Long Beach California Real Estate Loans

1.  Property values don't always go up.

2.  Use common sense when buying anything.  If you don't have common sense, borrow it from someone who does.

 3.  Be prepared for the worst case scenario.  Assume it will happen and make sure you are ready.

4. Talk to a CPA and a bankruptcy attorney before you, "let the house go back to the bank."

 5.  Understand how the banking system really works by watching the classic, "Money as Debt." 

7.   Explore the Loan Modification process only with an attorney that knows what he is doing.

Long Beach, Ca.  Following the current equity markets and correlating them to the fact that real estate foreclosures are up over 80% this year over last is like watching a slow moving train wreck happen in real time.  The first sound of crunching metal  on the rail  lines could be heard  back in the fall of 2006.  Yes, almost two and one half years ago, we began to fill the pinch first in the mortgage markets and credit crunch and then soon after in the real estate markets.  I began to avidly watch:  The Mortgage Ledger's mortgage implode-o-meter.  You can follow this link to see all the banks that have failed since the Fall of 2006. 

For a brief summary of the fantastic recent history what has occurred in the Real Estate Melt Down, I would recommend a great article by Gary Watts, a Real Estate Economist, entitled, "The New Financial World and Its Impact on Real Estate."

Suddenly, the mortgage broker's world was quickly crumbling down.  Loan officers began to, "chase the lenders down,"  that is, as the banks closed doors brokers would have to pull the loan files from one bank and quickly place them into other banks and fund the loans before that bank's credit lines got cut off, too.

It was quite a panicky and frustrating situation for all.  The interesting part of this   phenomena was the denial that was setting in between the lending companies, loan officers, real estate agents, sellers, and buyers.   Most of these parties had a similar but different agenda, but pretty much the same idea:  How could they make as much money in as little amount of time as possible and get away with it.  In the end, we see the current malaise in the market place as the black sheep gift that everyone got stuck with in the end.

GREEDY BULLS:  Wall Street's Mother-of-all Ponzi Schemes

Wall Street had effectively created the biggest game in town.  As soon as getting the Gramm-Leach-Bliley Act passed into law in 1999 and having successfully repealed the Glass Steagall Act, that had separated investment and commercial banking activities, the banks had swiftly eliminated their own long term risk in lending and dumped it on the hapless end investors.  Suddenly, banks could package mortgages into securities and sell these securities to third parties, eliminate the possibility of having to buy back bad loans!  Wow,  that meant that instead of focusing on low risk, make sense investments, Katy-bar-the-door, it became a game of who could loan the most the fastest because there was so much money in points, management, and fees based on lending greater and greater volumes of money.  Trillions of dollars were lent in a matter of a few years to individuals who should never have purchased real estate.

GREEDY BEARS:  Loan Officers taking in the dough, fast and easy

On the street, loan officers wanted to make easy money funding stated, 100% financing loans into the system.  Brokers referred to these products as stated 80/20 loans.  That is, there was a first trust deed at 80% loan to value at a temporarily low interest rate, normally for the first two or three years.  However after this time period these rates that started off at between 6-7% would end up converting into nightmare loans with 11-14% rates.

Then  came a slew of what was referred to as "Option Arm" loans.   These were also known as Negative Option Arms because they quickly compounded the amount of principle owed to the bank by allowing the home buyer to pay less then what was normally owed for the principle and interest payment.  In addition to giving the option to the home buyer(who never took that option) of paying the loan off  with a normal 30 year fixed payment, a 15 year fixed payment, an interest only payment or a min. payment.  .  Basically, this type of loan created an artificial and temporary ability for both home owners and investors alike to purchase property and keep the mortgage payment affordable. 

These loans began with highly touted and published rates as low at 1%.  Otherwise, conservative banks like Wachovia and Downey Savings originated over 350 billion in these types of products, follow the links to see what happened to them.  Eventually, both banks had to be purchased by other banks and their assets assumed by others. 

GREEDY REALTORS:  Pumping the bubble all the way to the bank

POP!!!  Oops....Gee, nuclear war can ruin your career!   In order to rationalize all of this reckless behaviour,  real estate professionals told the borrowers that they would be able to refinance, in two or three years time, out of the very same loans, that they were being put into to purchase the properties in the first place.  After all, we had seen in Southern California, back to back appreciation of between 10-30% for over three years.  In those day, many can remember realtors bragging about  how they had,  "helped families into homes."

GREEDY BUYERS:   Liar Liar Pants-on-Fire

Almost anyone could now buy real estate with temporarily affordable rates and temporarily affordable loans The truth is that the small time, self-employed gardeners had to claim on their loan applications that they were making $7000.00 to $9000.00 a month to qualify for financing.  Gosh, if that were only the case I could have gone into landscaping!  People would say anything they had to say in order to qualify for mortgages.  With a little coaching, you could purchase a million dollar home, even if you only make $70-80000.00 a year.  And why not, if successful, they could turn the 1 million dollar asset into 1.2 million in just a year(assuming 20% appreciation) and make a handsome profit of over $100000.00 after closing costs.  After all, my Realtor and Loan officer told me so.  They told me to jump off the cliff so...I did.   Of course, I 'm just the innocent bystander that has basically been raped by everyone.  Everyone benefited by my closing the escrow except for me! 

GREEDY SELLERS:  Your offer is totally unacceptable but what about mine?

Yes, selling a property in those days was rather one-sided.  If priced right, a home may have received up to two dozen offers from the hungry home buying crowd.  It might sell for as much as 10% above what it was originally listed for, but then the appraisal had to, "come in."  It is hard to point the finger at the, "Drunk with Equity Sellers," who were cashing out and smartly taking advantage of the whole burgeoning cycle.  However, there was one small downside:  You see, this recent Seller had to transform like a caterpillar into a butterfly and become a new Buyer at current sales prices; thus, causing the RPM on this insane motor to redline even more

Kirk Mulhearn, a professional mortgage planner and real estate broker, can be reached at 562-989-4091 ext. 110 

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