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matador1 wrote:Years from now, college students will study the events that have occured in our industry over the last 12 months and the period leading up to it. I predict that the real estate industry lanscape and supporting cast will forever be changed.
I truely believe that this could be the thing that forces us in the "now" and "live on credit" society to change our ways.
Funny thing, I have done several loans for people on this board and it seems like the people that hunt and fish, appreciate the simple things in life have had the best credit and taken better care of themselves financially. Interesting!

It is bad now and there is significant potential for a serious crises but it's been a hell of a lot worse. When I graduated from high school in May of 1980 the prime interest rate was just coming off of 20%. Deposit Guaranty Bank wanted 25% down on my new car loan. The first real estate deal I did in 1984 was with a 14% loan. I bought a new personal home that year with a 30 year bond money mortgage and a "special interest rate" of 10.74%. On Black Monday, October 19, 1987 the stock market lost 23% in one day (that would be over a 3,000 point DOW drop in one day today). About the time we were finally seeing a single digit prime rate the S & L crises occurred and it shot back up to over 11%. From the time I graduated high school in 80 until 1993 when a Deposit Guaranty Banker walked into my office "soliciting investment real estate business" it was tough. For the last 14 years we have had a single digit prime interest rate and a low of 4%. Anyone entering the work force or having gone into business after 1993 does not have a clue what tough times really are. If this liquidity situation ends up being a catastrophe, they just might find out.

The most volatile prime interest rate period in history.

1978-10-13 10.00
1978-10-27 10.25
1978-11-01 10.50
1978-11-06 10.75
1978-11-17 11.00
1978-11-24 11.50
1978-12-26 11.75
1979-06-19 11.50
1979-07-27 11.75
1979-08-16 12.00
1979-08-28 12.25
1979-09-07 12.75
1979-09-14 13.00
1979-09-20 13.25
1979-09-28 13.50
1979-10-09 14.50
1979-10-24 15.00
1979-11-01 15.25
1979-11-09 15.50
1979-11-16 15.75
1979-11-30 15.50
1979-12-07 15.25
1980-02-19 15.75
1980-02-22 16.50
1980-02-29 16.75
1980-03-04 17.25
1980-03-07 17.75
1980-03-14 18.50
1980-03-19 19.00
1980-03-28 19.50
1980-04-02 20.00
1980-04-18 19.50
1980-05-01 18.50
1980-05-07 17.50
1980-05-16 16.50
1980-05-23 14.50
1980-05-28 14.00
1980-06-06 13.00
1980-06-13 12.50
1980-06-17 12.00
1980-07-07 11.50
1980-07-23 11.00
1980-08-22 11.25
1980-08-27 11.50
1980-09-08 12.00
1980-09-12 12.25
1980-09-19 12.50
1980-09-26 13.00
1980-10-01 13.50
1980-10-17 14.00
1980-10-29 14.50
1980-11-06 15.50
1980-11-17 16.25
1980-11-21 17.00
1980-11-26 17.75
1980-12-02 18.50
1980-12-05 19.00
1980-12-10 20.00
1980-12-16 21.00
1980-12-19 21.50
1981-01-02 20.50
1981-01-09 20.00
1981-02-03 19.50
1981-02-23 19.00
1981-03-03 18.50
1981-03-10 18.00
1981-03-17 17.50
1981-03-24 17.00
1981-03-27 17.50
1981-04-01 17.00
1981-04-20 17.50
1981-04-29 18.00
1981-05-04 19.00
1981-05-11 19.50
1981-05-18 20.00
1981-05-22 20.50
1981-06-01 20.00
1981-07-08 20.50
1981-09-16 20.00
1981-09-22 19.50
1981-10-05 19.00
1981-10-13 18.00
1981-11-02 17.50
1981-11-09 17.00
1981-11-16 16.50
1981-11-24 16.00
1981-12-01 15.75
1982-02-02 16.50
1982-02-17 17.00
1982-02-23 16.50
1982-07-20 16.00
1982-07-29 15.50
1982-08-02 15.00
1982-08-16 14.50
1982-08-18 14.00
1982-08-23 13.50
1982-10-07 13.00
1982-10-13 12.00
1982-11-22 11.50
1983-01-11 11.00
1983-02-25 10.50
1983-08-08 11.00
1984-03-19 11.50
1984-04-05 12.00
1984-05-08 12.50
1984-06-25 13.00
1984-09-27 12.75
1984-10-16 12.50
1984-10-29 12.00
1984-11-08 11.75
1984-11-28 11.25
1984-12-19 10.75
1985-01-15 10.50
1985-05-20 10.00

I hear alot from real estate folks and lenders on here... And my initial question was loaded. I'd like to hear from some saps who took out $250k loans with nothing down, and adjustable rate during a period of the lowest rates of all time.......

I mean come on... that is not all the lenders fault, that is the fault of the man/woman who thought it was alright to make $1200- 2500 payments and have a paycheck to paycheck budget.

