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http://online.wsj.com/article/SB118360072311457784.html?mod=googlenews_wsj

THE MIDDLEMEN
Mortgage Mess Shines
Light on Brokers' Role
Job-Hopping Mr. Shaikh
Left Trail of Lawsuits,
Failed License Exams
By RUTH SIMON and JAMES R. HAGERTY
July 5, 2007; Page A1

In 2005, World Savings Bank honored Secure Financial Inc. with a "Top Broker Award." It was a tribute to the sales prowess of Zak Khan, who arranged more than a hundred mortgages out of the small real-estate firm's Union City, Calif., office.

But Mr. Khan, a onetime professional cricket player, wasn't all he seemed. For starters, his real name is Altaf A. Shaikh. Contrary to California law, he never held a license to broker mortgage loans. Still, he managed to find jobs at a variety of mortgage firms since 1997, leaving a trail of unhappy borrowers and a lengthening list of criminal charges and lawsuits filed against him.

Third in a series
• Page One: How Wall Street Stoked The Mortgage Meltdown
6/27/07
• Page One: 'Subprime' Aftermath: Losing the Family Home
5/30/07
• Interactive Map: See photos of the houses and homeowners with subprime mortgages on Detroit's West Outer Drive.As defaults pummel the home-loan industry, Mr. Shaikh represents an extreme case of one of the big vulnerabilities in the business: mortgage brokers. In recent years, these middlemen have assumed a crucial role in handling surging volumes of business for lenders. Today, mortgage brokers are involved in about 58% of home loans, up from 40% a decade ago, according to Wholesale Access, a research firm in Columbia, Md.

Mortgage brokers originate about half of loans made to borrowers with good credit. Their presence is even greater in other segments of the mortgage market where defaults are rising. Brokers originate about three-quarters of subprime mortgages made to borrowers with scuffed credit, according to Wholesale Access. They also originate 70% of so-called Alt-A mortgages, a gray area that falls between prime and subprime. World Savings, which gave the award to Mr. Shaikh's employer, made prime and Alt-A loans.

Mortgage brokers didn't set the standards for the many aggressive loans that are now going sour. But they provided the low-cost sales force that made it possible for lenders to quickly ramp up production without hiring employees. As business surged, some brokers put borrowers into loans they didn't understand, couldn't afford or were otherwise ill-suited for, one reason defaults have skyrocketed. In the worst cases, brokers have been known to falsify information and resort to other fraudulent means to get mortgage loans approved. Critics say regulators and lenders haven't done nearly enough to insure the quality and integrity of this independent sales force.

"The mortgage brokers are the wild, wild West of mortgage finance," Sen. Charles Schumer, a New York Democrat, says in an interview. "We need to bring a sheriff to town."

Mortgage brokers say it isn't fair to single them out. Joseph Falk, legislative chairman of the National Association of Mortgage Brokers, says regulators, lenders and their Wall Street financiers all contributed to the subprime mess. Borrowers also can be cheated by loan officers at banks, he notes, adding: "There's plenty of blame to go around."

The ranks of mortgage brokers have surged in part because they offer lenders such as banks or thrifts a way to reach more borrowers without the heavy expense of operating large numbers of branches. Brokers find customers, advise them on which types of loans are available and collect fees from lenders for handling the initial processing. Unlike bank employees, brokers don't get medical benefits or need to be laid off when business is slow. Brokers are particularly active in low-income neighborhoods where there are few bank branches and where many residents may assume that a big institution wouldn't want to deal with them.

MORTGAGE OVERSIGHT

• The Issue: Mortgage brokers helped fuel the real-estate boom, but the industry is loosely regulated and consumer complaints abound.
• The Controversy: Background checks are sparse, and many states don't even require a test to obtain a mortgage-broker license.
• What's at Stake: Borrowers can face soaring monthly payments and unexpected fees.When brokers cross the line into blatantly unethical or even criminal behavior, there's often little to stop them. Surveys by the Conference of State Bank Supervisors show that 32 states don't require people to pass a test before obtaining a mortgage-broker license, and nine states don't require criminal background checks on license applicants. Brokers who run afoul of authorities in one state often can set up shop in another.

Mr. Shaikh, 46 years old, was able to skip from one employer to another for years with little scrutiny -- until California prosecutors finally caught up with him. In May, Mr. Shaikh pleaded no contest to charges of grand theft in a plea agreement reached with nine California counties. Prosecutors alleged that he lied to borrowers about the terms of their loans, forged documents and had checks written to companies he controlled without the borrowers' knowledge. A court hearing, set for August, will determine the amount of restitution Mr. Shaikh must pay and whether he will be required to serve a one-year jail term, as the prosecutors have requested.

"The tragedy of this thing is that many of these people had better credit than the product that was offered to them," says William Denny, a deputy district attorney in Alameda County, Calif., who coordinated the multicounty settlement of the criminal case.

A spokesman for Wachovia Corp., which bought World Savings last year, says the company "acted appropriately at all times in this situation." The spokesman adds that Mr. Shaikh "was not an employee or an agent" of the company, which wasn't a defendant in the criminal proceeding. "We feel that World Savings is a victim of fraud in this matter as well," the spokesman says.

Jeff Widman, the lawyer representing Mr. Shaikh in a lawsuit brought by borrowers, says his client has "generally denied the allegations." Most of the borrowers "consented happily to the terms of these loans and their fees," he adds.

