Real Homes of Genius: Today we Salute you Compton. $279,900 for 768 Square Feet.

Word on the grapevine is, now that Paris did her time in Lynwood, all other cities in the proximity are going up in Hollywood value. They are hot. Today we salute you Compton, with our Real Home of Genius Award. This 768 square foot palace will wet the appetite of any hungry home buyer. Take a look at the gates. Doesn’t it remind you of the entrance of Windsor Castle? I’m glad we both had the same initial reaction. In addition, this place has some uncanny ability to squeeze gold out of turnips. This place has 3 bedrooms in 768 square feet. How they do this is like asking Oscar Mayer's how they make hot dogs, you probably don’t want to know.

As we read the description, we realize that this is a motivated seller. In addition, they may offer you a repair credit. Isn’t that nice? Well I may not buy this place. Since this place is in Southern California and less than $300,000, ergo this is a good deal. Forget the fact that area rents go for $800 a month. This place was built during World War II. While Europe and Russia where being bombed, we had this glorious piece of construction coming up from the ashes.

Let us take a look at the sales history:

Sale History

1/13/2006: $293,206

04/19/2005: $282,000

06/20/2003: $1,000

Fascinating. So you are telling me we have a place in Southern California with 2 years of zero appreciation? Blasphemy! This goes against the sunshine tax laws and all things that make this world spin. But here is the real kicker. The Zillow Zestimate is $418,000! Bwahaha! Who are we to believe? Zillow, the current price, or our gut? My gut likes the 2003 2^nd note or refinance.

This is a great example of how many urban areas around Los Angeles are coming down quickly while the median price keeps rising like a Phoenix. Speaking of Phoenix, many home builders out there are giving cars with a home purchase. How smart. Give you a $40,000 car so they don’t have to knock the price down and affect comps. Too bad this tactic isn’t working because look at the inventory from last week (can you say sign of the beast?):

Today we salute you Compton with our Real Home of Genius Award.

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Mortgages 101: Rule #1, Read your Mortgage! Riding the Mortgage Default Wave.

News flash. No summer jump for housing. I’ll give you a minute to recover from the shock of this surprising update. And in other news, people don’t read their mortgage applications before signing the dotted line. In this weekend’s LA Times and another article from the Washington Post, some startling data is released regarding mortgage borrowing. A Federal Trade Commission study took a sample of 819 prime and sub-prime mortgages borrowers in 12 locations around the country and found:

· 90% of borrowers could not identify the correct upfront cost associated with their mortgage.

· Two-thirds didn’t realize they would get hit with penalties if they refinanced within two years.

· 80% had a hard time understanding why the APR was different from the loan note interest rate.

This is absolutely startling because the data gathered came from prime and sub-prime borrowers. The sample size is also significant because it shows a decent representation of what is occurring in the current marketplace. I find it fascinating that those in the housing industry seem to take no issue with the above numbers. The line in the sand is being drawn. On one side, you have resolute bears that will refuse to pay current prices and are waiting for prices to reflect market income and rental rates. On the other end, you have housing bulls crying “personal responsibility” regarding buyers and echoing a continued growth in real estate appreciation. I can see both sides of the argument. However, when you have housing bulls saying a buyer knew what they were getting into and therefore are directly to blame (the above data shows they did not know what they were getting into), this pretty much shakes the foundation of their argument. After all, now that we factually know the vast majority of buyers do not know even minor details of their mortgages, do we continue turning a blind eye to this financial negligence?

