patrick.net

The latest being the tried and true 30% of gross going to shelter expenses.

I thought that number was 28%. But I guess stretching to 30% will not hurt too much.

Jimbo has been saying a whle lot of things that have no basis. The latest being the tried and true 30% of gross going to shelter expenses. Saying something doesn’t obviate CENTURIES of sound economic practice.

Oh, pshaw. I will be nice and not make too much fun of you for this Robert. Do you honestly believe that people have been following this little bit of "wisdom" for CENTURIES? Do you think the settlers, with their sod homes and subsistance farming, followed it? Do you think people worldwide follow it?

Seriously, it has got to be a mid to late 20th century invention. People have always paid whatever they had to, to survive, with food and clothing coming first and then shelter right behind.

Now that I think about it, I am kind of curious where it came from and how it came to become recieved wisdom.

Does anyone know for sure?

Sure Peter, if you make billions, you probably can't spend 30% of it on housing. And the poor probably spend the most, since even crappy housing costs half of your income if you are poor.

But you see my point, right? If you make 200k a year, you can spend half on housing and still have 100k to live off of, but if you make 100k a year, your standard of living is going to be lower than the guy making 2X your income, no matter how much you spend on housing.

All else being equal of course.

Isn't Wells Fargo a little late to the party? As someone who banks at Wells Fargo, I am not happy about this decision either. But as a practical matter, what difference will it make? How much subprime lending is there going to be in the next few years?

And there are limits even to subprime lending. I mean, an illegal alien might be able to get a $300,000 mortgage to buy a house in Compton, but they're not going to be able to get $1.3mm to buy a place in Malibu. Even in the subprime market, affordability is still an issue.

Next, the RE market has peaked (and is crashing in the rest of the country) despite the wide availability of subprime loans. Wells Fargo didn't offer them, but everyone else did -- Washington Mutual, New Century, Quicken, your local sleazy mortgage broker, etc., etc. I cannot see how Wells Fargo's decision to enter the market will change things in the least. There are already hundreds of subprime lenders, the fact that Wells Fargo has become lender #383 to enter the market should not make any real difference.

Also, I would wager that most of the fools willing to take out these loans already have them. There can't be a huge, untapped pool of borrowers out there, except maybe for financially naive people just graduating from college and a few would-be flippers who are late to the party. But most of your seriously irresponsible or greedy people are already in the game. They have been subjected to a barrage of marketing for the past four years; I doubt that there are many left for Wells Fargo to choose from.

Finally, fraud is driving a lot of the subprime market. If I were Wells Fargo, I might be willing to make I/O loans and payment-option ARM's, especially if I was going to sell them to someone else after I originated them. But I don't know that I'd be willing to accept a mortgage applicaiton from a Del Taco assistant manager which states an annual income of $150,000 per year. While banks have made plenty of stupid financial decisions in the past, major institutions like Wells Fargo really aren't crazy, and they really do have lending standards. And even if Wells Fargo was willing to roll the dice, they'd still have to face audits by the FDIC and Comptroller of the Currency. Wilful blindness to mortgage fraud might be acceptable for Joe's Mortage Shop, but I can't see Wells Fargo doing this.

Actually the linked article contains some hints about what Wells Fargo's true intentions may be:

"We see a huge opportunity for Wells Fargo to play in that segment in a a very fair and responsible way," Cara Heiden, a co-head of Wells Fargo Home Mortgage, told American Banker.

In other words, Wells is telegraphing the fact that they aren't going to participate in mortgage fraud.

"Last week the San Francisco bank (NYSE: WFC) introduced a "Steps to Success" package of education, tools and banking services to help borrowers with less-than-perfect credit to improve their finances

The move is likely to address criticism the bank has received from community activists about allegations of predatory lending. Wells CEO Dick Kovacevich has said on many occasions that the bank does not engage in predatory lending.

