Friday, July 17, 2009

The Continuing Crisis- Buy a $3.5 Million House With No Down and No Income Verification

Anybody who thinks that the air is out of the housing bubble or that there is any end in sight to the financial debacle need only follow the title link to the real estate listing for a mansion in the pricey Hollywood Hills neighborhood in Los Angeles.

Here is the proof that the trillions of dollars worth of interventions and bailouts promulgated by the federal government over the past two years not only will fail of their stated purpose, but create more problems of the same type they purport to solve. Worse, the people who created the debacle will continue to be rewarded for their criminality and insanity at the expense of the population at large, and the biggest losers of all will be the prudent and responsible.

Yes, this 8,000 sq. ft. palace can be purchased with no money down and no income verification ("liar loan"). Here is the text from the Redfin listing:

BANK OWNED LANDMARK ESTATE IN HOLLYWOOD HILLS! Financing available w/NO INCOME VERIFICATION! Move right in & live like a king w/ 360 degree views of the entire city! Move-in condition & the pride of the previous owner. Privately gated, well cared for & approx. 8,000 sq ft w/ 5 bdrms, 2 master suites, office, library, media, office, maids, bonus rooms, 3 car garage, lg motor court. Bank says sell & will help you buy it! Move in quickly without the hassle of finding a bank to approve your loan!

Is this for real? If it is, then we are in worse trouble than we thought, and we can count on many more foreclosures, many more failed banks, and many trillions of dollars more for bailing them out. There's no way this house would be advertised in this fashion if sensible lending standards were being enforced.

Instead, we are now ramping up for the next big wave of defaults and foreclosures. All the various housing rescue programs and financial bailouts have accomplished is to insulate the financial houses from the results of their lunacy and malfeasance, while providing the financing for the next wave of unrepayable mortgages. Right now, the FHA is underwriting loans for 4X the buyer's income, with 3.5% down-95% of all home loans for moderate-priced housing are now FHA insured. And, as we can see from this, the worst lending practices have not ceased. And why should they? Our authorities have done nothing to tighten lending standards or impose regulations that might prevent a repeat of the past 10 years. Instead, they're pulling out every stop to revive the credit-creation machine and bubble economy of the 2000s.

The situation is so hopeless and our leadership so corrupt and clueless that in my weaker moments, I'm tempted just to acquiesce to the Zeitgeist of the times and Get Mine. I mean, why am I sitting here struggling to pay off my credit card debt while my hours and pay are chopped, and my job possibly will not exist by the end of the year, when I could do what the people involved in this house are clearly doing, which is setting up a straw deal to defraud the mortgage lender, whose agent is probably in on the deal and in line for a "consideration" from it. Obviously, I can still get any kind of mortgage I want for any kind of property, and the lenders are clearly not concerned with potential losses, because the U.S. Treasury is picking up the tab for them.

So why should I let a few bills, a shrinking paycheck, and the possibility of job loss deflect me from enjoying the lifestyle I so richly deserve? Why should I not lie about my income? Why should I not just get a $4.4 M liar loan with $500K cash back at the closing so I can quit my crappy job and spend a year or two living a fantasy lifestyle rent-free- for if they'll get me a $3.9 M liar loan why not $4.4M? I'm not going to be able to pay back $3.9M any faster than $4.4M, and given that there are more foreclosures in front of us than behind us, it will take the the lender at least a year of non-payment on my part to even file an NOD, and another few months to serve it on me, and then at least another year to go through all the other stages of the process. In the meantime, I'll have $500K to live on, which will free me from having to work for a living and give me cash for a few shopping sprees at the all the trendy stores, because I'm sure sick of shopping in consignment stores in Edgewater.

Jeez, I could even buy a CAR. I want a Tesla Roadster. Why not? All things are possible with the magic of the NINJA loan, thanks to the hundreds of billions of dollars in TARP and TARF funds shovelled into our financial system.

Sounds like a great vacation to me, if you don't consider the possible tax consequences pursuant to the cash back. And when it's over, I can just file bankruptcy. And anyway, there are so many millions of people out here who also got and spent hundreds of thousands of dollars via equity extractions that they can't pay back and strictly speaking owe taxes on, that it will take the IRS forever and a day to get to me, and I'm sure the bankruptcy receivers won't make me give back the Sonia Rykiel sweaters or the $45,000 Hermes croc Birken bag.

That's if there still are any receivers, or process servers, or banks, remaining, which is pretty doubtful considering the situation that is becoming manifest as the unravelling of the global economy speeds up, and our government wonks just keep promoting and subsidizing more of the crap that created this debacle to begin with.

