Speculators May Have Accelerated Housing Downturn

Wall Street Journal ^ | February 6, 2008 | Ruth Simon and Michael Corkery

[reaganaut1]

As lenders pore over their defaulted mortgages, they are learning that the number of people who bought homes as investments is much greater than previously believed.

Such borrowers turn up frequently in analyses of loans that defaulted within months after origination. In many cases, these speculators lied on loan applications, saying they intended to live in the homes in order to obtain more favorable loan terms or failed to provide the requested information.

Roughly 20% of mortgage fraud involved "occupancy fraud," or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, Calif. Another study, by Fitch Ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.

Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

The high number of hidden speculators helps explain some of the problems roiling the housing and mortgage markets. The loans backing these speculator purchases turned out to be riskier than ratings agencies and investors who bought mortgage-backed securities once thought. Investors tend to be more likely than borrowers who live in the homes to walk away from their purchases when home prices fall. "We couldn't understand what was driving so many borrowers to default so early in the life of their mortgage," said Glenn Costello, a managing director at Fitch.

[reaganaut1]

These are some of the people that Hillary Clinton's foreclosure moratorium will subsidize. Politicians will focus on misdeeds of lenders and builders, and certainly there were some, but the deceit practiced by many home-buyers should not be ignored.

[Moonman62]

Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

Sounds like a lot of guessing to me. Speculators are easy to blame. They are almost universally hated, and I find are usually used as scapegoats by the lazy or by people who want to deflect blame from themselves.

[GOP Poet]

Living in LA this does not surprise me in the least. It seemed most homes down here were being snatched up by flippers and investers and then investors would buy the flipped home, wait a few months or a year and list again with no changes for a higher price. Often getting it during the peak and then after the peak it was still flooded by the same sort of phenomenon. This added to the already sky rocketing pricing, driving the prices sky, sky, sky high prices into the stratesphere in many neighborhoods in West LA and other prime locations. Crazy.

[Notary Sojac]

"Subprime is contained"

It's the government forcing loaning to blacks & hispanics

Fill in the next delusion here ________________________________

[Oberon]

Speculators May Have Accelerated Housing Downturn

No!

Ya think?!?

[GOP Poet]

I don't hate speculators. In fact if they can make a profit good for them. I especially like it when they take an outdated home and update it and sell it, as the future home buyer doesn't have to do a thing other then move in (especially if they have done their due diligence).

However when the government starts handing out money to people for their failed business ventures we are talking NFW--translation--No F---ing Way.

[DancesWithBolsheviks]

“They are almost universally hated...”
I don’t hate them and haven’t heard of anyone who does. I do dislike speculators or anyone else who is whining for a taxpayer bailout, and I don’t care for journalists who write sob stories about them.

[denydenydeny]

In other news, scientists have shown that bears do fertilize the woods.

[jiggyboy]

These are some of the people that Hillary Clinton's foreclosure moratorium will subsidize

GWB is on the bailout bandwagon too, don't forget. If you're anywhere in the ballpark of considering a house for $700K, you don't deserve any government help whatsoever.

Buying a $700K house in Silicon Valley via the archaic (i.e. prudent) standards of ten years ago -- 20% down, a 7% 30-year mortgage of $560K, would be a $3725 mortgage payment, $700 for property taxes, and let's say $150 for fire insurance.

That's a monthly payment of $4575. If that's 33% of your monthly salary, you're making $13863 per month or $166,000 per year. Oh, and you have $140K in the bank for the down payment, remember?

[GOP Poet]

Ya double think??!!??

[dfwgator]

[Nascar Dad]

I hope all of these speculators end up financially destroyed.

[Oberon]

The funny thing is, anybody who bought a home on an interest-only mortgage with a five-year balloon payment, counting on the market to make up the difference with equity... that person is a speculator, whether they live in the house or not.

[Ditto]

Speculators May Have Accelerated Housing Downturn

Who has the Capitan Obvious graphic?

When a few years ago you start seeing 'Flip this House" TV shows and endless advertisements for Real Estate Riches, it does not take a Harvard MBA to predict first the bubble followed by the inevitable crash.

[tcrlaf]

MAY HAVE?

Gee...
Who’da thunk it?

I’ve seen articles stating that MORTGAGE FRAUD is as high as 40% in some inner-cities.

Remember when Jesse Jackson said NOT giving a mortgage to an unqualified minority was racist?

[Notary Sojac]

Speculators in gold, classic cars, baseball cards or Beanie Babies are not likely to cause anyone's enmity.

Speculators in those things that Joe and Jane Sixpack have to pay for from disposable income - gasoline and starter homes - are liable to find themselves facing tar and feathers (or worse) when things get seriously tight.

Not saying that's right or wrong. Just saying that it's so.

[I still care]

I think a lot of it was driven by those DIY type shows like “Flip this House” and “Property Ladder”. I am a homeschooler with a lot of friends who just don’t have deep pockets. I knew SO many people who were flipping houses to try and give themselves that chance to get that one financial win.

I kept telling them, flipping houses is for people who have cash for a disaster. You never know what is down the road in a house, or what will happen to crash the market.

My dad made his cash in real estate, but he wasn’t a flipper - he bought and rented - but it’s not the easy, fun, exciting job that’s pictured on TV. It’s very hard and very stressful. I mean, the person that bought my last house (and lost his shirt) was an assistant manager at a drug store.

[Moonman62]

I especially like it when they take an outdated home and update it and sell it,

I don't think that counts as speculation. I would file that as a short term investment.

[Night Hides Not]

Thanks, gator...not much speculatin' goin' on here in Valley Ranch. My home's market value has appreciated a grand total of 10% over the past five years.

I figure the MV will start rising when the Cowboys win a playoff game.

[whd23]

I don't hate speculators. In fact if they can make a profit good for them. I especially like it when they take an outdated home and update it and sell it, as the future home buyer doesn't have to do a thing other then move in (especially if they have done their due diligence).

I don't know if there is an "official" definition, but a speculator just buys a house and hopes that they can sell it for a higher price w/o doing anything to the property. A "flipper" is somebody who buys a house and renovates/updates the property and hopes to sell it for more than their costs.