Monday, August 06, 2007

'Their Business is Unrepairable'

From the Sacramento Bee (hat tip Gwyn):

At its peak, just a couple of years ago, Rich Muma's real estate and mortgage mini-empire employed 25 agents and other workers. Today the office in Elk Grove is closed and the business consists of one employee: Muma, who's "doing an occasional deal" while trying to land somewhere stable. "I've been trying to find other employment myself," said Muma, 62.

California's housing slump isn't just bad news for homeowners looking to sell. It's taking a worsening toll on those who depend on housing for their livelihoods -- from Realtors to construction workers -- and on the economy at large.

Sacramento unemployment jumped four-tenths of a percent in June to 5.2 percent, while the statewide unemployment rate held steady at 5.2 percent. Both rates were higher than a year ago and provided evidence that the economy, after holding its own for the past two years, is finally starting to feel the pressure from the housing downturn. In the past year, the Sacramento region has lost 1,700 construction jobs and 900 financial services jobs. Real estate and mortgage-lending employment in Sacramento are both down about 6 percent from a year ago.
As for the housing industry, executives say the market won't improve until late 2008 or sometime in 2009, putting additional pressure on the job market. "I don't see a turnaround anytime soon," said Steve Benjamin, president of Production Framing Systems Inc. of Sacramento. The company, which constructs frames for new homes, has cut employment by half in two years, to about 500 workers, he said.
Times are tough for real estate agents, too. Mike Lyon, president of Lyon & Associates Realtors, one of the most prominent firms in Sacramento, said he is deluged with calls from brokers attempting to sell their businesses to him. He's passed on all the offers. "There's no way for us to bail them out," Lyon said. "Their business is unrepairable."
From the Modesto Bee:
In a recent poll of about 1,000 adults by, about 34 percent of homeowners had no idea what kind of mortgage they had, said Greg McBride, a senior analyst for the financial information Web site.
Failing to examine mortgages closely contributed to the current rise in loan defaults and foreclosures, according to managers and brokers at Northern San Joaquin Valley lending institutions. Not only did many people not understand their mortgage conditions, they believed they could refinance the loan or sell the home to get out of problems. "A lot of people have been burned," said Albert Dadesho, a broker with Guardian Home Loans in Modesto.


Bakersfield Bubble said...

"I've been trying to find other employment myself," said Muma, 62.


smf said...

Here in our office we are now hearing about lower construction costs, due to less construction demand.

Some of us 'long timers' hope that this shake-out will clean up part of the industry. In the last several years, things went completely nuts, and a lot of unqualified individuals got into the business.

As for those with ARMs that did not know they had them, I am not surprised. The advertisement does not called out an ARM loan, but a 'fixed' loan. It is only thru examination that you can see that the loan is only 'fixed' for a small number of years...and then it adjusts.

A fixed loan is just exactly that. The payment does not change thru the life of the loan.

But it was corrupted, as many other RE related things, to mean that the payment was fixed for 2,3,5,7 or 10 years.

jaye said...

[b]In a recent poll of about 1,000 adults by, about 34 percent of homeowners had no idea what kind of mortgage they had, said Greg McBride, a senior analyst for the financial information Web site.
Failing to examine mortgages closely contributed to the current rise in loan defaults and foreclosures, according to managers and brokers at Northern San Joaquin Valley lending institutions. Not only did many people not understand their mortgage conditions, they believed they could refinance the loan or sell the home to get out of problems. "A lot of people have been burned," said Albert Dadesho, a broker with Guardian Home Loans in Modesto.[/b]

So 1/3 of the people who signed loan papers for homes that costs thousands of dollars, claim that they were duped and "burned." I read the fine print even if I am buying a used car! I paid an attorney $200.00 to help me through the home loan process and he saved me a lot of grief and finger pointing after the fact. I really have no sympathy for people who claim stupidity when there's help everywhere.

norcaljeff said...

So they claim they didn't even know what kind of mortgage they had? I don't believe that, playing stupid won't get sympathy from me.
A Fool and His Money are soon parted.

paranoid renter said...

So they claim they didn't even know what kind of mortgage they had? I don't believe that, playing stupid won't get sympathy from me.