What about personal responsibility for the mortgage industry? I guess they see it as a one way road. We have the mortgage industry committing outright consumer fraud and malfeasance by placing borrowers into homes they know that sometime down the line, they will be unable to afford. In some cases we are actually having lenders taking borrowers out of fixed conventional loans and placing unknowing buyers (aka see aforementioned borrower stats) into risky interest-only or other exotic mortgage products. Somehow this seems okay. And we wonder why foreclosures are rocketing up to the moon? Some would like you to believe that a trillion dollar mortgage industry should be held to the same standard as a financially irresponsible buyer making $25,000 a year getting into a $500,000 Real Home of Genius. You’ll never hear the real estate syndicate talk about a fiduciary responsibility because they have thrown that concept out of their lexicon. The consequence for the borrower? They lose their home and are financially screwed for many years. The consequences for the mortgage industry? Only time will tell but last year “bail-out” talk was being thrown about in the Senate. Guess who will pay this bill? The tax payer. Do you pay taxes? Unless your name is Wesley Snipes, you probably do. So in essence, the ridiculous irresponsibility of Wonderland lending will come home to roost with you regardless of whether you played into this housing bubble or not. The mortgage industry’s shenanigans will bring a collective cloud on the entire public.

The Elephant in the Room: Lending has become a Pure Sales Industry.

Local banks used to have a stake in the lending that occurred in their neighborhood. You actually had to go to your bank (physically) and meet with a representative to go over your financial statements. They would look at your income, W2s, bills, and financial statements to ensure you were a qualified buyer. And if all else failed, underwriting was more restrictive because you actually had to have a down payment. During this bubble, you literally could make up your income to jump into a home. Make up your income? Stated income baby! No interest-zero-down cash-back-loans amigos! Taking a page out of 2^nd Life, you literally could reinvent yourself in a pseudo-reality made up by your own definitions. Anyone that has a sense of finance only could stand back as a spectator and wonder what the hell was going on. And a major problem is local banks passed the buck all the way to Wall Street and decentralized mortgage buyers. No longer did the local bank have to fit the bill if you went MIA on your housing payments. What do they care if you foreclose since your mortgage is now chopped up like hamburger meat and floating around in some hedge fund in China yielding 8%. At least that is until the market came to a screeching halt.

Companies such as New Century Financial bit the dust because of first and early payment defaults and were forced by Wall Street to eat some of their own crap. What happened when they got these notes back? An implosion. Mortgage insiders and even speaking to a few acquaintances in the know, sub-prime outlets operated as boiler rooms. A white board was on the wall for all to see and literally a competition of who could sell the most loans ensued. The riskier the loan the bigger the commission. And all this could be done via the phone and over the net. You can electronically sign and send statements to some lender operating half way around the country. I’m sure an Orange County lender knows market conditions in Oklahoma City. What do real estate agents say? Oh yeah, location, location, location. Apparently the industry didn’t take note of one of their key rules.

Wall Street hungry for these loans devoured anything that was sent to them. The pressure spread from aggressive outlets and affected the bottom line including your local bank. So instead of putting pressure on regulators to enforce basic financial laws, they decided to join the ongoing credit orgy. Now, you can go to your local bank for a mortgage, a credit card, mutual funds, and open up a savings account all under one roof. Although savings account are pointless since America as a whole is in a negative savings range. Why save when savings rates are at 1%? So bank representatives suddenly became sales folks trying to sell you on multiple products. A Jack of all trades, but a master to none. At least previously, there was some implicit understanding that your bank representative needed to evaluate the risk you posed to the bank. If you foreclosed, your home was an REO and you look like a retard for lending $400,000 to a person making $20,000 a year. You probably lost your job for being so incredibly irresponsible. Now, the mortgage has been sliced and diced so many times that no one really knows who holds your actual note (chances are no one fully since it is morphed into a derivative and is essentially a collateralized debt obligation). Fancy words for spreading the crap so thin that it eventually smells like roses.

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Why the Housing Market Has Failed You. 5 Major Failures of the Housing Market

I’m sure many of you already read the article about The Real Estate Prayer Luncheon in Florida where a group of hopeful agents prayed that the housing slump will end. I actually think this is a great idea to resurrect the housing market. So in light of this, I am going to pray that my new book coming out called The Wealth via Failure Code will be a major success. I’m praying that all of you will buy it. Since we are living a surreal housing environment, I figure writing a book with Orwellian themes will tickle many of your fancies.

