This is a continuation of the first email that I wrote, last September, where I told the story about how I called an old friend at Merrill Lynch, after they had just written down $7.2 Billion in losses due to bad mortgages (and that was when a Billion Dollars was still a lot of money), and I asked him if I could help them with their Staten Island Real Estate, at which time he told me that Merrill Lunch didn’t own any real estate and that they only had bonds. I followed up with another email which discussed servicing companies that run the whole mortgage industry servicing the bonds from Wall Street. Later I spoke about organized crimes role with Straw Buyers. In November I wrote that the financial crisis was a ploy by Wall Street so they could trim off the fat, fire their older employees, and insure that they had money for end of the year bonuses. Anyway, this is the next installment of that series.
Today the big story is all about AIG’s bonuses, although we are still talking about Merrill Lynch’s. Can you imagine the unmitigated gall of these people?
So what did these geniuses do to earn these fantastic bonuses in the first place?
Well it all goes back to the mortgage business. As credit eased, everyone wanted a piece of the pie. Everyone was making money and the values of property kept going up so it was a win/win situation- even if people couldn’t pay their mortgages, they could refinance them. They even went so far as to create products that didn’t require re-payments. That’s old news.
Merrill Lynch decided to get into the mortgage business because they saw others making big profits, but they were pigs about it.
As a way to squeeze extra dollars in profit, for themselves, Wall Street created layers of the same thing. Wall Street has to grab not only the cream, but the fat, and grizzle, and then suck the bones dry.
They did this by coming up with a type of modern financial engineering known as derivatives. Derivatives are a combination of financial instruments that are used to limit risk (ha ha). An amalgam (a combination of two or more characteristics) of “collateralized debt obligations (CDO’s- pools of loans bundled for investors) and credit-default swaps. Their value is derived by the amount of the underlying asset.
What does all of this mean?
In order to reduce the risk of losing money, Morgan Stanley came up with these CDO’s bundling various obligations (stock, bonds, notes) of their prime customers (IBM, GE, GM, etc.,) along with riskier loans (junk bonds), unsecured loans, and including some insurance from AIG to secure the bonds against losses. Then they would put a value on this package, charge a fee for putting it together, maybe charge fees for “servicing the loans” and maybe earn a commission by re-selling the package to a different investor (foreign investors, foreign governments, city, state, and local government) or for the un-used portions of bond issues that they haven’t used yet, etc.
Originally when you bought a CDO, there could be hundreds or thousands of original notes, mortgages, stocks or bonds, included in the CDO.
Now Merrill Lynch figured out how they could do it electronically, via computer, and no longer have to deal with the physical paper of the documents. This begat electronic reporting services. This is why the owner of the mortgage on a house could be Deutche Banque as trustee of a series of bonds # 1-200, etc. etc.
But good old greed reared its ugly little head into the picture again.
Originally, these bundles, packages or “derivatives” were safe. After all we were dealing with real estate mortgages, stock certificates, corporate bonds, etc.
Merrill Lynch wanted to be the biggest player in mortgages. Bigger even than Lehman Brothers, and so they bought their own banks around the world, to be able to make more fees and commissions on originating the mortgages, servicing them, bundling them, and making their own derivatives. They were the biggest players in the game at the end.
And all was good for a while. The economy was good, the real estate market kept going up, and there were no losses, because even with bad credit you could refinance your loan, and take out the payments for another year or so. They were all performing, and since they were bonds, they weren’t even regulated. (Not to be political, but thank you Bill Clinton and George Bush).
But big surprise, Merrill Lynch got sloppy. They started bundling the loans together without regard for risk factors. Their risk profile at the end was non-existent.
There used to be a mortgage banker in Brooklyn that had the best deals. Only thing was that they closed all of their loans, in large amounts of mortgages together ($25 Million, $50 Million) whatever it was. (This always created problems to buyers and sellers who needed a closing, but the bank wasn’t ready, always just another day, just another piece of paper, where what they were doing was buying time to get them all together at once. This was so that they wouldn’t have to pay for warehousing (holding) the money. If they closed all of the loans and they always resold the package the same couple of days, then it was all profit.) Smart for them.
In order to sell this portfolio of mortgages, they had to comply to certain formulas. The vast majority was owner occupied 75-80% loan to value; a small percentage was even lower risk, and a small percentage was higher risk (5-10% down). These packages or bundles were packaged according to industry standards at the time. The percentage of risk was known and the prices for the bundles based upon risk factors.
The geniuses that were making the money for Merrill Lunch, and don’t forget, we are talking about making Billions of Dollars in profits here, these guys were getting multimillion dollar bonuses. To make the loans faster, and reap larger profits, they stopped doing too much due diligence, stopped risk management (translation - looked the other way), at the quality of the loans, or mortgages, or paper contained inside. If someone complained, they got fired, or told to shut up. But not too many people complained because they were all making so much money.
But then AIG stopped insuring the Merrill Lynch derivatives, because they were too risky, Merrill Lynch wrote down $7.2 Billion in losses, and that’s where my story began.
And where are these geniuses now? Huge paying jobs with hedge funds or other monetary funds, making fortunes by picking up the pieces, for huge fees, and selling them to other investors’, for huge fees. God Bless America!
So what happened to AIG?
Well the former Secretary of The Treasury, Henry Paulson, who was also the former head of Goldman Sachs, always had a rivalry with the head guy at Lehman Brothers, Richard Fuld. So while the economy was melting down, he told Lehman that we weren’t going to bail them out, “get thyself sold.” Of course the arrogant former head of Lehman Brothers, who became the poster boy for Wall Street greed when he defended the $484 million he received in salary, bonuses and stock options when he terrified before Congress in October, before the fall of Lehman. waited until it was too late, and couldn't find a buyer for Lehman. Paulson said we weren’t going to bail out Lehman Bros, and we let it fail. And of course that was the mistake that almost brought down the entire world, and which is why AIG got bailed out so quickly. Perhaps if Lehman Brothers had been bailed out the melt down might not have happened? Who knows?
