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Banking Porn / eXiled Alert! / June 16, 2009

Cops and Prison Guards Call This Home

“This is a nice neighborhood. I have a few foreclosures in here, but if you drive around the neighborhood and ask the people, they’ll tell you how they like it here. And how they are real comfortable. I got some correctional officers here, LAPD, teachers from the school.”

Jesus, I thought. What a neighborhood. Prison guards, cops and their school-teacher wives. All die-hard small-government Republicans, no doubt. And all in government employ. The last gainfully employed people in this country, and they’re always talking shit about their employer, Big Government.

“But go look at the houses for yourself first. We can talk about it when you go back.”

The model homes were fully furnished, and looked like they came out of a Martha Stewart magazine with a theme of “the antique and modern in harmony.” I had to hand it to them, it worked. It felt like home, as long as you didn’t look out of the master bedroom window. The mini-highway and a barren desert wasteland dotted with high-voltage power lines squashed that comfort feeling.

These houses were clearly a step up from the entry-level McMansion I lived in just a few blocks away. But were they worth the extra $100,000 that you could be saving if you tried to get one of few foreclosed properties that are on the market? The sales lady assured me they were, and besides I’d never get a house for that price in Victorville.

“I have a lot of people coming in here that have been bidding on foreclosures until they are sick of it. They bid and they bid and they bid, and 20 other people are bidding, too. You throw a number out, and you never get anywhere. So they say ‘I want my tax credit. I want my new home. I’m gonna pick my own carpet. I know it’s under 10-year structural warranty and two-year cosmetic warranty.’ ”

Are the news reports about the increase in home sales true, I asked. She nodded. “I’ve been here for three years. Last year was really slow going, but this year has been really good. I’ve had four sales last month, three sales the month before that. First-time home buyers, that’s what I’m getting. People are like, ‘prices are down, the rates are low … time for me to get a house.’ So why not? People are not afraid of getting into home ownership. So that’s a good sign, right?”

Of course, I nodded. Great for the economy. Great for Victorville. But the longer we talked, the more obvious it was FHA loans were at the core of a real estate scam of frightening proportions that was reinflating the real estate bubble with taxpayers’ money, all in the name of economic recovery.

“Oh yes, we work with a lender. All you have to do is come in and let me worry about the paperwork. Right now you’ll probably be able to get a 5 percent interest loan, which is good. And credit history is not much of a problem. We are doing just FHA loans, so we don’t even go by a FICO score. If you haven’t been late in the last 12 months on anything, you are eligible. People get in here with credit scores of 580s and 600s, but they’ve been on their job for 15 years, and they got a good history. The FHAs, that’s what’s helping out the first-time home buyers.”

The FHA was helping the developers out, too. Even with boosts like the new accounting rules that allow banks to keep existing homes off the market (which boosts banks’ assets and inflates home values by limiting supply) and taxpayer-funded cash perks for purchases of newly constructed homes, it could only work with zero-risk loans. No bank would consider giving a loan on obviously overpriced homes these days, especially with people with borderline bad credit. But thanks to the FHA, lenders literally cannot lose on these high-risk customers. So they are happy to hand out loans to all comers. In fact, places like Braeburn only sell to people who qualify for an FHA-backed mortgage: first-time home buyers. Fact is, FHA loans were the only reason places like Braeburn were still open for business. And that may not be such a good thing.

FHA loans have been around since the Great Depression, helping working-class Americans buy their first homes by providing government insurance that guarantees certain types of loans at no risk to the lender. Until recently, they have been largely a force for good. During the civil rights movement, for example, FHA loans were retooled to help African Americans purchase homes. But like most public programs designed to help the American people, the FHA has been hijacked by big business — in this case, the banking and real estate industries.

It was really a coup d’état for everyone involved. When the subprime market collapsed, President George W. Bush pushed Congress to heavily expand the the FHA loan program, increasing its budget, lowering entry requirements for both lenders and debtors. Eventually, our elected officials even took care of the bothersome 3.5 percent down payment requirement for the loan with all sorts of free cash.

Right now, the FHA is in essence giving out no-money-down loans to anyone who doesn’t already own a house, regardless of credit history. In California, first-time homebuyers purchasing a freshly built home receive instant cash in the form of a tax credit: $8,000 from the feds (soon to be increased to $16,000) and $10,000 from the state. Local governments are also throwing in some goodies.

“I have some some money from the school facility fees that I can get. Like you need 3.5 percent down, but I can get you about $4,000 of that from down-payment sources. That just came back. It was gone but it’s back,” said the sales lady at Braeburn, lowering her voice just a bit that made it seem this was some sort of racket. “And we pay the $10,000 closing costs for you, as well. It’s a win-win situation.”

Win-win, indeed. If you bought Braeburn’s largest home at base price, you’d pay nothing up front and have more than $5,000 left over for some new furniture, a 40-inch LCD TV and a weekend trip to Disneyland.

