Real estate 'getting worse'; a surge in fraud probes

A couple of quickies: The view of real estate from Wall Street is considerably less cheerful than it was last summer, when "containment" was everyone's favorite word. From Bloomberg via Patrick.net: "JPMorgan Chase Chief Executive Officer Jamie Dimon said he expects U.S. home prices to drop as much as 9 percent this year as even borrowers with the best credit have difficulty keeping up their mortgage payments."

More: " 'Real estate is getting worse,' Dimon said in a conference call today with investors after the bank, the third largest in the U.S., reported first-quarter earnings. 'Home prices we still expect to go down.' "

Also, from the Associated Press: "FBI Director Robert Mueller says there has been a 'tremendous surge' in mortgage fraud investigations, and he expects it to keep growing.  At a Senate hearing Wednesday, Mueller estimated that the FBI has 1,300 investigations underway, 19 of them involving sub-prime lending practices by U.S. financial institutions."

My two cents: I worked for a particularly results-oriented boss who was known for saying, "Don't tell me about the labor, show me the baby." In this case I agree: Don't tell me about the investigations, show me the indictments. To date, nationally and in California, we've seen only nickel-and-dime cases against small real estate firms. When the Justice Department truly has its eyes on a prize, it moves very quickly and, yes, ruthlessly. It sits important people down in rooms and tells them they have two choices: plead guilty and hope for a short prison sentence or be indicted and risk a long one. Time will tell if that kind of prosecutorial fury is in evidence here. There's no sign of it at the moment.

Your thoughts? Comments? E-mail story tips to peter.viles@latimes.com
Photo Credit: Associated Press

Comments

[left of lefty]

"even borrowers with the best credit have difficulty keeping up their mortgage payments."

the subprime problem pretty much shut out subprime borrowers. so far, people with good credit can still get loans. i sincerely hope they don't shut off the spigot for prime borrowers as well. otherwise the only way to own a home is to put up 50% cash and accept a 15% rate.

another reason that if you can afford the payments and find a home you like, buy it now. sure, prices may drop further. but prices aren't the only variable in the equation.

[RZ]

Jamie Dimon might say that "Real estate is getting worse," but I think it's getting better. After all, house prices are becoming more realistically affordable. But there's still a long way to go until they are truly affordable once more.

[MyLessThanPrimeBeef]

Forget about mortgage bankers, real estate brokers or house speculators. If the leaders say, hey, everyone listen here, running red light is now OK, it's now legal, you will get a lot of drivers doing that soon enough; although the more prudent among us will still stop to make sure we don't get killed by the crossing traffic. If the leaders say, drinking and driving is OK, it's allowed, what do you think will happen?

Somebody up there said, go ahead, get me more of that zero down, stated income mortgages, I will buy it from you. Which hungry but competent capitalist is going to turn that kind of offer down? If that same somebody bragged, my buddy will stamp this crap AAA, so just get me more of it, what do you think a capable, small time capitalistic broker/speculator is going to do? It all starts from the top.

[mark g]

The Bush Administration will give this lip service until they're out... the new admin, whoever, will pick the ball up and we should see by next spring some big dogs under the heat lamps...

[mike]

i don't even know the laws regarding sub-prime mortages. did lenders do something illegal here? i think the borrowers are at fault as well for lying on applications. don't you need to prosecute both parties????
another point. we all took atvantage of the boom years in some way or another. it doesn't matter how big or small we took atvantage. the phantom wealth boom touched all of us in some way or another and now the turndown is touching all of us. the more you took atvantage, the worse your problems are right now. i dont hear people who didn't tap their houses like an endless atm complaining. if you still have signifigant equity you can still get a home equity loan.

[sheila]

So, you realize that many states tried to stop these fraudulent lending practices early on, but that the Bush Administration aggressively STOPPED them, refused to pass any regulations or enforce the regulations on the books, while claiming 100% control over lending, right? Elliott Spitzer wrote an Op-Ed about it in the WaPo in February and was investigated shortly thereafter. Coincidence? Maybe....

This whole "ownership society" was a calculated scam to enrich the bankers, create a totally false sense of prosperity while the dollar, the economy, the deficit spending and the environment were circling the drain and their wars were completely failing and bleeding us dry. If people hadn't been so giddy about buying and flipping property, they would have realized that the criminals in elected office had ruined their lives.

