Mortgage Fraud

Sunday, August 6, 2023 9:29 PM
The Federal Reserve Bank of Philadelphia has published a study showing widespread fraud among residential mortgages. This includes people lying about whether the house is a primary residence and whether there was a second mortgage on the home. Why does this matter ? It means the claim that 90% of homes are owner occupied with plenty of equity is false. It means there isn’t a shortage of housing but rather a lot of people own multiple homes. It means the housing bubble is bigger than we imagined. If these investor and vacation homes hit the market, it will be nuclear. [view link]

31 comments

A lot of us saw the S&L collapse of 1985 and the RTC, and and then collapse of the Junk Mtg/Community Reinvestment Act in 2007. With the rapid rise of interest rates and wages not keeping up with inflation, we are headed that way again, only this time we need to add in credit card/cars debt and student loan debt at an all time high.
mogul1985
10 months ago
2008 all over again?
shailynn
10 months ago
"If these investor and vacation homes hit the market, it will be nuclear." Or....people who have been searching for homes, but dealing with multiple bids/competition will finally be able to purchase a home, rather than being a servant to landlords, due to scarcity of real estate. I'm not opposed to landlords. In fact, if I weren't so averse to dealing with potentially disrepectful tenants, and unreliable/untrustworthy contractors and real estate agents, I would be one myself. As with any profession, there are good ones and bad ones...so I'm not intending shade toward anyone; I've just had too many bad experiences.
funonthaside
10 months ago
It will be nuclear in the sense that home values will plunge, homeowner equity will be wiped out, and banks will lose billions. But, yes, a lot of people will finally be able to purchase a home.
mark94
10 months ago
^ I personally don’t think the inventory is big enough in most areas for it to be that bad. I know in my area there are way more buyers than there are houses.
shailynn
10 months ago
The number of Airbnb homes has doubled over the last year. A lot of people thought it was a quick and easy way to build wealth. Perhaps as a result of this, the average revenue for an Airbnb rental has been cut in half, meaning they are having a tough time covering their expenses. So, a lot of these homes are now being offered as long term rentals and are still sitting empty.
mark94
10 months ago
The problems are city by city, even by neighborhood. It is worst in outlying areas of the cities that were hot spots during CoVid. Austin is getting killed. Dayton, Ohio not so much.
mark94
10 months ago
In 2008, it took 2 years to hit bottom. We have at least one more year, maybe two, before we hit bottom.
mark94
10 months ago
It doesn't matter how many homes are on the market, peope cannot afford the interest and mortgage rates.
gammanu95
10 months ago
Homeowners won’t sell because they have 3% mortgages. The only people selling are those who don’t need to buy a replacement for various reasons ( e.g. investor owned ). The only people buying are those with high incomes who are desperate to buy ( e.g. moving a family to a new city ). It’s a game of chicken. If all the AirBnB, investor owned, and vacation homes were to suddenly hit the market, prices would fall dramatically. Otherwise, it’s going to take interest rates coming down, whenever that might be. That’s why the number of homes that aren’t owned by the primary resident are key to what happens next.
mark94
10 months ago
shit. back in 1982 My wife and I bought a new double wide put on our lot. (owned outright). the damn interest rate was 17% on that trailer. after a year we negotiated it down to 15%... thank you, Jimmy Carter.
Jascoi
10 months ago
in the long run we made money off that place because of the rising real estate market before the dot com problem.
Jascoi
10 months ago
Nonresident investors own a remarkable percentage of single family homes in my large HOA near LAX: almost 30% of over 2000 houses. Because there’s a small Jesuit university with students who rent (well, mommy & daddy, actually), plus low-income workers who co-op 3-4 families per house so they can live near work. But I doubt a nuclear crash since most are investors (partnerships, LLCs) and have owned for years and aren’t hurting for cash. Deferred maintenance is turning the area more ghetto, tho not as much as the homeless & general neglect of victim-socialist focused government. But rents are high so they won’t sell, they’ll hold. SoCal isn’t like the East Coast where it seems many beach areas are 60-75% “second homes” for individuals and thus more crash-susceptible.
RiskA
10 months ago
No one knows what will happen to the housing market except there will be periods of peaks and valleys though always trending higher in the long run. How pronounced those peaks and valleys are is unknown. What also is for certain, when everyone is fat, drunk and bullish on RE profit, keep a sober eye out. If a big RE crash happens and everyone is now bearish and even panicked that values like this can never return, spend every dime you can comfortably afford to spend on RE. You’ve probably just made the very best investment in terms of the least downside risk compared to the potential upside returns.
Brahma2k
10 months ago
Experienced, long term RE investors can do well. Unfortunately, there are always a group of new RE investors who think home prices and rents can only go up. They leverage their investment and are financially unprepared for the occasional correction. The Philadelphia Fed study suggests that a significant percent of homes are owned by this kind of unprepared investor. Bad for them. Bad for the housing market.
mark94
10 months ago
There’s a good amount of truth that lays credence to what is portrayed on this topic. What makes it different this time is highly doubtful any panic selling will ensue since the housing owners in questioned aren’t as highly leveraged like we saw in 2006-2009. Any correction will take place slowly, maybe just stagnant over the next decade as these owners won’t be so quick to dump onto the market. I’d like to add that there will be many two story homes coming into the market over the next 10-20 years as boomers try to downsize and search for smaller single story residences. This too will be a loooong process, non disruptive to the markets other than premiums offered for single story. Smaller single story homes have always garnered a higher price per sq ft compare to 2 story, going forward they will either get a bigger premium or 2 stories will be sold at a discount. It’s difficult to paint with a broad brush, ie specific markets will vary. Phx will be different than the Midwest, and west coast will be different than east coast, but in general I think large gyrations in the housing sector will be relatively smooth compared to 2006-2009.