In an interview earlier this year, Mr. Shaikh, a stocky, genial man with gray hair, declined to discuss his legal problems. He said he immigrated to the U.S. from Pakistan in 1989. He settled in Fremont, home to some of his wife's relatives. At first, he worked at a Taco Bell restaurant and sold leather jackets, imported from Pakistan, at a flea market. Court records show that he and his wife filed for Chapter 7 bankruptcy protection in 1994, citing assets of $17,000 and liabilities of $416,000. That year, Mr. Shaikh earned $3,000 a month as a salesman at a Mitsubishi dealership, according to bankruptcy filings.

In 1997, a friend who worked at Ameriquest Mortgage Co. persuaded Mr. Shaikh to join the company, then a small but fast-growing subprime mortgage lender.

He was getting in on the early stages of a gold rush. Spurred by the housing boom of the first half of this decade, the number of mortgage brokerage firms nationwide has soared to more than 50,000 from 23,000 in 1995, according to Wholesale Access. At the height of the boom in 2003 and 2004, the most successful loan officers at those firms could earn as much as $400,000 a year, says Tom LaMalfa, managing director of Wholesale Access.

Court records show Mr. Shaikh was an assistant manager and, in October 1998, was promoted to manager of Ameriquest's Campbell, Calif., office. In that job, he didn't need a license.

In 2000, Mr. Shaikh and Ameriquest were sued by a borrower whose home was foreclosed on the previous year because a refinancing wasn't completed by a promised deadline. Mr. Shaikh failed to tell the holder of a second mortgage, who was foreclosing on the loan, to postpone the foreclosure sale, according to the lawsuit, filed in Alameda County Superior Court. The case was settled in 2002, according to Joseph Kafka, the borrowers' attorney.

Mr. Shaikh left Ameriquest in May 1999 for the San Jose branch of Atlantic Financial Mortgage Inc., a local firm. Later that year, Ameriquest sued him in Santa Clara County Superior Court for allegedly trying to steal Ameriquest customers and employees. In 2002, a Superior Court judge ruled in favor of Ameriquest.

"Mr. Shaikh's employment was terminated, and we're not able to comment on the reasons behind it," says an Ameriquest spokesman.

At Atlantic, Mr. Shaikh's customers included Nathaniel Winn and Arnetta Petty Winn, an elderly couple in Oakland. In a telephone call in May 1999, Mr. Shaikh told the Winns his company specialized in making low-interest home loans to senior citizens on fixed incomes, according to a lawsuit the couple filed in 2002 in Alameda County Superior Court. At a meeting at their home days later, Mr. Shaikh said he could refinance the Winns into a new mortgage with a "senior discount" that would lower their monthly payments and allow them to pay off $4,200 in debts. He also offered to hire Nathaniel to do some landscaping, Ms. Winn says in an interview.

But the couple's monthly payments rose with the new mortgage, and their loan balance climbed by about $15,000 to $100,000. The Winns received just $1,600 in cash from the refinancing, according to loan documents, while Atlantic got more than $5,700. The couple also paid a $3,500 prepayment penalty.

In February 2004, a Superior Court judge issued a default judgment and ordered Atlantic and Mr. Shaikh to pay the couple $340,000. Mrs. Winn says she is still hoping to collect. Edwin Mendaros, Atlantic's owner, didn't respond to repeated calls requesting comment.

Mr. Shaikh was next hired as an assistant to a loan officer at Home Advantage Corp., a Fremont mortgage broker located in a stucco building adjacent to a shopping center. Within six months, the company received a call from a wholesale lender complaining about a "discrepancy" in a mortgage application Mr. Shaikh had worked on, says the firm's president, Rana Ahmed. "We actually had to fire him," Mr. Ahmed says.

Mr. Ahmed says he doesn't always check references because, in the mortgage business, "references are not reliable." And he says he never heard from prospective employers seeking to check Mr. Shaikh's references.

In January 2001, Mr. Shaikh signed on with Hampton Financial, a local San Jose real-estate and mortgage firm. In nearby Union City, he opened an office called As West Coast Marketing, scouting for potential borrowers and helping them fill out mortgage applications that were then processed by Hampton.

In December 2001, Mr. Shaikh arranged for Mohammad and Karima Ebrahimi to get a $198,000 mortgage from World Savings to buy a home in Fremont. The good-faith estimate, a calculation of the fees borrowers can expect to pay at closing that is required by regulators, provided that the Ebrahimis would pay the broker $1,980. But when the loan closed, it included additional commissions of $8,570, according to a lawsuit by the couple and two other borrowers that was before Santa Clara County Superior Court.

Patricia DeLuca, Hampton's owner, terminated her relationship with Mr. Shaikh in early 2002 because of complaints and questions from borrowers, according to her attorney, John Crowley. Ms. DeLuca settled the lawsuit brought by the Ebrahimis and the other borrowers for $25,000 and filed a cross-complaint alleging that Mr. Shaikh and others conspired to engage in "wrongful and fraudulent conduct," according to court records. In testimony related to her cross-compliant, Ms. DeLuca said World Savings briefly cut its ties to her because of problems with loans originated by Mr. Shaikh. The Ebrahimi lawsuit names Mr. Shaikh, Ms. DeLuca and "Does 1 through 10."

In testimony related to Ms. DeLuca's cross-complaint, Mr. Shaikh said he failed the licensing exam "three or four times," beginning first in 2000 or 2001.

In a decision filed in April of this year, Superior Court Judge Mary Jo Levinger found "no evidence" that Ms. DeLuca knew that commissions had been altered so the payments would be higher. The judge ordered Mr. Shaikh to pay $75,000 in damages and attorney's fees. Mr. Shaikh is appealing the decision.