There are 5 major failures with the current housing market. There are more, but 5 large items that need to be addressed immediately since they will impact the market in the next few months. Anyone buying a home in this market is tempting fate; it is reminiscent of the woman who stuck her arm in a Siberian tiger’s cage and had it ripped from the socket. Nature does what it will always do. And housing economics and bubble psychology will always do what it always does. All market indicators are blinking red. By reviewing MLS data, nearly every large metro market in the US is reaching record inventory even after adjusting for population growth (we love making babies). Foreclosures and REOs are hitting the market like Tsunami waves. Sub-prime outlets are systematically being eradicated from the market. And fear of risky debt infecting the general market is prevalent. No wonder why this group of agents in Florida went to church to find housing religion.

Major Foreclosures Will Hurt the Public

Losing your home royally sucks. I’m not sure if we can find anything positive about foreclosures. It hurts families. It also displaces families and forces new inventory on the market via REOs. Sometimes foreclosures happen because a person loses a job or a family emergency. In usual housing markets, this was the majority of cases. Now, the majority of foreclosures are due to buying more than you can afford. Are you going to feel sorry about the person that bought a $700,000 home on a $14,000 a year income only to realize that maybe $6,000 a month is too much when you net $1,000? Maybe the blame should fall a little bit on the agent hungry for their commission check wouldn't you think? Even a back of the napkin calculation will show you this wouldn't work.

The demise of many sub-prime outlets is justified. They created their undoing for instant gratification and fast money. Easy come, easy go. When I worked as an agent, I would constantly hit heads with brokers that laughed about creative financing they were able to pull on buyers. I would look at financial statements and shake my head as buyers fudged numbers encouraged by brokers to get into overpriced homes. “Don’t worry, banks never check especially if we go stated income. All we need is your signature here stating you make $100,000.” I would hear statements like this constantly and this was a few years ago. God only knows what has been going on in the shady underbelly of housing since I left the industry. Oh yeah, we are already seeing what is going on. Ridiculous loans on massively overpriced homes with folks unable to afford the monthly payment.

Now foreclosures also hurt the market because it adds further inventory to a market that is reaching epic numbers. Prices are falling in many regions already. Many in Southern California look at the median price and with a look of dismay, see the median increasing! What is going on here? Well high priced homes are selling and lower priced homes are sitting on the market. A case of the Miss Universe contest; anyone that wins is beautiful. Yet they don’t represent a sample of the population. That is why sales are dropping in amazing numbers. But the market strain is taking a toll on many areas. Let us take a look at some hard data for Southern California:

So we have plenty of data showing that many zip codes in Los Angeles County are going down. And you’ll notice a general pattern here. Most of the homes listed above are in the $300 to $700 thousand dollar range; your typical Real Home of Genius. So why are median prices still going up? Well you’ll also notice that the sales numbers are rather low. If we are to look at the high priced areas selling, you’ll notice sales numbers and prices are much higher. Obviously looking at the current aggregate median of $550,000 does very little in highlighting the overall market conditions in Los Angeles County. The devil is in the details. Suddenly we have a spiritual overtone to housing. Maybe because certain price tags are actually sinful.

And notice of defaults are up a record 148% statewide. What this means is more foreclosures coming online in the next few months and growing inventory further pushing the median price down. And this isn’t just for California. Nationwide according to RealtyTrac foreclosures are up a whopping 17% as of Q3 of 2006. Many areas such as Miami, Fort Lauderdale, Las Vegas, and Denver are seeing numbers in foreclosures jump by 50% year-over-year. With the implosion of the sub-prime market and the prospect of more inventory hitting the market, this summer will break the stalemate of sellers thinking their home is worth what it once was. Banks will sell properties quick and dirty even if it means cutting prices to the bone.

