My Lying Eyes

When I walked into the Bureau of Development Services, finding it packed as usual, I filled out my form to place in the first of five boxes, and settled in for a long wait.  The plans I was submitting were for an extensive remodel, a rebuild, really, of a house that, had it not been in the red-hot Irvington neighborhood in 2006, would have sent buyers fleeing in terror.  It had not been connected to city water for nine years, which hadn’t stopped the heirs of the deceased owner from squatting there.  The exterior trim had all been stripped to accommodate vinyl siding.   What was left of the once-grand interior was an accident of neglect; the kitchen and bathrooms had all been destroyed by 1970′s remodels, and a shoddy “sun porch” sat clumsily across the back of the house like a trailer dropped from the sky.  Nothing had been painted in at least thirty years; the patterned hardwood floors were barely visible through the grime and the black streaks of rat traffic striped the baseboards.  Yet the yuppie couple who had just bought it considered themselves lucky; in that market, it was a steal.

When I was finally called for my initial presentation, I was warmly greeted by one of the many (at that time) plans examiners, most of whom I knew by name, and rattled off the address.  Entering it into the computer, her eyes widened, and she summoned a superior.  Evidently this dream home had a rap sheet with the city as long as your arm: holes in the roof, rodent infestations, broken windows, uncollected garbage, plugged sewage pipes…you name it. I had to assure them that these had been fixed, or at least were in the process of being, but they still scheduled a pre-inspection before final approval.  In other words, the place was such a dump the city had to make sure it was safe, not to live in, but just to work on.  Undoubtedly a demolition permit would have sailed right through.

The next time I met with the owners, I asked how they had ever managed to get financing; I still remembered that when my mother bought a house not nearly as bad in 1986, no bank would touch it, and she had to pay cash.

“Magic,” he said, somewhat conspiratorially, “and photoshop.”  As for due diligence, they did make them replace the roof, but the out-of-state lender never bothered with even a drive-by, much less a call to the city.  The owners did have a good income and credit, though, which was evidently more than many purchasers could claim back in those days.  It truly was the Wild West, and it was hardly driven by homeowners; it was driven by easy money for everyone else involved.

In desirable neighborhoods like that one, houses worth $250,000 in 2000 were going for $800,000 and more, often in a few hours.  Every house for sale was polished and staged to an impossible gloss; those that weren’t had been already snatched up by “flippers” hoping to make a killing in a few months.  People were “pre-qualified” by eager mortgage brokers and hungry banks, prodded by giddy realtors, for amounts that reached into the stratosphere.  Occasionally a wary buyer would do the math and set a realistic limit for themselves, which typically meant a busy street or a lesser school district, and an unknown “realtor” who’d been pumping gas six months ago.  (And probably is again…)

This is why every time I hear someone say that greedy homeowners, Fannie and Freddie, and a previously obscure 1978 (!) banking law caused the Wall Street crash, I want to punch them in the nose, if only as a last-ditch attempt to pump a little blood to their Fox-addled brains.  In my experience, the overwhelming majority of homeowners of that period were just trying to find a place to raise their families, and found themselves, quite unexpectedly, as pawns in someone else’s get-rich-quick scheme.  When the banks ran out of blue-chip buyers to fleece, they moved down the income ladder, but the reality was that whether you were trying to find a starter home or a thirty-foot living room for your grand piano, you were similarly forced to overpay and over-borrow just to stay in the game at all.  Not only did homeowners not benefit from the boom, but they were left holding the bag when it all came crashing down.  Blaming borrowers for buying overpriced houses back then is like blaming third world children for drinking tainted water; neither had any choice in the matter.

When solving a crime for which guilt isn’t obvious, quo bono is the ordinary approach, but that concept has now been turned on its head.  The realtors got their percentage, the mortgage brokers got their commissions, and the banks got their fees.  The homeowners, for their part, got houses that may never be worth what they paid until long after they’re dead, if they’re lucky enough to still have them.

Must be their fault.  After all, Rick Santelli said so.

 

17 Comments

  1. dirigo says:

    I note the reference in the previous thread to people who should know better saying, in effect, caveat emptor should have been uppermost in the mind of any buyer, educated or not, about exploding cigar mortgage products during the time of the biggest real estate hustle in history.

    This attitude assumes that everything was on the level with banks, mortgage bundlers, and all the rest of the riff-raff who were in the game.

    Caveat emptor means: “let the buyer beware (under) the principle that the seller of a product cannot be held responsible for its quality unless it is guaranteed by a warranty.”

    Are Rick Santelli and the various morons and shills who’ve been blaming mortgage applicants for this debacle really saying there were guarantees for such people since about the 1990s?

    I’ve been around the construction business too, and, like the hagster, I know the business ends of wheelbarrows and sheet-rock trowels. I’ve stood in holes, digging gravel; I’ve driven lumber trucks to job sites, got realtors in the family, and have heard and seen this gigantic fraud up close, over and over, and over a long time.