Mr. Shaikh moved to Golden Gate Mortgage, a local mortgage broker in Hayward, Calif., in early 2003. There he introduced himself to customers as Zak Khan. Dean E. Johnson, a lawyer for Mr. Shaikh, says he used the name "because he found that many of his American friends and customers found Altaf Shaikh hard to pronounce and spell."

In 2004, he arranged for JoAnn Curran, a retired manager, to refinance the mortgage on her home in Alamo, Calif.

Ms. Curran says that at a meeting with Mr. Shaikh at a Starbucks coffee shop, he told her he owned his own mortgage company and could get her a new mortgage with a low interest rate that would allow her to pull out cash to pay some of her son's medical bills. "It was too good of a deal to pass up," she says. Still, she found it odd that Mr. Shaikh notarized her loan documents on the hood of a car.

While Mr. Shaikh was working at Golden Gate, he and his wife bought a $2 million two-story beige stucco house with a swimming pool on a cul-de-sac in Fremont, according to public-records data compiled by RealQuest.com. The following year, the couple bought a three-bedroom home in Las Vegas for $328,000.

Mr. Shaikh says he left Golden Gate in September 2004 because the owner, Nadeem Shahzada, hadn't lived up to his promises on compensation and because he had an offer from Secure Financial. Michael Lauer, an attorney representing Mr. Shahzada, says, "It was a mutually desirable parting."

Mr. Lauer says Mr. Shaikh didn't need a license for the duties he was supposed to perform at Golden Gate, but declines to specify what those duties were. Mr. Shahzada "didn't know he [Mr. Shaikh] was doing the things he was alleged to have done," Mr. Lauer says.

In response to complaints from several borrowers, the California Department of Real Estate issued an order in January 2005 that told Mr. Shaikh, also known as "Zack Khan," to "desist and refrain" from making mortgages without a license.

Tom Pool, an assistant real-estate commissioner, says the department doesn't send notices of such orders to lenders because "there are thousands and thousands of lenders out there. I don't think it's practical." He notes that anyone can check whether a broker is licensed or has been disciplined on the department's Web site.

Mr. Pool calls Mr. Shaikh's continued presence in the mortgage industry "kind of perplexing. I'm not sure those who allowed him to work are doing their due diligence."

Atiya Khan says she was working as a property manager when a family friend introduced her to Mr. Shaikh, and he persuaded her to set up Secure Financial. "He is a famous personality back home with a good decent family," she says. "We went to his house. He introduced his family" she adds. "All these things to make you trust him."

Mr. Shaikh then persuaded Ms. Khan, a property manager at the time, to obtain a broker's license, says Thomas Swihart, her attorney. The two leased an office, but Ms. Khan, who lived in another part of California, says her understanding at the time was that he hadn't yet gone into business. But in fact, using Ms. Khan's broker's license and picking up the pseudonym Zak Khan he had used previously, he started churning out mortgage sales, says Ms. Khan's lawyer. "He took her license and ran with it and defrauded a lot of people," Mr. Swihart says.

In May 2005, Pedro Franco, a landscaper, showed up in lawyer Pamela Simmons's office after receiving a closing statement for a mortgage loan with a check stapled to it. Mr. Franco thought that was odd because, while he had talked to Mr. Shaikh, he didn't recall ever signing the final loan documents. Mr. Franco also discovered that some numbers on his closing statement had been whited out: A $15,650 payment to Secure Financial appeared as $650. Mr. Franco had also received a $29,787 check as part of the deal, not the $40,000 he says he had discussed with Mr. Shaikh.

The next day, Ms. Simmons received a visit from Rosendo Zamudio, whose loan from Mr. Shaikh and World Savings included a $7,655 payment to Bay Area Marketing, a company owned by Mr. Shaikh, that didn't appear on his closing statement. This meant the numbers on Mr. Zamudio's loan documents didn't add up properly. As Ms. Simmons began making inquiries, Mr. Shaikh called Mr. Zamudio and offered to come to the borrower's home to work out the misunderstanding.

"I called the local police because I didn't want my client meeting with him," Ms. Simmons recalls. Mr. Shaikh was arrested in May 2005 and charged by the Santa Cruz County District Attorney with criminal fraud and grand theft.

Prosecutors say Mr. Shaikh didn't disclose to borrowers payments to Bay Area Marketing or that he was earning an extra 2% of the loan amount from World Savings for putting borrowers into more costly mortgages that also contained prepayment penalties. They further allege that he failed to tell borrowers that their loans carried prepayment penalties and that those who made the minimum payment would see their loan balances rise. And they say he forged notarization seals on borrowers' closing statements, though his notary license expired in 2001. Prosecutors say they are continuing to investigate whether other individuals in the real-estate industry aided the fraud crimes.

Other aggrieved borrowers found their way to Ms. Simmons, who specializes in consumer real-estate law. In March 2006, Ms. Simmons filed a lawsuit in Alameda County Superior Court on behalf of borrowers who had contacted her about their dealings with Mr. Shaikh.

Ms. Simmons says she called World Savings to inform it of Mr. Shaikh's first arrest just after the event. Instead of freezing all pending transactions involving Mr. Shaikh, the civil lawsuit alleges, World Savings "continued to fund at least 20 loans" presented to it by Mr. Khan and Secure Financial.

Borrowers who called World Savings to check out Zak Khan were reassured that they could rely on him, the lawsuit further alleges, and World Savings "ignored numerous, and often vociferous, complaints" from borrowers.