Mortgage Debt Largest Debt in the US

Consumer spending makes up 70% of the $13.7 trillion dollar US economy. Mortgage debt has increased at a radical pace due to underwriting standards and the lax monetary policy taken by the Federal Reserve. Take a look below at the growth of mortgage debt in the US:

You’ll notice that in a matter of 5 years, we practically doubled the outstanding amount of mortgage debt. Mortgage debt outstanding rivals the amount of consumer spending that makes up 70% of our economy. Now you can understand why a spook in the mortgage market will send the market into a tailspin. The interesting thing to note is that as mortgage debt increases each year by double-digit figures, according to our government plutocrats we are facing very minor inflation. Too bad for most middle-class Americans, housing payments are the largest line-item payment each month. Oh yeah, and based on ridiculous hedonics used at the Bureau of Labor and Statistics, we are facing moderate 3 to 4 percent inflation according to the Ministry of Truth. Keep in mind they use owner’s equivalent of rent, take out energy and food prices, and pretty much anything useful for a daily life. As a consolation they’ll adjust for electronics since we buy computers and HDTVs on a weekly basis. Good job government.

We know how scared the market is right now. Remember long ago (in March 2007) with the sub-prime implosion and the stock market dropping 400+ points in one day? Fears of mortgage implosions sent the market down hard. The market recovered quickly because all the talking head pundits would have you believe that it was contained principally to the sub-prime market. They also discussed in great detail the legend of the summer housing easter bunny and how the market will come roaring back. Summer is here and no bouncing bunnies are to be found. We now have Bear Sterns issuing warnings about Merrill Lynch pulling assets out of a mortgage hedge fund that made idiotic bets. Bear Sterns and Merrill Lynch are not New Century Financial. This is as prime as it gets. Bear is throwing money to keep this afloat because it is a major embarrassment to their asset management. The market got hit once again and bad money is chasing more bad money to keep the party going a little bit longer.

Keep in mind that we are only entering the first stages of trillions of dollars in mortgage resets. Nothing is contained. The main question everyone should be asking is can the American public sustain monthly payment jumps while real estate prices fall? If the answer is no, how long can the market withstand jumping resets and foreclosures before a panic arises? Ronald Reagan had one thing right when he said a “Recession is when a neighbor loses his job. Depression is when you lose yours.”

Public Infatuation with all Things Real Estate

Never has the industrial world been so infatuated with real estate. Turn on your television and you’ll see shows such as Flip this House and Extreme Makeover. If you are up passed 1am or stay home on a weekday from 10-2pm, you’ll see infomercials with tanned Hawaiian shirt wearing gurus showing you how no money down is the key to financial success. Robert Allen actually was a pioneer of the no money down technique. The funny thing is that his ideas were geared toward sophisticated investors that were able to get sellers to buy/create notes, assume mortgages, and find short-term carry over loans. Not easy at all for anyone that has tried it. Reading his books, I learned a lot but it was not simple like the title implied. Fast forward to now. No money down is institutionalized. Forget no money down, we have lenders giving you cash-back at closing! By the way, cash back at closing is illegal but so is lying on a mortgage application but apparently what is illegal in one area of justice, is perfectly okay in another.

Then we have the boom of Home Depot and Lowes. Stores that cater to the housing infatuation. Ceramic tiles, granite countertops, pseudo-rock pool fountains, stainless steel stovetops, and everything that would arouse a housing enthusiast. These things don’t come cheap. They are expensive and for practical purposes, don’t do anything else than visually make your home look better; a boob job for your house or a tummy tuck for your condo. But wages haven’t increased in relation to other cost of living items. How can Americans afford this? Come in American Express and Visa to the rescue. Americans carry an amazing amount of credit card debt. Debt that usually has rates of 20%+ and has so many penalties, you’d think you were at a Detroit Red Wings hockey game. Yet home prices kept climbing and Americans needed more credit for their growing consumption appetite. Welcome home equity withdrawals.

