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<a href="http://www.ocregister.com/articles/loans-people-house-2167891-bad-home">It would be this guy</a>. Eh, funny, no one would listen to him in 2005. I remember what that was like.
<em>
Mortgage fraud expert: O.C. median home should be $300,000
$700 billion bailout is probably not enough, because nobody has ever overestimated the size of the problem so far.
By JOHN GITTELSOHN
The Orange County Register
Comments 3 | Recommend 1
Bob Simpson is president of IMARC , an Irvine-based company that works as an investigator for mortgage insurers seeking to understand why their mortgages went bad. Simpson bought the company in July 2007 when it was a subsidiary of one of those insurers ? AIG, the company that got an $85 billion federal bailout last week. Simpson's company gives him an insider look on the lending industry and what people can afford. Based on his reading of the market, the average family in Orange County can only afford a $300,000 home, which is where the market will go when it returns to sanity. Excerpts from his interview:
Q. What do you think of the $700 billion bailout proposal?
A. My impression is that no one yet has over-estimated the cost of any of this. Merrill Lynch says they're going to lose $1 billion and they lose $5 billion. No one has ever shot on the high side yet. (Fed chairman Ben) Bernanke said today that this isn't an expenditure; this is an investment in assets and we may come out on the up side. My opinion is we have so many bad loans on our books and values are decreasing so fast that I don't think we can cover it.
Q. Do you think the government should help people with loans they can't afford?
A. The wild card is if you paid $600,000 and your neighbor's gone into foreclosure, and it's the same house and you can buy it for $450,000. Do you get it and walk away from your current house and give yourself a $150,000 gift? Even if you can afford your current house, if your home value's down 30 percent, why not walk?
Q. How will the government figure out what to do?
A. Paulson said let's get to the homeowners later and worry about keeping the financial system greased first. Barney Frank (Chairman of the U.S. House Banking Committee) said let's not help the speculators. But be honest, who in California in the last 10 years wasn't a speculator? Now the government has to decide: Do you stay in that house? Who's Solomon among us? That's a bloody business and it should be left up to people at the kitchen table, saying, "Honey, do we own or do we go back to renting?"
<strong>Q. At what point are prices going to stop falling?
A. I'd ask what's the median income in Orange County? I'd say multiply that by three or four and that's the median home price. That's about $300,000. Right now, anyone who bought their home since 2003 has lost money. ? I've been on record that the median is going to return to 1999 or 2000 or worse. That's about $300,000.</strong>
Q. Are the speculators gone?
A. Yes, because there's no more easy money out there. We took down Lehman Bros., and Bear Stearns and Merrill. They're gone on the backs of bad loans that no one had the intestinal fortitude to fight against.
Q. Are you surprised about what's happened to our national financial community?
A. Not at all. I've been vocal since at least the spring of 2005. It's not coincidental we have a run-up in prices, when we have a drop in lending standards. Who exactly can pay $700,000 for a home? You should make $250,000 or $275,000 to carry that debt load.
Q. How much fraud was there?
A. I asked a friend, a good guy, "Have you originated an honest loan in the last five years?" And he said: "The lenders deserve everything I gave them." I think that the majority of stated-income loans are fraud. There's a report by the Mortgage Asset Research Institute on fraud, which said 60 percent of stated-income borrowers inflated their income by more than 50 percent. So that means someone who makes $5,000 says they make $7,500 a month. That means there are people with $5,000-a-month incomes with $2,500-a-month payments. There's no way they can pay that much.
Q. How did people get away with bad loans?
<strong>A. We do 500 to 1,000 audits a month nationwide. My loans are so bad, I'd say the system that'd make this loan is broken. If you cease asking questions, you get into this kind of trouble. No one was asking: Is this going to be their house? Did they buy three houses in the last month? It was a herd mentality.</strong>
Q. Why did they stop asking questions?
A. Greed. Now Wall Street says you weren't telling us the truth. But the mortgage people say to Wall Street: "You kept buying it." It came to a screeching halt because investors didn't believe anything mortgage lenders say.
Q. Have things changed at all?
A. Mortgage lenders didn't find religion and say we need standards. What happened is they originated so many bad loans that investors dried up. ? You can't fake it any more.</em>
On a side note: I took a look at how the 2006 and 2007 vintages of ALT-A and option ARM MBS pools are performing. It is horrendous, and the delinquency rates and foreclosures are averaging 30% of the pools. Not even six months ago, I thought it was bad at 20%, but already at 30% is frightening. We have not seen the even a glimpse of a bottom.