A spokesman for Wachovia, World Savings' new parent, says World Savings "checked the license of Secure Financial," rather than that of Mr. Shaikh, because the company "is the broker listed on the loans." He adds the company terminated its relationship with Secure Financial on May 9, 2005, and contacted customers who "had loans in process to confirm that they were, in fact, seeking a loan and had received or expected to receive our disclosures." Wachovia says it has since agreed to the rescission of dozens of loans originated by Mr. Shaikh.

The Wachovia spokesman adds that the "Top Broker" award was "not a company-sanctioned award. It was a local market certificate given by a World Savings salesperson" to roughly eight brokers. Secure Financial originated about 125 loans for World Savings in a one-year period, the spokesman says.

Ms. Khan, a defendant in the civil lawsuit, has filed a cross-complaint against Mr. Shaikh, alleging that she was tricked into forming Secure Financial and that Mr. Shaikh forged her signature on "numerous loan documents" without her knowledge or consent. Ms. Khan says she has never made a mortgage loan and never had any contact with World Savings. "I was out of the picture," she says.

Around the country, efforts are now under way to improve quality control of mortgage brokers. Lenders are beefing up their scrutiny of mortgage brokers and other third parties. The Conference of State Bank Supervisors is setting up a national database that would allow consumers and regulators to check whether brokers are licensed or have been subject to regulatory enforcement actions. Sen. Schumer of New York in early May introduced legislation that would establish a fiduciary duty for brokers and others who arrange home mortgage loans to look after their customers' interests.

Mr. Shaikh is now working in the Fremont area as a car salesman, according to Mr. Johnson, his attorney.

--Zahid Hussain in Islamabad contributed to this article.

Your Alameda county is not far behind. It has 99 short sales listed.
Short sales are for those poor unfortunate folks who don't live in Berkeley, Albany, or Piedmont. BAP is prime I tell ya'. They are trying to make more land in Richmond, but that is not working out too well.

But even today the Chindian lemmings around me claim, “Bay Area is different”. No kidding. Heard it just today. Again.
One of the things I miss about working in SV is the various Chindian mafias. Like shadow organizations within companies. I do feel like I get some of the "inside perspective" from this blog. Will be interesting to hear more when things (eventually?) blow up.

>> Chindian mafias

PayPal has this as well as eBay.

I hope Google does not have Chindian mafias .... once it starts having, that will be begining towards the end ....

You know, maybe I'm missing something. Why does everyone keep talking about the Zestimate on Zillow? Aren't at least a few of you folks software types? The Zestimate is an algorithmically generated number with no accounting for home condition, location, remodeling, neighbors and a large number of other important factors. Most of the so-called "comps" might as well have been randomly selected. The Zestimate is also given with a useless range, typically in the +/-20% band. Zillow can't tell the difference between a 2500 sq.ft. waterfront house on a golf course and a 2500 sq.ft. plain Jane SFH right on the highway. For all the fanfare, the tool just is not that sophisticated.

In my experience, Zillow's usefulness is limited to the transaction history, and even this feature is well known to be incomplete and frequently inaccurate. Half the guys in my office told me that the information was wrong for their own house. Thus, in my opinion, saying that homes are selling below the Zestimate isn't saying much at all. All you're saying is that realtors are pricing using a different method than a completely flaky computer model from a free web site.

SQT: If your parents are close to bankruptcy, will selling the house really save them? Probably only if they have a lot of home equity, because they have no other assets (otherwise they couldn't go bankrupt). Without a lot of home equity, a foreclosure is almost the same as a short sale---their credit is trashed.

If they're that deep in the hole, I'm surprised that you're only forwarding them articles. I would be throttling my parents. But it's also true that some people would rather work far into their Golden Years and then retire on whatever Social Security will offer.

Brand

My parents have equity, but also a lot of credit card debt. It's a long story, but their plan is to sell and take the money and go live in Thailand with my brother. I have no idea what they plan to do about the credit card debt-- I am literally afraid to ask.

I tried at first to talk sense to them but my mom stopped calling me. I have had to back off or risk not having a relationship with them. It's touchy to say the least.

Brand,

You are correct about the Zestimates - they are are a joke. But I think they get mentioned only because however bad it may be, that's the only accessible, referable, widely known estimate of house that you have not seen in person. Also, Bay Aryans check their house prices on Zillow almost daily, as if it's a stock portfolio. (Actually checking your stock portfolio value daily, is a problem in itself.)

But I disagree on it not being sophisticated. That it most likely is. In a different sense. Every house I check is worth more in sqft than it's comps' average. It could be just coincidence. I have no scientific insight in it. Just a hunch, that it has "some" smartness.

I'll bring it up, and if I sense a receptive attitude I elaborate further. If not, I let it drop. You can bring a horse to water, but you can't make him drink. Truer words were never said.

My bro's wife works as a landscape designer. She started her own business just as the housing market was heating up and even though she rode the wave, it was a struggle to get established. Hopefully she's built up enough of a rep over the years to ride the downturn, but who knows?

At any rate, she knows her livelihood is at least somewhat tied to housing. What I don't think she knows is how dependent she is on all this easy credit sloshing around.

Sacramento (where she lives) is taking a really bad beating these days. They're several months ahead of the bay area in correction terms, maybe a year, or even more. But it's the same mentality out there. "Only the bad areas will go down" is the new slogan. The other thing they believe is that only people who bought in 2005/2006 will be affected.

My bro's wife is most concerned about the value of their home. In the back of her mind she wants to sell and upgrade. She's mentioned it in passing, but luckily, my brother is sane enough to tell her they can't afford it. So any news from me telling her she could potentially lose half the "value" of her home is not welcome.