But Lehman Brothers did fall. Problem was, AIG, the huge insurance company, who was in the business of collecting fees, basically insured that the world wouldn’t end. Whenever Lehman Brothers did a bond issue, or some sort of other financial derivative or whatever, AIG got a piece for insuring that Lehman Brothers would be there. AIG sure sounds like a scam.
All of a sudden, “poof” no Lehman Brothers! AIG has to pay out Billions in claims, and we found out in today’s news, that besides paying themselves bonuses, they used the bailout money to pay: Goldman Sachs $12.9 Billion; Merrill Lynch $6.8 Billion; Bank of America $5.2 Billion, etc. These are the same people that we had to bail out because they had losses, but then they collected for their losses again, from more money that we paid out.
Life sure is good here in America except that when the US gets a fever, the rest of the world gets the flu!.
SNAFU means- Situation Normal- All Fouled Up- this was created during the battle of the bulge during WW II. It's sort of irrelevant to anything I’ve written, but I just found it out, and thought that it was interesting, and worth passing along. (there is another less politically correct meaning… Situation Normal – All F---d up).
Showing posts with label Who owns the Real Estate; Financial Crisis. Show all posts
Showing posts with label Who owns the Real Estate; Financial Crisis. Show all posts
Tuesday, March 17, 2009
Sunday, December 7, 2008
So what's the deal with foreclosures anyway?
Back again.
Before I start to write about foreclosures, let’s understand that there are foreclosures in the foreclosure process, pre-foreclosures (which might involve short sales); active foreclosures: pending legal actions in the courts; post judgment foreclosures awaiting auctions and/or closings, etc. I will write about these another time.
Today I am going to write about the foreclosures where the legal process has been completed. Whoever owns the real estate, owns the real estate but since we really don’t know who really owns the real estate, suffice it to say that the homeowner is no longer the owner.
To get started, I went through every listing in the Multiple Listing Service (MLS), listing by listing (all 3000 of them) and printed out the listing’s that were: “bank owned” “REO” “corporate owned” or said “as is buyer to pay Transfer Taxes and Doc Stamps”. When I was finished, (about a year and a half ago) there were about 30 foreclosed properties for sale on Staten Island, in my loose leaf binder.
Today I went through all of the listings in my now much larger loose leaf binder (which by the way, I update as often as several times per day, to get the latest new listings, price changes, acceptances, sales, back on market, etc.), but instead of taking 5 days like the first time, it only took about an hour.
As of today (December 7, 2008) there are 123 active listings for bank owned real estate on the MLS of Staten Island. They consists of:
Condo’s: 9
1 families: 44 detached; 15 semi attached; 15 townhouses;
2 families: 27 detached; 7 semi-attached; 5 townhouses;
3 families: 1 detached
28: $ 79,900- $199,900.
50: $200,000- $299,900
27: $300,000- $399,900
18: $400,000- $725,000
The $79,000 is a detached one family in New Brighton- St. George; and the $725,000 is a detached one family in Pleasant Plaines.
The properties are located all over Staten Island, from St. George to Tottenville, and in most communities in between, but not all.
The bulk of the higher priced units, are on the South Shore, while the bulk of the homes under $300,000 are located on the North Shore and the beach areas (Midland, South, & New Dorp Beach).
No surprises here.
The real question is: are foreclosures good deals?
If you think because you have a lot of cash, and your offer is in cash, no mortgage contingency, close in two days, the bank is going to stop everything and embrace you, you are mistaken, especially if you low ball. The bank representatives’ have said to me- “everyone says that they are going to close in two days. “ Not to say that it doesn’t happen, sometimes these offers are accepted, especially after a couple of deals fall apart over financing.
The properties are being managed, (serviced) by servicing companies. (Remember- no one knows for sure who owns the property). These former mortgage underwriters, are now working in REO departments around the country selling making decisions on properties values based upon “BPO’s” (Broker Price Opinions- which are $50 “drive bys” which they bill the homeowner, and/or the bond owner $100 for). There is no accountability to the owners of the properties. There is only the pressure, as in all businesses to meet some sort of quota. (Even Judges have to “dispose of” a certain amount of cases every period or face the music).
So the question remains: can you get a good deal on a foreclosure?
I send out listings of foreclosures almost every day. This week I sent one out that stated that the particular listing was just about to hit the 6 month mark, and there had never been an acceptance on it. Perhaps this is one that you should look at immediately. (If you would like to receive every listing that I send, please email me).
A client of mine made an offer on a property in Port Richmond, six months ago, for $240,000, which was listed at $265,000 at the time, down from $299,900. I explained that this customer could only pay $240,000, that it was going to be her primary residence, etc. The bank stuck to $245,000. Two weeks later, I was informed that the person who rejected my $240,000 offer is no longer with there, and would my customer like the house for $240,000 (or less). My customer found something else in the meantime. Today the house is listed at $199,900.
Timing is very important to get a good deal. You never know when you submit an offer, whether the quarter is nearly up, whether the REO person just got hammered for not selling enough properties, or whatever other factors are involved.
So once again, can you get a good deal on a foreclosure?
Once the foreclosure is over, and possession obtained, the first thing the servicing company has to do is to get their “sure up and clean up people” in. This crew will drain the water from the pipes, shut the water in the street, and remove the water meter. They will remove the furniture, garbage, etc. Unfortunately many of these contractors that they use, cheat. Rather than gain access by opening up the doors properly, (ala Bobs Locksmith e.g.) and try to avoid damage, they just snap off the locks, usually damaging the front doors, especially metal doors. It is very common to walk into a foreclosure where the front door lock has been flung to the other side of the room. I’ve seen many dented doors. I’ve gone into numerous houses where there were radiators which were broken because someone smacked the corner with a big pipe wrench so that they could drain the system quicker- with no regard to the damage that it causes- ruining radiators, floors, carpets, paint jobs, etc.