*Source: The Economist

To keep up with the hunger of spending, folks decided to slap a virtual Diebold ATM to their house, and start pumping out equity at amazing rates. The sun was bright again and grass was greener on your Bermuda lawn. The problem however is that home equity lines of credit and home loans are other credit instruments. In other words, you need to pay the money back. All that was created was a low rate loan locking yourself into an overvalued asset. You became your own appraiser. Your house has $100,000 in equity? Okay, here’s the money at 7 percent. But what if your house isn't worth more than $100,000? Ahhh, the pickle that we are currently in. Maybe housing isn’t worth what the market is saying. Maybe $500,000 for a 500 foot box in an area where rents go for $900 isn’t so economically priced. But now you have a 2nd mortgage on a house you can't unload. This love affair had to end and summer seems like a good time to end many flings.

Redefining Failure and Success

We’ve all heard about the 25 year old mortgage broker making $15,000 a month. Or the 22 year old agent with a high school diploma raking in six-figures a year simply for showing houses. We’ve also heard about a 24 year old investor that went $2.2 million in debt with an income of less than $40,000 a year. The theme? Getting rich quick isn’t enough. Getting rich young became the new standard. Forget about education because school is for elites who care about issues surrounding the world. Street knowledge and the love for the almighty dollar became the new Mammon.

We obviously live in a capitalist society. Yet this ideal breaks down when you have a system flooding the market with easy credit and encourages frivolous and downright idiotic spending. The public subsidizes this spending on the back of false inflation numbers and a higher cost of living. Think this isn't the case? Go to Europe and see how far your dollar goes. You have a market telling you that saving is pointless. Why save when bank rates are giving you 1% and real estate is making you 20%? Interesting to note that historically real estate trends with inflation, which we already mentioned by the government's own data, is hovering around 3 to 4 percent. So if we are to use logical thinking, this would imply that either inflation is amazingly understated or housing is incredibly overpriced. I knew basic college logic and philosophy would come in handy at some point in life.

But I have a news flash for you. Failure is wealth. Amazingly, we have folks to be proven bad at what they do, claiming to be experts! They are passing on their real estate horror stories as a method of investing. Call it what it is. An idiot with a fascinating story garnering massive attention and creating a social epidemic; like Paris Hilton going to jail. But no way can you call these people gurus or investors. Last time I looked at a dictionary investing meant making money, not losing it. To go further with this, Paris has indicated that she will use her stature for improving the world. Well good for her. But what about all the people that are currently making an impact on the world; firefighters, police officers, volunteer workers at shelters, missionaries, soldiers, and those in the helping professions? Why don’t we profile them? Because psychologically we love seeing losers turn into winners. This goes back to the Horatio Alger rags to riches story. It is part of the American psyche. However taking advice and guidance from these modern day gurus is like praying for real estate to go up. Oh yeah, we’re already doing that.

You should be a guru too! Your voice has as much weight as others. Here is the recipe for success. Do everything possible to fail; gamble, cheat, commit fraud, and smoke weed because we all love a good joint. If you can, do these things all at once. I haven’t had any luck combining all four but maybe you can succeed where I failed. Then, make it all public. Get the paparazzi to follow you or chronicle it online. Don’t commit crimes that’ll put you away for life, that’ll defeat the purpose. Mortgage fraud seems to be okay so go for that one. Then, decide to write a book and ride the gravy train to Tuscany. See! And you wonder why I’m writing a book? It is the key to riches in this country baby!

Destroying the Middle Class Psychology

Hard to believe we are only entering the first stage of this bubble. Bubbles follow a systematic pattern. Below you can see the typical cycle of any bubble:

*Source: Real Estate Decline

Currently we are between denial and fear. You still have your delusional sellers pining for yesteryear prices but a market with growing inventory from builders and REOs is quickly changing the pace of things. As far as bubbles are documented, data going back to the 1600s, this pattern is typical and rarely fails to follow through. Timing is always an issue but the stages seem to hold true.