Cotten, only difference between now and then is that when rates were double digit, not everyone qualified for them! That is the biggest problem now. It doesn't matter if the rate is 1% or 24%, if the borrower can't really afford just the principal payment, they will default. When you loan a person 100% of the purchase price and they have never paid their cell phone bill on time, it is just a matter of time before they default. I'm sorry but I have to respectfully disagree, this is way more serious than then. Give it 12 months, I believe you will agree with me.

I'm the bankruptcy guru at the bank I work for. What that means is when someone files, I look at everything we've got and get all the paper work together to go to court and argue yea or nay to confirmation of the plan and prove why. This has given me a unique perspective in that I see all the debt listed in a debtors schedule filed with the court and can tell you lenders do it to themselves. Most of the time a borrower doesn't know what the Hell they're doing when they take out a loan other than "sign here" When it all tanks and we're sorting it out at the 341 meeting, it amazes me that some creditors or lending investors money.

The problem, as I see it, is that lenders have forgotten how to to "No". A borrower think a lender is just an a hole when he turns them down and he'll go down the street by God. There are times whence telling a borrower no is a lending looking out for the best interest of his client and doing him a favor. In this day and age of Internet lending and the guy down the street more than ready to "do the deal" to get the business. A lending is pressured more than every to find a way, any way, to get it done.

Things are falling on hard times. I also do consumer lendng as well as a collection business. Let me tell you one is falling off and the other is increasing. Unfortunatly the collection side is increasing and so are the troubles of collecting. Our society today has basically made bankruptcy basically an alternative to paying your bills.

Once some one files bankruptcy unless you are a secured debt you can kiss your money goodbye. In our auto dealership business when people file bankruptcy its still not as secure as you think. For instance if the car is wrecked, trashed, or just wore out the bankruptcy court may decide the car is worth maybe ten percent of the loan value that is what you get. People owe so much money and have very little assets there is only so much blood you can squeeze out of a turnip.

The stock market is seeing a downside result from this as well. The past two months my portfolio has dropped tremendously. Luckily I am still in the green though as I am in for the long term with superb and outstanding companies. It looks as though some of my bonds will basically loose most all interest except face value as they continue to decline. Commodities market is an up and down market right now I do very little trading on there cause you have a great potential for loss as prices fluctuate. Again just want you guys to know that these declining prices will bring forth great opportunities to purchase stocks of great companies well below book value.

My lifestyle will not change from any of todays or tomorrows or next years financial world issues. For all things come in cycles some last longer than others some not so long. Just keep your heads up guys I know what you are going through. Take advantage of great real estate deals that may be priced well below value or investments that are undervalued. Wish all of you the best of luck as the next couple of years will be considered hard times.

matador1 wrote:Cotten, only difference between now and then is that when rates were double digit, not everyone qualified for them! That is the biggest problem now. It doesn't matter if the rate is 1% or 24%, if the borrower can't really afford just the principal payment, they will default. When you loan a person 100% of the purchase price and they have never paid their cell phone bill on time, it is just a matter of time before they default. I'm sorry but I have to respectfully disagree, this is way more serious than then. Give it 12 months, I believe you will agree with me.

I'm not disagreeing with you matador1. What happens in 12 months may very well trump what has happen in the past. The only constant in life is change. But the entire economy will have to suffer badly; not just real estate related businesses.

We all live in our own personal worlds. People who suffered the tech wreck a few years ago, especially the WorldCom and Enron investors probably think those were the worst of times. Seven + years after an all time high the NASDAQ is still less than half of what it was.

With a current Fed discount rate of 5.25%, prime at 8.25% and unemployment under 5% (which means full employment since the other 5% won't work) and odds are the Fed will start pushing rates down soon, it will take a catastrophe to equal the 80's. And we shall see.

matador1 wrote:It doesn't matter if the rate is 1% or 24%, if the borrower can't really afford just the principal payment, they will default. When you loan a person 100% of the purchase price and they have never paid their cell phone bill on time, it is just a matter of time before they default.

I agree totally. And I don't believe Bear Sterns or the others pushing those sub-prime and other BS mortgages were stupid enough not to know this would happen. They made the big fees and now they're investors are the ones who will lose the big money. Wall Street is littered with whores who will push anything that makes them money regardless of what happens to they're clients. There are very few with the integrity of Warrens Buffet.

It's the same story on Wall Street over and over just with a slightly different twist.


"Bear Stearns Sued Over Collapse of Fund

By REUTERS
Published: August 10, 2007
A limited partner in a failed hedge fund run by Bear Stearns has sued the investment bank, saying it took only “meager steps” to prevent the fund’s recent collapse.

The limited partner, Navigator Capital Partners, made the accusation this week in a lawsuit filed in New York State Supreme Court in Manhattan. The complaint names Bear Stearns, its asset management division and the High-Grade Structured Credit Strategies hedge fund, which collapsed in mid-July.

Bear Stearns said it planned a vigorous defense and called the lawsuit’s allegations unjustified and without merit.

“The plaintiff is an experienced investment firm and, as described in the fund’s materials, this was a high-risk, speculative investment vehicle,” Bear Stearns said in a statement.

