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Jim - this has been all our area and our office has been talking about. Buyers still seem to think they can go buy a house with absolutely no money...just like they'd been doing.

I guess it just never dawned on me to try and buy something without the money. I've always been responsible with what little I've had, but I guess the mortgage companies never learned responsibility.

Now, we're all going to have to learn from their mistakes. It's hard to blame it totally on the mortgage industry, after all, we sold the houses.  It's going to take some time for this to all turn around.

What is a NEHIMIAH loan? I assume it is similar  to  the  NINJA  loans  I here have been prevalent in the US.

Jim, you are so right when you point out that the talking heads make these guys out to be "demigods" because they are stating the obvious over a situation they helped create. Funny times we live in for sure.

Jim, excellent post that nails it exactly the way it is and how it got to be this way. Scenarios such as we now have int he housing and lending markets are  always about greed in the end...and as always, greed never pays in the long term.

Jo 

Jim, I feel bad for the buyers, sellers and lenders. My take on it is most lenders did not know this was coming. Yes they knew the AJM would increase but hopefully most explained it to the buyers. I know the buyers were determined to get that house,  come hell or high water. In many cases they went searching for internet lenders who would loan them the funds, so shame on them. In my area we appreciated about 8% a year historically so we thought the trend would continue.

I am glad they are going back to the days of buyers needing to have money. They are still lending money with 0 down, if you have good credit, assests, good time on the job. I just closed with a engineer yesterday who got 100% financing with 6% back from my sellers. And he matched the criteria.

Jim,

Funny..I like to do business with Countrywide. I have my loan with them but it is a an A+ loan...no hiddenanything. I have done quite a few through them and did not ever have problems. But I do beleive because they jumped on the bandwagom with all these other lenders that they created their own demise.

Linda you hit the nail on the head!  "I've always been responsible with what little I've had, but I guess the mortgage companies never learned responsibility."  It really should start and end with being responsible.  My preditction.... is watch how many will walk from the homes that are being foreclosed.

NEHIMIAH was one of the 100% types of loans being offered in the Georgia area.  The seller paid about 3% for the buyers closing costs, 3% down payment etc...  I believe it was a government approved product,

Joe you are so right! "they are stating the obvious over a situation they helped create."

Jo-Anne  The sad thing is how long and how deep was the damage?  How long to recover?

Phylena  I think carte blanche ones we saw are a thing of the past.  ****Most never talk about it, but these are the same products that were used in the 1920's prior to the Great Depression.  The mortgage lenders qaulify this by saying they were a hybrid product.  I've read otherwise.   These 100 % no money down loans are what lead to the creation of the amortized PITI 30 year mortgages we use today for a good reason.****

Missy thanks!  Interest only loand are great if you are in a rising market where properties are appreaciating.  I'd still personally would not use one.

Neal I agree.  I have no comments on Countrywide persoanlly.  They were not a big palyer in my market.  Homebanc was.  They are now gone our of business.  BTW Countrywide bought segments of Homebanc out...  It is not good to mix the good water with the bad...because then it is all tainted.

 

When 100% financing began here with a major builder 4 years ago, some of us predicted that it would get ugly when those ARM's reset. Buyers were willingly approved to buy homes priced far beyond their means. I think many buyers had the impression that if the lender told them they could afford the home, then they certainly must be able to afford it. Lenders were greedy and irresponsible. Buyers were naive. They both share the blame. I know many agents who tried to talk the buyers out of buying at such a high price, but they wouldn't listen to us. It was a status thing.

Elaine I agree. I believe there was an article in the Carolinas where a builder sold homes to unqualified buyers.  It resulted in many of the homes foreclosing.  So why lend to persons not qualified and then say the sky is falling?  http://www.lawyersandsettlements.com/case/beazer-homes-forclosure-investigation.html

A lender here is just starting to talk about Nehemiah.  I need to learn about this product and see if I should stay clear.

Jim - I sat with many buyers who were unrealistic in their assesment of what they could afford. They were certain prices would continue to rise and apparently banks were too. The run up in housing prices lasted a lot longer than I thought they would. Many, including the banks, bet and lost! There needs to be some personal accountability and quit blamimg everyone else.

We see alot of people living beyond there means when we take listings their  homes/garage are  full of expensive "DO-DADS

If anyone read the book " The ROARING 2000's "

It predicted these times......

Debbie, not to say there is anything wrong about Nehemiah, but there has to be accompanied with personal responsibility.

Paula I agree, accountability needs to be at the level of the individual.  Just like the phrase "The buck stops here!"

Jeff & Grace Right after September 11th 2001 I was called to list a few homes of young people that had really maxed out their lives.  Yes they were making big money when their companies shuttered the doors overnight, but they had no cash reserves.  It was tough for them to go from a 6 figure salary to nothing overnight.   They owned every toy imaginable, the latest cars, skiddos, tv's and stereos..., and no cash reserves.  On one home we managed to pull off a sale that was 25K higher than any comp in the subdivision.  The seller was incensed that they had to come to closing with $2500 cash to get the deal done.  They had no clue that if they had listed with someone less skilled than ourselves it would have been more like 27K in cash!  Sometimes I have to sit back and wonder what people are thinking, or if they are thinking at all?  Ever feel that way?

