I ignore journalists, analysts and talking heads and rely on people with decades of experience in the real estate bidness.
If more people had remembered "respect your elders" during the stock bubble fewer would have gotten trashed when the naz de-bubbled. I'll take the opinion of an 80 year old over that of a 25 year old hotshot anyday of the week.
Here's some scary thoughts:
Foreclosure scams
By Jay MacDonald • Bankrate.com
You see the DayGlo signs everywhere these days: We buy houses! Cash for your home! Fast refi now!
Chances are, you mentally filed these come-ons under good old-fashioned American entrepreneurship in action. Maybe you even think kindly toward companies that would offer a hand to debt-ridden homeowners on the brink of foreclosure.
Fat chance. The majority of these so-called foreclosure "rescuers" are actually sleazy predators who offer sinking homeowners what Harvard Law School professor and bankruptcy expert Elizabeth Warren calls "the cement life jacket."
Before you're even aware of it, these scam artists will have acquired your home for a fraction of what it would have brought at sale. Or, in an even worse scenario, they will have transferred your title into a trust that then enables them to rent or "resell" your property to equally hoodwinked buyers while, to your surprise, you remain legally obligated to make the mortgage payments!
Foreclosure "rescue" scams are nothing new. What is new is the historic convergence of economic and political forces that Warren says may soon bring about a home-equity version of the stock market crash of 1929. She blames loose credit, lending deregulation and a Fed-supported campaign encouraging Americans to tap their home equity for bringing us to the precipice.
"In 1929, you could borrow money to buy stock, and then use that stock to buy more stock. At that point, the stock market became overinflated and it crashed," she says. "Much of the same thing is going on now, only instead of stocks, it's home equity."
Take a closer look at these foreclosure "rescuers" and you'll soon see those DayGlo come-ons for what they really are: warning signs of the bubble burst to come.
What the sharks smell
Like sharks and blood, scam artists always smell money. And in America, we've been pouring our money into our homes since the tech-stock collapse gave us a renewed awareness of our risk tolerance. Homes were safe. Homes were real. And, partly fueled by this renewed demand, real estate suddenly became the investment of choice for stock-weary working folks, making them vulnerable to scams and scam artists.
Financial institutions capitalized on the sea change by loosening credit. You can buy a home, maybe two! Can you really afford not to? And, just so you can continue to live the lifestyle you've become accustomed to, they offered an unprecedented number of ways to strip that equity through lines of credit, home equity loans and cash-out refis. The Fed cooperated by keeping interest rates at historic lows.
Our homes suddenly started to look like, well, stocks -- with one big catch.
"All you're doing when you take out a second mortgage on your house is borrowing more money," says Warren. "If you take out equity, it isn't like selling off part of your stock portfolio. You can't sell off two of your bedrooms. You can't say, 'Boy, this market is at its peak, let's sell the backyard.'"
Welcome to what Warren calls "the middle-class squeeze." Rising costs of health care, housing and education, combined with increased job uncertainty, income volatility and eroding salary levels, have placed America's piggy banks -- its homes -- at a financial risk like never before.
According to Warren, the overinflated real estate bubble is not only "unmistakable," but when it bursts, its effects are going to be widespread. Remember Econ 101: When supply exceeds demand, prices plummet.
"A quarter of all homes now are owned by investors," she says. "We are seeing those investors pull out of the home market, and no market can sustain losing 25 percent of its participants."
The perfect storm
Steve Tripoli hears the not-so-distant thunder, too. As consumer fraud investigator for the National Consumer Law Center in Boston, Tripoli interviewed numerous state attorneys general and legal aid staffers for the NCLC's June 2005 report, "Dreams Foreclosed: The Rampant Theft of Americans' Homes through Equity-Stripping Foreclosure 'Rescue' Scams."
Tripoli found that foreclosure "rescue" scams fall into three main categories:
* Phantom help: The "rescuer" charges outrageous fees for light-duty phone calls or paperwork that the homeowner could easily do, none of which results in saving the home. This predatory scam gives homeowners a false sense of hope and prevents them from seeking qualified help.