I don't agree with this. There are enough simple people out there that don't question "too good to be true" deals. They simply believe that some higher power has decided that they get to enjoy something that they didn't think was possible. In some sense they see it as a blessing.

That they have to learn the lesson the hard way is sad. In many cases this would lead to loss of faith in all future dealings and they may miss deals that are genuinely good.

smf said...

First of all, my wife majored in mathematics from UC Davis.

When we refinanced in 2002 (from a 30 to a 15 year loan, took money to do the roof and all windows) the mortgage broker tried to screw us.

She almost did not catch it, and she was reading thru all the pertinent material. We asked for a revision of the terms, and he tried to f*** us again!

I sat on the sidelines, having no idea (even till now) of what their conversation was all about.

Brokers are SALESMEN, and will not necessarily give you the right information. The client could have asked for a fixed loan, and the broker could say 'yes, I gave you one'. It is their current definition of 'fixed' that is in question.

W/O knowing all the info about some people, we can't make a judgement about their knowledge. I can BS with anyone like a pro in my current fields of expertise, and the person on the other end won't even realize it.

Cmyst said...

I am really worried about the Sig Other's parents.
It's a long story, and I tell too many of those. Basically, they are very good, very trusting people who have wanted to retire for years and who now feel that they are getting a good deal on a Florida house, but I'm sure they're going to get reamed.
I sent Ben's blog address to their daughter, and I've spoken to Sig's dad personally and urged him to be very careful, but I think they think I'm nuts.

SacramentoCrash said...

He will probably get into senior financial products like reverse mortgages.

Boomers seem to be house "rich" and cash poor.

What will happen if the borrowers outlive the mortgage term?

wont said...

people really should not take a loan if they can't understand an amortization table.

Gwynster said...

There is some truth to what SMF says. I've seen plenty of adjustables marketed as "5 yr fixed" or "2 yr fixed". Talk about marketing spin - they are correct in that the first few years are fixed, then all hell breaks loose.

On top of that, Borkers will try all sorts of things to hide a fee and the freakier the product, the easier it is.

Even with my DH's background, we're getting an RE attorney to review the whole transaction before we sign. Luckily, mine is a chum from my college days but I seriously suggest folks doing something similar.

The good and the bad of the school of hard knocks is that you quickly learn to trust no one.

smf said...

"The good and the bad of the school of hard knocks is that you quickly learn to trust no one."


A lot of people don't buy houses all the time, and are rightfully completely naive about the process. These people would then rely on honesty from others to guide them thru this process. Therefore, they are ripe for abuse.

As stated before, I have purchased only two homes, and was screwed over both times.

It was then that I realized that in RE, NO ONE IS YOUR FRIEND.

Pray tell me, is anybody in a RE transaction interested in the buyer paying less?

Every party, except the buyer, benefits from the buyer paying more. That is another reason why the bubble got so out of hand.

I purchased my first house is 94. A family friend was nice enough to allow me to overpay by about $20K. Did not even realize that till I saw comparables in Zillow this year.

As noted, when we refied in 2002, another family friend tried to screw us, twice, with the mortgage paperwork. He was basically trying to change the terms for a better commission. (Let us recall that the exotic loans gave brokers far better commission than a regular loan).

And when we bought/sold our house in 2003, our little house was sold FIVE TIMES, before it finally sold for $10K more than asking.

And the guy who built our current home (we do like it very much) gave us a sob story. Later we found out he was a flipper.

Patient Renter said...

"When we refinanced in 2002 (from a 30 to a 15 year loan, took money to do the roof and all windows) the mortgage broker tried to screw us."

I knew I'd have to be vigilant when the time to buy comes, but I hadn't given it too much thought yet (sounds like having a RE attorney review things is the way to go). How exactly did the broker try to screw you?

smf said...

"How exactly did the broker try to screw you?"

I don't complete recall, as finances are not my thing. But essentially quoted us one rate, and then changed it in the paperwork. My wife noticed the change when we went to sign it.

He, of course, tried to justify the change by telling us that it was going to be better for us.

To make a long story short, the change would basically give him a better commission. But he was very underhanded about it.

I would never have caught on about what he tried to do.

Mike said...