Sometimes the servicing company will send in a crew to paint, scrape the floors, fix the plumbing, fix the cabinets, and install new carpeting. Especially in better neighborhoods.
And sometimes by the time even they get into the house, the pipes have already broken, and there is a tremendous amount of water damage, hardwood floors warped beyond recognition, mold. Sometimes the servicing companies are so grossed out that they won’t even remove the carpeting, and I’ve seen mushrooms growing out of carpeting.
And sometimes the house will get listed too cheap, and there will be numerous offers on the first day, often above the asking price. In this case, they either raise the price, or tell everyone that made an offer to submit their highest and best offer, and then the “pro’s” at the servicing company will make a decision. But what they don’t do, is tell everyone interested what the bidding is, so you can intelligently make your offer, creating an auction.
I have been in situations where my customer may have offered all cash, no mortgage contingency, submitted proof of the funds in a bank account, and they go with the person offering more money with 3% down payment. Very often in those situations the house comes back on the market. Sometimes they weigh the likelihood of the buyers being able to obtain financing against a lower all cash offer. But not every time.
Sooooooooo are foreclosures good deals?
Many foreclosures were properties that were the subject of fraudulent straw sales, like I described in one of my prior emails, and may have been abused due to lack of ownership supervision. Many foreclosures have been abandoned, taken over by squatters. Some foreclosures come on the market in beautiful perfect shape.
Yesterday I sent out a listing where only a temporary C of O was issued when the house was built, and it expired in 2000. The house has violations because it had been abandoned, and someone broke in, pulled cabinets off of the wall, and left the place open; and a violation for occupying without a property C of O. While I have not seen that particular house, I have been in many foreclosures that are total disasters, and require a lot of work. But just because a building is in serious disrepair, has zoning problems and/or violations, does not guarantee that you are going to get a good deal. But it could.
Last week I sent out a listing where the building was occupied by tenants in both apartments in a two family, and the sale was subject to their tenancy and their problems. I sent it out Attn: Low Ballers- Someone went to the property spoke to the tenants, and then offered full asking price- and they feel that they got a good deal.
So I guess the answer to the question is: Yes there are good deals to be made. If you are looking for a certain type of property, and one comes on the market that happens to be a foreclosure, you can make yourself a good deal. Although they aren’t giving anything away, and steals are few and far between, in order to get one, you have to act quickly and decisively, and/or be patient. But most importantly, a good deal is one where you feel you got a good deal.
……………………………………to be continued
Before I start to write about foreclosures, let’s understand that there are foreclosures in the foreclosure process, pre-foreclosures (which might involve short sales); active foreclosures: pending legal actions in the courts; post judgment foreclosures awaiting auctions and/or closings, etc. I will write about these another time.
Today I am going to write about the foreclosures where the legal process has been completed. Whoever owns the real estate, owns the real estate but since we really don’t know who really owns the real estate, suffice it to say that the homeowner is no longer the owner.
To get started, I went through every listing in the Multiple Listing Service (MLS), listing by listing (all 3000 of them) and printed out the listing’s that were: “bank owned” “REO” “corporate owned” or said “as is buyer to pay Transfer Taxes and Doc Stamps”. When I was finished, (about a year and a half ago) there were about 30 foreclosed properties for sale on Staten Island, in my loose leaf binder.
Today I went through all of the listings in my now much larger loose leaf binder (which by the way, I update as often as several times per day, to get the latest new listings, price changes, acceptances, sales, back on market, etc.), but instead of taking 5 days like the first time, it only took about an hour.
As of today (December 7, 2008) there are 123 active listings for bank owned real estate on the MLS of Staten Island. They consists of:
Condo’s: 9
1 families: 44 detached; 15 semi attached; 15 townhouses;
2 families: 27 detached; 7 semi-attached; 5 townhouses;
3 families: 1 detached
28: $ 79,900- $199,900.
50: $200,000- $299,900
27: $300,000- $399,900
18: $400,000- $725,000
The $79,000 is a detached one family in New Brighton- St. George; and the $725,000 is a detached one family in Pleasant Plaines.
The properties are located all over Staten Island, from St. George to Tottenville, and in most communities in between, but not all.
The bulk of the higher priced units, are on the South Shore, while the bulk of the homes under $300,000 are located on the North Shore and the beach areas (Midland, South, & New Dorp Beach).
No surprises here.
The real question is: are foreclosures good deals?
If you think because you have a lot of cash, and your offer is in cash, no mortgage contingency, close in two days, the bank is going to stop everything and embrace you, you are mistaken, especially if you low ball. The bank representatives’ have said to me- “everyone says that they are going to close in two days. “ Not to say that it doesn’t happen, sometimes these offers are accepted, especially after a couple of deals fall apart over financing.
The properties are being managed, (serviced) by servicing companies. (Remember- no one knows for sure who owns the property). These former mortgage underwriters, are now working in REO departments around the country selling making decisions on properties values based upon “BPO’s” (Broker Price Opinions- which are $50 “drive bys” which they bill the homeowner, and/or the bond owner $100 for). There is no accountability to the owners of the properties. There is only the pressure, as in all businesses to meet some sort of quota. (Even Judges have to “dispose of” a certain amount of cases every period or face the music).
So the question remains: can you get a good deal on a foreclosure?
I send out listings of foreclosures almost every day. This week I sent one out that stated that the particular listing was just about to hit the 6 month mark, and there had never been an acceptance on it. Perhaps this is one that you should look at immediately. (If you would like to receive every listing that I send, please email me).