I'm sick of this being about how irresponsible low income people were. It's just like the immigration debate - make all of us in the lower 90% fight and scratch and blame each other while scrapping for 10% of the booty, while the men with big cigars at the top of the pyramid scheme laugh and bloat with 90% of the money and power. You know how many BILLIONAIRE hedge fund managers there are? Who pay only 15% capital gains tax and who get paid coming and going? The top 50 earned $29 billion last year while their "investments" created nationwide meltdown.

You want to know who is greedy, unethical, and has the power to ruin lives? Don't look in Glassell Park. Don't look in the Valley. Look in DC. and on Wall Street.

[JohnnyB]

The financial scammers leading many of these institutions of greed, corruption and financial terror did more to harm this country and it's citizens than any physical terrorist attack in history. This was more akin to poisoning the water supply because it adversely affected most of the population in some form or another.

When a terrorist group is identified, the FBI have the capability to freeze bank accounts and appropriate ill-gotten funds – even while an investigation proceeds. This not only punishes the perpetrators and criminal participants, it deters others and it also turns mutes into whistleblowers. There is a cut to the chase mentality and process that can serve justice well if implemented appropriately and transparently.

THESE are the ill gotten funds (untold billions and billions now in offshore accounts, etc.) that should be traced down and “re-acquired” - before any tax payer money - and used for the important and needed funding getting short thrift now – like middle class tax breaks, education, job creation, infrastructure, health care, renewable energy, etc.

Financial terror is the real 21st century paradigm to “war against”, not a few fanatical boogiemen in the hills of some far off land that our current leaders spend trillions of our money to supposedly “protect” us from.

Our citizens need to wake up to the real threats to their and their future progeny’s future well being and quality of life. This is the United States Of America and it is ours to take back. We need our FBI and the Justice Dept., properly led, to help accomplish this revitalization of fairness, ethical conduct and justice in our business community.

[Cal]

I read somewhere that if you rob a bank it is something like an average haul of $1,000 and a 95% chance of getting caught by the FBI.

People are grabbing hundreds of thousands of dollars in single transactions and are basically immune because the manpower required to go after all these people is too great. A sure way to get nothing done in solving a problem is not to spend any time solving it.

OT:
"Short sales currently account for about 18% of home sales, according to the National Association of Realtors."
http://online.wsj.com/article/SB120839380851021529.
html

If you add 18% short sales (and that is nationwide, I am sure California is much much higher) to the 38% homes sold in March were foreclosure... then even at this dreadfully low sales the majority of people cashing out are the bank. That means no move up market, no property ladder, nothing.

I love the thought (and it is apparently becoming prevailing) of the homeowners who are pulling their homes off the market in hopes the market will get better so they can get "their" price. I would venture to say that these price (when adjusted for inflation) will never be seen again in our lifetimes.

[TakeFive]

“To date, nationally and in California, we've seen only nickel-dime cases against small real estate firms. When the Justice Department truly has its eyes on a prize, it moves very quickly and, yes, ruthlessly. “

Expect more small change. Case in point: Look what happened to Elliot Spitzer.

I have no doubt that had Spitzer been the Banker’s buddy, his suspicious transactions would have been permanently overlooked. Being ruthless brought him swift retribution. No doubt a few other people got the hint.

We’ll get this generation’s Ken Lay, Michael Millikan, or Charles Keating token bad guy, but that’s about it.

[Fred]

I wonder what constitutes fraud. What about all those people who lied about their incomes?

[lefty]

hey guys don't you just love these 'experts', their company stocks are down 40% in 1 year and they are still talking!? lol. well you know what that means: the time to get your house in beautiful metro L.A. is right now!! your choices are great so don't wait!

[David Brown]

It is unlikely that the FBI will ever put any realestate bigs in jail for fraud. Gentlemendon'tput gentlemen in jail. This comesfrom the top. The FBI is an agency that majors in press releases and minors in BS.

Look at the endless Getty Museum frauds...anyonegoto jail?

[widollar]

By the time this financial meltdown has run its course, houses in California will have dropped by 25 to 30 percent. This mess will continue for another three years and by the time its finally over American homes should be priced as they should have been all along! Greed is not good contray to the Hollywood Michael Douglas film glorifying greed.