In other words, community activitists have accused Wells-Fargo of ALREADY making suicide loans (I/O, ARM) to minorities. The "education program" Wells Fargo is instituting is designed to insulate them from such charges in the future.

"The big question is how do you ensure you're originating the product for that consumer who can, in fact, manage the credit?" she said.

This is another pretty clear statement by Wells; they aren't going to give option ARM's to just anyone, they are a legitimate bank.

In addition to reaching out to immigrant and minority communities

More response to activist pressure.

the bank is also generating a "significant amount" of Home Mortgage Asset Management Accounts, which is a first mortgage that can be drawn and repaid like a line of credit. Heiden said the bank isn't marketing the account as a way to reduce interest costs by having a borrower's cash flow temporarily reduce the mortgage balance.

This is a relatively benign product. Although I personally would not be interested in it, it's not as bad as an option-ARM or IO loan.

driller Says:
you know what…I’m gonna go out and get some nasty ass loan and live it up in a mansion for 5 years and walk away when the whole thing blows up.

sounds like a guy who started a ponzi scheme of sorts between Oz, NZ and HK -- he convinced a pile of wealthy friends that he could make 20% a year for them investing in racing racehorses and other unspecified gambling ventures -- so they gave him their money in trust, and he bid for racehorses at auction, often paying way over sensible prices. but that was just a sign of his success, and showed he knew what he was doing. the other thing was, he told his investors that he could give them their 20% return each year, or just leave it with him and he would roll it over for them to the next year to reinvest, and so on, presumably amassing a compounding fortune for them. 3/4 of them decided to roll it over. so, naturally, he just lived the high life off the millions they gave him, and he paid the 20% return only to the 1/4 who had asked for it, also drawn down from the starting capital. when the whole thing fell apart, they looked at the few assets they had (racehorses), and probably managed to get 50% of what the guy had paid for them. the guy himself 'fell' from a 5th floor apartment in HK...

tastes good on my Captain Cook grill.

captain cook, hee hee. i'm sure lieutenant james cook of the british royal navy would be pleased to know what happened to his name ;) spinning in his shallow grave in hawaii...

Joe Schmoe,

Your take on WFC just about sums it it up. My first question was, why? How can this make sense at this stage of the game? The only thing that I question (and this from a pure marketing perspective) is that many top tier banks ALSO own "chop shops". It's early so I can't think of any off hand but it's not uncommon. So Joe and Jill come in, can't be financed by Wells and are then handed off to the chop shop. This way by advertising this "new" service at least Wells gets first crack to see if the qualify for conventional financing and if not sends them down the street to their "affiliate" and makes something on the referral or whatever. At banks it's often about "profit leaks" and I think they believe through this method they can drive a number of the lesser players out as well.

Jon Says:

> I went to Babson College for my undergrad and
> there were about 25% international students.
> There were very, very wealthy kids there from
> Europe, Asia, India, etc. It wasn’t uncommon for
> my little 1996 Neon to be parked between a M3
> and a Porche. M3s were so common on the campus,
> knowing little about luxury cars, I thought they
> were some sort of new economy class car line,
> like a toyota.

The first M3 had a 4cyl and the current one has a small 6cyl so compared to the V12 in Dad's 750iL and the V8 in Mom's 540i Sportwagon some families probably refer to the M3 as an "economy car" for the kids...

P.S. Porsche has an "s" in it. When pronouncing Porsche make sure to pronounce both syllables (this may come as a shock to many people) but it is not pronounced Porch (as in Grandma is sitting on the front Porch)...

most people say 'porsh' altho it's 'porsh-a' (not using IPA)

adidas is just 'addy das', named after founder adolf (adi) dassler...

it's interesting to hear how people pronounce 'hafele' outside of germany...

HARM,

Sure, ONE e-mail to CAR (regardless of content) can be easily dismissed. Now if a bunch of people were to e-mail and ask why CAR no longer publishes affordability numbers then they have to deal with you.

