:41 pm
Russell Shaw says:
You are welcome for the honesty but there is nothing I wrote, posted, left out or suggested that even implied that any of the lenders posting here were holding anything back.
I have always found it amazing that Countrywide has never had more than about a 30 day supply of money and when I read the letter about the bond credit rating companies I could see clearly how the entire problem was brought about. It was not a back-handed swipe at anyone, which is not my style.
November 18, 2007 — 12:45 am
Robert Kerr says:
nothing I wrote, posted, left out or suggested that even implied that any of the lenders posting here were holding anything back.
Yes, of course. That were my own words, not yours; I didn’t mean to imply otherwise.
November 18, 2007 — 3:47 pm