Speculators May Have Sped Up Housing Downturn

[flashl]

As lenders pore over their defaulted mortgages, they are learning that the number of people who bought homes as investments is much greater than previously believed.

Such borrowers turn up frequently in analyses of loans that defaulted within months after origination. In many cases, these speculators lied on loan applications, saying they intended to live in the homes in order to obtain more favorable loan terms or failed to provide the requested information.

Roughly 20% of mortgage fraud involved "occupancy fraud," or borrowers falsely claiming they intended to live in a property, according to an analysis by BasePoint Analytics, a provider of fraud-detection solutions in Carlsbad, Calif. Another study, by Fitch Ratings, looked at 45 subprime loans that defaulted within the first 12 months even though the borrowers had good credit scores. In two-thirds of the cases, borrowers said they intended to live in the property but never moved in.

Some home builders have come to similar conclusions: They now believe that as many as one in four home buyers in some markets were investors during the boom, up from their earlier estimates of one in 10 buyers.

Real Estate Journal

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Groups try school to stem foreclosures in U.S.

FORECLOSURES RISING

When the dot.com bubble burst in 2001 and interest rates fell, trillions of dollars -- $1 trillion a year in the peak years from 2004 to 2006 according to U.S. Federal Reserve data -- flowed into mortgages for those seeking the American dream of owning their own home.

Reuters

First, it was the low-income borrowers who tricked lenders and bought too much house, now lenders realize it's the speculators who lied about occupancy. Also, we now see, that the money changers followed the new wealth created during the dot.com glory days who invested their earnings into real estate.

[Warpy]

1. 1/3 of new construction here in central NM was being sold

to speculators and left empty. 1/4 of all new construction was going to Californians, alone. They'd bring them in on chartered flights and drive them around to the various McMansion sites by limousine van. One fool bought an entire cul-de-sac. I know because he dumped them all on the market the same day: "Four years young! Never lived in!" meaning four years out of style and full of spiders and dust. Some of these places that have been sat on for four or five years have things like damage from burst pipes. Californians don't realize how cold it gets in winter here in the high desert and never bothered to have the heat turned on.

Since the trend is to downsize, most of these white elephants will end up as rentals for multiple occupancy by unrelated adults, "zoos" we called them in the 60s. All of them are far from jobs and poorly served by mass transit.

[lligrd]

2. The House Next Door Sold 3 Times in 2 Years

People would come in, redo the landscaping (which didn't need it, after all the previous buyer had just done the same thing) and re-sell.