From what I've seen, it's usually the borrower being aggressive trying to get the loan they usually could not afford by lying on the loans. (i.e. Stated income/Stated Asset)

They did it to get the largest house as possible so they could reap the most amount of profit by the rising house price. In the current situation, there are blames to lay to shady brokers and aggressive buyers.

anon1137 said...

Mortgage brokers have the whole game wired in their favor. You can ask for a "good faith estimate" but once you start the process with one of them, it is very hard to change to another broker or company once you realize you're getting screwed because most home purchase contracts require you to close within a certain period of time. I even read once that lenders were creating a database so they could find out if an applicant was working with two lenders at once, which costs the applicant a few hundred dollars more, but makes it less likely that the broker will screw you during the final days before the loan funds, which is when interest rates start climbing and extra fees begin to appear.

Of course, brokers love a market that encourages borrowers to refi continually during the life of the loan because each new loan is profit center for them. It's like car salesmen and 5-y car leases - a gold mine of opportunities. And like Gwynster said, the freakier the deal, the easier it is to get away with things.

Sippn said...

Work with people you trust.

The cheapest price on the surface is usually not so.

ELK GROVE - took a look at the market there courtesy of Mellisa Data (thanks Average Buyer) and OUCH - it really sucks there. Monthly sales about 30% of what used to be an average month, about 20% of peak months. Plus inventory has gotten huge (over 1800).

But my guess is that when the lender game settles down the blood will stop.

HappyinSF said...

You should buy some Elk Grove houses now before the blood stops. It's a buyers market right now!!

Sippn said...

You know I would never do that.... outside my comfort zone.

anon1137 said...

Sippn - how can you create trust with someone you're dealing with once every 10-20 years? Yea, if I'm getting a mortgage every year or two, they have an incentive not to screw me. And just because they're not screwing someone like you, who does business with them regularly, doesn't mean they aren't screwing the borrowers they'll probably never see again. Do you know anyone who recommends their mortgage broker? I knew one guy who did, and after I questioned him more about the deal, I could tell he didn't know what he was doing - he just liked her personality - and maybe he was getting a gift card from her for the recommendation..

buying time said...

The mortgage is a tough process even for those of us who read the fine print. I mean they bombard you with page after page that needs your signature....they make errors and the data isn't consistent across all the docs.

We tried hard to get an estimate before closing on all the different fees...but its kinda like going to the Doctor's office, you really don't know what you are going to end up with till you get the bill (at settlement).

lexi said...

When we bought our home years ago
I just signed not really understanding much of what I was
signing thinking they are a business and they won't screw me
over. I got lucky but the next time I buy I'm going in eyes wide
open and taking all paperwork to
a real estate attorney before I sign. I'm sure it will be worth
the cost for the extra piece of mind.

Gwynster said...

OK I had to grill Mr. Gwynster on how this works. I hope this makes sense as I was prepping panel (in a room with extremely toxic fumes) and now have a whole new appreciation for the term "huffing glue".

Anyways, any time a loan is originated, someone is making money. They are getting fees up front or they are getting points out the back end.

You could go through 6 versions of your GFE. Every time a fee adjusts, you sign again. You begin an intimate relationship with the fee schedule.

Now say decide after reading and signing those GFEs, now you don't want to pay that $3k loan origiation fee thats right up on page 1. The borker will say, "ok I'll do it just this once" and they go off and redo the documents. Chances are good that while you'll have a big fat zero where that $3k used to be, but on page 3, 4, 5, etc. a bunch a smaller fees suddenly grew and viola, that $3k is back in.

That's the easy catch.

The harder catch is when the borker is taking points out the back to cover the $3k he just "lost" on the origination fee.

To do this, your rate will _suddenly at the last minute_ change to 6.17% instead of 6%. In cases like this, the closer will say something like "oh no, they hiked the rate on you but tell you what, I'll remove some of our house fees, and cover part of the title fee because I feel bad for you".

BS! they covered all of it and then some with the difference between the published rate and what you signed for, in this case the .17% they'll be skimming from the lender.

Point out the back is hard to catch and is almost impossible nail down if you are anything but a prime borrower.

I hope this makes sense. If you have any more questions, I'll ask the Mr. for you.

"If you ain't got no money take your broke @ss home..."

smf said...

"Point out the back is hard to catch and is almost impossible nail down if you are anything but a prime borrower."