Good One JIm. I was never abig admirer of Countrywide anyway with their high closing costs, points et...and yes the responsability for this trightening should be shared by some of these lenders who were thengiving loans away. You are giving anyone a favor giving them a loan they can't afford if if takes only a raise of one interest point to put them in a hole. 

Jim, if Countrywide closes their doors, we all will be hurting.  I did very few Nehemiah loans in the last few years and I agree with you.  These loans were for first time home buyers and they got in with nothing down and very little closing costs.  If the buyer had been prepared to put money down, they would never have purchased a home.

Lloyd  For such big players, they did not seem to have it together...did they?  It is sort of like having one's cake and eating it too!  Which way do you want it?

Kay that is the problem.  It is a confidence thing.  As far as the loans go... I am a firm believer the buyer needs to have money on the table!  Nothing down?  Come on!  How scary can it get?

Although Nehemiah is still available, I think, it would be tough to implement in today's market. When it first came on the scene several years ago, it was common to increase the purchase price so the seller would net out OK. It would be tough to get those deals to appraise today.

Like Lloyd said, I never recommended CW because of their high closing costs.

Jim, I think much of what you say is true, but there is one other major part of the current situation that needs to be spoken of... the real estate investor.  I am in the D/FW real estate market.  Over the past two or three years, we have been visited by busloads of investors who have come into our market from either Phoenix, Las Vegas, or California... looking for "deals."  Many of them "over-bought" or "over-paid"... confusing our local pricing, which has been increasing in the range of 3% yearly, with their home markets which saw values escalate by double digits for many years.

They closed on their homes, many of them with minimal-down investor loans, some of them with limited documentation, and then tried to rent them.  There was the problem.  With new homes available to the typical homebuyer with no down payment, builder-paid closing costs and prepaids, and all appliances included, it became much easier for builders to sell their homes than it was for investors to rent their investment homes.  Homes sat vacant... sometimes for months and months... until the investors cash flow crunched, and their loans went into default.

So... as I drive some of the newer home neighborhoods, many, many of the homes that are vacant were previously investor-owned.  Honestly, the percentage of owner-occupied homes in default I think is much lower than many folks realize.

Elaine That is correct.  It would be impossible to bump the price up in todays market.

Karen I fully agree, but I feel this is going to trash established neighborhoods, and new home communities that could have really been something!  Greed has displaced need once more.  The same thing happened in Atlanta.  I received dozens of calls from investors from CA.  The difference with myself, I told them the truth.  I did not sell to any of them promising something that could never happen.  In the past few years we had a very soft rental market.  I have a conscience.  Also think of it this way...if they purchased with little or no money down, and promised to be owner occupied (investors don't get no money down loans, or lower rates) it is clear and simple loan fraud.

Jim - I suppose we're reading the same articles again!  It's hard to miss them.  I read USA Today's article citing a number of personal stories showing the desperation some families were feeling when they first took out these loans and the unscrupulous lender practices that lead many to go down this unfortunate path.  What it didn't mention were the buyer's Realtors....I'm hoping in retrospect many of us can look back and say with confidence "I NEVER would have let my buyer get caught in this trap."  I can honestly say none of my buyers are in this position and I'm eternally grateful.

Another good one Jim. No need to pile on CW here. ALL mortgage companies are in trouble. CW is just the 800 pound gorilla in the room, and they've decided to air their dirty laundry before it came out later. They are prevalent in our area and do a pretty good job. It just depends on how they are managed and the LOs they have, just like in our business. The problem was the industry itself, with all the pressure to close loans, lowered standards to ridiculous levels, turned a deaf ear and closed one eye (did I leave anything out?). Much of CW's problems have come from their wholesale division and the loans that they bought. I do some REO work for them and many of the latest foreclosures have been loans that are less than a year old, if they were ARMS, they never had a chance to adjust. They were just loans that should have never been approved in the first place.  And yes we all should have seen this coming.  Two more of my cents. Thank you.

Hey Jim - thanks for sharing another story in your reply to us- one that alot of us can relate to as we've seen alot of people living beyond their means in the BOOM years.....people ask us all the time why we don't have a mansion ourselves- after all we are in REAL ESTATE - we reply with

"Did you know you can pay off Your enitre 30 year mortgage in 6-7 years by just doubling up your monthly payments? !!! They usually get quiet then :0

what happened to that sound advice???

Irene  Great thought!  I met this young man I know...a mutural friend sold him a home a few years ago.  He is now in a position he needs to refinance, and does nto qualify to do so.  I would not have advised him or others to place themselves in this position. 

Jeff & Grace I recently advised a seller to rent their home, and double up on the paymenst to build some equity.  He had none.  For him the rental was to buy some time.

Jim, it is ironic that people like Mozilo who helped create the problem are now being treated as the AUTHORITY on the issue - how it might have been prevented.  I'm with you on this, if anyone is smart enough to become President of Countrywide or any other financial institution, he was smart enough to stop his company from engaging in risky practices.  However, no doubt he was being pressed to increase revenues by his Board of Directors and his bonuses were based on production, so short-term loan production took precedence over responsibility.  There's a BIG absence of responsibility here, from financial institutions down to borrowers who purchased homes they could not afford.

Margaret!  People are jerks to listen to the guy whose company pursued these shaky high risk loans!  Now he's saying we have a problem?????  No duh!  It starts with him!