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



I love this ad. First we have the comfort of getting remarkable service. And then in the next line we have loans up to $20,000,000. But the amazing part is the next line, “no income or asset verification.” Okay, $20,000,000 and no income verification shouldn’t appear on the same document ever but here we have them appear in the next sentence. This is a perfect example for breeding fraud. Why don’t we find a $20,000,000 home and do a 125% cash-out refinance? Since that’ll give us $5,000,000 in the pocket, we can fly off to the beautiful blue beaches of the Caribbean or South America and never be heard from again. The dollar goes far in many places and this money will keep us going for a very long time. You can write that novel kicking up in your head. Maybe explore ancient ruins and take up your love of archeology. This sounds great! Am I forgetting something? Oh yeah, the $20,000,000 home and mortgage note accompanying it. So much for unrestricted dreams. And we wonder why we have so many first payment defaults.

Ad #6 – Try and not Get this Loan! We Dare you!



And finally we have the try and fail to get this loan. I totally dig the line of “it’s almost impossible not to qualify!” They are dropping the gauntlet and challenging you to fail to get this loan. No income, job, money, life, food, or heart but we will find a way to get you into a loan. If we were to take score of restrictions for getting this loan like a baseball game, this would be a shut out. 125% loan to value? Yes! $400,000 for $1,280 a month? You got it boss! The public should be furious at the contempt these people have for your financial intelligence. They treat your home like an American Express card. Refinance to prosperity! Why rent when you can own…and rent from us with your home equity line of credit. These ads are so dysfunctional you’d think we were living in Bobby and Whitney’s relationship. I’m not sure what kind of finance calculator these people are using because 5.44% at 100% financing is $2,256 simply for P and I. But who cares! It’ll only take 5 minutes and then we can buy a Real Home of Genius.

There you have it folks. A sample of 6 ads from the mortgage industry demonstrating a disdain for financial prudence. I am amazed at the lack of risk management in the industry. Many companies have sealed their fate for instant gratification. The companies that are staying afloat kept more conservative mortgage portfolios in lieu of high rates on subprime or Alt-A risky loans. As you sift through your mail, don’t fall for the irrational exuberance of refinancing into risky teaser loans. I know we are all tempted to buy those bouncing-bobble-head-colorful-animal mortgage ads that sell us crazy mortgages because the animal is so freaking funny! Who can resist a talking cat trying to sell you a mortgage? Or the countless spam you get telling you about a $400,000 mortgage for $800 a month. Housing has tipped into a different dimension. I would show you more ads but I’m going to refinance my house at .0125% for 200 years.

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Real Homes of Genius: Today we Salute Inglewood at $430,000 for a 941 Square Foot Beauty!

I will let you gather your emotions after seeing the amazing beauty above. Are you okay? I know after seeing an example of architectural ingenuity for such a reasonable price you must have your cell phone in hand plastered to your ear dialing away to your real estate agent. Today we have a 941 square foot home with all the amenities a 2 bedroom/1 bath home can provide. Even though this home has been on the market for 152 days they fail to reduce the price significantly:

Price Reduced: 09/19/06 -- $449,000 to $445,000
Price Reduced: 09/25/06 -- $445,000 to $440,000
Price Reduced: 10/12/06 -- $440,000 to $435,000
Price Reduced: 11/07/06 -- $435,000 to $430,000

As you can see, they are doing the monthly housing cha-cha hoping that spring and summer will bring them their desired Wonderland price as if in a drug induced trance. This post was inspired last night because after watching a singer from Inglewood on American Idol (yes, I confess I watched the first episode) I thought what better way to honor today than produce a home from that neck of the woods. But of course this seller is asking a reasonable price right? Let us look up the previous tax sales records:

Sale History
03/24/2000: $111,000
04/14/1999: $128,411
09/19/1997: $118,500

Wow, are you telling me that properties in California can actually go down for multiple years? Besides that jaw-dropping point, this seller is delusional as only those in the California-Equity-Giant™ machine can be and is trying to make a $300,000+ killing in only 6 years. But again the real estate syndicate is pushing suicide loans to sub-prime borrowers so I wouldn’t doubt this thing actually selling. Probably won’t matter since you may not make it to see the end of your 30 year mortgage in this area. So that’s the bright side!

We salute you Inglewood for being a Real Home of Genius.

Filed in: Real-Homes-of-Genius housing-data
Southern-California-Housing real-estate housing-humor

Today's Illegal Immigrants, Are Tomorrow's House Buyers.

Flipper Nation
Episode 3: The Flippin' Fight

There's more where this came from at: FlipperNation.com

If you cannot view this video, you can check it out at YouTube instead.

Filed in: housing-humor

Flipper Nation Episode 2

Oh me oh my. Life imitates art far more than art imitates life as Oscar Wilde would say.