On "riding in the fiberglass red stagecoach"

I worked across the street from the Wells Fargo Financial Center in PDX for several years. Can't say I ran into a lot of smart people over there. They treat their employees like trash (as do all banks). It is staffed by zombies, the cafeteria was repulsive and the carpet in the skywalk was from the 70's. Decision making is done in a vacuum with no input whatsoever from the troops. Mortgage brokers talk. Right now they're talking about "surviving". The bank has looked at what they consider to be a "fragmented market" and they wish to consolidate it (as they do with everything). Banks are convinced that when their credibility is applied every consumer will drop what they're doing and do business with them. What's next? Get your payday loan at U.S Bank? Hock your jewelry to Washington Mutual?

If you want to send emails to people, I'd suggest sending them to magazines, Newspapers, and other forms of media. I've been doing so for over a year now and so far, 3 of my emails have been published. One in the East Bay Express as a reply to an article called " The Adjustable Rate Mortgage", One in the Alameda Times, and One in the San Jose Mercury News.
I recently sent an email to KPFA- Free speech radio. They seem to be on a power trip lately and talk mostly about Iraq, George W, and Israel . I figured that doing some stories about the out of control housing market would be a good idea being that a wide swath of their listening audience- liberal arts majors that are all priced out- would love to hear a radio broadcast about it, and start the ball rolling. As much as people protest about everything here, I'm rather surprised they aren't protesting about housing. So I sent the email. Unfortunatly, I never heard back from them. Oh well.
The point I'm making is that NAR, CAR, etc etc don't care if there's a bubble. They just want to make more money. The people buying are the ones that affect the market. If enough propaganda is produced to counter that generated from the NAR, then the tables will turn more quickly. I've been surprised at how quickly journalists went from one side to the other, from saying how wonderful housing was to how much it is now bombing. On the other hand, the editor at one of the newspapers that published my comments mentioned that he, like MOST journalists are also priced out of the market. Anything they can publish to unravel the boom will benefit their position, which is good for us.

Banks are convinced that when their credibility is applied every consumer will drop what they’re doing and do business with them. What’s next? Get your payday loan at U.S Bank? Hock your jewelry to Washington Mutual?

hmm, even richard branson's virgin brand tries that - apart from virgin atlantic and virgin cola, you can now get virgin money...

DS,

That's "Sir" Richard Branson to you!

i went to a local community talk with the city lord mayor tonight, talking about a huge new development taking place in the city on a huge disused brewery site - the state govt just gazumped the city council on planning powers at the 11th hour to raise more money through 'developers levies for affordable housing' for another area - by increasing FSRs and total building heights beyond acceptable limits. what a dilemma - do i support the raising of affordable housing levies by agreeing to shaft the local community with what is, i suppose, overdevelopment? it's a tough call, and pretty dirty politics...

we're talking 15 storey residential buildings, at 45m - there was talk of going up to 100m, about 30 storeys...

i had the chance to grab the mic at discussion time and pull out a few stats about housing price inflation over the last 20 years, along with raising the moral dilemma and dissing the very approach of 'developers levies' as a poor way of creating affordable housing, but i chickened out - hardly a born politician :(

yeah, anyone who brings money into britain in sizeable chunks gets made a 'sir' these days... :?

i suppose that's what the early kniggits were trying to do at agincourt, after all...

bill gates bought himself a sir, too, but as a non-citizen, he can only use the letters KBE after his name...

WW2,

One of Ben Jones' bloggers found an article praising his take on the housing market on salon.com. It was pretty even handed and I'd have to say that for a Texan Ben is pretty modest. Over there they slam FB's much much more! Ben is already looking ahead toward moving the blog's focus to "the recovery" or other purpose. He's done well enough that he can live off the revenue from his advertisers (which is pretty nice) so keep plugging away! Maybe we can talk HARM into getting us Leslie Appleton-Young's e-mail address so we can get her considerable talents to explain why less than 10% of Californians can afford a home w/trad. financing?

