“Greed is good” is the line most people remember from Oliver Stone’s film, “Wall Street.” Of course, the moral of the story is that greed isn’t good and it can put you in prison and leave you penniless. Unfortunately, this lesson has been lost on corporate America, Wall Street and the interdependent real estate and mortgage industries. (Just look at the ridiculous level of CEO pay and the soaking we are getting from everybody from the oil companies and food importers to drug manufacturers and the health insurance companies.)
Two related stories yesterday brought all this to mind. The first concerns San Jose real estate broker, Bic Pho. The state is seeking to revoke his license over fraudulently obtained loans. This is the same broker we discussed here on SJI a few months ago. One of his employee agents was identified as being behind a number of dubious subprime loans to Spanish-speaking residents who were duped into agreeing to purchase homes with loans they were not qualified for and didn’t fully understand and quickly got into trouble. Many of Pho’s businesses are now in bankruptcy and he has been sued by 46 victims so far. It appears there is much more legal trouble ahead for Pho and his errant agent, Mark Swelle, and rightly so.
This is by no means an isolated case, as we now know, and the extent of the subprime lending scandal reaches all the way to the largest financial institutions of the country. The subprime debacle has even been blamed for the wobble of the big roulette wheel on Wall Street this week.
Even more troubling is the rapidly increasing level of home loan defaults and subsequent foreclosures. The Mercury News article calls it a “spike,” but it looks more like a growing trend. There were a total of 1,275 default notices sent to Santa Clara County homeowners in the second quarter of 2007, up 140.6 percent from the same period in 2006. Even though the rate of default in our county is far below the state and national averages (L.A. County was up a whopping 800 percent over last year), it is aligned with the national trend and does not bode well for the future. There were nearly 54,000 defaults in the state during the same quarter after a steady three-year climb, matching a level last seen here in 1996. There have been more than two million defaults in the U.S. in the past year, with no end in site. (And think about this: nearly 50 percent of current U.S. home loans are of the “no money down” variety.)
The result is a nationwide rapidly cooling property market and sinking prices, with home values in some cases starting to fall below what owners still owe on them. Adjustable mortgage rates are going up, making payments difficult for many. It’s not difficult to see that the situation could rapidly spiral further out of control.
It’s easy to apportion blame to greedy, unscrupulous lenders and real estate agents, but is that the whole story? Aren’t we, the citizens, also responsible for this situation? Did we buy into an image of home ownership as sitting comfortably in an investment that will continue to increase in value over time, thereby justifying the too-high price that may have been paid in an apparent white-hot market in the first place? Have we turned a blind eye to bad business practices and an overinflated market by being willing participants in the process? Haven’t we empowered those greedy companies and agents just a little bit? Whatever the answers to these questions, it will be homeowners and taxpayers who pay the bill for the home loan debacle in the end, one way or another.
I have some inside info concerning San Jose home values. I feel it is my duty to share it with you. The median home price in our area will drop to 50,000 dollars by next year. Please contact me if you wish to sell your house for 100,000 dollars. You will be 50,000 dollars ahead. I’m prepared to make the sacrifice.
Greed is the common denominator in many scams, of which H1-B and out-sourcing are two examples. The rich, in this case the Venture Capitalists and other investors, want to get richer, so long as it is at the expense of others; i.e. the middle class.
The company where I work does not want to hire engineers, so they bring engineers in from other countires for four months, pay them a pittance, send them back, and get a fresh batch. This way they circumvent any visa issues. This is in addition to out-sourcing other engineering jobs to other countries.
While this practice saves money, it does result in product delay, and lower quality, but who cares. The bottom line is lower, so the VCs, and other investors, are happy.
We brought this upon ourselves in November, 2006. We had a choice. Cindy Chavez – Rising property values, manicured lawns, marriage, proper nutrition and exercise. Or Chuck Reed – Foreclosure, divorce, obesity, unemployment, heroin addiction, global warming and cardiac arrest.
We made the wrong choice.
All I have to say is…30 year fixed.
Landlords played a big part in this too. They jacked the price up on rentals so high that people ran to buy houses, even if they couldn’t afford them. When rentals went empty, and vacancy rates sky rocketed, they dropped the rents.
Now that there are so many foreclosures, guess what landlords are doing again? You’ve got it, raising the rents.
I’m pretty sure most renters are paying an amount equal to what many homerowners, with decent loans, are paying banks to own. Sad part is, we can’t claim our rental payments on our taxes to get a break~
Jack,
Indeed, it takes two to tango. Unscrupulous lenders and agents are only half of the problem.
As important, consumers need to assume responsibility for their actions. Government cannot play the role of protector in every facet of one’s life.
Those buying homes cannot simply sign on the bottom line without comprehending the terms and conditions. That’s abdication of responsibility on their part.
There will and always should be some measure of caveat emptor in commerce. The alternative is far worse – Government intervention on every small detail, via more and more regulatory action, reducing consumers to the level of adolescents.
Let the buyer beware………………….
I personally blame the nightclubs for this one. They have inflated drink and cover prices to a point that make a 1 million home look like deal.
Can these newly homeless home owners live in the public garage stairwells? If they keep them clean?
There are undoubtedly a significant # of predatory lenders, who are equalled, little doubt, by borrowers who don’t understand the arcane and nearly incomprehensible loan documents mandated by the federal govt.
The Truth in Lending documents are as incomprehensible to most folks as a stock prospectus. The Feds. have mandated language that supposedly informs borrowers and stock purchasers what they are buying into. But I doubt that much more than 5% of the people could possibly understand them. The documents are a complete charade, in that they are promulgated by the govt., so uninformed people trust in them. What they really do is provide a legal out for lenders and stock issuers/sellers.
In the end, it really is caveat emptor, until these and other important legal documents are written in plain english.
The system is to blame too in lots of cases. It set up for people to fail in my opinion. The Lender send their representative go out there and show the agent what to do to make the loan approved. And when the homeonwer can’t make the payment, they got their home taking away from them. Why did the lender make it so easy for them to get a loan in the first place and now they all facing trouble loosing their home? The subprime market had kill a lot of homeowners.
Sorry # 10, but lenders do NOT want to take over the houses of delinquent borrowers. For the most part, they are in business to make $$ off the interest and other charges. Foreclosing and having to re-sell the house is a burden for them.
I just re-read Jack’s headline, and realized he’s right. Greed is the issue—greed of unscrupulous mortgage brokers, greed of lenders, AND greed of borrowers who think the escalation of real estate values will never end.
It is true that greedy consumers, companies and agents are the main parties to blame about all of this but this case is a little more complicated because non-English speaking families were involved.
I am not saying that they were all innocent. I am sure some of them knew what they were doing but went along with it. What I am saying is the MAJORITY of them were “brain washed” to believe all the real estate hype with thousands perhaps millions of dollars in mind, why? Because the people providing these families with this make believe information was the greedy companies and agents.
One of the biggest obstacles the Latino community faces, besides the language barrier, is the existence of limited amount of information available and the accessibility of such information