StuckInBA Says:

As SP noted, asking prices are below Zestimate. In addition it’s a short sale. But even today the Chindian lemmings around me claim, “Bay Area is different”. No kidding. Heard it just today. Again.

Contra Costa has 193 on the SFR side.

StuckInBA: Okay, point taken. Zillow is one of the universal references. I don't disagree that the algorithm might be sophisticated (I would have said "complicated"), but it can only be so accurate without all the additional factors. Bay Aryans probably track Zillow religiously because all things popular and tech can only be correct in Silly Con Valley. :)

I might also perceive Zillow to be sketchy because Fort Collins has fairly small zones. Different zones can be right next to each other--golf course, waterfront, pleasant residential, patio homes, SFH's on the busy county highway, houses by the railroad tracks, the REO zone, Old Town, etc.

I would find Zillow far more useful if I had an option to layer my own groupings, tax data, foreclosures and other supplemental information into the tool.

I am Indian, and I rent. "Chindian lemmings" - definitely had me in fits there! I tell my wife that Indians have no historical memory of home prices here, and no idea of what is "normal", which makes us vulnerable to all manner of peer pressure and sweet-talking realtor pressure. Our experience comes from inflation-prone, rapidly urbanizing India, where property prices went 50-100x in nominal terms in urban areas in the span of 15-20 years. During the past few years, bay area has looked sort of like it, which strengthens the pattern already set in our minds from our "home" experience.

The other favorite spot for mainland Chinese is the Palo Alto High area around Oregon Expressway because it is still quite a bit cheaper than west PA, plus PA just incorporated Mandarin immersion class in the public school system (even Cupertino doesn’t have that), which is a big magnet. A new Cupertino is forming around Oregon Expressway for sure.

OO,
I was wondering about that part of Palo Alto. It appears that homes in that area are sold very quickly, usually either ugly stucco boxes or Eichlers. I always assumed people buying these homes would plan to either tear down and build a McMansion in its place or at least gut the home. Given what you're saying, do you think that's the case, or are these folks just buying to be in Palo Alto and therefore keeping these homes in their original splendor?

"Chindian lemmings" and "Chindian mafia" both are very powerful group ....

Is there a real Chinese tech mafia? My sense is that there's way too much tension amongst the Chinese to form an effective grip on power. However, individual first generation Chinese bosses are a nightmare to work with.

astrid: Can you elaborate on the causes? In young Chinese engineers, I've observed that the ambiguity seems to create tension. With many potential solutions, debates occasionally turn into a free-for-all to prove who's the smartest.

More lenders taking homes
FORECLOSURE AUCTIONS MAY DRAW NO BIDDERS
By Sue McAllister
Mercury News
San Jose Mercury News
Article Launched:07/07/2007 01:32:28 AM PDT

The house in Silver Creek that real estate agent Nancy Vanegas will soon put up for sale has five bedrooms, views of the foothills, and is part of a growing category in the housing market: homes that fail to sell at foreclosure auctions and are repossessed by lenders.

The increased presence of lender-owned homes in the market - known in the banking industry as REOs, for "real estate owned" - is fallout from the real estate fervor that marked the first half of this decade. Loans were easy to get, adjustable rates made monthly costs more bearable, home values were rising, and many homeowners leveraged themselves to the maximum. But conditions have changed and foreclosures have risen. REOs, once rare in Silicon Valley, may soon contribute to lower home prices in some neighborhoods.

One of the reasons so many foreclosure properties fail to find buyers is because the bidding typically starts at the amount of the unpaid balance on the first mortgage, and in a soft market, some homes are no longer worth that much. When that's true, no one bids. "There's no quick upside for the investor," said Greg McBride of Bankrate.com.

In May, $2.8 billion worth of California real estate went up for sale in foreclosure auctions, according to ForeclosureRadar.com, a Discovery Bay company that sells foreclosure information to subscribers. Of that amount, about $2.6 billion worth failed to find buyers, and so became bank-owned. The figures represent the total value of the outstanding loans that went up for auction.

Those figures are way up from early this year. In January, for example, $1.49 billion worth of property was auctioned statewide, and $1.32 billion went back to banks. January is typically a busy month because trustees usually refrain from foreclosing during the December holidays.

With so much property be ing foreclosed upon, "Even if every one of them was a great deal, I don't know that we'd have enough investors to buy them," said Sean O'Toole, ForeclosureRadar's founder. "As the banks take back $2.6 billion a month, they're going to get more motivated to get a short sale done," he said. "The conditions are ripe right now for them to start discounting."

Short sales occur when a lender agrees to let owners sell a home for less than they owe on the mortgage, to avoid costly foreclosure proceedings.

When banks take back foreclosed-upon homes, they sometimes hire auction houses to unload properties. Several companies specialize in showcasing REO or foreclosure properties, said Laura Pephens, a director of the California Mortgage Bankers Association and a mortgage-industry consultant in San Clemente. Among the sites with California listings are www.kwiauctions.com and www.ushomeauction.com.

Lenders also list homes with realty agents who specialize in REO transactions, which can take much longer than normal sales. Every aspect of the sale - and preparation for it - must be vetted by the lender or mortgage servicer that holds the property.

The REO listing agent typically finds an attorney to handle the eviction of the previous owners or tenants, if they're still in the home. Often, residents are offered "cash for keys," an incentive to move out quickly, saving the lender the costly hassle of evicting them.

Cash-for-keys is always the better deal for owners, O'Toole said, because an eviction appears on a person's credit record as a court judgment against them.