DS,

Knight of the British Empire?

yes, kniggit of the british empire - for setting up an M$ shop at cambridge university...

DS,

Why would Bill Gates want to be called that? I'd heard that one time at an Economic Summit in Brussels (or something like that) he was "attacked" by a protester with a whipped cream pie and fell to the ground in a "fetal position". Why in the old days a real knight would get his arm hcaked off at the elbow and he would just keep attacking you with his stub!

Score another point for the anti-housing crowd. Apparently, the " boycott housing" site made it onto TV last night. I peek at it from time to time. The amount of comments on it went from maybe 1-2 posts a day to several hundred last night. More people are becoming aware all the time.

UK knighthoods for foreigners – what it takes to get one, and how to dress up afterwards

http://www.theregister.co.uk/2005/03/02/bill_gates_knighted/

Gates is honoured not just for illuminating the UK by installing Windows where previously there was darkness and confusion, but also for the work of his Bill and Melinda Gates Foundation.

Note that as Bill will not be dubbed, those of you entertaining the slim hope that the sword might slip will be severely disappointed.

Gates' transformation of business practices is well-documented, and has been commented on at length by legal authorities the world over.

I tell you, if the Queen ever had to write CSS2 that works properly in both FireFox and Internet Exploder, she never would never have done it.

Shame about not being able to use "Sir", though. That's what you get for not being part of the Commonwealth.

I heard that he's working on a time machine, so that he can go back and stop the Revolution...

DS,

I had heard that the Queen also Knighted Bob Geldof for his work and Bono looks like a "shoe in"! I'm just not to sure about all this knighting of rock stars (and CEO's that think they're rock stars). I'm no Arthurian Scholar but are these recent recipients the caliber of the men that formed the Magna Carta? That sought the Grail?

well, the real knights were a bit dodgy, really, don't believe the stories...

they have started handing them out like candy these days tho, including a welter of international gongs, to ronnie raygun, george bush (Sr, i hasten to add), bob hope, and others for even more opaque reasons - whereas FDR got nothing but a cursory 'thanks' for entering the war and saving england from the hun (altho he did die inconveniently)...

note what FDR said about the UN: "The Crimean Conference," he said firmly, "ought to spell the end of a system of unilateral action, the exclusive alliances, the spheres of influence, the balances of power, and all the other expedients that have been tried for centuries — and have always failed. We propose to substitute for all these, a universal organization in which all peace-loving nations will finally have a chance to join."

where is that sort of leadership and clearheadedness today?

Mr. Vincent,

LOL! That's a good one!

My point (and I think the larger concern) is that lenders have borrowers entirely too focused on their fico's and what their "cost of money" will be. So far that sounds reasonable. The problems arise when lenders talk borrowers OUT of 15 year mortgages like they're trying to do away with them altogether! I've had clients tell me that the loan officer at the bank told them, "Well sure, you do have a lot of equity from the sale of your last home and could afford to pay quite a bit down but wouldn't it make more sense to go with a longer term and a lower payment?" You know, just in case one of you gets sick? I call it "playing the health card". John and Jill take one look at each other and think of relatives or co-workers that have struggled with their mortgage payment b/c of this and then turn in unison to the loan officer and say in sync "We'll take the 30!"

hmm, an ARM isn't the same as a neg-am loan, tho, is it? the vast majority of people in Oz are on ARMs as standard practice...

further, a 20% deposit has always been there to protect the lender's interests, not the borrower's -- if the bank had to foreclose, they made sure they had a 20% insurance policy on any downturn in the market or if they had to do a quick sale -- the mortgagors' money therefore was at risk, not the bank's...

some people can't rent and save, that's the problem -- they're in the 'rent trap', so they can never save a deposit.

the only issue i have is inflated house prices putting people underwater, somewhat unintended consequences of liberalised credit products and low interest rates... that's why it's necessary for govt fiat to somewhow step in and control land pricing, or otherwise arrange for other affordable solutions for ownership... altho there are still large belts of affordability in the US and canada, not the case in other countries...

well, C classes made in india, what do you expect?

