HAWAII LEADS NATION IN SOMETHING! MTG FRAUD...
CROOKS FLOCK TO ISLES FOR "LAX STANDARDS"
ONCE-HOT MARKET FOR MILLION-DOLLAR HOVELS COLLAPSES
Fannie Mae & Freddie Mac Flummoxed By Mortgage Applications Filled Out In Pidgin English?
The "Price of Paradise" starts with the high cost to own or rent real estate here in Hawaii. The cost of everything you buy includes the sellers' rent or mortgage payments. That's on top of your own housing costs. So, yes, rising interest rates, a shrinking property market, tightening regulations and crises way off in Washington and New York do have an effect here in Honolulu.
Under normal circumstances, real estate can be a bit dicey. Back when I was selling in the 80's, all the banks cared about was a complete file folder full of papers with everything filled in: Because that was all FNMA (Federal National Mortgage Association) & FHMC (Federal Home Mortgage Corporation) cared about.
The weak link was always the appraisal, the mortgage broker or bank's evaluation of the property's worth in the current market. In a hot market, the realtor had to project into future value to get a realistic "CMA" (competitive market analysis) for the seller. Otherwise, with two or three per cent per month appreciation on a $300,000 home, you'd cost the sellers ten to fifty thousand dollars over the average three-month time on the market, and three-month closing time.
Of course, if you sold and closed in three months for full price, you were really speeding up the price appreciation. And that became an inflated "comp" (comparable sale) for the bank's appraisers. It also became a benchmark for realtors' CMA's beyond which they would project still further value, until the whole house of cards collapsed; s-l-o-w-l-y, with any luck. If it collapsed quickly, lots of people, and banks, and depositors, and taxpayers got hurt. Voila, the S&L crisis.
See, you try to help somebody out, and look what happens.
In addition to fudging the appraisals, by accepting unclosed and unconfirmed price-inflated sales from realtors as comps, the banks could also be persuaded to overlook certain credit problems, provided you gave them a piece of paper to cover their asses. Everything was cool as long as everything was cool. If there was a problem, oh, man, then you really had a problem.
Still, I never once saw or heard of any Federal regulators coming down on any realtors, or many bankers. We knew they were there; we just never saw them. So we tried to keep it that way: Generally avoiding outright fraud and really egregious behavior.
That was the go-go 80's. I don't do R.E. any more, but what I see out there really shocks me. Qualifying a buyer is the professional real estate salesperson's first responsibility. An unqualified buyer is a waste of the agent's time, and could cost the seller boo-coo bucks. Debt to earnings ratio is Page One of your Broker's Bible. Or, it was.
While incomes have not moved all that much since 1980, home prices have skyrocketed. Here in Hawaii, the average home price is $500,000 to $1,000,000. The average income is $20,000 to $60,000. By the old rules, the price of the house should be 3 to 6 times the annual income, no more. Top price should be $360,000, and that's a stretch with this income. But most people are paying double or triple that here in Hawaii. Which means that, either Fannie Mae and Freddie Mac themselves have thrown out the debt-to-income ratios of 28-32% for just the monthly "PITI" (principle, interest, taxes and insurance) payment, and 36-40% for all debt as a percentage of income, or we're in Super-Duper-Fudgie-Land.
Buyers must be SUPER-fudging now, and the realtors, banks and regulators are letting them get away with it. That means they are counting the income of parents, children, unrelated persons, people not living in the home, rent from tenants legal and illegal, investment income real and imaginary, and God knows what all else, to come up with income figures of more like $175,000 to $300,000 per "household."
And there's another fudge: Back in the day, only married couples or really rich people could easily get mortgages with less than 20% down. Unmarried couples, gay or straight, buddies, partners, whatever, no sale without a huge down payment and great credit all around. The banks just looked at it all as inherently unstable, without a marriage contract. Even then, if two incomes were needed to pay the mortgage, a young wife might be required to sign a document agreeing not to have children, or take time off from work, for the first five years or more. Obviously, it would be tough to get all this today, with the percentages of unmarried, never-married, divorced, gays, lesbians, group living, etc, etc, etc. Still, there has to be some standard of stability, or the banks get stuck.