A client of mine made an offer on a property in Port Richmond, six months ago, for $240,000, which was listed at $265,000 at the time, down from $299,900. I explained that this customer could only pay $240,000, that it was going to be her primary residence, etc. The bank stuck to $245,000. Two weeks later, I was informed that the person who rejected my $240,000 offer is no longer with there, and would my customer like the house for $240,000 (or less). My customer found something else in the meantime. Today the house is listed at $199,900.
Timing is very important to get a good deal. You never know when you submit an offer, whether the quarter is nearly up, whether the REO person just got hammered for not selling enough properties, or whatever other factors are involved.
So once again, can you get a good deal on a foreclosure?
Once the foreclosure is over, and possession obtained, the first thing the servicing company has to do is to get their “sure up and clean up people” in. This crew will drain the water from the pipes, shut the water in the street, and remove the water meter. They will remove the furniture, garbage, etc. Unfortunately many of these contractors that they use, cheat. Rather than gain access by opening up the doors properly, (ala Bobs Locksmith e.g.) and try to avoid damage, they just snap off the locks, usually damaging the front doors, especially metal doors. It is very common to walk into a foreclosure where the front door lock has been flung to the other side of the room. I’ve seen many dented doors. I’ve gone into numerous houses where there were radiators which were broken because someone smacked the corner with a big pipe wrench so that they could drain the system quicker- with no regard to the damage that it causes- ruining radiators, floors, carpets, paint jobs, etc.
Sometimes the servicing company will send in a crew to paint, scrape the floors, fix the plumbing, fix the cabinets, and install new carpeting. Especially in better neighborhoods.
And sometimes by the time even they get into the house, the pipes have already broken, and there is a tremendous amount of water damage, hardwood floors warped beyond recognition, mold. Sometimes the servicing companies are so grossed out that they won’t even remove the carpeting, and I’ve seen mushrooms growing out of carpeting.
And sometimes the house will get listed too cheap, and there will be numerous offers on the first day, often above the asking price. In this case, they either raise the price, or tell everyone that made an offer to submit their highest and best offer, and then the “pro’s” at the servicing company will make a decision. But what they don’t do, is tell everyone interested what the bidding is, so you can intelligently make your offer, creating an auction.
I have been in situations where my customer may have offered all cash, no mortgage contingency, submitted proof of the funds in a bank account, and they go with the person offering more money with 3% down payment. Very often in those situations the house comes back on the market. Sometimes they weigh the likelihood of the buyers being able to obtain financing against a lower all cash offer. But not every time.
Sooooooooo are foreclosures good deals?
Many foreclosures were properties that were the subject of fraudulent straw sales, like I described in one of my prior emails, and may have been abused due to lack of ownership supervision. Many foreclosures have been abandoned, taken over by squatters. Some foreclosures come on the market in beautiful perfect shape.
Yesterday I sent out a listing where only a temporary C of O was issued when the house was built, and it expired in 2000. The house has violations because it had been abandoned, and someone broke in, pulled cabinets off of the wall, and left the place open; and a violation for occupying without a property C of O. While I have not seen that particular house, I have been in many foreclosures that are total disasters, and require a lot of work. But just because a building is in serious disrepair, has zoning problems and/or violations, does not guarantee that you are going to get a good deal. But it could.
Last week I sent out a listing where the building was occupied by tenants in both apartments in a two family, and the sale was subject to their tenancy and their problems. I sent it out Attn: Low Ballers- Someone went to the property spoke to the tenants, and then offered full asking price- and they feel that they got a good deal.
So I guess the answer to the question is: Yes there are good deals to be made. If you are looking for a certain type of property, and one comes on the market that happens to be a foreclosure, you can make yourself a good deal. Although they aren’t giving anything away, and steals are few and far between, in order to get one, you have to act quickly and decisively, and/or be patient. But most importantly, a good deal is one where you feel you got a good deal.
……………………………………to be continued
Friday, November 7, 2008
What is this financial crisis about anyway?
So when the real estate market was good, people bought houses, got mortgages, and closed.
The mortgage brokers got paid. The banks got paid.
Wall Street came up with Mortgage Backed Securities (MBS’s), and made a killing. They even had their own mortgage banks to make the loans.
The bonds were sold to foreigners and foreign governments, and Wall Street made a lot of money selling the loans/bonds.
Now here is where I get confused! People started defaulting on these subprime mortgages, and the value of the bonds went down. Wall Street wrote down their lost value (in some cases by billions of dollars), which was a tax savings used to offset their billions made in profit. Easy!
What do we care if foreign investors lose money? When the bonds were purchased they were paid for in cash. Even if Wall Street invested their own money, along with their clients’ money and the bonds lost value, they were paid for. So what’s the problem?
When Junk Bonds went bad, some people sold them at discounted prices; and the big guys bought them and eventually made home runs. No one expected the government to step in.
With the dot coms, the stock prices jumped through the roof, until reality set in and we realized that some of these companies weren’t making profits and wouldn’t for years, if ever. All of a sudden the price of the dot com stocks crashed. No one expected the government to step in.
So why did we have to bail out Wall Street?
Maybe Wall Street realized that they had "screwed up", and that they were worried about scandals, and losses, and indictments, so they needed to create a smoke screen to hide behind? Could it be that the billions of shares of stock traded every day are merely stock manipulations to generate commissions, and/or to create a crisis according to a secret agenda?
The Treasury Secretary and former managing partner of Goldman Sachs (who I’m sure owns hundreds of millions of dollars worth of their stock and/or partnerships) said, “Let's buy the "toxic bonds" so poor Wall Street doesn't have a problem.” The Bush Administration, who had already given away the store to the very rich, was consistent- anything to help the very rich, because then it would trickle down to everyone else. Yeah, right!
Or could it be that they were worried about their end-of-the-year bonuses? Thanks to the perceived crisis due to stock manipulation, Wall Street was able to fire thousands of employees and cut overhead, so that the billions of dollars in savings could be used where it's most needed - as end-of-the- year bonuses.