When the home is vacant, the agent takes care of cleaning and repairing the place (after the lender has approved the cost estimates). The agent provides an estimate of the home's worth; the lender also gets a separate appraisal.

"Sometimes it takes two weeks, sometimes it takes two months," to get a bank-owned home listed once she lets the lender know her contractors have cleaned it up, said Vanegas as she walked through the Silver Creek home's parched, overgrown back yard in late June.

Vanegas, who works in the Willow Glen office of Intero Real Estate Services and specializes in REO transactions, had three such listings last year. Currently she has 27, ranging from condos to the Silver Creek home, where a neighboring home sold for $1.3 million last fall. (Her listing has not been priced yet.)

When she stepped into the vacant, 2,900-square-foot house through a back door in late June, she surveyed what the former residents left behind - an empty bottle of creme de menthe liqueur, half a withered lemon and a promotional flier from Club One at Silver Creek on the kitchen island. Milk and a can of dried beef in a fridge that still bore some decorative magnets. A tiny dead mouse under a built-in desk.

Compared with some newly repossessed homes, she said, "this is clean."

An estimated 8 percent of homes for sale - or about 450 houses and condos - in Santa Clara County as of June 30 were "distressed" in some way - either being sold in a "short sale," or in foreclosure or as REOs, according to a new report from Movoto, a brokerage based in Redwood City. Movoto gathered the data by scouring the agent remarks that accompany homes on the multiple listing services.

There probably are not enough bank-owned homes on the market in Santa Clara County now to drive down prices single-handedly, especially as the trustees that own them are not deeply discounting. But that could change as the market does, Pephens said.

"All mortgage servicers are buried in this issue right now," she said. Trustees - the entities that have assumed ownership of the properties, be they the original lender or a mortgage servicing company - are still trying to get a handle on the increased number of REO properties they are managing, and on how much leeway they have to discount home prices without encountering resistance from investors in the mortgage-backed securities .

"In this market right now, I hope trustees are being more flexible in terms of the purchase price offers," she said.

Contact Sue McAllister at smcallister@mercurynews.com or (408) 920-5833.

Yahoo to close bill-paying service
Bloomberg News
Article Launched: 07/07/2007 01:40:36 AM PDT

Yahoo, owner of the most-visited U.S. Web site, will close its bill-paying service by Sept. 14, part of a plan to shed its less-popular products. Customers of the Yahoo Bill Pay service will have access to their accounts until Oct. 31, the Sunnyvale company said on its Web site. Yahoo co-founder Jerry Yang succeeded Terry Semel last month as chief executive, part of a shake-up designed to boost sales. The company said in May it would close its Yahoo Photo service to concentrate on its faster-growing Flickr site. Last month it shut down its online auctions site in the United States after the service failed to match the popularity of eBay.

- Bloomberg News

Brand,

I'm practically an ABC, so you should take any observations I offer with a grain of salt. My sense is that the Chinese cohesion suffers from three things:

1. stronger regional identity relative to national identity - this is particularly evident for the Beijing v. Shanghai, Mainland v. Hong Kong v. Taiwan divides; there is a lot of distrust and prejudice towards the "other" and the expressions are often at least as ugly as Red America v. Blue America or xenophobes v. "wetbacks"

2. arrogance - most of these young engineers think they're all that and more. That served them well as students in a highly competitive exam based system but make them terrible team players

3. inability to adjust to America's less hierarchical structure - China's traditional organization structure is extremely rigid, so some don't understand implied niceties of working in a team oriented environment

This isn't to say that cooperative and broadminded Chinese people do not exist, merely that they generally work against decades of social conditioning to get to that point.

I would like to hear from an Indian perspective on Chindians. As I understand it, India is a very diverse country as well. Do Indian computer scientists do better together because they share a similar regional/education background? Or is it more cultural?

I also wonder if I'm not overestimating Chinese tendency to disagree. I'm comparing them to Vietnamese and Koreans in this country, and those are very culturally cohesive groups.

I wouldn't say that young Indians are much better than young Chinese for collaboration. It's sometimes hard to get a team moving in a coherent direction because they all seem to focus on different parts of the problem without communicating.

I very much agree with your hierarchy comment. In a "flat" team, there seems to be a lot of jockeying for position.

Rolling over from the previous thread:

Malcolm Says:
Different Sean:
You understand that income tax taxes income right?

um, yes?

The point is that in Oz a property investor adds on their rental income to personal income, and deducts mortgage interest and other expenses from their personal income. If their investment expenses outweigh their rental income, then the Tax Office owes them a refund at their top marginal rate on the difference.

It was my belief, based on reading, that not all countries allow you to claim tax breaks on rental properties against *personal* income, but you had to treat the investment as a separate income producing entity. However, this could be wrong -- what is the position in the US on MID on investment properties? (You can also count the HOA, council rates, asset depreciation on fittings, etc as deductible expenses in the same fashion.)

Hence, many investors were encouraged (by gurus) to buy investment properties knowing they would make a loss on the income for 20 years, but that the Tax Office would bail them out at up to 50% or so of their loss (depending on their top marginal rate -- the more money you make, the more the Tax Office will refund you, in a perverse irony. Since adjusting the margins recently, tho, it's more likely to be 33%, thus discouraging tax-effective investment in property.) Further, the Treasurer halved capital gains tax, purportedly to benefit buying and selling of stocks, but the reality was that most people stampeded to property, believing yet another hurdle had been taken down to speculating.

