There are things now accepted in residential real estate which were unheard of in the past. Here are a few:
1. Transactions with 100% financing, with little or minimal downpayment. Not only that, the banks know about it!! I say this because, let's say, in the past, I had "heard about" transactions where the banks did not know what was going on. These transactions later became known as the "savings and loan crisis". OK, back in the 80's the banks shouldn't have let themselves be hoodwinked. Nowadays, the lenders are in on their own hoodwinking....or perhaps they have hoodwinked the investors in their "product". Here's the way 100% financing happens....at the closing the buyer gets a regular mortgage for 80% of the purchase price. He also gets an equity line for the equivalent of the balance of the purchase price, which he accesses in full at the closing, and there you have 100% financing. On top of this, the contract often provides for a "sellers concession", which is a price reduction for the equivalent of the buyer's closing costs. When I represented sellers who gave this "concession" of approx $16,000, they never complained. They were thrilled to be selling their crappy house for $500K, and couldn't wait for the closing to happen. I'm not sure, but I think I saw some sellers RUN to their cars after the closing, lest someone realize what had happened.
2. Along those lines, sometimes the prices just seemed ridiculous. I know the lenders still do appraisals, but a night at Yonkers Raceway seems like a more legit proposition than some of these appraisals. I have no problem with prices rising, and neighborhoods becoming "hot". However, in the sub-prime mortgage market, it should be obvious there is a limit on the upside, and a lot of room on the downside. When you lend at "100% of appraised value", you are living on the edge.
3. People buying with no spare cash to do ANYTHING with the house. Not only was there no downpayment, the buyer had no money to fix, or re-do, or re-model, or upgrade....all the things that buyers usually do. I have seen this quite a few times, and knew it did not bode well. OK, it boded well for the sellers running to the car, and the real estate brokers, and the mortgage brokers.
It did not bode well for the mortgages.
It seems like a lot of smart people have lost a lot of money on these mortgages.
May I use a few cliches from the archives to sum up how I see the investors losses?.......
"Looks like dog s***, smells like dog S***, sure glad I didn't step in it"
"You pays your money and you takes your chances"
"What goes up must come down"
"Eyes Wide Shut"
One last thing......the housing market is not going to collapse from this, nor is the economy going to be wrecked. Those houses are still worth some good money, just not as much as the banks put in. There will be opportunities aplenty from this mess. It's already happening.
Tuesday, September 11, 2007
Monday, September 3, 2007
Mortgage Crisis From the Trenches
Is anybody surprised there is a mortgage "crisis"?
As I understand it, a high percentage of mortgages in the "sub-prime" market are in default. This would be bad enough, but the problem is compounded by these mortgages having been grouped together into some kind of investment instrument, which a lot of banks, brokerage houses and financial institutions have invested in. I guess they did this because the securities offered a "good return" at a "low risk". After all, they were secured by real estate. When a much higher than expected percentage of these loans went into default, the value of the investment instruments backed by these mortgages went down, and a lot of big players lost their money. THAT is the crisis we keep reading about. I realize the way I just explained it is an over-simplification, but when we talk about the government coming in and helping with this crisis, let's be honest about what really happened.
Here are a few facts from the trenches, from personal observation:
1. If someone puts virtually no money into a real estate purchase, and two banks financed the 100% of the purchase, and the purchaser either lived there without paying for a year, OR walked away from the property when the value went down, is that person a "victim"? Are the banks who put up the money, made their fees, and then sold the loan into the market...."victims"? Are the investors who bought these mortgages, foolishly relying on the real estate market to continue soaring...."victims"?
What I have seen are insane prices, with 100% financing obtained by mortgage brokers who would do ANYTHING to get the loans approved. If you took this transaction to 1000 intelligent financial people and said "give me odds on the ultimate success of this transaction", with success being defined as the borrower does not end up in default, 90% of objective observers would say the odds of success are 10% or less. Yet I saw many transactions like this sail through, as if this were normal business, and I know, there were THOUSANDS of transactions just like this. And yet, big players invested in this.
