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An all-star cast of lending experts gathered Thursday and today at UC Berkeley to ponder the excesses that created the mortgage meltdown and what safeguards to build into the home-lending system going forward.
The 20-20 hindsight part was easy. Brad Blackwell, national sales manager for Wells Fargo’s mortgage operations, recalled having been taught four things to check about borrowers when he learned the business 25 years ago: ability to repay, willingness to repay, commitment to the transaction (meaning a down payment or equity in the deal) and quality of the collateral, the property securing the loan.
Some “very, very bright analysts” developed models suggesting that the last factor alone was sufficient, Blackwell said, and so it seemed as long as home prices rose. By the peak of the housing bubble, many lenders (not including Wells, he said) had tossed out the old rules.
Stated-income loans waived the ability-to-pay rule. Subprime loans to borrowers with proven records of missing payments waived the willing-to-pay rule. And 80-20 piggyback loans and other forms of 100% financing tossed the commitment rule out the window.
“If you look at what happened,” Blackwell said, “you had stated-income subprime mortgages at 100%” of the property’s value.
Of course, using pools of those loans to back complex securities is what initially caused the blowup. Paul Jablansky, a hedge fund manager who has consulted for congressional Democrats on the mortgage crisis, estimated that more than 40% of securitized subprime loans were headed for foreclosure over a five-year period, with total losses of $400 billion.
Jablansky helped create the plan backed by Rep. Barney Frank (D-Mass.), chairman of the House Financial Services Committee, and Sen. Christopher J. Dodd (D-Conn.), who heads the Senate Banking Committee, to have lenders write down the principal balance on troubled loans so they can be refinanced into loans guaranteed by the Federal Housing Administration.
Having the feds team up with mortgage companies on loan workouts is a popular theme these days. Here are a few other suggestions by participants in the two-day mortgage meltdown symposium, sponsored jointly by real estate experts from UCLA and UC Berkeley:
Blackwell: Offer a simple menus of loans to avoid confusing borrowers. “A monthly adjustable negative amortizing loan is not something many consumers understand.”
Paul Leonard, Center for Responsible Lending: Make buyers of loans legally liable for fraud and errors committed by loan originators.
Audience member: Require mortgage originators to retain a financial interest in all securities carved out of their loans, so they share in any losses.
Today’s sessions include Federal Reserve Chairman Ben S. Bernanke, appearing via satellite and providing his views on the future of mortgage lending.
Click here for some presentations from the conference.
--E. Scott Reckard
 The L.A. Times goes out front today with the story of the difficulty IndyMac is having in its efforts to reach troubled borrowers to talk about loan modifications. (Hey, if I had lied about my income to get a mortgage, and a government-run bank wanted to talk to me about said mortgage, I probably wouldn't answer the phone either.)
Seriously: ...when the FDIC, which is running IndyMac, mailed out 35,000 letters offering homeowners a chance to rework the terms of their mortgages, more than half the borrowers were apparently so discouraged, scared or stressed out that they didn't bother to respond.
Relatedly, from Reuters: JPMorgan Chase & Co is making changes to about $110 billion in mortgages to help its borrowers and is temporarily halting foreclosures while it alters the loans.
The bank said on Friday it is expanding efforts to renegotiate loans for more borrowers, including customers it inherited when it bought struggling Seattle-based bank Washington Mutual last month.
Two cents, way off topic: The news that IndyMac's ambitious loan modification program is off to a slow start was reported last week by Tanta at Calculated Risk, in one of her typically insightful, well-written posts. I mention that not as a hat tip to Tanta (or to myself for linking to Tanta's post), but to make a larger point: There is much discussion these days about shrinking newspapers and the decline of journalism. No doubt, newspapers are in trouble. But journalism is not. It is being practiced today by more smart, passionate people than ever before -- people like Tanta. True, she is not a traditional journalist -- she doesn't work for a newspaper or a wire service, and her identity is a mystery. But she knows her stuff (her online bio says she's a former bank officer and mortgage lending specialist) and she's an enterprising, engaging and informative writer. She's a journalist, in the best sense of the word. And she's part of a growing army of smart, passionate, serious-minded bloggers, an army that didn't exist when I started in this business 21 years ago. It's a good thing.
-- Peter Viles
Your thoughts? Comments? And yes, I have a crush on Tanta. So sue me. I think Laker does too.
Photo Credit: A.P.
Nelcisco, a regular commenter here, is now working in a booming field in California -- loan modifications. We talked today and he told me he's worried that loan work-outs might become trendy -- even for borrowers who don't really need them: "My biggest concern is that people who are not in distress and not in need of a loan modification are going to start pursuing loan modifications. And that’s where it’s going to get ugly. That’s where you’ll see the backlash."