…………………to be continued
The mortgage brokers got paid. The banks got paid.
Wall Street came up with Mortgage Backed Securities (MBS’s), and made a killing. They even had their own mortgage banks to make the loans.
The bonds were sold to foreigners and foreign governments, and Wall Street made a lot of money selling the loans/bonds.
Now here is where I get confused! People started defaulting on these subprime mortgages, and the value of the bonds went down. Wall Street wrote down their lost value (in some cases by billions of dollars), which was a tax savings used to offset their billions made in profit. Easy!
What do we care if foreign investors lose money? When the bonds were purchased they were paid for in cash. Even if Wall Street invested their own money, along with their clients’ money and the bonds lost value, they were paid for. So what’s the problem?
When Junk Bonds went bad, some people sold them at discounted prices; and the big guys bought them and eventually made home runs. No one expected the government to step in.
With the dot coms, the stock prices jumped through the roof, until reality set in and we realized that some of these companies weren’t making profits and wouldn’t for years, if ever. All of a sudden the price of the dot com stocks crashed. No one expected the government to step in.
So why did we have to bail out Wall Street?
Maybe Wall Street realized that they had "screwed up", and that they were worried about scandals, and losses, and indictments, so they needed to create a smoke screen to hide behind? Could it be that the billions of shares of stock traded every day are merely stock manipulations to generate commissions, and/or to create a crisis according to a secret agenda?
The Treasury Secretary and former managing partner of Goldman Sachs (who I’m sure owns hundreds of millions of dollars worth of their stock and/or partnerships) said, “Let's buy the "toxic bonds" so poor Wall Street doesn't have a problem.” The Bush Administration, who had already given away the store to the very rich, was consistent- anything to help the very rich, because then it would trickle down to everyone else. Yeah, right!
Or could it be that they were worried about their end-of-the-year bonuses? Thanks to the perceived crisis due to stock manipulation, Wall Street was able to fire thousands of employees and cut overhead, so that the billions of dollars in savings could be used where it's most needed - as end-of-the- year bonuses.
…………………to be continued
Wednesday, October 15, 2008
Organized Crime's role in the Financial Melt Down
Not to be outdone by Wall Street, Organized Crime positioned themselves to get a piece of the sub-prime mortgage action too.
When the easy money loans started, the idea was good. Poor people were going to be able to buy a home- The American Dream realized. Unfortunately greed has a nasty way of rearing its ugly little head into even the most well intentioned plans.
At the beginning of the real estate boom, you had to have stellar credit (High700 FICO scores) to be able to get 100% financing. (Close on a 80% first mortgage, and a 20% equity loan, from the same bank, simultaneously).
As the boom heated up, the Global Economy roared, (especially the Asian markets), and Cash rich foreign investors, turned to Wall Street to find them safe havens to park their money. Wall Street created the Market Backed Securities (MBS's). As the demand (and profits) grew, the criteria to obtain the mortgages loosened, as Wall Street opened their doors wide to encourage real estate borrowing. Programs were created including 100%-120% loan to value financing; Negative amortization loans (you pay part of the interest and what you don't pay gets added to the principal); Interest only loans. No documentation loans. No income No credit loans. No closing costs loans; or you could finance them. The higher the points and interest rates, the more you could borrow. (Remember this is a story about greed). It got to the point that all you had to do to get a mortgage on real estate was have a photo id and breathe.
But seriously, and this is very serious, fueled by the upward real estate market, the ease of borrowing, Wall Streets' greed, willing participants, Organized Crime of several different ethnic persuasions, and national origins, seized upon the opportunity to get into the game and they created a cottage industry for themselves.
Organized Crime began manufacturing “Straw Buyers”.
People with no jobs, no credit histories, no visible means of support, were turned into documented upstanding, taxpaying, credit worthy home buyers and borrowers.
The process of creating "straws" was really quite simple.
The first step was to deposit money into a bank account in the "straws" name. Banks don't care where the money comes from, just that it exists, and is verifiable with 3-6 months bank statements.
Next step was to get a job for the straw. Rather than create jobs, they created Straw Companies- companies that had telephone numbers and addresses that could be verified. It could be an office or a storefront anywhere with a lot of phone numbers and a lot of signs in front. Once the Straw Companies are "in business" it was easy to verify employment.
Now they had to find some real estate. This was easy. Find a builder with units that weren’t selling. Buy in depressed areas. Buy the last couple of units in a job, buy the houses that had problems, doesn’t get the sun, gets too much sun, the one that gets all of the noise from the highway. Pay the builders full asking price, maybe more (maybe less). You get the picture. The builder or the broker are only too happy to sell the units. So happy in fact that they will enter into a contract where the buyer is allowed to re-sell to a third party (The Straw), at higher prices, no or small down payments, etc.
Next they had to hire the right mortgage broker/bank. The mortgage broker is responsible for verifying the employment, the contract deposit (which previously had been deposited into an account in the straws name), the tax returns, current living expenses, etc, and has to find the loan. It is the mortgage broker that hires the appraiser that is going to bring the loan in at the right price.
Mortgage brokers/banks guarantee loans that they sell to the Banks. If the loan defaults during this period, the mortgage broker has to buy back the loan, or make those payments. This period is usually a year.
When I look at the foreclosure files at the Richmond County Clerk's Office, it is hard not to notice that the dates of the commencement of the action, and the dates of the actual signing of the mortgage are not that far apart. It's just incredible that in so many foreclosures- No payments were ever made.
American Home was a Mortgage Bank which is the same as a broker basically except that they have a warehouse line which allows them to close now place the loan later. They were forced to buy back a couple of million in bad paper (defaulted within a year) and then their lines were frozen forcing them to go out of business. (Not so innocent victims).
The appraiser had to bring the house in for much more than its asking price. Appraisers were happy because they were working regularly. The realtor, the builder and the lawyer had to not ask too many questions. Finally there is the buyer -the "straw".
