Sunday, July 16, 2006


Ah, meds are wonderful! But keep that Zombiestra away from me; Prozac is good enough. LOL!

I am surprised by the flood of email by people who depend in some measure on this blog; I had no idea. I seem to have unintentionally stumbled on to responsibility and I'm not sure what to do about it.

People, there are better housing bubble blogs out there (go look at the listing in the right-hand column of this blog). And so I think the following email quotes are a little misguided...flattering to be sure, but misguided all the same:
  • "Yours is the only rational, intelligent voice coming out of Marin. How rare it is for someone to be able to step out side of a place like marin and see it as it is objectiveoly."
  • "You are the only real voice for Marin."
  • "It is rare to find such a high caliber, quality site that is factual, logical and informative. You have the ability to inspire debate in some and provide valuable information to the rest of us who know that this real estate market is total insanity. Also, I would miss the humor links greatly."
  • "I wanted to comment that I love your blog, it's one of the few I read. I've not given up on your meaningful, insightful and wonderful comments on this insane housung market."
For some folks it seems that even their mental well-being is somehow yoked to this blog if not just to know that they are not alone in thinking this housing market is insane but also to help offset deep depression and even avoid marital discord (sorry, but I won't quote some of the stuff I was sent on this topic as it is way too personal even though it would be totally anonymous). I don't know how to respond to that other than to say 'yep, you are not alone, I assure you'. You are right, the housing market is broken and has been allowed to grow out of control to preposterous levels and I'd even go so far as to say irresponsible levels. (Check out this Marin POS.) All the self-justifications and rationalizations by real estate professionals to the contrary are nothing more than a sick attempt to justify the absurdity of it all and to try and keep it going for as long as absolutely possible as most of them have a financial stake in seeing it continue no matter how disastrous the eventual outcome may be.

Other people who wrote in are clearly using this blog as a means to make money from real estate; mostly from the collapse I'd wager; trying to time the bottom. Although I cannot prohibit you from visiting this site, I can say that you are not entirely welcome here unless you are here to reconsider your ways. I've made the argument before on this blog that houses are places to live in, to raise families in, the building blocks of community, etc., not get-rich-quick investments or a source of funding for some lavish retirement, or shouldn't be, and I assure you that that topic will be revisited here again in the future.

So I seem to have inadvertently acquired an elusive, eclectic entourage and a responsibility to boot. LOL! Ok, "Uncle!", comments are turned back on.

As this turned into something of a rant, I feel obliged to reward your tolerance with this (of dubious credibility, I must admit) -- The Mortgage Broker Association of Responsible Lending. Sounds good, huh? If it is legitimate (and I hope that it is), then it is rather encouraging:
The Mortgage Broker Association for Responsible Lending (MBARL) is a trade association that represents the real estate finance industry, an industry that employs more than 400,000 professionals throughout the country.

By investigating the pros and cons of certain loan programs for both the prime and sub prime markets we are an advocacy group protecting consumers and the loan industry by outlandish and counter productive loan programs. Sometimes these loan programs are highly marketed to minorities, seniors and low income individuals, which to our organization is highly frowned upon.

The MBARL applauds our sister associations and their efforts to their causes. The MBARL believe that we do have a similar cause, to better strengthen the mortgage industry as a whole. The MBARL believes that many of the problems in the mortgage industry stem from the structure of the loan programs themselves.
From their "Mission Statement":
The Mortgage Broker Association for Responsible Lending’s mission is to promote better loan programs from banks and lenders to better serve the community. Currently this will be accomplished though meeting and communicating with regulatory boards and bank representatives to end the practice of stated income loans. We see stated income loans as an open invitation to commit fraud, and we believe that these types of loans must stop now!
From their "Facts" page (note the part at the end specific to the Bay Area):

Data Collected by the Mortgage Brokers Association for Responsible Lending

  1. 37.2% of non-agency mortgage backed securities were no document loans in 2005.i
  2. 49.3% of ARMS with interest only features originated in 2004 lacked full documentation.ii
  3. As of September 2005, Adjustable rate Mortgages (ARMs) accounted for roughly 70% of the prime mortgage products originated and securitized and 80% of the subprime sector.iii
  4. In 2006 97.5% of borrowers are likely to face a payment shock of at least 25% and 75% of borrowers could face a shock of 50% or more.iv These changes neglect additional shocks that would result from the repayment of principal because of current interest only payments!
  5. Payments will increase on 41% of the outstanding subprime loans in 2006 alone.v
  6. As of March 22, 2006 53.1% of interest only ARMS had a prepayment
  7. 70% of borrowers with Option ARMs (Arms that allow negative amortization) are currently making minimum payments.vii
  8. In 2004 $600 BILLION of consumers' spending power was from borrowing against home values. That is double the value of President Bush's tax cuts, as estimated by Brooking Institution scholar Peter Orzag.viii
  9. 2nd homes accounted for 14% of new mortgages in 2004; in 2000 it was only 7%. Mr. Greenspan said that the fact that someone can sell a 2nd home without moving, "suggests that speculative activity may have had a greater role in generating the recent increases than it customarily has had in the past."ix
  10. Residential housing now makes up 16 percent, or $1.9 trillion, of the gross domestic product and is the economy's largest single sector, slightly bigger than the industries and services that supply health care.x
  11. In 2005 the FBI convicted only 170 people nationally for mortgage fraud. In 2004 that number was 172 people. According to the FBI the hot spots for Mortgage Fraud activity in 2004 (per capita) were: California, Nevada, Utah, Arizona, Colorado, Missouri, Illinois, Maryland, Georgia, and Florida.xi
  12. In the San Francisco Bay Area alone, almost 75% of mortgage loans taken out last year (2005) allowed borrowers to delay the payment of principle. Negatively amortized loans jumped to 29% of the Bay Area mortgage market from less than 10% in 2004.xii
  13. The following chart shows the percentage of Bay Area loans that were interest only or Option ARMs (know as negative amortization).xiii
    YearInterest OnlyOption Arm

i What else is new? ARMs Dominate Subprime Mix, INSIDE B&C LENDING (Bethesda, MD), Jan. 20, 2006, at 4.