Reporter David Streitfeld explores the same thorny issue in Friday's New York Times: How do you determine who really deserves a loan modification that reduces their mortgage payment? How do you prevent people from deliberately defaulting their way into a lower payment? And what do you say to the "sober souls" who borrowed responsibly and keep on paying the mortgage on their upside-down houses while everyone around them gets a break? “Why am I being punished for having bought a house I could afford?” asks homeowner Todd Lawrence of Norwich, Conn. “I am beginning to think I would have rocks in my head if I keep paying my mortgage.”
This is going to be messy. If banks are cutting deals, everyone is going to want a deal. Pimco's Paul McCulley tells Streitfeld, "“If the lunch truly is free, the demand for free lunches will be large."
Also quoted: economist Peter Schiff, who says underwater borrowers will strongly consider defaulting in order to get government help: “If the government says, ‘Prove that you can’t afford your house and we’ll redo your mortgage,’ then people are going to try to qualify,” Mr. Schiff said.
Two cents: This story is a reminder of a key factor in the housing bubble that started all this: The American consumer shares and spreads business tricks and trends at lightning speed; the American government, by contrast, is very slow to catch on. So, during the bubble, consumers quickly learned from each other how to buy real estate with no money down, how to suck the equity out of their homes and spend it, how to squeeze into a big house by paying a tiny teaser rate. There's little evidence government regulators learn as quickly -- during the bubble, they simply didn't notice the degree to which consumers had embraced risky, and ultimately disastrous, borrowing.
--Peter Viles
Your thoughts? Comments? E-mail story tips to Peter Viles
 A day late, but it's worth splashing the cold water of reality on stories telling you the Fed's latest rate cut will make your life better somehow.
The Federal Reserve is trying to breathe life into the economy. It is trying to make more credit available at lower rates. It is trying hard. It is not succeeding.
The interest rate story is not that Ben Bernanke (pictured) is trying. The story is credit is tight and expensive. San Francisco Fed President Janet Yellen, via Calculated Risk: Consumer credit is costlier and harder to get: loan rates are up,
loan terms are tougher, and increasing numbers of borrowers are being
turned away entirely. This explains, in part, the exceptional weakness we have seen in auto sales.
Credit card interest rates are rising, not falling. This is from the Associated Press: In coming weeks, for instance,
American Express is instituting a broad-based interest rate hike of 2 to 3
percentage points on card holders. The hikes are the result of an expected rise
in charge-offs, or balances written off as not being paid, the company said
earlier this month.
I'm not saying the Fed isn't trying hard enough. Bernanke is pulling out all the stops. What I'm saying is the story that matters most is not today's effort. It is not today's hope. It is today's reality.
-- Peter Viles
Thoughts? Comments? E-mail story tips to Peter Viles.
Photo: Bloomberg News
If you thought buying or selling a house was fun, you might be ready for a dizzying new update of the classic Monopoly game that promises to teach you how to navigate through complex commercial real estate transactions. The promotional website for Mogul shows Mom, Dad and the kids around the dining room table playing a board game. They appear to be having a delightful time tackling such "real world scenarios" as cap rates, tenant leases, operating expenses, liability insurance, closing costs and much more. It sounds like the game would cause the kind of intellectual stress real commercial brokers refer to as "brain damage," but it does have a ring of truth. Perhaps an advanced version of Mogul will nurture dark real estate skills such as bad-rapping the competition, renegotiating a deal at the last minute and fighting over sales commissions. It better, if it really wants to be "the most realistic real estate trading game ever created."
Roger Vincent
 Spent Sunday afternoon touring the recently finished casitas at Terranea on the Palos Verdes Peninsula. The resort development will have 50 ocean-view casitas (owners are limited to 60-day occupancy and other days are rented out), 32 villas (similar but owners can stay up to 90 days), 360 hotel rooms, a huge ballroom and a par-three golf course. Not to mention restaurants, retail, swimming pools, spa and fitness center.
It's already attracting local buyers in what seems to be a variation on the staycation, albeit an expensive one. Pricing begins at $2.25 million.
The resort, on the 102-acre former Marineland site, is set to open in June and seems geared to be very community-friendly. Part of that bonhomie is being extended to the local arts community, whose works are being used to decorate the casitas. Quite a coup for area artisans, I'd say.
-- Lauren Beale
Your thoughts? Comments?
Illustration provided by Terranea.