I’ve often wondered what the Straw Man gets. Live in the house without making payments until the post foreclosure ejectment action for possession? Think that there was word of mouth advertising in certain neighborhoods- “Live free for a year in a new house, just sign the papers"
Last year, when the “Sub-Prime Mortgage Market” started to crash, the media’s hype was to blame it on the interest rates going up on the adjustable mortgages. And that probably did affect some of the people. And of course there are/were too many people who were living way over their heads, and constantly refinancing in an upward market, using their equity to carry the monkey.
But I have never heard a report that attributed any blame for the crash of the real estate markets like Florida, Texas, Nevada, nor a little closer in areas like Mariners Harbor and Port Richmond to fraud and/or Organized Crime.
Certainly neither SIBOR, The Staten Island Advance, nor the Richmond County Clerk's Office, kept track of straw loans. But it is interesting to wonder how big a role Organized Crime played in the crash of the sub-prime mortgage market? and if that is why Staten Island have one of the highest per capita rates of foreclosures in the Country?
(I have no actual firsthand knowledge of any transaction, nor of any participant (knowingly or not) in any such fraudulent or illegal transaction or scheme).
………..to be continued
When the easy money loans started, the idea was good. Poor people were going to be able to buy a home- The American Dream realized. Unfortunately greed has a nasty way of rearing its ugly little head into even the most well intentioned plans.
At the beginning of the real estate boom, you had to have stellar credit (High700 FICO scores) to be able to get 100% financing. (Close on a 80% first mortgage, and a 20% equity loan, from the same bank, simultaneously).
As the boom heated up, the Global Economy roared, (especially the Asian markets), and Cash rich foreign investors, turned to Wall Street to find them safe havens to park their money. Wall Street created the Market Backed Securities (MBS's). As the demand (and profits) grew, the criteria to obtain the mortgages loosened, as Wall Street opened their doors wide to encourage real estate borrowing. Programs were created including 100%-120% loan to value financing; Negative amortization loans (you pay part of the interest and what you don't pay gets added to the principal); Interest only loans. No documentation loans. No income No credit loans. No closing costs loans; or you could finance them. The higher the points and interest rates, the more you could borrow. (Remember this is a story about greed). It got to the point that all you had to do to get a mortgage on real estate was have a photo id and breathe.
But seriously, and this is very serious, fueled by the upward real estate market, the ease of borrowing, Wall Streets' greed, willing participants, Organized Crime of several different ethnic persuasions, and national origins, seized upon the opportunity to get into the game and they created a cottage industry for themselves.
Organized Crime began manufacturing “Straw Buyers”.
People with no jobs, no credit histories, no visible means of support, were turned into documented upstanding, taxpaying, credit worthy home buyers and borrowers.
The process of creating "straws" was really quite simple.
The first step was to deposit money into a bank account in the "straws" name. Banks don't care where the money comes from, just that it exists, and is verifiable with 3-6 months bank statements.
Next step was to get a job for the straw. Rather than create jobs, they created Straw Companies- companies that had telephone numbers and addresses that could be verified. It could be an office or a storefront anywhere with a lot of phone numbers and a lot of signs in front. Once the Straw Companies are "in business" it was easy to verify employment.
Now they had to find some real estate. This was easy. Find a builder with units that weren’t selling. Buy in depressed areas. Buy the last couple of units in a job, buy the houses that had problems, doesn’t get the sun, gets too much sun, the one that gets all of the noise from the highway. Pay the builders full asking price, maybe more (maybe less). You get the picture. The builder or the broker are only too happy to sell the units. So happy in fact that they will enter into a contract where the buyer is allowed to re-sell to a third party (The Straw), at higher prices, no or small down payments, etc.
Next they had to hire the right mortgage broker/bank. The mortgage broker is responsible for verifying the employment, the contract deposit (which previously had been deposited into an account in the straws name), the tax returns, current living expenses, etc, and has to find the loan. It is the mortgage broker that hires the appraiser that is going to bring the loan in at the right price.
Mortgage brokers/banks guarantee loans that they sell to the Banks. If the loan defaults during this period, the mortgage broker has to buy back the loan, or make those payments. This period is usually a year.
When I look at the foreclosure files at the Richmond County Clerk's Office, it is hard not to notice that the dates of the commencement of the action, and the dates of the actual signing of the mortgage are not that far apart. It's just incredible that in so many foreclosures- No payments were ever made.
American Home was a Mortgage Bank which is the same as a broker basically except that they have a warehouse line which allows them to close now place the loan later. They were forced to buy back a couple of million in bad paper (defaulted within a year) and then their lines were frozen forcing them to go out of business. (Not so innocent victims).
The appraiser had to bring the house in for much more than its asking price. Appraisers were happy because they were working regularly. The realtor, the builder and the lawyer had to not ask too many questions. Finally there is the buyer -the "straw".
I’ve often wondered what the Straw Man gets. Live in the house without making payments until the post foreclosure ejectment action for possession? Think that there was word of mouth advertising in certain neighborhoods- “Live free for a year in a new house, just sign the papers"
Last year, when the “Sub-Prime Mortgage Market” started to crash, the media’s hype was to blame it on the interest rates going up on the adjustable mortgages. And that probably did affect some of the people. And of course there are/were too many people who were living way over their heads, and constantly refinancing in an upward market, using their equity to carry the monkey.
But I have never heard a report that attributed any blame for the crash of the real estate markets like Florida, Texas, Nevada, nor a little closer in areas like Mariners Harbor and Port Richmond to fraud and/or Organized Crime.
Certainly neither SIBOR, The Staten Island Advance, nor the Richmond County Clerk's Office, kept track of straw loans. But it is interesting to wonder how big a role Organized Crime played in the crash of the sub-prime mortgage market? and if that is why Staten Island have one of the highest per capita rates of foreclosures in the Country?