Navigator Capital, run by Steven Resnick, invested more than $700,000 in the hedge fund from August 2004 to mid-April 2005. The firm and other investors lost nearly the entire value of their investments, the lawsuit said.

“Defendants failed to disclose to investors the significant challenges facing the partnership, and the meager steps they were taking to face those challenges, while at the same time reaping substantial fees,” the suit said.

Bear Stearns Asset Management, the hedge fund’s general partner, made more than $13.3 million in 2006 from advisory fees and profit-sharing before the hedge fund’s demise, according to the lawsuit."

Wingman wrote:My dad told me once, "Son, the bank will lend you more than you can pay off."

I thought buying a $40,000 house was a big step. I don't see how folks pay 300K for one.

I'm living in Savannah Ga now, my 50k home in Minter City sells for about 285k here.

matador1 wrote:Years from now, college students will study the events that have occured in our industry over the last 12 months and the period leading up to it. I predict that the real estate industry lanscape and supporting cast will forever be changed.
I truely believe that this could be the thing that forces us in the "now" and "live on credit" society to change our ways.
Funny thing, I have done several loans for people on this board and it seems like the people that hunt and fish, appreciate the simple things in life have had the best credit and taken better care of themselves financially. Interesting!

Hope you won't mind an old fella telling you why I disagree with your premise and giving you my views on the subject.

In 2003 my wife and I were living in Las Vegas. We'd been there 12 years and had started and owned a small mortgage company that was a broker for conforming, non-conforming and private investor funded loans.
For 15 years prior to that we lived in Hawaii and watched the economy there go through several severe swings up and down. I saw the same early indicators forming in Las Vegas.

Essentially, the first warning sign is when real estate prices escalate at a much faster rate than the CPI, for more than a year or two.

The 2nd warning should be when there is a significant increase in non-owner occupied (speculators sometimes) buyers of properties.

The 3rd is when a property sells 2 times in a 12-18 month period, and that happens twice, each time for healthy profits.

The 4th is when there are too many builders, realtors, lenders and loan agents in a given area for the size maket they serve and they begin looking to "cut corners" on documentation, verifications and other loan processing procedures in order to get the deal done.

All four of those and more existed in Vegas in 2003. Several had been taking place for a year or longer. Real estate prices were going up at a 20% compound rate. It was a speculators paradise ... for awhile. I saw and recognized those signs. My wife and I agreed that the bottom would fall out of the real estate market, mortgage business, the construction industry and anything related to those three.

We took our time and put our home and business on the market in late 2003. We searched for and found land in a small rural community in N TX where an acre of ground could still be bought for under $2K verses the $150K/acre for raw land without water or utilities in the NV desert. We bought 132 acres of land for under $250K. We designed and built our 3,500 sf brick "retirement" home for less than $40/sf. all of that for less than the cost of a 1/2 acre lot in our area of Vegas ($475K).

When I told close friends and our private investors that the "Vegas sky is falling" they thought I had taken leave of my former good senses. I warned them that IMO by late 2005 a crash would start that would be the worst Vegas had ever seen in its history. We sold our home in late 2004 for $500K more than it cost to build it in 1991. And ... the vast majority of that appreciation took place in 2002-2004. We closed escrow on the sale of our business on 12-31-04.

Turned out that I was wrong. By almost a year. The crash didn't begin in ernest in 2005. It was 2006. Las Vegas now leads the nation in foreclosures with almost 1 out of every 40 homes now in the process. Another 5 of 40 are in either lender owned or in serious default and the underlying loans will have to be declared non-performing by the holders before year end. The mortgage broker we sold our business to in 2004 has since closed it's doors (only took 2 years) after our operating it successfully for 14 years.

Now ... back to my original disagreement with your original post. I doubt that "college students will study the events that have occured in our industry over the last 12 months and the period leading up to it. I predict that the real estate industry lanscape and supporting cast will forever be changed." You see, those in the real estate and lending industries are glutons for punishment and in my experience incapable of or unwilling to learn from the past. Therefore, they have always been doomed to repeat it. Perhaps in another market, but certainly they'll do it again and again because GREED is the motivating factor.

Now, for us, don't feel too badly. We just have to spend our days with our two yellar dawgs training, hunting ducks and otherwise missing the full time mortgage business.

Well I don't know much about mortgages or real estate. All our land is family land and I just signed a mortgage on my new house. I just completed my house and signed a mortgage on it Friday. IS there something need to know.

Borrow less than you can actually afford and get a fixed rate loan. Pretty simple but it works for me.

bigoak wrote:Borrow less than you can actually afford and get a fixed rate loan. Pretty simple but it works for me.

We also calculated in the fact that the Wife or I might be out of a job at some time and didn't want to be in a situation where we would have to sell the house.. We went with a 20 year note with the intention of paying it off early.. But if push comes to shove we can refinance to a 30 year note while we look for more work.. Or use our emergency fund to make up the difference in house payments.

We did a 30year fiwed rate did not borrow but 60% of what it appraised for.