Bingo! Again!

No you can see how easy it can be for the brokers to kind of screw you, and it IS VERY HARD TO CATCH.

At the same time, most advertisements for loans are very misleading, because the neg-am loans for example are advertised as 'giving you a choice'.

There are plenty of examples were all involved were guilty, and those are not hard to catch.

But there are some cases where the client RELIED on the broker to be honest, and the broker wasn't.

The HUGE problem in the industry is that working on commission, no one is interested in having the client actually save money.

SacramentoCrash said...

The bulk of the loans in EG since 2003 are liar loans no doc, option pay, variable rate reset, prepayment penalty junk loans.

BTW - The variable rate loans with prepayment penalties could double the commission to the mortgage broker.

The mortgage broker can charge you what ever they think they can shake out of you by manipulating the interest rate discount spread.

More snark:

"I've been trying to find other employment myself," said Muma, 62.

Gee isn't there a WalMart in Elk Grove?

There are always jobs saying "Good morning, welcome to Wal Mart".

Or would you like fries with that? Elk Grove is the land of fast food joints and mediocre chain restaurants.

The thought of an Olive Garden or Fresh Choice makes their mouths water.

tough guy said...

nothin for nothin, but is "unrepairable" even a word? i thought it was "irreparable," or better yet, the acronym FUBAR suffices in this situation.

Gwynster said...


It took my husband about 5 mins to explain how it works basically. It's not tough to figure out at all. My evil little brain came up with a million way to scam the system in seconds. No wonder everyone was saying it was like getting free money.

Now that people are moving to FHA loans, it really screws the indepentant brokers since they have restrictions on what fees they can charge and no spread, zip, zero, nada. The banks will be fine since they still make money of the interest rate.

Anyways, glad my explaination made sense.

Berkhills Blogger said...

People did get burned, the sub-prime market fell-out...As of this week, this is old news. The pendulum just swung south. In addition to the hit on local economies and despite any leveling of median home prices, houses just got more expensive. Now major mortgage companies have stopped taking applications. Or worse, they have stopped honoring existing commitments. Predatory lenders aside, more options did help some buyers get into houses. Right now the only buyers that qualify must have at least 20% down (sorry first time buyers), well documented income (too bad for those of you whom are self-employed or have uneven salaries), and qualify for a conforming loan (<$417,000.) Interest rates for Jumbo loans have jumped over 8%. Buyers have been taken out of the marketplace as companies over-react to the sub-prime fallout. I hope this is temporary because, although curbing affordability may help bring inflated prices down, increasing interest rates and exclusionary practices add insult to injury. As a result, fewer buyers will be able to afford houses (or even be allowed at bat), those who own will find it difficult to sell, and we will see further impact to the industry and employment.

smf said...

"Predatory lenders aside, more options did help some buyers get into houses"

Shirley you can't be serious?

(Little background, make $120K/yr, in construction industry, own home)

You got a lot of people into homes THEY CANNOT AFFORD with a conventional loan. How 'nice' it must be for these buyers to have their loans finally reset, right?

There is nothing and there will be nothing that will allow millions of home owners to afford the homes they bought with exotic loans.

Plus everybody in the industry reaped the benefits of having a lot of people start flipping homes.

No, you made no one a favor. I would say that you harmed more than you benefitted. You should be ashamed.

The only solution to this problem is for houses to go back to a normal pricing level, and we are not even close to that yet.

anon1137 said...

I hate to be a stickler for details, but there appears to be just a hint of exaggeration in Berkhills Blogger's comment. To start out with, Calpers is advertising jumbo 30-y loans at 7-3/8% and they're usually in the middle of the pack. I question some of the other stuff about availability of loans to those with good, verifiable credit - I don't things have changed that much there, although the no-doc, no-down stuff is scarce.

The only way we can get at the truth is if we start out with it. (if you use that, attribute it to anon1137)

SacramentoCrash said...

This article pretty much sums up how Elk Grove became such a mess.

The Understatement of Over-Development

Darren Bocksnick
July 22, 2007

Elk Grove is a bustling, bursting community just a few miles south of Sacramento, California with no thundering herd of elk of which to boast and only a few, remaining trees inappropriate to be deemed as groves. The once, rural bedroom community of greater Sacramento is a prime example of city planning gone to pot. The city pundits so eager in their ambitious, yet oblivious quest for city-hood have created a real quagmire of congestion, over-development and undesirable living conditions.