So what does this do to the middle-class? What is the middle-class after all? We always hear political pundits using this term. Well in terms of median income for the U.S., it is approximately $47,000 per year. Net worth looks like this:

*Source: CNN Money

And 70% of all households own their home. Keep in mind that the net worth statistics include a large portion of equity in home. So even though the numbers may look high, it is because we are in a nationally distorted housing market. So you can see that a national decline in housing will impact a large portion of Americans. I’m fascinated with the 70% number. 70% of our economy is based on consumption and 70% of Americans own their home. Coincidence? I think not. What say you dear public?

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Housing Cross Contamination: Subprime Infecting Prime Lenders.

Bear Sterns seems to be having some problems with their subprime portfolio fund. Since the March subprime firework show, we had many Wall Street pundits telling us that subprime was contained in a silo and would not impact other lenders who managed funds prudently and hedged for risk. Well guess what? They didn’t. The news coming out this week is that two Bear Sterns funds are close to being shut down after Merrill Lynch decided to seize about $850 million in assets and began selling assets off almost immediately (aka highly motivated seller). Merrill is smart in trying to liquidate whatever it can before the market hits full speed implosion. The major signal here and what sent Wall Street tumbling is that solid funds are not immune to the risky loan implosion, a chant many in the industry were preaching after notables such as New Century Financial bit the dust. Refinancing and mortgage equity withdrawals are dropping at high rates. These mortgage goliaths claimed that they had systematically filtered out risk from their portfolios and all would be well since housing, rent, and credit never went away. But when you have $1 trillion in loans resetting and a housing market in the shamble, there is no way you can engineer your way out of this one. Thank Alan Greenspan for recommending adjustable rate mortgages to the American public.

Dumb, Dumber, and Hedge Funds

There was a study conducted showing that those with high IQs usually made the dumbest mistakes in finance. They usually had high incomes due to their educational background, but somehow made idiotic moves in financial markets. Why? Sometimes they mistakenly believe they are immune to economic cycles or the risk of chance. Think Long Term Capital Management (LTCM) and Amaranth. Both highly managed funds with unbelievably intelligent financial engineers running the show. Where are they now? It reminds me of the story of the would be mail bomber who sent out a package with not enough postage; as the package was returned to sender he decided to open it up. Hilarity ensued. These mortgage backed securities funds have been holding up rather strong up until this point. We’ve been seeing boiler room mortgage fund operations running with a bunch of frat guys dropping like flies which is expected. But seeing a major player such as Bear Sterns draws the ire of Wall Street raises some eyebrows and makes us think twice about pulling out that American Express card for vacations. This implosion will impact everyone.

Private Mortgage Insurance

Private Mortgage Insurance (PMI) is insurance paid by the buyer to protect the mortgage holder on loans over 80% loan-to-value. As a buyer this is ridiculous since you can careless if a mortgage company goes down in flames. They should manage their risk accordingly and not push this charge onto the consumer. PMI issues a yearly risk assessment of the market based on a 50 to 1000 point scale. The higher the score, the more likely said market is to fall. Let us take a look at numbers for last year:

San Diego-Carlsbad-San Marcos, Calif., 599
Nassau-Suffolk, N.Y., 589
Boston-Quincy, Mass., 588
Santa Ana-Anaheim-Irvine, Calif., 588
Sacramento-Arden-Arcade-Roseville, Calif., 585
Riverside-San Bernardino-Ontario, Calif., 583
Oakland-Fremont-Hayward, Calif., 582
Los Angeles-Long Beach-Glendale, Calif., 575
Providence-New Bedford-Fall River, RI-Mass., 568
San Francisco-San Mateo-Redwood City, Calif., 560
San Jose-Sunnyvale-Santa Clara, Calif., 559
Cambridge-Newton-Framingham, Mass., 537
Edison, N.J., 536
New York-White Plains-Wayne, N.Y.-N.J., 498
Las Vegas-Paradise, Nev., 481
Newark-Union, N.J.-Penn., 459
Fort Lauderdale-Pompano Beach-Deerfield Beach, Fla., 441
Washington-Arlington-Alexandria, D.C.-Va.-Md.-W.Va., 431
Miami-Miami Beach-Kendall, Fla., 359