P.S. Thanks to the L.A. Land commenters who noticed that I'll be leaving Friday in this latest round of layoffs. It's been a pleasure to spell Peter from time to time and add a little something to the mix. No, I will not be able to continue as a blogger, but look for me to be joining you on the other side as a commenter.
I hope you will indulge me in a personal note: I'm going to be leaving the L.A. Times, and leaving L.A. Land, at the end of this week. Please hold your applause, Shockg. And no, this is not a sign that the housing market has reached a bottom in Los Angeles.
Seriously, it's hard to leave. I like doing this. I've enjoyed writing this blog, hearing from so many of you and helping to build a kind of community together. It has been one of the best assignments I've had in 21 years as a journalist. Thanks for reading, commenting and helping to shape the blog.
But I have a chance to do a different kind of work, in the corporate world, and, after 21 years, the time feels right to turn the page and begin a new career. As much as I love newsrooms and newspapers, life is short, and change is good.
Good news: The higher-ups here have been big fans of L.A. Land, and they intend to continue it. One high-ranking editor once told me the comments are the best reading on the blog. After I got over my initial hurt (journalists are thin-skinned), I agreed. The comments rock, and I hope you will continue to support the blog.
Look for me in the comment section -- I'll be the guy asking Cal what he thinks and telling Uncle Billy to cheer up.
MyLessThanPrimeBeef, I'm counting on you for comic relief in the comment section below. And Shockg, no hard feelings -- it's been great having you around.
-- Peter Viles
Thoughts? Wishes for the new version of the blog? E-mail tips and unprintable comments to Peter Viles.
Photo: Los Angeles Times
 Department of random property disputes: A Rancho Palos Verdes woman says the Donald Trump organization summarily ended a property dispute by sending a construction crew and bulldozers to rip down and relocate the fence in her backyard.
The homeowner, Jessica Leeds, has property that borders on Trump's golf course development, and had been in negotiations with the Trump organization, which was arguing that her fence was actually in Trump's property. She says she believed the two sides were in the process of negotiating a solution when a construction crew showed up last Thursday. “All of a sudden, they
were here with their bulldozers taking down the fence, removing and
destroying landscape, trees, a walking path, a storage unit — just
bulldozing through the whole thing,” Jessica Leeds told the Palos Verdes Peninsula News. “They had a surveyor here … [who] moved the old fence … and put
up the fence with some new posts at that supposed property line — which
I’m not sure whether it is or not — without even giving me a survey,
without even calling me, without even sending a letter — no
notification.”
More: According to David Conforti, the general manager of the Trump-owned course, the action taken on Thursday was to “recoup” their land.
“We’re
simply reclaiming what is legally, rightfully ours,” Conforti said on
Friday. “[Leeds] certainly had the forewarning. It was a few months
old. There was nothing ripped out. What we simply did was remove the
fence and then reinstall it on the property line.”
The Trump
Organization last winter sent a letter stating that Leeds had 10 or 14
days to move the fence herself, which she did not do, Conforti said.
--Peter Viles
Your thoughts? Comments? E-mail story tips to Peter Viles
Photo Credit: L.A. Times
 I try to greet each day with gratitude, and it is particularly easy to be grateful this morning because I'm reminded how lucky I am: I don't have to cover local politics in Los Angeles.
If I did, I'd have to take seriously the latest cockamamie idea from Councilman Richard Alarcon for a "luxury tax" on residents who own houses that are larger than 5,000 square feet. From City News Service, via the L.A. Times' L.A. Now blog: Under the proposal, owners of houses that are between 5,000 and 5,999 square feet would be taxed $1,000. Every additional 1,000 square feet would result in another $1,000 in the tax up to 10,000 square feet, which would result in a $6,000 fee. ... In the city of Los Angeles, there are 6,336 single-family residences that exceed 5,000 square feet and 534 houses larger than 10,000 square feet. Taxing those residences would generate $15 million a year. The tax would most affect homeowners in Bel Air, Beverly Crest, Brentwood, Pacific Palisades, Encino, Tarzana, Hollywood, Sherman Oaks, Studio City, Toluca Lake and the Wilshire area. A report by the Chief Legislative Analyst found the “luxury tax” would violate the state constitution if it is based on increments of 1,000 square feet.
Two cents: This is a ridiculous idea. Property should be taxed based on its value, not its size, or its carbon footprint, or how big a shadow it casts.
If you want to read a more serious analysis of the Alarcon proposal, the L.A. Times' Robert Greene has it, here.
-- Peter Viles
Photo credit: Los Angeles Times
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Work with me on this one: A couple of readers, and a couple of colleagues at The Times, have asked me the same question: what other real estate and economic blogs do you read or recommend?