At one time, Elk Grove nearly rose to celebrity-city status, having the distinction as one of the nation’s most desirable and fastest growing communities. Such is no longer the case. As Elk Grove now teeters the top as one of the most, undesirable locations in which to live now that its former glory has all but sunk into insignificance, the pundits are at it again, scheming up ways to allure the unlearned.

go to tinyurl for the rest....

Gwynster said...

Anyone mind if I blow a hole on 20% down comment? >; )

FHA is always available but you have to go to a bank because independants just don't do them.

break down on a FHA based on a 210K house :
* Interest rate 6%
* 3% down - $7000
* 2.5% MI buydown (not required but seriously suggested) $5250
* DTI 29% of all costs, essentially PITI. Total monthly debt no more then 41%.
* 417k cap on house price. No salary cap ceiling.
* Full docs (FIVA)
* 620 Fico, no bk withing 2 yrs.
* must be owner occupied.

Add $5k for closing costs and 3 months of reserves which can be your 401k i think. So $17250 down, totally reasonable.

Seriously, the only hard thing is finding a starter house inexpensive enough that you can hit that 29% DTI. The rest is cake. And that DTI is something that most families can live with on an ongoing basis.

When you have a combined family income of 65k and the only house you can find that will get you to that 29% is located in s. Sac, Oak Park, or Del Paso, that's a sign of a larger pricing issue.

Steven said...


I agree that Elk Grove has become a less desirable place and will get worse.

However, that article is an over sensationalized piece of trash, full of half-truths and generalizations. It upsets me when so called journalists do little research and rely on popular ideas and gossip for their stories.

HappyinSF said...

The article is snarky for sure, and it pretty much hands Elk Grove its ass but it's pretty damn accurate in its assessments. I've "traveled" to visit relatives in Elk Grove since the 70's and I have to totally agree that the cheap apparently unregulated over-development is hideous. Of course, I remember those big fields and oak trees the article speaks of. Now, how many Pot houses have been busted so far?

Berkhills Blogger said...

SMF, I am happy to play the scape-goat if you feel you need one, and I know people feel I exaggerated. But I am an ethical, often optimistic professional in the trenches. Check the New York Times

Housing Busts and Hedge Fund Meltdowns: A Spectator's Guide

"Only two months ago, it seemed as if almost any company could borrow money at low interest rates. Now loans seem to be drying up everywhere."

Interest rates are like gas prices. People tend to complain about the increase but still keep buying and driving. Some make more prudent decisions to buy a less gas guzzling car or a less expensive house, but.... This isn't about increasing rates, or leveling prices. What happens when there are no loans?

smf said...

"What happens when there are no loans?"

This is a chicken or the egg issue. All these current problems would not have occurred HAD PRICES STAYED DECENT.

In all the euphoria during the bubble, no one was making certain that the people getting these loans, any type of loans, HAD THE ABILITY TO PAY THEM.

It doesn't take much logic to realize that we, who made $120K last year, cannot make a 30 year mortgage payment on a $800K house. In the same vein, when during the bubble, I realized things were terrible wrong when Cisco had a higher value than GM.

But a lot of people played dumb, or where blinded by greed, and allowed this to progress to the point we are now, where pain will be felt, and NEEDS to be felt, to go back to normal levels.

And yes, I have made money during both cycles.

And you are not making anyone any favors by allowing them to obtain loans that had a high risk of defaulting. Now the market is pricing back these risks.

And the overall problem is not even the loans. The big problem out there is inventory. When you have several cities where the home for sale vacancy rate nears 40%, guess what? You have more houses than people to purchase them, at any price point.

SacramentoCrash said...


I agree with your thoughts. Alot of what he said has to be taken with a grain of salt.

I don't think Darren Bocksnick is a real journalist.

His writing is really weak. To think that he is using that as sample material to dredge up writing gigs. I can do better by going to India for a freelance writer! $5 per hour versus $30 to $60 per hour for a local freelance writer.

He is just some guy that wants to take broad points and snark the heck out of them.