To simplify the data, according to the above data San Diego has a 59.9% chance of falling in 2007. The data has been out since early 2006. My question to these financial juggernauts at Wall Street is, if you have multiple metro areas in California blinking red with 50% or higher risk assessments, why in the world did they continue to fund risky mortgages? Doesn’t matter at this point. We are seeing what is happening. Fund holders are getting smoked while assets are being distributed out. Guess what this will do to the overall market? More inventory and more motivated sellers. What does this do to prices? Knocks them down. No financial engineering degree needed to see this stupidity unfold.

Peak-a-Boo I See you Hedge Funds

The problem in this industry is transparency and public apathy. Everyone does whatever they want. Government oversight is a joke. The major political action committees get cash from the National Association of Realtors. So where is their allegiance? But many people were screaming a siren call long ago. Folks like Bill Gross and Robert Shiller. Yet the pundits used their media outlets to marginalize these folks as tinfoil hat wearing bubblelistas. Why ruin the party with these neg-heads? Well now everyone is waking up with a major hangover wondering what happened. When you drive on the freeway, do you ever see those folks that pick their nose behind tinted windows? For some reason, they think the tint is strong enough to hide their facial nugget digging so they go at it with a vengeance. But guess what? The sun shines and illuminates your shadow idiot! We can see your entire exercise in one finger gymnastics.

Think this mortgage mess isn’t prevalent? “A recent sample of 100 stated income loans which were compared to IRS records (which is allowed through IRS forms 4506, but hardly done) found that 90% of the income was exaggerated by 5% or more. MORE DISTURBINGLY, ALMOST 60% OF THE STATED AMOUNTS WERE EXAGGERATED BY MORE THAN 50%." These results suggest that the stated income loans deserves the nickname used by many in the industry, the “liar’s loan.” Good times. Think housing isn’t a big deal? As of 2006, 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. Housing is the economy.

So is the case with the mortgage backed securities market and collateralized debt obligations (CDOs). They figure the public is too busy and dumb picking their nose to understand what is going on in Wall Street. What they did is repackage financially irresponsible loans with prime loans and sold them off on the securities market. Like taking a whiz in the sea; no one will notice right? Well what if it wasn’t the sea and your county pool? And everyone simultaneously decided to let go of their liquid wealth? Would you want to swim in that pool? Well we have a dirty mortgage market with horrible debt floating all over the place. Care to take a dive into the housing industry?

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Real Homes of Genius: Today we Salute you Monterey Park. 800 Square Feet for $479,000.

You would expect in a declining housing market sellers would have the wherewithal to adjust prices to meet market expectations. You would also expect sellers to put some effort in marketing their home by sprucing it up with new paint or staged photos to entice prospective clients. Well you are wrong! Welcome to Southern California, home of overpriced Wonderland housing followed by the stubborn seller mantra of “you can take it or leave it.” Today we salute Monterey Park with our Real Homes of Genius Award.

This marvelous 800 square foot villa is a looker. Enjoy 2 bedrooms and 1 large bathroom as you entertain your finicky friends. Make sure you tell your pals to watch out for the cracked driveway. Let them know that the cracks represent every major river in the world from the Nile to the Mississippi. Aside from impressing peers with geography, what home wouldn’t be complete without a custom installation of a modern television antenna?




