Back in August John wrote a post entitled "Egregious Quotes Department." The quote that John felt worthy of our "most egregious" list at that time was:
‘The downside of real estate is better than the downside on just about anything else.’
While we have seen many quotes that were good contenders for our "most egregious" department [virtually any Lereah quote, for example], we haven’t officially added anything to the list since then. I’ve had one today though that has been a "burr under my saddle" all morning. Hat tip to L for the link to InHouse Lender and this quote:
Rather than getting involved with a mortgage broker, or a lender that will scrutinize your loans and make the process difficult, join our team and see how easy and convenient we’ve made the process, for you and your clients. It’s significant savings for your client, and you earn *commission in the process.
Heaven forbid we have lenders scrutinizing loans- just picture what would happen. People who couldn’t afford the product might have to find a more affordable and less risky option for themselves. They would avoid foreclosure, financial difficulties and damage to their credit. We certainly wouldn’t want that happen! Most seriously though, it would not allow brokers to earn *commissions in the process- and that is obviously the most important consideration here.
Congratulations to InHousing Lender for achieving the dubious distinction of making our list. The competition is stiff, but you’re a standout with this one.
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Let me add one to your list from a different point of view. Your new sideabar posting about “subprime disaster” takes you to the KITCO Bullion Dealer site. There, one Mr. Peter Schiff, a legend in his own mind, first quotes the “Center for Responsible Lending”,hardly a group know to underestimate possible subprime forclosures, as predicting a 1 in 5 subprime default rate. Then Mr. Schiff states:
“In my opinion when the cycle is played
out we are more likily to see an 80%
default rate rather than 20%.”
Mr. Schiff, apparently a guru of such predictions, then ends with the actually predicable pitch: “Don’t wait…Protect your wealth…before its too late”..blah, blah, “get my latest report”…DIFFERENT PITCH, SAME 6 FOOT MAN EATING CHICKEN.
Old Mike-
I’m not prepared to weigh in on what percentage of subprime loans are going to default. I figure it’s going to be a big problem no matter what the percentage.
The housing “bear” community is a diverse one- it crosses all kinds of political and investing divides. I don’t know how often I read an article where I think the guy has nailed the problem, but I think he’s out to lunch when he starts spouting solutions.
Just like housing- commodities, forex, stocks, etc. have their shills- and they are the guys that get quoted. If we adopted a “no shill” policy on the sidebar, we’d be hard pressed for articles- we just have to try and sift the wheat from the chaff.
I pretty much put that one up for one paragraph:
One of the report’s deficiencies is that it fails to account for how the foreclosures it does expect will impact those loans that it regards as safe. A 20% default rate would put millions of homes back on the market, and would also inflict severe losses on sub-prime lenders, causing them to pull in their horns and tighten their lending standards. More inventory and higher rates will put more downward pressure on home prices. Many over-stretched borrowers, who made little or no down payment, will find themselves struggling to make mortgage payments on properties with negative equity. Higher rates and lower prices will also remove the cash out options that many borrowers expected would bail them out of ballooning adjustable rate payments.
I started thinking about “safe” loans. I talked to a man this week who said a family member just bought a home out in Queen Cr. He thought the deal was too good to pass on, as he was offered a 40% kickback from the lender.
I got to thinking about that. If he used his kickback as a downpayment, he could eliminate PMI and get a good loan, provided the home appraised at the initial price. (How hard should that be?) You’d have a 100% equity loan masquerading as a 60% mortgage.
Who knows where the percentages will end up? We may not know after it happens- historians may guess at this one for years.
So here’s another close contender today from BusinessWeek:
Is that anything like "ethnic cleansing?" Is he so sure no one else gets "cleansed" in the process?
Twist, you can be sure that an efficient markets “cleanses” all types, but mostly it just allocates risk and reward. Among the “cleaned” I believe those go first that folow advise from someone who takes an advocacy group’s estimate (from an actual research project) of 1 in 5 and rolls it up to 4 out of 5 in the direction the advocacy group was leaning anyway(notably without a research project).
Markets are rarely very harsh on the cautious and consistant unless you count missed opportunity as “harsh”. Risk averse behaviour is unlikily to make the poor man rich, but the opposite can make both rich poor and poor alot poorer. I still see little sign that the vast middle(the central core of the US economy that is not subprime or John’s nasty old hedge fund managers) will not hold, housing corrections aside. I fear we merely may merely compound the past errors of “policy” designed to make new homeownership “affordable”to those who objectively cannot afford it, if we now hypothocate a terrible “crisis” which, of course, in the views of those that brought us the original policy, will require an even more costly and misguided “policy” to solve.