* The bailout: In this scam, the homeowner is deceived into signing over title with the belief that he will be able to remain in the house as a renter and eventually buy it back over time. The terms of these scams are so onerous that the buy-back becomes impossible, the homeowner loses possession, and the "rescuer" walks off with most or all of the equity.
* The bait-and-switch: In this scam, the homeowners think they are signing documents to bring the mortgage current, but instead actually surrender their ownership. They usually don't even know they've been scammed until they're evicted.
"Rescuers" often place ownership of the property into a trust in the owner's name in order to avoid the "due-on-sale" clause in most mortgage contracts. They then transfer ownership through the trust to themselves or to a front operation. In these instances, the mortgage company is unaware that anything is amiss; the homeowner, however, is frequently left on the hook to pay the mortgage on a house she no longer owns.
Why do homeowners fall for these scams? Tripoli blames both the failure of lenders to adequately spell out the foreclosure terms, time frame and owners' rights, and the hesitancy of homeowners facing foreclosure to talk about it. That silence you hear is the deafening silence of shame.
"The consumer makes rushed judgments that are not good judgments. They get entangled in this and they think that what happened to them is just the way it works," he says. "Americans have the really admirable quality that they want to take responsibility for their own lives. They are too willing to take too much responsibility at times and take too much of the blame."
Unfortunately, help is becoming harder to find. Even if someone in foreclosure could afford to hire an attorney, fewer and fewer lawyers are inclined to take cases against scammers because the prospect of ever collecting a court award is extremely slim.
Daniel Ebihara, staff attorney for Clark County Legal Services in Las Vegas, helps foreclosure-scam victims by tapping into a network of real estate attorneys who volunteer their time to help. He recently won a trial on behalf of a young couple that thought they had sold their home to fend off foreclosure, until they went to buy a car and found that the 30-year mortgage was still theirs.
Sometimes scammers are far from strangers.
"This doesn't just happen with 'rescue' companies," Ebihara says. "We also see the elderly being taken advantage of by their own children, where they come in and say, 'We'll help you out. Just put us on the mortgage and we'll take care of you for the rest of your life.' As soon as the papers are signed, the kids are kicking their own parents out on the street. It's horrible."
With fewer places to turn, more homeowners are falling prey to the wolves that are literally at their door.
Tripoli agrees: "When you marry deregulation and the erosion of consumer protection to what's going on with consumer debt today, when you put consumers in this crunch and then you strip all their protection, you get a perfect storm. It's not a huge, huge number of Americans, it's not a majority, but it's a much bigger number than we've seen in the past."
Shelter from the storm
With credit tightening up, what should you do if foreclosure seems imminent?
Warren says if there is time, by all means refinance out of your zero-interest or adjustable-rate mortgage into a fixed-rate mortgage. "Even if it costs a little more, there will be a point in the future when you will thank every lucky star you have that you did it," she says.
If you've received a foreclosure notice, contrary to what the scammers would have you believe, contact your mortgage company first. There are many remedies available, including renegotiating the terms of your mortgage, that can save your home or failing that, allow you to walk away with most of your equity.
If you can't refinance, renegotiate or sell quickly, it may make sense to look at filing for bankruptcy.
"You're looking at a population that fears or loathes bankruptcy, and understandably. But it may be a more reasonable option instead of carrying on and maintaining a debt that you may still be obligated to pay," says Ebihara.
Benjamin Diehl, deputy attorney general for the state of California, admits that even his state's anti-foreclosure scam statute, the toughest in the nation, struggles, for want of enforcement.
"You could impose additional licensing fees, but if it's a crook, they're just going to operate without a license," he says. "What it's going to take is not necessarily extra regulatory hurdles or extra licensing requirements, but crackdowns."
Like Warren, Diehl is worried. He's seen the foreclosure scam being taught in get-rich-quick seminars from coast to coast while credit slowly tightens, putting additional pressure on those in the squeeze.
"I'm actually kind of scared because, if the supposed bubble is, in fact, a bubble and it does burst to where you have a bunch of people with their ARMs and their interest-only loan and no ability to refi, and those loans go into foreclosure, the thieves will come out of the woodwork. If it is a bubble and the interest-only loans come back to bite people, it's only just begun," says Diehl.
Warren is just as pessimistic: "It's like watching a train wreck in slow motion."
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