[Laker]

With my searches on properties and foreclosed properties, i find very interesting fact about fraud.
For example, i have found people that bought 3-5 houses each! at pretty much the same time in 2006 and got foreclosed on within 12 months. So same guy buys 5 houses in the valley and getting foreclosed...the common between all purchases are huge price appreciation such as house sold for $600,000, and after a year this fraudster buys it for $1,300,000 and then "loses" it to foreclosure...
If this does not smell like fraud, it don't know what fraud is.
For example here are 3 properties that are involved with same fraduster: I will not put his name, but this info is available at public records websites such as propertyshark.com

24558 Eilat St 91367
5724 Tampa Ave 91356
23568 Erwin St 91367
11001 Fullbright Ave 91311

There is at least $2M loss just on this guy....
I think there were couple more, but i can't find them right now.

[Gimme a Break]

FBI Mueller has 1,300 investigations and only 19 involving financial institutions???? Why bother, as ALL will 'SETTLE" without admitting ANYthing, and pay a few pieces of silver to Justice Dept lap dawgs. Then they'll go on to the NEXT BIG RIPOFF for getting billions from the Public and shoveling it to the CEOs...who in turn, pay their 10% tithe to the Republicans and Democrats in office. Mr Mueller; WILL YOU GUARANTEE PERP WALKS? I'm betting 'No way!'

[firesale]

"When the Justice Department truly has its eyes on a prize, it moves very quickly and, yes, ruthlessly. It sits imortant people down in rooms and tells them they have two choices: plead guilty and hope for a short prison sentence or be indicted and risk a long one."

GOD SPEED THE DAY!

[Cal]

"another reason that if you can afford the payments and find a home you like, buy it now."

I disagree, rates are historic lows and prices are near historic highs. High prices and high rates don't go together so another variable in the question of "Will I be able to sell my home in the future" is future interest rates. They won't be lower than the historic lows we are at now.. and if they are higher it reduces the amount you can get for your house. The only way your assertion might make sense is if the homeowner never plans on selling and that isn't a realistic scenario.

If you look at credit normalizing, the most likely situation of interest rates increasing, the net out migration of people from California and our aging population it doesn't make any sense to buy now. There are a lot of things in life to be positive about, housing isn't one of them.

[Fred]

Qualified borrowers will always be able to get loans, lefty. Mortgages will always be big business for banks because of the interest payments.

[keith]

"another reason that if you can afford the payments and find a home you like, buy it now. sure, prices may drop further. but prices aren't the only variable in the equation."

The only problem with that theory is that interest rates move up and down over time, but the price you buy at is permanently part of your financial structure of the deal. (well, at least it was, we'll have to see what the "New Deal" brings.)
You take a bath on price, it's forever. If interest rates do go to 15%, the market value of your home will drop precipitously.

[Laker]

left of lefty,
I said it many times: I would like to get stuck with a $200,000 house and 15% rate mortgage (that i could always refi) than be STUCK with $1,000,000 and 5% mortgage rate. You will always owe the million....well unless the government will slash it by two...or more...courtesy of the tax payer....

[Joseph... the Real Estate Guy]

80/20 sub-prime loans was one the silliest inventions of the 20th Century!

They took the place of Primes.

Brilliant minds from Wall Street!

[mbob]

The press is chockablock with coverage on how the IRS has virtually halted any investigations of big companies.

I'm shocked, shocked I tell you that under our administration trans nationals should enjoy any immunity from oversight.

Strictly search for the guilty, punishment of the innocent.

[Fred]

Los Angeles home prices will have dropped 60% by the time this is all over.

[Inland Empire]

How much more fraud will there be when some sort of bail out happens? You can bet that lots of people will walk away from houses if there is no penalty for doing so simply because they want out and can't sell etc.

[Ace]

Cal 'If you add 18% short sales (and that is nationwide, I am sure California is much much higher) to the 38% homes sold in March were foreclosure'

Cal, the number that I hear a lot for the SFV is 70 percent. 70 percent of total sales in the Valley are either foreclosures or short sales.

I tried to find some research but came up empty. I eye balled the sales for the last two months in this area and would have to agree with the 70 percent figure.