Professionally installed, you’ll create healthy sibling rivalry as mom and dad race over to your place for some UHF/VHF channel surfing. No need for American Express payments to DirectTV when you can surf the free airwaves. If you stare at the home picture long enough, it starts bending in the middle as if partaking in a Matrix simulator. Alan Greenspan had it right when he stated that adjustable rate antennas where the wave of the future (or was it adjustable mortgages?). Either way, you’ll be making so much appreciation that in a few years, you can refinance and add a fresh coat of paint. But why ruin a good thing right? So let us take a look at sales history for this breathtaking place:

Sale History
06/01/1978: $52,000

Now we’re talking. A healthy 8% annual growth rate for 29 years! Since typical housing growth is at the rate of inflation, we are nearly twice that. After running a few numbers, the median rent in the area is $1,200. Keep in mind that this home is selling for half a million dollars and you can rent it for $1,200. Do we really need to run the numbers to find out what the prudent thing is? I know you're itching to catch this falling knife so go ahead and give your broker a call.

Today we Salute you Monterey Park with our Real Homes of Genius Award.

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Living Under the Shady Tree of Mortgage Advertising: 6 Advertisements That’ll Convert you to the Housing Bubble Camp.

I’ve been getting a lot of solicitations in the mail from mortgage companies. And apparently desperate times call for desperate measures. Some of the ads are good. And some are downright misleading, like a tobacco company telling you nicotine isn’t addictive and you are more likely to get hooked on drinking tap water. I wanted to show 6 advertisements all from mortgage companies or brokers that not only show the extent of the credit bubble we are living in, but the subtle implications each ad conveys of the American psyche. We will analyze each ad. So let us get to it.

Ad #1 – You Got a Pulse, we Got a Mortgage Ad



Where to begin with this ad. Well first, you don’t need to verify your income. Second, who cares if you have every infraction on your credit record. Foreclosure(s)? Who cares. Bankruptcies? No problem. Mortgage lates? Call now! This last one really makes me laugh. So you are willing to give a mortgage to someone that already is chronically not going to pay a mortgage? One would think this ad is the pinnacle of common financial sense. Do you have an educated guess as to why we are in this mortgage mess? After reading this ad, I sure as hell don’t. Another thing you’ll notice is the “ask about our liar loan and referral paid program” in case the subtleties eluded you up until that point. And I love the sentence structure at the top of “mortgage payments around as low as 1%.” Brilliant.

Ad #2 – You’ll Never Own Your Home




This ad strikes at an underlying message of American homeownership that is rather new. You will never own one property for a long period of time. You will carpetbag your way to the top. Each property is a subsequent step for your next and larger McMansion. Why not keep your previous home and rent it out? Why not stay in one place and invest in other areas? Of course anyone can do whatever they want but this ad speaks to the public’s desire for bigger and more expensive places at the behest of bigger mortgages. “Chances are, you’ll sell your home before we sell your mortgage.” They may be right since Wall Street’s appetite for mortgages is drastically declining.


Ad #3 – Why Read Your Mortgage Plan? Its Only Your Largest Purchase Ever!



I love the implication of this ad. You’re too busy to care about your largest financial obligation, so we’ll handle it for you. Let us worry about it and milk you to death with fees and coax you to refinance so we can get continuous payments. You’ll have time to worry about other things, like getting a second job because you were too lazy to read the fine print and didn’t realize the teaser rate was only good for 2 years. Don’t worry, you can trust us.

Ad #4 – I Can Finance while Driving!



Not only can we finance you for 125% of the value of your home, we’ll also drive you to get your dry cleaning. I’m not sure about you, but I get a better sense of security getting a $400,000 mortgage through a traditional brick and mortar operation. Mobile operations always scream transient to me but I may be old fashioned. Car ads are a mixed blessing. You increase your visibility but at what cost? Maybe we should have bumper stickers that say, “I financed my home through a mobile operation and all I got was this lousy license plate frame.”

Ad #5 – Time to Bolt to the Caribbean with $5,000,000