Because, if this is how the bailout is working, and this is what's possible under the new, "reformed" financial regulations, then there will so many defaulting jumbo loans and commercial loans, and so many vacant mansions, condos, houses, apartments, shopping centers, and office buildings, I'll be able to squat in the place indefinately, and my only problem will be where to find food and how to get around in a country where the grocery store shelves are not being replenished and we can no longer afford to buy the oil we need for the most basic services and operations of our fragile, energy-dependent society- which will no longer exist.

This is the kind of thing I think of when I read of three orphans and their gaurdian being evicted from a junk apartment in the Northpoint apartment building because of the death of the kid's grandmother, who was the legal lessee. A couple of commenters on Craig Gernhart's blog, who are clearly oblivious to what's taking place around us at every level of our economy, stated that they didn't think their tax money should have to pay for housing for these orphaned children. Well, they need to see what their tax money is paying for.

We're being stripped of our remaining wealth out to guarantee the profits of the members of the Financial Kleptocracy, and to insulate them from any risk. Our system of taxation and network of subsidies and incentives is now set up to funnel as much tax money as possible to the perpetrators of financial fraud, while services we badly need, such as minimal support for orphaned or abused children, are decimated, and the industries and technologies that could rebuild our economy and provide us with the advanced technologies we will need to retain a reasonably comfortable life in a fuel-short future, are still-born for lack of investment capital.


consultant said...

Well Laura, you're on a roll. It's a good one though.

Our country has been here before-gangster nation. But today we have some big differences. We are dependent on each other and technology like never before. Shut down the electrical grid for an hour and see what happens.

..310 million people and counting. I still can't wrap my mind around that. 310 million people. The 3rd largest nation in the world. How did we get there so fast? Anyway, at the rate and way we consume, it is unsustainable. Period.

Watching the Ed Sullivan show as a kid, I use to marvel at those performers who could spin plates on multiple sticks, all at the same time. That's what we've done since the end of WW II. Now they're all crashing to the floor. A bunch of folks missed the memo that "it takes skill" to spin plates.

I don't know where I'm going with this metaphor, but I know we're screwed in ways that most of us can't and don't want to imagine.

But as a start, we/Obama cannot hope to succeed until the criminals who created this epic Ponzi scheme are brought to justice.

If we can't do that, then it's all over. Period.

Dr. Doom said...

Hi Laura, nice rant and blog site.

Yes, it will not end well.

The North Coast said...

Hi, Dr. Doom, nice to see you over here.

I see the price on this mansion was dropped to $2.9 M- a $1M drop. Guess the financing's not as easy as advertised.

As I see it, we are in for a very long stretch of economic contraction once things bottom out 2011-2012.

My fear is that Obama will be replaced by someone like the Newt, or worse. This guy is listening to some of the worst advice possible and not only on economic matters but on other issues as well. He is moving way too quickly on implementing really sweeping policy changes whose effects will play out (disastrously) over decades, without thinking through the possible consequences.

..... said...


The North Coast said...

I meant to say we are in for a long stretch of stagnation..... IF things bottom out in 2012 or thereabouts.

However, it appears that the commercial bloodbath will be so severe that commercial will not bottom out until 2017 at least, according to some analysts. The worst defaults are yet to come, for they will be the commercial defaults.

That means another 8 years at least of economic contraction, which is not going to be pleasant.

consultant said...


We use to live in Chicago. Like a lot of people, I'm curious and concerned how this is going to play out.

We haven't been through an experience like what's coming since the Great Depression. And we are a completely different country today.

We might fool everyone and lay down like the sheep we've become and just slowly starve to death as the decay seeps in. Who knows?

Physically, we're such a big country, I think we'll do what we've always done; have different reactions in different parts of the country. I think violence will flare here and there, but not everywhere. There will be pockets where somehow people are doing okay, but mostly lots of declining fortunes. We have so much "stuff" in America, so many built up institutions, that watching them adjust to this great unwind is going to produce some wild results.

I agree with the stuff you and Kunstler and others have written. iPods and the rest can go, but we've all got to eat. And I keep coming back to our "huge" population. That's a lot of mouths to feed.

My read of history is that short of something apocalyptic, we'll come through this. But as what?

Geniusofdespair said...

Thanks for reading our blog in Miami...we appreciate it!

The North Coast said...

Hi Genius, glad to see you over here.

I derive great pleasure in reading your blog and I love Miami. Your site is beautifully written and you perform a real service for your city with your site. I hope your fellow citizens appreciate even though I'm certain your corrupt officials don't.