Flipper Nation: The Blame Game

There's more where this came from at: FlipperNation.com
If you cannot view this video, you can check it out at YouTube instead.

Filed in: Housing-Humor

Flipper Nation! Some Weekend Housing Humor!

For those of you who haven't seen this funny clip. The funny thing about this clip is that I am sure many of you know people like this in real life!

Filed in: Housing-Humor

Ponzi Financing – The House that Credit Built.

Do you know the story of Charles Ponzi? Ponzi was an Italian immigrant and figured out how to use an early form of arbitrage to create money. In a nutshell Ponzi made money by exchanging foreign postal stamps that were fixed and leveraged into favorable currencies. Since Europe was ravaged at the time, many currencies were devalued yet the rate of stamp was never changed. This was all legal. However, Ponzi decided that he would seek out investors and offered them a 50 percent return on their investment in 45 days. You could double your money in 90 days! What did this do? Well after a few successful investments he started to build momentum. Take a look below:

Feb 1920: $5,000
March 1920: $30,000
May 1920: $420,000
July 1920: $1,000,000+

This was the start of the Securities and Exchange Company (sound familiar?). The ironic thing was that Ponzi was losing money daily. The thing that kept him going? Debt. Basically he was paying out his investors with money that was coming in. In fact, so many people bought into the hype that widows were mortgaging their homes to get a piece of the action. When someone from Barron’s decide to examine Ponzi more closely, they realized that the company was completely unsustainable. They realized that 160 million postal coupons would need to be in circulation when only 27,000 were estimated to be in use. By August 13 Ponzi was under arrest. Even at this time, so many people had blind faith in Ponzi that they cried and held anger toward the officers who arrested him. They bought into the dream Ponzi was selling even though economically it had no basis in fundamentals.


“Hello, my name is Charles Ponzi and I approve of the Housing Bubble.”

Looking back nearly 100 years one can easily say “why in the world did people fall for the Ponzi scheme?!” Why look back that far when we can look at our modern day heroes, the flippers and speculators. Again how does this compare? For one thing, many flippers that purchased properties in the last few years did not care that the property would produce a negative cash-flow because they figured a greater fool would purchase the property. Heck, they were fixated on 50 percent gains! Think of it this way, buy a property with $10,000 down, spend $5,000 fixing it up and sell it for a profit of $15,000. So you get your $15,000 back plus $15,000, a net gain of 100 percent. In addition, many flippers held onto property for only a few months thus increasing their yearly gains. So this is all anecdotal right? If you want a real life case study I point you toward Casey, a 24 year old flipper with 2.2 million dollars in debt: www.iamfacingforeclosure.com

And again if you look at recent foreclosure data for the month of October, 50 percent of mortgages that are entering foreclosure originated in 2005 or after and have a median age of 14 months. This is not a homeowner that bought in 2000 and is worried; that is unless he used his home as an ATM machine and did cash-out refinancing. The well is quickly running dry. Washington Mutual reported that 30+ lates noticeably increased in the last few months and their mortgage portfolio has decreased. In addition, they are laying off 9,300 workers. Are these signs of a booming market? Or what about Kara Homes that is now in Chapter 11 bankruptcy? http://www.bloomberg.com/apps/news?pid=20601087&sid=ajY74Kg6RI7o&refer=home

These are only two examples of a financer (WM) and a seller (Kara Homes) that are two sides of the same coin. One cannot do exceptionally well without the other. Now that the Ponzi scheme is starting to unravel and lending is tightening, we will see more caution by buyers and more drastic measures by sellers. Now we will get those that say “are you kidding! I can still get a 125 percent interest only with no money down.” Is this really prudent? Look at the below data by the Mortgage Broker Association:

“As of September 2005, Adjustable rate Mortgages (ARMs) accounted for roughly 70% of the prime mortgage products originated and securitized and 80% of the subprime sector.*”

* 2006 Global Structured Finance Outlook: Economic and Sector-by-Sector Analysis, FITICH RATINGS CREDIT POLICY (New York, N.Y), Jan. 17, 2006 at 12.

Think this is isolated? Look at some data for the Bay Area:

“The following chart shows the percentage of Bay Area loans that were interest only or Option ARMs (know as negative amortization).”**
Year Interest Only Option Arm
2005 42.6% 29.1%
2004 43.7% 9.6%
2003 20.3% 0.8%
2002 12.0% 1.7%
2001 2.9% 1.6%

**Kathleen Pender, Mortgage options explode, SAN FRANCISCO CHRONICLE, April 13, 2006

Like a Ponzi scheme, it is good until it isn’t. Think of it as musical chairs. When chairs are plenty, everyone is having fun. Yet as the music winds down, we know that eventually only one person will be able to sit.

Filed in: mortgage-fraud housing-humor mainstream-media housing-data