If you are not familiar with some of the fine points of a "sub-prime" transaction, fasten your seatbelts, you are not gonna believe this....
As I understand it, a high percentage of mortgages in the "sub-prime" market are in default. This would be bad enough, but the problem is compounded by these mortgages having been grouped together into some kind of investment instrument, which a lot of banks, brokerage houses and financial institutions have invested in. I guess they did this because the securities offered a "good return" at a "low risk". After all, they were secured by real estate. When a much higher than expected percentage of these loans went into default, the value of the investment instruments backed by these mortgages went down, and a lot of big players lost their money. THAT is the crisis we keep reading about. I realize the way I just explained it is an over-simplification, but when we talk about the government coming in and helping with this crisis, let's be honest about what really happened.
Here are a few facts from the trenches, from personal observation:
1. If someone puts virtually no money into a real estate purchase, and two banks financed the 100% of the purchase, and the purchaser either lived there without paying for a year, OR walked away from the property when the value went down, is that person a "victim"? Are the banks who put up the money, made their fees, and then sold the loan into the market...."victims"? Are the investors who bought these mortgages, foolishly relying on the real estate market to continue soaring...."victims"?
What I have seen are insane prices, with 100% financing obtained by mortgage brokers who would do ANYTHING to get the loans approved. If you took this transaction to 1000 intelligent financial people and said "give me odds on the ultimate success of this transaction", with success being defined as the borrower does not end up in default, 90% of objective observers would say the odds of success are 10% or less. Yet I saw many transactions like this sail through, as if this were normal business, and I know, there were THOUSANDS of transactions just like this. And yet, big players invested in this.
If you are not familiar with some of the fine points of a "sub-prime" transaction, fasten your seatbelts, you are not gonna believe this....
Saturday, September 1, 2007
Tower of Babble
I've asked the questions at many depositions. I try to approach it with purpose, you are trying to obtain information, clarify the facts, find out what happened and what did not happen. It's a challenge, bordering on fun. However, taking a deposition through an interpreter is not fun.
I have asked questions through interpreters in Spanish, French, Italian, Russian, Greek, Polish, Chinese (Mandarin, Cantonese, Fukanese, Taiwanese), Japanese, Portugese, Hindi, Urdu, Bengali, Arabic, Hebrew, Creole, Tagalog (a Filipino dialect), and ASL (American Sign Language). I never had German, either because German's all speak English or they don't have too many car accidents. I never took a deposition with a Yiddish interpreter, but I did see one used in court (Brooklyn, of course). Depositions with interpreters share common problems. Here are a few:
1. Some questions do not interpret well. In a car accident case, a lot of lawyers like to start with this question "Did there come a time when the vehicle you were driving came into contact with another vehicle". It's not a great question, it's compound and it can be confusing. Lawyers like it because it establishes certain things.....there WAS an accident, with CONTACT, this witness was there, and there was another vehicle involved. I asked five different Spanish interpreters to translate this question, so I could listen to it with my high school Spanish background. They interpreted the question five different ways. One thing about this question IS consistent. When you ask a Spanish speaking witness, through an interpreter, the question "Did there come a time when the vehicle you were driving came into contact with another vehicle", the answer is always the same....."QUE???"
So you have the interpreter ask the question again, and the witness says "The accident happened at 7 o'clock." or "You mean was I in an accident?" or "QUE??????"
2. Sometimes witnesses want an interpreter, but they speak English pretty well. If they understand your question they answer in English. If they don't understand the question, or, if they don't like the question, they wait for the interpreter. I don't let witnesses do this. It's all or nothing. Either no interpreter, or I want the interpreter to do a literal translation of every question and answer.
3. A related problem is when you ask a detailed question, the interpreter interprets it, the witness gives a long response in Urdu, and the interpreter translates it as "Yes". Sitting there, you know the interpreter and the witness have had a dialogue about the question, and the interpreter has taken it upon himself to "paraphrase" an answer. If this happens, I state on the record what has just occurred, then ask the reporter to read back my question and ask the interpreter to do a literal interpretation of the question and answer. If they don't do it, I advise opposing counsel that if this is not corrected I am busting the deposition. I have done that a few times, and I know other attorneys who have too.