Homeowners have never been offered a better deal, but many won’t hold on to their purchases for very long. It is common real estate industry knowledge that the less a buyer puts on a down payment, the more likely that buyer is to default. But no one seems to care, not the banks and not our government. In fact, Connecticut Sen. Chris Dodd, a hardworking bank-shilling Democrat, has been pushing to increase access to FHA by making them available anyone, and not just first-time homeowners. He also wants to push the new-home federal tax credit to $15,000.

Under the guise of helping economic recovery, the bill is really a multidimentional wealth transfer, funding bank profits with taxpayer money while cutting taxes (tax credit is just another way of reducing tax revenue). This plan has received wide support.

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17 Comments

Add your own

  • 1. Scott Brown  |  June 16th, 2009 at 8:24 am

    Great story, it seems as just more dithering as we move closer to financial collapse. The next step is when millions of homeowners just decide to not make another payment, even if they can afford to.
    The politicians just have to keep lying to us and encouraging everyone to get up early, work a little harder and everything will be all right, since they won’t do anything that can make a real difference to anyone other than their buddies.
    This isn’t a recession or even a depression, this is a national disaster.
    This is a Category 5 economic storm.
    The dikes have broken, the Super Dome is overflowing, people are without food and water–people are desperate and government is doing a GWB style “fly-over” at 40,000 feet.
    We need to keep people in their homes, declare a moratorium on foreclosures, and stop singing in the glee club with all Washington DC’s Wall Street cronies.
    The FHA program is just another phony attempt to send the message that “we have a plan and we are rolling it out,” when in fact the “fly-bye” is the plan.

  • 2. rick  |  June 16th, 2009 at 2:11 pm

    Fuck. I didn’t know about this. Good scoop. It’s the monopoly money phantom-bloat home prices that fundamentally caused the crisis and bailouts, isn’t it? The money never existed. Home-buyers are quanitatively-retarded Americans. The housing bubble has to be allowed to implode.

    http://bit.ly/3Tv7KX

    According to Taleb, nearly all economic “experts” are utterly full of shit incompetents. He’s not even political about it, which I respect. He’s a convincing guy, too. We live in interesting times!

  • 3. az  |  June 16th, 2009 at 2:15 pm

    Something to think about when reading things like http://news.bbc.co.uk/2/hi/business/8104066.stm haha.

  • 4. Expat in BY  |  June 16th, 2009 at 2:49 pm

    So if I got it correct, this is what the Consumer Financial Protection Agency is supposed to protect against, and the CFPA is going to come up way late and way short of the mark.

    Probably stating the obvious here, but on the consumer end, it seems like if you didn’t really care about their credit history (or the effect on the overall economy), you could “buy” a home beyond your means, live in it awhile, and then walk away from it when the bills started to get overwhelming.

    I think I’ll stay overseas…

  • 5. Homer Erotic  |  June 16th, 2009 at 3:40 pm

    So where exactly is the State of California getting the money to fund this madness? Aren’t they on the verge of budget collapse?

  • 6. Tommy Strange  |  June 16th, 2009 at 7:43 pm

    Yasha, the overall article was great. It’s an engaging first person educated look at how ‘the experts’ are pushing us to a depression even faster. I just have two problems with what may seem minor points. Though the first is very important, and an example of the lack of education , (economic, class, and racial) that so many americans need. Please consider my post….

    “FHA loans have been around since the Great Depression, helping working-class Americans buy their first homes by providing government insurance that guarantees certain types of loans at no risk to the lender. Until recently, they have been largely a force for good. During the civil rights movement, for example, FHA loans were retooled to help African Americans purchase homes. But like most public programs designed to help the American people, the FHA has been hijacked by big business — in this case, the banking and real estate industries. ”
    Actually the FHA, though on the surface sounds like a good program since the depression, preceded by HOLC, was actually a gov’t funded white only(99%) exodus from the cities and a resultant defunding of the cities via lost tax base and to make a white working class feeling ‘middle class’ who would never then vote for rebuilding cities, and the precursor to the housing bubble we have now. The environmental aspects of such foolish funding I won’t go into to. But FHA loans from FDR up until the late 60’s were predicated on suburban development almost exclusively to not only benefit corporations that were rightfully fearful (from their perspective of unions finally allowing blacks in), in the cities,and huge real estate developers benefiting from highway construction. The FHA from the beginning has been FOR the banking and FIRE sector. Blacks and Jews were not allowed these loans. It was not a conspiracy. It was very upfront. There were rates of A to D of every urban area in the country made under FDR…and this continued up into the 60’s. IF you wanted to re do your ‘urban house’, or ‘move up’ across the street, but had blacks on your block, no loan…UNLESS you would move to a suburb.And lets repeat. Black families did not get these loans until the late 60’s. That’s 25 years of white only suburbanization, with the concomitant union racism, housing segregation and political and economic disenfranchisement that existed.
    If you actually wanted to stay in an urban area, and you were white, but ONE black and ONE jewish family lived there , you get a low rating and have to move to the suburbs for a loan.If you read the commits of politicians during these times, you will see it was a very stated tactic to segregate people of color and give whites wealth, and a stake in siding with increased segregated class and race real estate development.Mike Davis portrays this in two of his best books.

    this is well documented in many urban studies texts, and on many blogs, and in many articles. Two essential books, even used in many university courses are “Crabgrass Frontier” by jackson and “Urban Crisis: Postwar Detroit” by sugree.