    It doesn’t wash. And when you see, as was reported last week on 60 Minutes, Cleveland housing authorities ordering knockdowns of hundreds and hundreds of houses, because the high vacancy rates are now feeding raw materials predators (on the hunt for aluminum siding, copper, porcelain, and anything else which can be ripped out of abandoned structures and sold on the black market or for scrap) – you have to know something is terribly wrong. Gee! – maybe it’s criminal! The Cleveland housing official interviewed said the banks are gagging on foreclosures because inactive inventory is stacked up; nor are they willing to write down principals, wholesale, on mortgage holders whose notes are worth more than the house.

    Why are so many notes worth more than the houses purchased? Who’s kidding who? Are buyers responsible for this?

    So Cleveland, in tearing down so many houses and allowing abutters (people whose loans are “above water”) to take some of the land, is creating more open space.

    This could be the start of a new, rather perverse homestead movement, because people will still want land. And it may be further along in Detroit.

    But when all is said and done, Santelli and his ilk, are full of it.

    It’s bullshit up one side and down the other. No two ways about it.

    • cocktailhag says:

      Exactly. Remember Alan Greenspan, nattering in his Randian way about how everybody in charge ought to have been smart enough to know better? I call BS, and reality in the ensuing years backs me up. “You mean I “qualify” for a million dollar loan? I’ll take it.” A Very Smart Banker said it was so.
      Sheesh. The things people believe.

  2. Hag, your last paragraph crystallizes the world we live in:

    “When solving a crime for which guilt isn’t obvious, quo bono is the ordinary approach, but that concept has now been turned on its head. The realtors got their percentage, the mortgage brokers got their commissions, and the banks got their fees. The homeowners, for their part, got houses that may never be worth what they paid until long after they’re dead, if they’re lucky enough to still have them.”

    The ones who envisioned and led us into this crony-capitalist environment will always “get their percentage, get their commissions and bank their fees.”
    The rest of us are left to figure out how to enjoy life in this greed-driven world that they’ve created.

  3. Fraud in the buying, fraud in the securities based on them, and fraud in the forclosure and resale. It’s one-stop-shopping, if you’re shopping for fraud.

    • cocktailhag says:

      Yep. Except for the people that just wanted a place to live, and in this case I must include my yuppie clients. They played the game, of course, but they certainly didn’t win.

  4. michlib says:

    Or if we are to believe Santelli and his ilk, many poor, uneducated, black, brown or just plain poor folks acted in concert and defrauded the biggest, baddest actors in the mortgage bidness. Ivy league dandies were outhustled and hoodwinked en masse by home buyers ? As Seth Meyers would ask – Really ?

  5. loretta says:

    I watched the 60 Minutes episode about razing the houses in Cleveland, and it’s really not a surprise. I drive around bad neighborhoods for a living, and half the houses are boarded up. Most of them have been stripped of copper, siding, wiring, etc. or are being used as places for squatters to use drugs. Some of these homes were built before 1950 anyway and are not much to save, other than some of the better woodwork, if there is that.

    More green space would be great in those areas. However, in the nicer areas I can’t see razing houses. The banks should rent them out for even money and have someone in there taking care of them, especially in Cleveland Hts., Shaker Hts., Garfield Hts., and other suburbs that have traditionally good housing values.

    The banks are so f*cking stupid.

    • cocktailhag says:

      Green spaces are great, but they don’t generate property tax revenue, which creates the “good schools” that make places like Irvington valuable. The banks would be shooting themselves in their Gucci-loafered feet, if they planned to wait around long enough to see what their actions do to their collateral. They don’t; they’re taking the money and running.

  6. dirigo says:

    “Creditors’ reluctance to reduce borrowers’ home loan balances is retarding the US recovery, according to a growing number of experts from across the political spectrum. But for ‘underwater’ borrowers, or those who owe more on their home than it is worth, relief remains a long way off.

    Those homeowners collectively owe about $700bn more than the value of their properties, according to CoreLogic, a data provider. That nearly one in four US borrowers is in this ‘negative equity’ trap has led such disparate voices as Martin Feldstein, economics professor at Harvard and former chief economic adviser to President Ronald Reagan, and Greg Lippmann, the former Deutsche Bank trader who successfully bet against subprime mortgages, to call on policymakers to cut principal from struggling homeowners’ mortgages.

    Mr. Feldstein has referred to the permanent reduction of mortgage principal as ‘the only real solution.’ ”

    … from America’s Homes Crisis: Deep Runs a Reluctance to Tamper With the Principal Issue
    … By Shahien Nasripour
    … The Financial Times, 12/24/11

    • cocktailhag says:

      Why does that $700 billion number keep coming up? That’s the amount taken from the consumer economy with wages comprising 50-something percent of all income today compared to the 60-something average of the post WWII era; the rest is dividends and profits. That’s also the (too small) amount of the stimulus.
      Of course, the banks, busily trying to hide their bad loans, got 7 trillion, so some perspective is due.
      They’ll never admit that they fucked up, so homeowners must pay (and pay, and pay…)