Home Loan Scamming Is Still Going Strong -- and Now You're Paying for It
Everything the real estate industry tells you is a hustle. No industry is more geared toward pumping up the positive and burying anything remotely negative, leaving you -- and truth -- out in the cold.
The crash has not made real estate agents any more honest, but at least the gap between the industry's crazed optimism and stark reality has grown so obvious that even the real estate industry can't hide it anymore.
Nowhere is this more obvious than in Victorville, Calif., an exurb of Los Angeles situated in the high desert where housing bubbled up higher than just about anywhere at the peak of the subprime-lending craze and is still in free fall today.
These days, there are a lot of lies and broken dreams buried in the gravelly sand on which Victorville was built. During the last real estate boom, this barren wasteland was the mecca of low-income homeownership, proof that the American Dream was within reach of all.
Tract-home developers stripped away the rocks and tumbleweeds and Joshua trees, replacing them with mazes of curvy streets and cul de sacs with soothing names like Cottontail Drive, Steeplechase Road and Ladybird Lane, lining them with the cheapest McMansions in California. Things exploded out of control this past decade, with the population doubling to 100,000 in just eight years.
But that whole way of life is over now. Unemployment in Victorville is way above the national average, and violent crime has shot up. Homes prices have plunged to 1989 levels and many stand empty. Banks don't even bother to putting them on the market.
Yet, last week, the press started hyping up the supposed real estate sales-driven economic turnaround that was about to sweep the country. "Honk if You Think It's Over," read a June 7 New York Times headline. "The panic in the Manhattan real estate market of the winter of 2009 lifted in the last few weeks, brokers say, as more and more buyers and sellers have found the courage and the comfort level to sign on the dotted line."
The Washington Post went even further: "Economists, senior government officials and ordinary consumers are all showing greater confidence in the outlook for the economy. ... There are unquestionable signs of economic progress." ABC News went with a rhetorical structure: "Has the Recession Finally Ended? Strong Home Sales Are Just One Indicator That the Economy May Be on the Mend."
From where I sit, this reads like pure fiction. It runs contrary to virtually every economic piece of data available: rising unemployment, growing credit card debt, a massive shadow inventory of foreclosed homes and a wave of defaulting ARM and commercial loans that's just around the corner.
But there is something else, too. And it is as deadly to our vampiric debtor economy as a stake through the heart: the FHA loan. By guaranteeing certain mortgages, the Federal Housing Administration has been helping middle- and low-income Americans purchase their first homes ever since the 1930s.
But this modest leg-up program has been been hijacked and transformed into the new subprime-loan market operated by lenders who are as corrupt, predatory and shortsighted as the original, and maybe even more so. Because this time taxpayers have been put on the hook for the risk well in advance. Real-estate insiders have been sounding the alarm about this new shadow subprime mortgage market -- which is now almost $600 billion strong -- for months now. But instead of listening, Congress has been trying to expand the FHA loan program.
Not surprisingly, it seems that risk-free loans are the only way they banks can be persuaded to start lending again. But I wanted to find out firsthand how much of an impact these loans were having on the housing market. So last weekend, I shaved, put on a clean shirt and headed out for a day of shopping in Victorville.
Around here, it is much easier to shop for a brand new home than to find someone who will show you one of the many foreclosed ones. You don't need to make an appointment with a real estate agent, hunt down open houses on a Sunday afternoon or attend auctions. All you have to do is take a drive any day of the week during normal business hours and look out for the huge signs plastered around town. They are not easy to miss.
It took me five minutes to spot a new development on the very edge of Victorville's sprawl. The sign was dark green and advertised a development called "Braeburn at West Creek," with luxurious and spacious homes offered for around $200,000. The development had a quiet, upper-class suburb feel to it: new cars, landscaped lawns, no traffic and wide streets. Passing a group of kids playing basketball in the middle of one of the streets, I pulled up in front of the Braeburn sales office, built into the garage of a model two-story McMansion painted a trendy brown.
It was 3 p.m. on Saturday, prime house-hunting time. With all this buying activity the industry was reporting, I half-expected to run into other bargain shoppers like myself. But I was the only customer in the real estate office.
"Hello! Have you come to see the houses?" a chipper female voice yelped from a distant corner of the office. "Give me a second, I'll be right out." I couldn't get a visual on her. It was huge, this garage -- er, office -- big enough to hold three cars, easily the size of a decent apartment. Schematic drawings hung on the walls showing all the wonderful house configurations you could order.
That was when the voice appeared in human form: a blond middle-aged woman emerged from a corner office with a bundle of keys. Braeburn had three floor plans to choose from, she quickly started explaining. But I could only look at two of them. The third was still under construction. But if I wanted to, I could drive around and look at it: "It is quite far along in the building process."
The homes were all quite similar: all three had two floors, four to five bedrooms and range of 2,454 to 2,765 square feet. All of them had what's called a "great room," something you see in new home developments that combines the kitchen, living and dining rooms into one great open space.
"We have sold 105 homes so far, and I have about 30 homes left," the agent said, whipping out a photocopy list of Braeburn's homes, complete with lot numbers. "Right now we are headed into this cul de sac. This is our last cul de sac." The rest of the homes would be built on mere streets. She circled homes numbered 85 through 98 surrounding a dead end street called Window Rock Court.
"This is a nice neighborhood. I have a few foreclosures in here, but if you drive 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 homeownership. 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.