The other thing that saves speculative investors who invest at a loss (or 'negative gearing crazies' as called by the SMH economics editor) is inflation. Eventually, the fixed dollar value of the original mortgage attenuates as the dollar inflates, although you've also had to pay interest on the loan throughout. After a decade or two, the mortgage amount is worth about the average annual salary instead of 10x the average salary, or whatever happens... Plus rental amounts have gone up with inflation also... so property investors are really playing a waiting game with inflation for the most part, knowing that inflation is almost inevitable in any economy...

Ok, I'll roll mine over here as well though kind of off topic here.

“The point is that in Oz a property investor adds on their rental income to personal income, and deducts mortgage interest and other expenses from their personal income. If their investment expenses outweigh their rental income, then the Tax Office owes them a refund at their top marginal rate on the difference. ”

Right, that’s called a business loss, that’s how it works here. A net loss on a rental comes off of your adjusted gorss income.

“Hence, many investors were encouraged (by gurus) to buy investment properties knowing they would make a loss on the income for 20 years, but that the Tax Office would bail them out at up to 50% or so of their loss (depending on their top marginal rate — the more money you make, the more the Tax Office will refund you, in a perverse irony. Since adjusting the margins recently, tho, it’s more likely to be 33%, thus discouraging tax-effective investment in property.) Further, the Treasurer halved capital gains tax, purportedly to benefit buying and selling of stocks, but the reality was that most people stampeded to property, believing yet another hurdle had been taken down to speculating.”

You’re killing me.
Yes, here as well you can lose money on a rental indefinitely and deduct it, but come on, the notion of someone deliberately losing money on something for 20 years is a bit of a stretch. You need to come and meet some Americans to really understand the pettiness here. The best way to get someone to overpay on a house is to tell them that they are benefiting a landlord by paying rent, and vice versa, the quickest way to get someone to sell a house is to tell them they are subsidizing a renter. BTW what you describe is basically a private rent subsidy, so why would anyone be against that as a matter of policy?

But I’ll help you do the same as the gurus. For every dollar you send me for the next 20 years, I will send you back 50 cents.

All kidding aside, here you don’t even need it to be an investment property, you can claim a second residence and deduct that interest as well straight off the top. I’ll patiently await the knee jerk outrage before I explain the thinking behind the 2nd residence rule, although I know there are people here smart enough to know the reasoning.

To elaborate on my 1st post because this is more an ideological discussion since facts aren’t in question. Like gambling, you have to take the losses with the wins. The state can’t have an income tax that only taxes the profit without allowing for the losses. I’m really struggling with the notion that somehow when a loss is applied against income it is somehow a subsidy by the state. Frankly that thinking scares me, but I realize there are two points of view here. Mine is that the state derives it’s powers and revenues from taxes paid from wealth, whereas the other point of view is that everthing starts out as belonging to the state, and the state takes what it deems a fair amount. The latter is distinctively un-American.

Here is our own irony and shows how silly this chasing after the rich taxing liberal policy is and how it backfires. In this country we lowered capital gains when people were actually making tons of money on houses (thank you) but now Congress wants to raise gains taxes right when people are going to be losing money on the gains. Translation, an even greater tax benefit to the same people that are despised the most on this board but still very funny to sit back and watch.

Realize that India is a country in the sense European Union would be a country (if they ever get around to having a constitution, issue a passport, hold "national" elections and so on). The regional identities in India are extremely strong. There are about 15 "official" languages - and each language group is a State in the Union. More and more states are being ruled by a regional party (i.e a political party whose reach does not extend beyond that state). The government in Delhi is a hodge-podge coalition, at the mercy about 10 parties. It is not an exaggeration to say that political India is a British creation - though there has always been cultural/religious similarity, much as how Europe shares a common Christian heritage.

What does all this mean? When you look at "Indians" here in the US, it is an extremely diverse group. I have 3 Indian colleagues, and each of us speak a different native language, so effectively our only common language is English. Most freshly arriving Indians would tend to socialize within their own linguistic group, though it is not uncommon to have friends across those boundaries too, particularly for Indians from major urban areas.

To the extent you see groupthink (housing in particular) that comes from a common "professional immigrant" feeling of a need to belong, need to put down roots and of course the female nesting instinct. In a way, you feel tentative as an immigrant until you buy that piece of American soil. That is what unites both Chinese and Indians in the housing market. These two groups stand out simply because of the sheer numbers in the valley.

To add to that, there is not a lot of prejudice based on linguistic groups in India - there are the equivalent of polish jokes but nothing too serious. We get our kicks from the Hindu caste prejudice, and then the Hindu/Muslim divide - though there are so few Indian Muslims in the US that it is not visible here. Professional Indians are quite good at hiding any latent prejudice - not that different from professional white Americans ;-)

Malcolm, first of all, no one pays 50% of their income in taxes. I can sit down and show you the math, but you make all kinds of mistakes in your calculations, like claiming that sales tax is 7%. How can someone pay 7% of their *total* income in sales tax, if 40% of it has already been taxed? They only have 60% left to spend! So if the sales tax rate was 7% and this hypothetical person didn't save a dime, they would still only pay .6 * .07 = 4.2% sales tax.

Lots of people pay 40% though, so I guess you are not that far off though.

Secondly, someone has to pay taxes. We can't keep running up Bush-style budget deficits forever. We actually should be trying to pay down the Public Debt, before the boomers retire, but fiscal responsibility has never been a strong point with politicians, particularly the ones that have been in power the last six years. If you don't want to raise capital gains tax, who do you want to raise taxes on? It is easy to complain, much harder to come up with a solution.

