60 Minutes Has No Clothes

I ran into a former coach of mine at the gym this morning.  He was a mentor of sorts to me and had a big impact on my life during my formative years.  He knows that I am involved with the real estate and mortgage industry and brought up the 60 Minutes piece that aired last night.  Now I make a dutiful habit of not watching this program, as I find that most of their stories contain what you might call a “slant” to them.  But because this man, whom I respect, had watched it and found it disheartening I thought I would check it out.  Herewith, comments on the king of News Magazines… from the peanut gallery:

The story was called “House of Cards” and it was hosted by Steve Kroft – a nice enough man.  His report was definitely more balanced than I had expected and a lot more balanced than I am used to seeing in the mainstream media.  I do wish, however, I could be there to interject some questions when they create these vignettes.  It starts off with the standard bit about lenders making terrible loans and greedy Wall Street investors buying them up and implies that this whole debacle has been “done to us”, but by now I am used to hearing such pablum.  They introduce the main area of the story’s interest as Stockton, CA, which became extremely popular for people that were priced out of the Bay Area and Silicone Valley.  Of course, this leads me to wonder how much worse it must be in those two areas if Stockton was hit so hard.  This is not addressed and I doubt the answer would have fit neatly with the show’s point.  We then hear that half of the homes in foreclosure received sub-prime loans and this is blamed on the ludicrously lax lending standards at the time.  Again, I am led to ask just how ludicrous they were since the other half of foreclosures were apparently made by the more stringently underwritten lenders rather than the bad, bad sub-prime people.  I guess that is information for another story.  Mr. Kroft went on to cover the same, tired explanations:

• ‘Stated income loans were out of control’. – Yes, stated income may be the leading cause of the problem, but not because lenders just accepted any number you wrote down.  Most lenders independently checked stated income against accepted averages within the borrowers’ industry – using such sites as salary.com – and many stated income loans were denied because the income was not reasonable.  The reason stated income loans are the leading cause of the current mess is because borrowers LIED about their personal income while keeping the numbers within reasonable limits.  You can lie to the lender all you like, but you can only lie to yourself for so long.
• Lenders “didn’t keep their dicey loans” in their own portfolios but rather sold them off to Wall Street. – This implies some type of nefarious intent when in fact this is how the vast majority of loans are made.  If the loan was not sold to Wall St, there would be no further cash to make new loans.
• Best explanation of all: these purchases were predicated on home values going up, which they did for a long time but then the bubble burst. – So in effect the people getting hurt are generally the “last in”.  This is not unique to real estate.  Any investment will eventually drop in its cyclical journey.  On Wall St. there is a saying: “the market moves to hurt the most people.”  Which is the contrarian way of saying that by definition the market must move and it must move away from the most pressure.  So also by definition the last in will be the ones that are hurt.  Many before them, however, made out just fine on their investment.  Is the implication of this line of reasoning that no one should ride the wave when an investment is increasing in value?  Do not jump in because someone has to be the last aboard?  That type of thinking would cost a lot more money in lost potential gains than is being lost to foreclosure in my opinion
• One last note: Mr. Kroft was careful to point out that there are currently 4200 homes in foreclosure in Stockton, but gave us no frame of reference with which to understand this.  To wit: how many homes are there in Stockton?  In San Diego, for instance, the number of foreclosures is .006 of the entire housing stock (that is 6/10 of 1%).  While depressing to those going through it, certainly not a staggering number on the community as a whole.

There were other aspects of the story and it was more balanced than I may be alluding to here, but my point remains the same.  When your clients see this type of report, Realtors have an absolute obligation to question it and look between the lines.  The job of the Realtor is to advise their clients on all aspects of the real estate market and sometimes that means crying out “The emperor has no clothes.”

Filed under: LENDERS, POLITICAL & ECONOMIC FOLLY, REALTORS , foreclosures, press, REALTORS