OK, so times have changed. That's not what shocks me, none of the above. What shocks me is that, given the sh*t we used to pull, and adding in all this other stuff above, these pr*cks went WAY beyond all that, and just threw out all the rules. They're not only lending to ANYbody, they're FORCING risky loans down their throats. They're going out and soliciting business from people they KNOW to be unstable, or credit risks, by their own records. And they're doing it not with $60-80-100,000 homes. Not even with two, three, four hundred thousand dollar homes. They're doing it with $500,000 to a MILLION dollar homes. And not just a few: Hundreds of thousands of them, nationwide. That's the multiplier in all this: it's a factor of five to ten times as risky, a thousand per cent more exposure, a million bucks a pop instead of a measly hundred grand, all around.
And they're going to walk away from this with their pockets full of tax-payers' hard-earned money, Scot-free and no worries about prosecution or jail, lawsuits or judgements: All thanks to their good buddies on both sides of the aisle in that Super Duper Corporate Fudgie Factory known as Congress. Way to go, country-clubbers! Us caddies love ya for it. [doffs cap, pulls forelock submissively]
NBC NEWS- KHNL 8 HONOLULU
"Hawaii developers council discuss state of Hawaii real estate"
' The current state of the economy and cooling real estate market leave people who live here in the islands wondering about the market's future direction. Hawaii's real estate market is in a downward trend but experts say it's a normal part of the business cycle in Hawaii. In the next 18 months, tourism will be effected by the consolidation of airline routes which make it more difficult for visitors to make it to Hawaii. Joe Toy is the President of Hospitality Advisors. "We're definitely seeing a decline in occupancy our busy seasons are much more shallower and our off seasons will be much more steeper in terms of loss of occupancy," he said. Helping to cushion the loss of visitors, is less hotel rooms. Toy says over the past five years more have transferred to condos or timeshares. Because of the reduced demand for housing people aren't bidding so high, and sellers are concerned. '
"Housing fuels bankruptcies"
' Bankruptcies are on the rise in Hawaii, due mostly to a higher percentage of filings related to real estate problems. The number of statewide bankruptcies jumped 30.1 percent to 890 during the first six months of this year from last year, reflecting tougher economic times. The annual figure is likely to surpass last year's, when 1,381 bankruptcy filings were recorded. '
"Mortgage fraud unusually high in Isles"
' Lax lending standards and the high cost of housing caused an increase in mortgage fraud in Hawai'i during the past few years, outpacing the majority of Mainland markets dealing with similar schemes, according to the FBI. Beginning March 1, the FBI's Honolulu division opened more than a dozen investigations and identified more than 80 individuals and three schemes developed to defraud Hawai'i homeowners as part of a push to arrest and prosecute mortgage fraud purveyors. Officials said the number of investigations and individuals here is more than the FBI is seeing in comparable jurisdictions on the Mainland. "Greedy people looking to make an easy buck found Hawai'i's hot housing market to be a lucrative place to operate their scams," said Janet L. Kamerman, special agent in charge of the FBI's Honolulu division. "The mortgage fraud schemes we have thus far identified in Hawai'i are as diverse as the individuals and groups running them." The "fraudulent activities" of more than a dozen local mortgage brokerages are under investigation by the FBI and officials estimate losses from the schemes stretch into the millions of dollars. Officials declined to name the local brokerages. In Hawai'i, the FBI is looking at real-estate agents, mortgage bankers, home builders, attorneys, appraisers and buyers who "knowingly allow some frauds to occur so that they can purchase property," according to the U.S. attorney's office. Investigations are open and ongoing on O'ahu, the Big Island, Maui and Kaua'i. The indictment unsealed May 16 alleges that John Gilbert Mendoza, Antonio Alcantara Jr., Ira Altwegg, Albert A. Alimoot Jr. and Evan M. Koizumi illegally obtained more than $400,000 from lenders after securing mortgage loans under false pretenses. They have been charged with conspiracy to commit mail fraud, wire fraud and making false statements on loan applications. If convicted they face up to 20 years in prison. As detailed in the indictment, the scheme allegedly involved homebuyers, home sellers, loan officers and others working together to defraud lending institutions between April 5, 2004, and July 13, 2006. According to the indictment, buyers applied for loans they never intended to pay back, loan officers handled applications they knew were false and sellers knew proceeds from the sale would be obtained by fraud. "These are not the last defendants in Hawai'i who will be charged with these types of crimes," Kubo said. '.
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