One of the "dynamics" that has contributed significantly to this bubble over other previous bubbles has been the sheer level of preparedness for it.

It's often been said that if you wanted to make money in the 1950's one should invest in infant care. Johnson and Johnson, Gerber Foods etc.

In the 1960's and 70's we began the "junk food revolution" and the franchising of America as boomers became young adults.

In the 80's (now that they're old enough to have decent paying jobs) financial services flourished.

In the 90's TECHNOLOGY

Now in 2000 and beyond it just seemed that everyone was SO POISED to capitalize on boomers, their second and vacation homes that we've practically geared our entire economy to take full advatage of it! As if nothing else mattered. Some how I've just got to believe that Wells (and other lenders) feel that there might be a quick and relatively painless RE correction but their actions tend to indicate that they still firmly believe that this is nothing more than a "speed bump" and that the good times will be back in nothing flat? Are they thinking there will be some kind of "echo boom" for RE? Someone tell me!

SP,
Well spoken. I've never understoof the mentality of Mass- protest these says especially over things like "saving Tibet." I lived in Berkeley for 4 years. Every other car had a "save tibet!" sticker on it. It's ironic because 4 miles down the road is Oakland. You never heard anyone say:" Hey- let's help Oakland!"

i take your points, mr v., but don't fully agree... but then i'm different ;)

i believe in a world where the average person on an average wage should be able to easily afford the average house as an owner-occupier. there is nothing in the price of construction that should preclude that, so it's just land price-fixing that keeps people renting, mainly to suit a class of landlords.

we've seen a doubling in price in real terms of the same houses in the last 20 years of boom conditions, divorced from the cost of construction.

ARM loans of any kind are CRAP for the average person or family. They put you and your payment at the risks of the interest rates. The beauty of fixed rate mortgages is that you know what your payment will be for the life of the loan.

yeah, but for some reason, they're not the norm here, and you can only fix for a period of 3 or 5 years before they review it, not the lifetime of the mortgage. most people get ARMs, and have done for years -- fixed is set 1-2% higher than ARM, and it has been shown that with fairly stable rates, you will save money with the ARM. you get more peace of mind with fixed, but a higher rate, on average, to go with it.

If people cannot rent and save at the same time, then they should work towards getting a better job. If they cannot, then they should continue to rent. Its better than foreclosure and bankruptcy.

this is the sort of individualisim i don't agree with, as per my opening remarks, particularly around the obvious price fixing in the market to suit landlords and the property industry. who's to say that your earnings won't cover a mortgage? it's just that saving 20% of $300K = $60K can be difficult, which is why the no docs and 0 down loans came about if you proved you could meet the repayments. but buying is still too dear in many places. prices should be forced lower and an end put to land speculation.

20% down eliminates PMI.

is that mortgage insurance? once again, i guess there are 'flexible new products' on the market these days. further, mortgage insurance is once again put there mostly to protect the lender, not the borrower.

but i don't agree with the whole system as it stands, as i've spelt out. i tend to advocate 'outside the square' solutions to the whole rotten system of housing allocation...

Red Whine,
What makes no sense is that the current Chryslers are made out of leftover parts from older Mercedes, Chrysler engines, and sometimes even a few French parts from Cintroen. Yet they've made big improvements. I'm a hard-core Japanese car fan too. My truck has over 200k on it, and the thing still looks brand new inside and out. Still drives very tight. No rattles.
On the other hand, a friend of mine got a Dodge Caliber, and for 14k, it's a really nice car. I just might consider one when the toyota dies( if ever).