<em>
Mortgage fraud expert: O.C. median home should be $300,000
$700 billion bailout is probably not enough, because nobody has ever overestimated the size of the problem so far.
By JOHN GITTELSOHN
The Orange County Register
Comments 3 | Recommend 1
Bob Simpson is president of IMARC , an Irvine-based company that works as an investigator for mortgage insurers seeking to understand why their mortgages went bad. Simpson bought the company in July 2007 when it was a subsidiary of one of those insurers ? AIG, the company that got an $85 billion federal bailout last week. Simpson's company gives him an insider look on the lending industry and what people can afford. Based on his reading of the market, the average family in Orange County can only afford a $300,000 home, which is where the market will go when it returns to sanity. Excerpts from his interview:
Q. What do you think of the $700 billion bailout proposal?
A. My impression is that no one yet has over-estimated the cost of any of this. Merrill Lynch says they're going to lose $1 billion and they lose $5 billion. No one has ever shot on the high side yet. (Fed chairman Ben) Bernanke said today that this isn't an expenditure; this is an investment in assets and we may come out on the up side. My opinion is we have so many bad loans on our books and values are decreasing so fast that I don't think we can cover it.
Q. Do you think the government should help people with loans they can't afford?
A. The wild card is if you paid $600,000 and your neighbor's gone into foreclosure, and it's the same house and you can buy it for $450,000. Do you get it and walk away from your current house and give yourself a $150,000 gift? Even if you can afford your current house, if your home value's down 30 percent, why not walk?
Q. How will the government figure out what to do?
A. Paulson said let's get to the homeowners later and worry about keeping the financial system greased first. Barney Frank (Chairman of the U.S. House Banking Committee) said let's not help the speculators. But be honest, who in California in the last 10 years wasn't a speculator? Now the government has to decide: Do you stay in that house? Who's Solomon among us? That's a bloody business and it should be left up to people at the kitchen table, saying, "Honey, do we own or do we go back to renting?"
<strong>Q. At what point are prices going to stop falling?
A. I'd ask what's the median income in Orange County? I'd say multiply that by three or four and that's the median home price. That's about $300,000. Right now, anyone who bought their home since 2003 has lost money. ? I've been on record that the median is going to return to 1999 or 2000 or worse. That's about $300,000.</strong>
Q. Are the speculators gone?
A. Yes, because there's no more easy money out there. We took down Lehman Bros., and Bear Stearns and Merrill. They're gone on the backs of bad loans that no one had the intestinal fortitude to fight against.
Q. Are you surprised about what's happened to our national financial community?
A. Not at all. I've been vocal since at least the spring of 2005. It's not coincidental we have a run-up in prices, when we have a drop in lending standards. Who exactly can pay $700,000 for a home? You should make $250,000 or $275,000 to carry that debt load.
Q. How much fraud was there?
A. I asked a friend, a good guy, "Have you originated an honest loan in the last five years?" And he said: "The lenders deserve everything I gave them." I think that the majority of stated-income loans are fraud. There's a report by the Mortgage Asset Research Institute on fraud, which said 60 percent of stated-income borrowers inflated their income by more than 50 percent. So that means someone who makes $5,000 says they make $7,500 a month. That means there are people with $5,000-a-month incomes with $2,500-a-month payments. There's no way they can pay that much.
Q. How did people get away with bad loans?
<strong>A. We do 500 to 1,000 audits a month nationwide. My loans are so bad, I'd say the system that'd make this loan is broken. If you cease asking questions, you get into this kind of trouble. No one was asking: Is this going to be their house? Did they buy three houses in the last month? It was a herd mentality.</strong>
Q. Why did they stop asking questions?
A. Greed. Now Wall Street says you weren't telling us the truth. But the mortgage people say to Wall Street: "You kept buying it." It came to a screeching halt because investors didn't believe anything mortgage lenders say.
Q. Have things changed at all?
A. Mortgage lenders didn't find religion and say we need standards. What happened is they originated so many bad loans that investors dried up. ? You can't fake it any more.</em>
On a side note: I took a look at how the 2006 and 2007 vintages of ALT-A and option ARM MBS pools are performing. It is horrendous, and the delinquency rates and foreclosures are averaging 30% of the pools. Not even six months ago, I thought it was bad at 20%, but already at 30% is frightening. We have not seen the even a glimpse of a bottom.