(I have no actual firsthand knowledge of any transaction, nor of any participant (knowingly or not) in any such fraudulent or illegal transaction or scheme).
………..to be continued
Sunday, October 5, 2008
Why does Staten Island Have so many foreclosures? .........continued
We probably should have known that there was something wrong, when our mortgage payments went to MERS.
MERS stands for Mortgage Electronic Recording Systems. (Others include ASC American Servicing Company, Litton, etc.). These aren’t banks. These are the companies that service the loans: (bill for the payments; pay the insurance and taxes, etc.). They are also the parties that send the files to the lawyers and are sometimes plaintiffs in foreclosures. But they don’t own the mortgage.
Once upon a time, we worked hard, we deposited our money in our local “Banks”, and when it came time to buy a house, our bank gave us the mortgage. Northfield Bank is still like that, but Richmond County no longer gives residential loans. Others that still make mortgages, but have very strict guide lines are Emigrant, Astoria, and Ridgewood. Locally we have the United Brethrens. These institutions tend to loan their own money (depositors' money) and are very careful and generally don’t run into any problems (although they have an occasional foreclosure because bad things do happen to good people!).
These days, most people wind up going to a mortgage broker, or one of the big lenders (Countrywide, Wells Fargo, etc.). People get mortgages based upon: Credit scores; percent of money put down, (Loan to Value- LTV); and income to Debt Ratio (DTI). Mortgage Brokers and bankers fit their customers into neat little packages based upon the available programs at the time. SONYME, FHA, Fannie & Freddie set criteria from which they lend. But not all borrowers can qualify or “conform” to the guidelines.
For those borrowers, Wall Street developed various products. Since we were in a real estate boom and people tend to respect their home as an asset, Wall Street seized upon the opportunity and got into the mortgage business. Lehman Brothers used their own companies, Aurora and FNBA, to make loans that did not meet the stricter criteria of Fanny and Freddie, and FHA, etc.
Once bundled into a large enough block of mortgages, Wall Street sold these MBS’s, (Mortgage Backed Securities) to AIG, Merrill Lynch, Mutual Funds, and Pension Funds. The United States has the most stable government and economy in the world, so foreigners like to invest here because it is safe: foreigners like The People's Republic of China and the newly rich entrepreneurs in India. So that’s who owns the MBS’s, (although pretty soon it is going to be the US Treasury and the US Tax Payer!). But you do not see any foreclosures where the plaintiff is any of these names.
When mortgage loans are sold, they are “assigned”; and the assignments have to be recorded to be enforceable. Public Records (County Clerk’s Office) may list MERS or one of the other servicers as the record Mortgagee, although they are not the owner of the mortgage.
Many foreclosures are commenced while the real owner of the mortgage, the Plaintiff in the foreclosure, is not the record owner. A Federal Judge in one state decided that if the Plaintiff is not the actual mortgagee, the foreclosure could not continue. Another Judge in another state found that the real owner has to sign the foreclosure papers for them to be enforceable. Of course the problem often is that not even the servicing company knows who the real owner is.
Most of the Staten Island’s judges allow the “servicing companies” and/or Mortgagees that are not of record to maintain foreclosures ; and allow foreclosures to proceed although the real owner of the mortgage isn’t the plaintiff in the action, or the assignments weren't recorded at the commencement of the action, (or not even prepared or signed).
While selling blocks of mortgages is nothing new, they used to be sold in groups where the majority were conforming loans (75-80% LTV), although there were always banks that specialized in less than stellar loans and bad credit. BANKS. It used to be that the Banks made money either by loaning the money and making the interest, or by servicing the loans (making a percentage of the amount collected). Used to be, but that’s not what happened here. More on whom the banks loaned money to in a future email.
So Wall Street told their investors that these MBS’s were just like municipal bonds, only not tax-free. The Port Authority is going to sell bonds to build a new Goethals Bridge. If there is a default, will the bond holders have the right to foreclose the mortgage on the Bridge? I think not. Is this not the same thing?
A customer of mine called me the other day and asked me about a property that was boarded up and had a Marshall’s notice on the door. I went to the County Clerk’s office and reviewed the foreclosure file. The referee’s deed put title into: “Deutche Bank National Trust Company, as trustee for Fremont Home Loan Trust 2006-1”. The house has since been listed on the MLS, and the name of the owner is listed as Premier Asset Services (PAS).
So who owns the Real estate?
………………..to be continued
MERS stands for Mortgage Electronic Recording Systems. (Others include ASC American Servicing Company, Litton, etc.). These aren’t banks. These are the companies that service the loans: (bill for the payments; pay the insurance and taxes, etc.). They are also the parties that send the files to the lawyers and are sometimes plaintiffs in foreclosures. But they don’t own the mortgage.
Once upon a time, we worked hard, we deposited our money in our local “Banks”, and when it came time to buy a house, our bank gave us the mortgage. Northfield Bank is still like that, but Richmond County no longer gives residential loans. Others that still make mortgages, but have very strict guide lines are Emigrant, Astoria, and Ridgewood. Locally we have the United Brethrens. These institutions tend to loan their own money (depositors' money) and are very careful and generally don’t run into any problems (although they have an occasional foreclosure because bad things do happen to good people!).
These days, most people wind up going to a mortgage broker, or one of the big lenders (Countrywide, Wells Fargo, etc.). People get mortgages based upon: Credit scores; percent of money put down, (Loan to Value- LTV); and income to Debt Ratio (DTI). Mortgage Brokers and bankers fit their customers into neat little packages based upon the available programs at the time. SONYME, FHA, Fannie & Freddie set criteria from which they lend. But not all borrowers can qualify or “conform” to the guidelines.