    The other comment you made , is a minor bug up my butt…
    “The second contraction will come, and when it does, it’ll be bigger and badder than ever. And the government bailout will come straight out of our pensions and health care.”

    You must be upper middle class to make such a statement. Not that is a bad thing. Certainly looking at your humanist writing wouldn’t make me think so. But the bottom half of this country does not have pensions(!) nor much health care. Think about that. You wrote about worrying about pensions in an article attacking the investment class, when half the population in the richest country in the world does not even know what the fuck a pension even is. The boot is hitting the working class hard already.Even in ‘progressive’ San Francisco, thousands of nurses and social workers and etc have been cut, while they increase regressive taxes. Near 6,000 needy and addicts may lose support in one clinic alone.And as hundreds of thousands of foreclosed unemployed come into the cities for help? The same people that thought they were so special living in cul de sacs and suburban homes, that voted for more prisons, more tax cutting, more FHA type morgtage subsidizing while manufacturing was outsourced?
    I am hardly worrying about your pensions.

    good article though. Please reply. i am putting out a free newspaper in SF and will except part of your article.
    A dialogue would be great.

  • 7. Tommy Strange  |  June 16th, 2009 at 7:57 pm

    “except part of your article”.

    sorry I mean ‘excerpt’. I meant quote. cuz it is a great article!!!!

  • 8. mmmm  |  June 17th, 2009 at 12:04 am

    Wow, I really wish there was some way to divorce middle and lower-income Americans from their ubiquitous homer-ownership fetish.

    Get people into largish, even luxurious apartments/flats and get the requisite car ownership out of the equation (they do rent those things, you know) and all of a sudden, people aren’t so cash poor anymore…

    …but I understand this is a batshit, lunatic fringe position. We’re just going to have to meekly accept and brace for the next big contraction, because simply stepping out of the way would be *crazy*! I mean, honestly, no house? Our broke-ass friends would all laugh at us! Mommy and daddy would disapprove!

  • 9. Mark  |  June 17th, 2009 at 5:07 am

    Yeah, middle class people have an unkillable house fetish. When I hung around with upper-middle class people, I was under no pressure to own a house. They were always doing things outside their houses. Then when I got my middle-class girlfriend, it was house house house house house….

  • 10. az  |  June 17th, 2009 at 7:56 am

    @8: That’s what those on the so called ‘loony left’ apparently want to do. I remember reading a Freeper discussion of how Tysons Corner in Northern VA is going to be turned into a mixed-use area instead of being an enormous parking lot the government can’t afford anymore and that apparently what is actually going on is that the liberals want to put everyone into cattle cars to live in ghettoes. Otherwise read Tommy’s comment.

  • 11. Chris  |  June 17th, 2009 at 11:53 am

    That’s great Yasha.

    BTW, where the fuck is War Nerd on Iran?

    I’m pissed and I’m like Francis Bacon: I would like to suck his cock.

  • 12. Simon  |  June 17th, 2009 at 3:38 pm

    To pay off the existing debt, new debtors have to be found, that is the way the money and banking system works. Problem is we have run out of new people prepared to take on more debt and existing debtors have had enough. Time to create debt free money, not allow the banks to create yet more debt money.

  • 13. az  |  June 18th, 2009 at 12:54 pm

    Simon: This has happened since before capitalism even existed and money was just a weight of precious metal. People work for a wage, need money before they get the wage, spend it, get the wage, repay the debt with interest, take out another debt as they have no money again, etc. The lender-debtor employment system eventually collapsed because the debtors were financially ruined and could no longer afford to buy the goods they made for the lender, from the lender. This led to the systems of slavery we know of so well in the age of antiquity. What’s different today is that slavery and serfdom are outdated systems and while employment is the latest and most efficient one, it has also befallen the fate of falling profits and the introduction of credit to make up for that. Except credit is tied to capital both when it is given out and when it’s spent.

  • 14. az  |  June 18th, 2009 at 12:55 pm

    Or just read the chapters on money and banking in Capital by Marx, it’s all right there.

  • 15. Dammerung  |  June 18th, 2009 at 6:51 pm

    Yasha Levine for Secretary of the Treasury and Peter Schiff for Chairman of the Federal Reserve. The government is killing the goose that laid the golden egg – US! THE TAXPAYERS!

  • 16. Frank McG  |  June 25th, 2009 at 3:17 am

    I think I need to go watch Glengarry Glenn Ross again.

  • 17. Mike Gogulski  |  July 19th, 2009 at 11:58 am

    Nothing surprises me anymore.

    America, fuck yeah (faceplant in peanuts and beer detritus on bar)


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