4. Sometimes the interpreter is just not great at the particular language. They may have the credentials to do both Mandarin and Cantonese, but they are native to Mandarin and have learned Cantonese. What do you do when they just don't know the word? You see them struggling and they don't know how to say "windshield wiper" in Cantonese. So they try some combination of words like "car glass cleaner" and the witness says the Cantonese equivalent of "Que?", so the interpreter tries the Mandarin word for windshield wiper, and now the witness is mad at the interpreter and says nothing. Finally, the interpreter translates your question in Cantonese, but when he comes to "windshield wiper" he says "windshield wiper", and the witness says "Ohhhh, windshield wiper"....and answers the question.
5. I have been told there is no word in Spanish for "curb". Using that handicap, try asking questions about a trip and fall on a broken curb.
6. Sometimes, when questioning an English speaking witness, you want to call in an interpreter who speaks "Stupidese", but that is a topic for another day.
I have asked questions through interpreters in Spanish, French, Italian, Russian, Greek, Polish, Chinese (Mandarin, Cantonese, Fukanese, Taiwanese), Japanese, Portugese, Hindi, Urdu, Bengali, Arabic, Hebrew, Creole, Tagalog (a Filipino dialect), and ASL (American Sign Language). I never had German, either because German's all speak English or they don't have too many car accidents. I never took a deposition with a Yiddish interpreter, but I did see one used in court (Brooklyn, of course). Depositions with interpreters share common problems. Here are a few:
1. Some questions do not interpret well. In a car accident case, a lot of lawyers like to start with this question "Did there come a time when the vehicle you were driving came into contact with another vehicle". It's not a great question, it's compound and it can be confusing. Lawyers like it because it establishes certain things.....there WAS an accident, with CONTACT, this witness was there, and there was another vehicle involved. I asked five different Spanish interpreters to translate this question, so I could listen to it with my high school Spanish background. They interpreted the question five different ways. One thing about this question IS consistent. When you ask a Spanish speaking witness, through an interpreter, the question "Did there come a time when the vehicle you were driving came into contact with another vehicle", the answer is always the same....."QUE???"
So you have the interpreter ask the question again, and the witness says "The accident happened at 7 o'clock." or "You mean was I in an accident?" or "QUE??????"
2. Sometimes witnesses want an interpreter, but they speak English pretty well. If they understand your question they answer in English. If they don't understand the question, or, if they don't like the question, they wait for the interpreter. I don't let witnesses do this. It's all or nothing. Either no interpreter, or I want the interpreter to do a literal translation of every question and answer.
3. A related problem is when you ask a detailed question, the interpreter interprets it, the witness gives a long response in Urdu, and the interpreter translates it as "Yes". Sitting there, you know the interpreter and the witness have had a dialogue about the question, and the interpreter has taken it upon himself to "paraphrase" an answer. If this happens, I state on the record what has just occurred, then ask the reporter to read back my question and ask the interpreter to do a literal interpretation of the question and answer. If they don't do it, I advise opposing counsel that if this is not corrected I am busting the deposition. I have done that a few times, and I know other attorneys who have too.
4. Sometimes the interpreter is just not great at the particular language. They may have the credentials to do both Mandarin and Cantonese, but they are native to Mandarin and have learned Cantonese. What do you do when they just don't know the word? You see them struggling and they don't know how to say "windshield wiper" in Cantonese. So they try some combination of words like "car glass cleaner" and the witness says the Cantonese equivalent of "Que?", so the interpreter tries the Mandarin word for windshield wiper, and now the witness is mad at the interpreter and says nothing. Finally, the interpreter translates your question in Cantonese, but when he comes to "windshield wiper" he says "windshield wiper", and the witness says "Ohhhh, windshield wiper"....and answers the question.
5. I have been told there is no word in Spanish for "curb". Using that handicap, try asking questions about a trip and fall on a broken curb.
6. Sometimes, when questioning an English speaking witness, you want to call in an interpreter who speaks "Stupidese", but that is a topic for another day.
Subscribe to:
Posts (Atom)