ii Observed by The Center for Responsible Lending.

iii 2006 Global Structured Finance Outlook: Economic and Sector-by-Sector Analysis, FITICH RATINGS CREDIT POLICY (New York, N.Y), Jan. 17, 2006 at 12.

iv, page 10, June 15th, 2006.

v, page 10, June 15th, 2006."

vi Study through The Center for Responsible Lending (CRL), which analyzed Loan performance data on March 22, 2006

vii Ruth Simon, A trendy mortgage falls from favor - Demand for option ARMs, which helped fuel boom, wanes amid rising rates, growing risk, THE WALL STREET JOURNAL, November 29, 2005, at D1.

viii Greg Ip, Greenspan warns of reliance on housing loans, THE WALL STREET JOURNAL, September 27, 2005, at A1.

ix Greg Ip, Greenspan warns of reliance on housing loans, THE WALL STREET JOURNAL, September 27, 2005, at A1.

xDavid Leonhardt, Boom in Jobs, Not Just Houses, as Real Estate Drives Economy, THE NEW YORK TIMES, July 9, 2005

xi, June 26th, 2006."

xii Kathleen Pender, Mortgage options explode, SAN FRANCISCO CHRONICLE, April 13, 2006

xiii Kathleen Pender, Mortgage options explode, SAN FRANCISCO CHRONICLE, April 13, 2006


Anonymous said...

Now that is a post! Bravo my friend, bravo. Posts like this make Ben Jones look like an amateur.

mbarl said...

My name is Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending. I have a letter in a word document form that highlights the risks of the current loan industry unrealized by regulators and economists alike, mainly due to stated income loans.
Email me at if you want me to send you a copy.

~ Steve Krystofiak
13 main points in the letter are;
1. Stated income loans are associated with fraud, and started to become popular in 2002.
2. Banks originate these loans because they are profitable and then sell them to reduce their risk.
3. Fraud is encouraged by the banks
4. Stated income loans help no one.
5. Exotic loans originated with stated income are now causing foreclosures or forcing homeowners to refinance into negatively amortized loans.
6. Stated income loans are why home prices have skyrocketed. They have caused a large demand in the US housing supply.
7. Banks have sold their loans and have already made their profit. Investors will soon realize stated income loans are too risky and stop purchasing them.
8. Almost anyone can get a stated income loan for $950,000.
9. Stated income loans cost consumers hundreds of dollars a year because of higher interest rates.
10. Stated income loans allow tax cheats to purchase homes easier.
11. Stated income loans are not always faster than fully documented loans.
12. Appraised values are often inflated. Underwriters are basing their decision on inflated home values, inflated incomes and inflated assets. The only “real” number is the FICO (credit) score. This is why underwriters have become focused on FICO scores.
13. Rules are not enough, they must be enforced.

49erFans said...

Yea, you're back and better than ever!

Anonymous said...

i'm a loan broker,and those figures are truly frightening.i will also state that without the insane practices of the lenders we would never have seen a bubble this big.i do not excuse the shysters in my own field...and would happily bring the feathers if you bring the tar.however,it will,as usual,be a few small timers who go to prison,while the important folks walk.i hope mbarl is for real,it is too little too late,but i'm joining anyway.

moonvalley said...

glad to have you back. you're one of my bookmark bar favs. a lot of us love to read what you have to say whether we live in Marin or not.

Anonymous said...

I too love your site. I live in Grants Pass, Oregon and I find this site totally relevant to both Marin, Grants Pass and the whole country! Please and thank you for continuing the great work you do.

Anonymous said...

The mortgage industry has too many "professionals" that want to be in the industry for 1-2 years. These people have nothing to loose with these bad loans.
If the country/ state made it as hard to be a loan officer as it is to currently be a stock broker then we would have more professionals who would not commit fraud, and less fly by night loan consultants. Mortgage brokers would do everything they can do to keep their license if they worked their @$$ off for it. This would also be great for consumers because then a loan officer would not gauge as many points out of a customer as possible, because he/ she would be in the industry for the long haul, and that mentality does not work for the long haul. Getting 3-4 points per customer for a loan does work for recent high school grads/ ex drug dealers who can talk on the phone. Did anybody else hear a couple years back that Ameriquest was recruiting new and used car salesmen to peddle their loans?

Lisa said...

I'm so glad the blog is BACK. I'm a big fan of Ben Jones, but as a Marin resident, I love the localized focus here. It feels like the lone voice of sanity. The boom here has been so strong, and people are so vested in it, that it's the giant elephant in the room that everyone is desperately trying to ignore.

One of my friends, a broker in Sonoma, says her office is handling several short sales. And that's just one office...

Anonymous said...

Glad to see you back, and astute as ever. It's the combination, see, of excellent local info and witty writing that makes this blog a great addition to the bubble-o-sphere.

Laura B. said...

Awesome post! Thanks. Great, resourceful links.