I vote that we abolish all internal taxes and only tax imports. :twisted:

skibum,

as I understand it, most Chinese 1st gen prefer new houses, so the natural inclination is to update the house instead of keeping its current "splendor". However, PA has a rather strict set of building codes, which to a certain extent stipulate that even a new house is to be erected, there won't be much allowance on extra footage on the same lot. Clearly the eichlers or modest modern stucco homes won't enjoy the honor of listing themselves on the city's preserved list, still, given the constraints of sq footage, a more reasonable venue for balancing desired lifestyle against city's overbearing supervision is to update and add space, instead of a tear-down and rebuild.

Mountain View perhaps has the most lenient building codes among the lovingly coined "fortress cities". So I would expect far more tear-down-rebuild in MV neighborhoods than PA.

Fair points Jimbo, but none of my posts are complaining about taxes. I don't really disagree with anything you are saying here. Do go back and check though, I have been pretty clear that I favor a simplified progressive tax rate system. I believe income tax is the fairest way to do this. I never voiced an opinion about capital gains rates, in fact in the original concept of income tax in this country capital gains were basically the only form of 'income' because salaries were considered an exchange of labor for pay, not real income. I don't see any reason to treat capital gains differently than ordinary income.

I also favor tariffs to offset the domestic tax base. I believe this will enhance entry level job opportunities as well as recoup the lost value add income tax from overseas outsourcing.

The zeal with which immigrants pursue housing, particular that of those coming from India and China, has more to do with their frame of reference. India was a semi-socialist, planned economy for many years, just like China. For anyone from India and China below the age of 35, they grew up having no memories of real estate distress, because real estate market hardly existed 20 something years ago. We are talking about at least 2 generations who along the property tide as their homelands opened up.

Recently, Shanghai apartments reached new high. A 100 sqm (roughly a bit larger than 1000 sqft) apartment in desirable parts of Shanghai sell for $300-400K, USD, the land is leased on a 70-year basis, and the monthly due is about $100. Now compare this to 1000 sqft condo in Cupertino selling for $750K, which one looks like a better deal??

In the high end segment, Los Altos Hills looks like a steal. Recently villas in Shanghai also hit all-time high, a 500sqm house/villa with less than 1/4 acre land in the nearby suburbs are sold for $5-6M USD, again, the land is on leased basis for 70 years, and you have to put up with the heavily polluted air and food. Your $5M certainly goes much further in Los Altos Hills.

The zeal with which immigrants pursue housing, particular that of those coming from India and China, has more to do with their frame of reference. India was a semi-soci--alist, planned economy for many years, just like China. For anyone from India and China below the age of 35, they grew up having no memories of real estate distress, because real estate market hardly existed 20 something years ago. We are talking about at least 2 generations who along the property tide as their homelands opened up.

Recently, Shanghai apartments reached new high. A 100 sqm (roughly a bit larger than 1000 sqft) apartment in desirable parts of Shanghai sell for $300-400K, USD, the land is leased on a 70-year basis, and the monthly due is about $100. Now compare this to 1000 sqft condo in Cupertino selling for $750K, which one looks like a better deal??

In the high end segment, Los Altos Hills looks like a steal. Recently villas in Shanghai also hit all-time high, a 500sqm house/villa with less than 1/4 acre land in the nearby suburbs are sold for $5-6M USD, again, the land is on leased basis for 70 years, and you have to put up with the heavily polluted air and food. Your $5M certainly goes much further in Los Altos Hills.

Jimbo, the difference in our estimates is FICA which if you are self employed is 15%, if you work for someone it is 8%. So unless you don't consider FICA a tax, and that is a legitimate point of view, it's either 48% or 55% pick your poison.

My using sales tax, and other taxes like property taxes were just extras to show that it doesn't even stop after the tax return. Think about the 3 layers of taxes on your gas, and how many layers of taxes are on a hotel room, or a rental car. Property tax can easily be 5% of your income. You have to give the government credit for being creative at how much it does tax us with people like Suzie Orman boasting how historically low our taxes are.

I vote that we abolish all internal taxes and only tax imports.

Why? That will slow international trade and that will be a net loss for the US economy.

I favor user fees instead of taxes. I understand that some public services are difficult to charge. In that case, I recommend a mild sales tax, a flat tax, or a slight regressive tax schedule.

I denouce all forms of progressive taxation. Productivity should not be penalized.

Sorry Malcolm, it just doesn't work out that way. Here is the real taxes on an income of $90k with nothing but the personal deduction:

IRS (from the tax tables): 19539
CA State (as above) : 8258
FICA (6.2% of salary): 5580
Medicare (1.45%): 1305

Now your employer also has to pay FICA and Medicare at the same rate, so it is fair to consider that as a tax on your employment, but even adding that in twice, I get

19539 + 8258 + 5580 + 5580 + 1305 + 1303 = 41567 in total taxes.

Okay, I have to admit that is 46% overall, 8% of which is paid by your employer. That is more than 40%, but still not 55%. And this is someone who is not filing for the standard deduction (even though they should!), has no 401(k), no mortgage deduction, nada.

This is pretty much the max possible, because above this there is no payroll tax, though it is partially offset by a bump up to 28% at $74k.

I don't think anyone actually pays this rate though, since anyone sane would grab as many deductions as they could. I know I am getting hit by the AMT and my overall tax rate is something like 35%.

Malcolm Says:
You’re killing me.
But I’ll help you do the same as the gurus. For every dollar you send me for the next 20 years, I will send you back 50 cents.

because of the capital gain in the property over 20 years -- supposedly at 10% a year -- exactly the same as buying and then selling yahoo shares for the capital gain and not for the dividend.

or make that GOOG shares