Mate27
10 months ago
So how will this affect the price of a lap dance?
iknowbetter
10 months ago
I don't feel bad for anyone that bought into real estate as an investor and did so with a mortgage. Anyone willing to take on debt to make a real estate investment is just as bad as someone that uses credit to buy stocks. It is a terrible idea to take on debt and interest on an investment that may not give you enough return to cover the initial investment let alone the interest. As for people who bought a house to live in, yes they will likely lose some equity if the housing market goes down - yes. How much they lose will depend on the location since some areas are much more overvalued right now than others. If they made a logical purchase that was within their means and at a reasonable price based on historical values in the area rather than the inflated values being realized during the bubble they shouldn't lose much. If they bought into an overpriced home that was in an area with a huge bubble that wasn't a smart purchase and now they are going to pay for it. Even in that scenario it probably wasn't that bad of an investment if you look at it as a whole rather than just the sales price. As long as your loss on the sale of the home is less than the total it would have cost you to rent a similar home in the same area for the entire time you owned the house you are still better off for having bought the house than if you were renting for that period of time. As long as you weren't trying to quickly flip the house and you actually lived in it for several years you should be ahead, especially considering that rent has gone up even faster than home prices in many areas. For instance, if you bought a 3 bedroom house for $250k 10 years ago and you sell it for $200k now you would still be better off even factoring in interest on the mortgage than paying $1,000+ per month to rent a house for those 10 years and being out $120k+ in rent with zero equity. Worst case, if you are underwater on the mortgage after prices drop just hold off on selling until the math works in your favor several years down the road. If you have to move now for whatever reason you may have to buy a smaller home in a less desirable location or rent a place that is cheaper than you can rent out your current home for.
whodey
9 months ago
^^^taking on historically low interest debt for RE investment is how wealth gets created. Purchasing existing homes with low interest — noting an RE investment usually doesn’t get ultra low like a primary home APR — usually has built in income (renting). At rates 2 years ago, likely few who took loans to buy rental property are sorry now.
Brahma2k
9 months ago
RE is one of the few investments that most people can profit from, it’s a vehicle that has multiple advantages and one of the few sources of multigenerational wealth with a low bar for entry. There’s always fraud around investments, but as with any other investment, if you’re making intelligent decisions and thinking long term, whatever short term mistakes you make, are likely not going to permanently damage the investment value of your portfolio.
twentyfive
9 months ago
In many places, rents and home prices are going down. Evictions are up. The explosion in the number of short term rentals is destroying that business model. Overbuilding of apartments in previous CoVid hot spots is about to flood the market. A lot of corporate RE investors are selling inventory and scaling back on home purchases. A lot of their financing is adjustable rates. That’s killing them. They get a better return on bonds and TBills. We will see a gradual increase in homes for sale. Will it crash ? It might in some places.
mark94
9 months ago
^ A crash is just another market condition and an opportunity for savvy investors The folks that worry about a crash are mostly shortsighted, folks, that are looking for a scheme, to get rich quick. Long term investors know there’s downside risk in every market and plan accordingly.
twentyfive
9 months ago
It is a waste of time and energy to interact with twentyfive. He is a narcissist; lacking any self-awareness, shame, or regret.
gammanu95
9 months ago
^ Troll post, sad bigoted little loser, has never posted anything positive, too bad, so sad.
twentyfive
9 months ago
Rents are still sky high in my metro (San Diego) but it looks like the usual overbuilt, low water sun belt areas of Las Vegas, Riverside and Phoenix have seen big year over year rent decreases. I bet some of this is the big Back to the Office movement in Big Tech where developers making 200k a year are being forced to return to the San Jose area.
JamesSD
9 months ago
The report from the Philly Fed makes it clear that mortgage fraud played a big part in the 2008 crash. Maybe more than subprime did.
mark94
9 months ago
Do not be mislead by twentyfive's jealousy and resentment. He is a demented child, frightened and confused by the world. He tempts us to treat him with scorn and contempt, but really deserves only pity and neglect.
gammanu95
9 months ago
^ how genuinely stupid
twentyfive
9 months ago
The thing about 2008 mortgage fraud is lenders were accepting No No loans without verifying income. So yeah there was fraud but there was also a system that encouraged fraud
JamesSD
9 months ago
There’s definitely a demographic shift to many individuals trying to become landlords and real estate entrepreneurs via bnB business like vrbo. Those people are going to find out it’s not as easy once you determine the costs and taxes of being the owner, and the time commitment. The supply of people looking to do short term rentals will continue to dwindle, cause why pay hundreds of $$ in taxes and fees when you can use those funds on a hotel or even not go on that trip. Revenge travel is starting to sputter and people are looking to leisurely stay at home or find things to do close to home. It’s much more challenging to find good deals at the resorts here in Phx during the slow season in summer because they have kept prices high, but I can still find some places offering good deals. Got a resort in Scottsdale for $100/night including taxes and fees where the kids can play in the water park. That two day vacation is way better price wise than taking the family to a cabin in the woods for $600, and a lot closer to home. I’m done with doing vrbo unless it’s with a large group of people going on vacation.
Mate27
9 months ago
Wont rent always have high demand Mark? Especially as the overall economy does worse, or interest rates rise, more people will be encouraged or even forced to rent?
rickmacrodong
9 months ago
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