We called the car a ‘porsh’ just to irritate them.

a friend of mine literally does call them 'porch' with an extra emphasis on the 'ch'... he's the greatest guy in the world, very funny and humanistic, great with kids, teaches art and whatever else, no money whatsoever, loves challenging teaching roles particularly in bad areas, and is currently teaching refugee kids in London's East End... i think to be content with what you have is a life well lived...

One of the most award-winning auto plants in the world is the Shanhai GM plant. They build Buicks there that look a hell of a lot nicer than the ones GM sells here, plus they cost less. I'd buy one if the sold em here.

LA Bob,

Thank you! I've been saying this until I had veins sticking out of my forehead but in an "appreciating" market everyone seems altogether too willing to look the other way. How forgiving will we be when these properties no longer have "that new McMansion smell"?

What I fail to understand is why someone like Bill G or Dick Branson bothers to acknowledge a dubious ‘honor’ by an antiquated monarchy.

beats me.

seriously tho, the sociological answer is that americans seem to crave titles and status as they supposedly shed the trappings of monarchy. as soon as the fighting was over, they kind of wished they had some titles and things - hence, the bluebloods like to create affectations like being William Gates III... a 'real' title dispensed by a monarch is even better...

there was a very successful hotel in europe post WWII that used to hire impoverished minor princes as ski instructors for rich american visitors -- this worked like magic, as cashed up american moms didn't trust ordinary ski instructors with their daughters, but, these guys gave them hope their daughters might marry a guy with a title. it was the perfect marriage of money and status -- the americans had the money and business sense back home, the europeans had the prestige and pomp and circumstance... in the mom's eyes, their daughters could be somebody. never underestimate man's need for status and esteem...

DinOR Says:
Now in 2000 and beyond it just seemed that everyone was SO POISED to capitalize on boomers, their second and vacation homes that we’ve practically geared our entire economy to take full advatage of it! As if nothing else mattered. Some how I’ve just got to believe that Wells (and other lenders) feel that there might be a quick and relatively painless RE correction but their actions tend to indicate that they still firmly believe that this is nothing more than a “speed bump” and that the good times will be back in nothing flat? Are they thinking there will be some kind of “echo boom” for RE? Someone tell me!

Two points to add to your comments:

First, I agree with the idea that if you follow the boomers, you'll make the money. I suggest health care, if it can be converted from a government handout to a true for-profit segment, would be the next venture for the 2010's. You may have heard of the rising phenomenon of "executive health care", where MD's are deciding to limit their practices to entirely out-of-pocket paying patients in return for extremely high-service care (MD's returning calls in minutes, appointments lasting as long as needed, etc.) This kind of model will probably take off significantly in the next few years.

Second, the pollyanna views from WF and the like are just symptoms of the usual tunnel vision, please shareholders mentality of corporate mgmt. As long as short-term outlook is positive, everything's okay with the ship. Don't worry about that iceberg looming ahead 10 years down the line...

Robert,

If you want to debate the total cost spent on the automobile per user vs. transit users, please feel free to do so. I would prefer that you do it on the last thread, but we can have a multi-thread running debate on this if you prefer. I know this stuff, as it is one of my hobbies and I know a bunch of Urban Planners, including my wife. This is another case where the collected wisdom is simply wrong.

But you have to debate me with sourced facts and figures, not simply mudslinging. If you are just going to throw around insults, don't waste both of our times.

Jon,

No actually that's a pretty good analogy b/c Wells can honestly say that they tried to "qualify" you for conv. fin. and you didn't fit that mold. So, rather than turn you over to THE wolves we turned you over to OUR wolves.

If you actually bother to research this, the Daimler-Benz factory in India actually has won several quality awards. I haven’t owned a car made there, so I can’t speak either from my first hand knowledge or your first class prejudice.

yeah, sorry, bad english humour, it's a running joke over there... you should have heard the trouble prince philip got into when he made a remark like that in a factory not very long ago...

interesting that all my stuff made in china seems to work just fine, plus the shanghai car plant quality, but astrid who spent her childhood in shanghai thinks that all chinese product is crap...