Foreclosures Up, Mortgage Brokers Keep on Selling
The bust has hit Boston. Foreclosures are growing at a staggering pace. The once hot-hot-hot Boston real estate market has seen a 63% increase in foreclosures in the first quarter this year. Some of those “creative mortgages” are starting to look “creative” in the horror-movie way that spurting blood and slow-mo death were once hailed as creative film-making.
So is the industry cutting back? Heck, no. It’s full-steam-ahead, more creativity, more loans and more spurting blood to come.
Our own Katie MacArthur pointed out that consumers are beginning to get it. But the lenders don’t want to hear it. They are still looking for the last sucker who thinks stretching like crazy to buy real estate right now makes sense.
One of my mortgage lender friends (yes, I have mortgage lender friends—although they always want to remain anonymous) says it is an over-supply problem. The over-supply is people who sell mortgages.
Back when everyone had 7.5% mortgages and the rates were around 4%, everyone wanted to refinance—and they were right to do so. That meant we needed a lot more mortgage brokers to handle the volume. Banks hired, companies geared up, and the Army of the Mortgage Salesmen was born. After a while, all the sensible refinancings has been done, so the Army moved on to financing a real estate bubble. A while later, they ran out of people who could afford to buy homes, so they got creative—very creative. That blew the bubble bigger, while it put a lot of families at much greater risk. But now that the Army existed, what could it do except sell more mortgages?
So why aren’t the mortgage lenders cutting back now? The problem, says my friend, is that no single bank or investment house owns those mortgages any more. They have passed them along to huge securitized pools, held in diverse ownership. That means a lot less oversight to be sure the big picture on lending makes any sense. And besides, the Army keeps on offering high returns, at least in the short run.
Nationally foreclosures are up 7% this quarter. That’s well behind Boston’s big numbers, but Boston was a leader during the boom. Will it now lead in the bust?
Of course they will. i like your picture, i love your concern. maybe i can use a descriptive tale.
"it is just like a pile of shxt"
the more you stir it the more it stinks.
the elite make money off the smell of it.
i make money working in it.
so no matter what i do as far as work is concerned they will change the laws and times so that i may not make the money to pay my debts. which leads to more laws more changing of times...
the elite like to blame people like me.
I like to blame people like them.
but i do not hate them. i do not want to hurt them. i want them to live a very long life. i do not destroy anything.
except myself and once i am gone they will have to get from someone else.
i am a suspected dictator.
April 22, 2006 2:23 PM | Reply | Permalink
Many of us would like to be able to live within commuting distance of good jobs. Our definitions of commuting distance may vary -- 20 minutes, 40 minutes, 60 minutes -- but those who own property within whatever radius we can stand are in the catbird seat if they are prepared to leave town or are sitting on more land than they actually use productively. We will stretch, spending as much of our income as we can stand -- 35%, 40%, more -- in order to live a manageable (or not very manageable) distance from the work we want.
And if we don't have another choice, we'll take on the risk of adjustable rate mortgages, which may make our original "stretch" look like a piece of cake, if that is the only way we can do it. What are our options? Live where there are no high-paying jobs? Live where there are no specialized jobs?
So who benefits?
1. The fellow who has land to sell, either through the foresight of his ancestors who accumulated and hoarded it, or who has the bit he has lived on and leaves town with a fine nest egg -- even though he hasn't lifted a finger: the land value has appreciated for reasons that have nothing to do with him and everything to do with ALL OF US, equally.
2. The fellow who has apartments to rent, who knows that as long as there are jobs, he will be able to rent his well-located apartments for an increasing price, without providing anything additional in amenities himself. And if the schools are good, all the better for him! He benefits, the first of every month.
3. The FIRE sector -- Finance, Insurance, Real Estate industries -- who get PMI money, and interest, and commissions, and fees, and then make it again on the foreclosures.
Is there a better way? Yup! Recognize that houses, like cars, depreciate. It is land that appreciates, for reasons that have nothing at all to do with the fellow who holds title this week or has held title for 40 years, and everything to do with community, population growth, public investment in services and infrastructure (whether local or federal earmarks), etc. So tax the land value -- collect that value for the commons, instead of GIFTING the FIRE folks and taxing everyone else's sales and wages to supply the services and infrastructure.
That would be just -- as in justice -- taxation, and taxation that promotes the COMMON good, instead of the FIRE shareholders, a very narrow sector of our community.
What a novel idea!
And it would bring down the PRICE of land, just as higher interest rates bring it down, so that instead of paying both the seller and a mortgage lender a huge price for the land, we would be paying the seller and the lender a low amount, and pay more to the commons. And this payment to the commons would be INSTEAD OF the income and sales taxes we are currently paying ON TOP OF what we are paying the seller and the lender.
Sounds like a plan to me. Paying once instead of twice, and sharing justly that which none of us should be permitted to privatize, the value of that which none of us created, on which all of us depend, and which none of us can create more of.
lvtfan
http://www.wealthandwant.com ... if you'd like to see an end to poverty, and to unearned wealth from privatizing the commons
April 23, 2006 12:28 PM | Reply | Permalink
lvtfan,
You can't manipulate the laws of supply and demand without consequences. Mortgage lenders are manipulating them to make more money, with the consequences of destroying freedom and creating economic slaves. You are proposing that we redistribute wealth to "correct" the excessive demand for land. Both won't work for a very large number of reasons. The biggest one being human nature. There will always be those that attempt to figure out how to work the system to gain excessive wealth and power for selfish reasons. You'll simply be changing the rules of the game, and giving the government more power to interfere with the lives of it's citizens.
Jim Anderson
www.lighthouseonline.net
April 24, 2006 7:56 AM | Reply | Permalink
No, I agree -- one can't manipulate the laws of supply and demand. But we can recognize that which is fixed in supply -- land, the capacity of the environment to handle pollution, the electromagnetic spectrum, 8am landing rights at LaGuardia, drinkable water, to name a few -- and not allow some of us to privatize these things and charge the rest of us for their use.
These things that are fixed in supply are fundamentally different from things human beings can create. And since supply is inelastic, when demand rises, the price goes out of sight. Lucky for those who own them, unfortunate for those who don't. Since we hold it to be a self-evident truth that we're all created equal, why should some of us have to pay other individuals for that which we all should stand in equal relationship to? Why should some of us get rich because others need a bit of land to live on? ("Tradition!" is not a valid answer! Slavery was a tradition for generations in many parts of our country; that didn't make it right or acceptable.)
That which we can make more of can legitimately be privatized, and doing so provides incentives to work, to create more.
The demand for land is not excessive. We all need some, and if none of us are permitted to hoard good land underused, there's plenty of good land to go around. But our current practice doesn't encourage its good use; rather, it allows, even encourages, the hoarding and waste of it, which means that the rest of us commute further, using energy we can no longer afford.
Yes, there will always be people who are rent-seekers, but if we start to recognize that behavior for what it is -- THEFT! -- we can begin to reform our instititions to discourage it instead of promote it.
And we'll all be better off, and leave our children a society in which all can thrive. The government should not be giving privileges to some to enslave others.
If you think that taking away those privileges is interfering, I think we have a major difference in values! or perhaps merely in vision. Maybe I'm just seeing something that I haven't described enough yet.
lvtfan
http://www.wealthandwant.com ... if you'd like to see an end to poverty
April 24, 2006 3:40 PM | Reply | Permalink