Allowing prompt reversal of the effects of unsound subprime lending is really nothing like “ethnic cleansing” (I know you know that and I accept it was just a figure of speech) despite the real economic and personal dislocations involved. It is a correction that was at least 2 years overdue and in my humble opinion contributed to the valuation bubble more than the much vilified “flippers”. It sped up the “move up” escalator and echoed all the way up the price chain. But remember, housing prices are always “sticky down”.
I am starting to see much wider differences in the asking prices for virtually identical homes and a similar difference in rental listings of monthly rent. This suggests to me that the correction is getting very real, with a sliver of the market adjusting to new conditions (the real market) and alot of the rest either just pricing to their own sunk cost (the out of market owners) or pricing to what they hoped they can get from the now fewer inattentive payment buyers (the “able to wait” owners.) If that “sliver” gets wider during 2007, and the gulf in asking prices for similar houses persists, than the out of market owners (and the defaults which come from that group because they lack options) are as small a group as some of us believe, with the “able to wait” sellers comprising a far greater(both numerically and of economic significance) share of the housing pie. Most of the doomsday scenerios like Mr. Schiffs’ see gigantic downward pressure on all home prices from subprime defaults arriving “repriced” on the market. In reality the upper levels of the housing market do not shop there, except as investors. Oddly those who see economic ruin from subprime defaults never really tell you how much of the market is represented by this lower tier buyer and what percentage they believe is likily to emerge as long term rental property anyway.
Twist -
Some Doomers may have missed a few of the good ones as they whizzed by on the sidebar. Occasionally I’ll “nominate” something there for egregious quote status. This is done by exposing the quote instead of the story’s title. I then suggest in the description which “department” of the media outlet this quote must have come from. Here is a list of past nominations (some no longer online). The bolded part of the quotation is what went up to the sidebar, the (… dept) is the suggestive description.
———————————–
[1]: “Transatlantic Economics: What happens in America impacts the European economy. And vice versa.”, by Irwin M. Stelzer, Weekly Standard (20/200 hindsight dept), December 12, 2006.
[2]: “Significant Housing Developments(?)”, MetroWestDailyNews (why he gets the big bucks dept), November 29, 2006.
[3]: “Bursting the Housing Bubble Concern”, by Amanda Marsh, CommercialPropertyNews (falling knife dept), November 29, 2006.
[4]: [title unavailable, link dead], Los Angeles Times (advanced Physics Dept), August 11, 2006.
[5]: “Central banks pose a threat”, by Andy Mukherjee, Bloomberg (well hedged opinions Dept), December 17, 2006.
[6]: “Housing Truth from Main Street”, by Sheldon Liber, BloggingStocks (feng shui on steroids dept), August 29, 2006.
John-
Perhaps we need a New Year’s contest for best/worst quote of 2006.
Leave the scrutiny to lenders?
Hmmm, that’s like trusting the NAR to collect and pubish objective housing data.
I’m sure the fox would just love to guard the henhouse…
Old Mike-
I thought the quote was wrong on a lot of levels. For one I don’t see the speculators out at all. When real estate was perceived as a “slam dunk” investment, everyone and their shoe shine boy was buying properties. At the moment their numbers are reduced and their make up has changed, but I’m seeing a good portion of the market still made up of investors.
The general rule of thumb for investing is higher volatility, higher risk = higher profits. (also a greater chance of losing your shirt) There’s a fair percentage of people at the moment who are willing to take their chances in the housing market.
“Cleansing” somehow makes it sound like a friendly game of penny poker where we just deal another hand and start again. This is more like “strip” poker- and some people aren’t getting out of the game with their shirts.
Ultimately it’s the supply/demand thing that puts the downward pressure on prices and that is what puts the subprimes at risk- not the other way around.
We don’t need a “doomsday” scenario to have a lot of problems- Phoenix moved on from the whole S&L thing- we haven’t gone the way of the Hohokam. I still appreciate the guys who consider the “what’s the worst that can happen” scenario, but I’m the type that always has good auto insurance and wear my seat belt- because sometimes the worst happens.
NVMike-
It just would be kind of nice if SOMEBODY would scrutinize them!