For those borrowers, Wall Street developed various products. Since we were in a real estate boom and people tend to respect their home as an asset, Wall Street seized upon the opportunity and got into the mortgage business. Lehman Brothers used their own companies, Aurora and FNBA, to make loans that did not meet the stricter criteria of Fanny and Freddie, and FHA, etc.
Once bundled into a large enough block of mortgages, Wall Street sold these MBS’s, (Mortgage Backed Securities) to AIG, Merrill Lynch, Mutual Funds, and Pension Funds. The United States has the most stable government and economy in the world, so foreigners like to invest here because it is safe: foreigners like The People's Republic of China and the newly rich entrepreneurs in India. So that’s who owns the MBS’s, (although pretty soon it is going to be the US Treasury and the US Tax Payer!). But you do not see any foreclosures where the plaintiff is any of these names.
When mortgage loans are sold, they are “assigned”; and the assignments have to be recorded to be enforceable. Public Records (County Clerk’s Office) may list MERS or one of the other servicers as the record Mortgagee, although they are not the owner of the mortgage.
Many foreclosures are commenced while the real owner of the mortgage, the Plaintiff in the foreclosure, is not the record owner. A Federal Judge in one state decided that if the Plaintiff is not the actual mortgagee, the foreclosure could not continue. Another Judge in another state found that the real owner has to sign the foreclosure papers for them to be enforceable. Of course the problem often is that not even the servicing company knows who the real owner is.
Most of the Staten Island’s judges allow the “servicing companies” and/or Mortgagees that are not of record to maintain foreclosures ; and allow foreclosures to proceed although the real owner of the mortgage isn’t the plaintiff in the action, or the assignments weren't recorded at the commencement of the action, (or not even prepared or signed).
While selling blocks of mortgages is nothing new, they used to be sold in groups where the majority were conforming loans (75-80% LTV), although there were always banks that specialized in less than stellar loans and bad credit. BANKS. It used to be that the Banks made money either by loaning the money and making the interest, or by servicing the loans (making a percentage of the amount collected). Used to be, but that’s not what happened here. More on whom the banks loaned money to in a future email.
So Wall Street told their investors that these MBS’s were just like municipal bonds, only not tax-free. The Port Authority is going to sell bonds to build a new Goethals Bridge. If there is a default, will the bond holders have the right to foreclose the mortgage on the Bridge? I think not. Is this not the same thing?
A customer of mine called me the other day and asked me about a property that was boarded up and had a Marshall’s notice on the door. I went to the County Clerk’s office and reviewed the foreclosure file. The referee’s deed put title into: “Deutche Bank National Trust Company, as trustee for Fremont Home Loan Trust 2006-1”. The house has since been listed on the MLS, and the name of the owner is listed as Premier Asset Services (PAS).
So who owns the Real estate?
………………..to be continued
Sunday, September 28, 2008
Why Staten Island has so many foreclosures
Hi,
I have been sending out foreclosures these past months, and it just occurred to me that many people do not understand why there are so many foreclosures’ on Staten Island; and many more people don’t understand why the country, if not the world, is in such a deep financial crisis. Over a series of short emails, I will try to explain, the best that I can, what happened, and what is going on, and what it all means to us on Staten Island. Feel free to call or email with any questions, and/or comments, that you may have.
I first got involved with foreclosures at the beginning of the crash, a couple of years ago, when Merrill Lynch announced its first $4 Billion write-down. I thought that $4 Billion Dollars was a lot of real estate, and they would need help in getting rid of all of the properties after being foreclosures. Friends and clients were always asking me if I knew of any good foreclosures, as I have been buying and selling bank-owned real estate my entire career from Richmond County and Staten Island Savings Bank before they went public, and other Staten Island Banks that are no longer in existence. My grandfather bought properties from the banks on Staten Island during the Great Depression, always allowing the former owner to remain in the home paying rent ($6 month in those days!).
So I called an old neighbor of mine who was a big trader at Merrill Lynch, whom I used to shovel snow with in the winter years ago. After an exchange of pleasantries, I asked him what Merrill Lynch was doing with all of this real estate that they were foreclosing and just wrote down, and would he put me in the direction of the person/people handling it?
That is when he hit me with the shocker-
“We don’t own any real estate, we only own bonds”.
“Then who owns the real estate?” I asked; and he said he didn’t know. "We just own Bonds."
Whoa.
Knowing this is the first step to understanding our present financial crisis.
………………to be continued
I have been sending out foreclosures these past months, and it just occurred to me that many people do not understand why there are so many foreclosures’ on Staten Island; and many more people don’t understand why the country, if not the world, is in such a deep financial crisis. Over a series of short emails, I will try to explain, the best that I can, what happened, and what is going on, and what it all means to us on Staten Island. Feel free to call or email with any questions, and/or comments, that you may have.
I first got involved with foreclosures at the beginning of the crash, a couple of years ago, when Merrill Lynch announced its first $4 Billion write-down. I thought that $4 Billion Dollars was a lot of real estate, and they would need help in getting rid of all of the properties after being foreclosures. Friends and clients were always asking me if I knew of any good foreclosures, as I have been buying and selling bank-owned real estate my entire career from Richmond County and Staten Island Savings Bank before they went public, and other Staten Island Banks that are no longer in existence. My grandfather bought properties from the banks on Staten Island during the Great Depression, always allowing the former owner to remain in the home paying rent ($6 month in those days!).
So I called an old neighbor of mine who was a big trader at Merrill Lynch, whom I used to shovel snow with in the winter years ago. After an exchange of pleasantries, I asked him what Merrill Lynch was doing with all of this real estate that they were foreclosing and just wrote down, and would he put me in the direction of the person/people handling it?
That is when he hit me with the shocker-
“We don’t own any real estate, we only own bonds”.
“Then who owns the real estate?” I asked; and he said he didn’t know. "We just own Bonds."
Whoa.
Knowing this is the first step to understanding our present financial crisis.
………………to be continued
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