Habitual Liars Continue to Plague U.S. Housing Industry

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“Hey Angelo, how’s it going,” I barked into the phone at the height of national housing boom in 2004, flipping my reporter’s notepad open to a blank page.

The Angelo on the other end was the soon to be infamous Angelo Mozilo – founder, chairman and chief executive officer of Countrywide Financial. It was the nation’s largest mortgage lender back then. Today, it’s just another piece of Bank of America, albeit one which has helped cost the Too-Big-To-Fail Bank more than $71 billion in fines and settlements for improper mortgage-related activities.

And Angelo?

He’s become an icon for a haywire corporate world that’s incapable of answering one simple question: “How much is too much?”

A man who inspired the eloquent and concise one word meme above.

I’d called Mozilo because I needed a housing CEO quote for my monthly national story on new home sales and I didn’t want to screw around with a bunch of calls. He could be counted on to come through quick fast and in a hurry.
Mostly because he and other housing CEOs, like Toll Brothers CEO Robert Toll, were convinced positive news coverage led to increased housing activity. So much so that many built TV studios in their offices at the height of the housing boom to facilitate interviews.

“I’m good Vic,” Mozilo responded. “I’ve only got a couple minutes here – what can I do for you?”

While it might take days to set up a phoner with a CEO in another industry, housing executives could often be reached in seconds at the height of the housing boom. It was almost like we were on the same side.

In their minds, the truth about housing had become whatever they said it was. It would be another year before I started questioning the assumptions being embraced by them and many of my peers in financial journalism.

Interviews with housing executives and economists were more dance than substance back then, and the responses were as predictable as those from college football coaches. The same is very much true today, as evidenced by a recent story out of South Florida detailing the alleged efforts of one ruthless realtor to blackmail two of his equally ruthless competitors.

The defendant allegedly threatened to expose how the rival agents manipulated housing data to conceal how long the homes they were trying to sell had been languishing on the market. He demanded $800,000 to keep quiet.

The incident is yet another example of the kind of nonsense I’ve long suspected is built into economic indicators in the housing sector. Which is why, at least for me, the mechanics of the realtor blackmail story are a lot more interesting than the colorful personalities attached to them.

If nothing else, the story confirms for me that the housing industry hasn’t changed a bit since its collapse sparked The Great Recession that began in December of 2007 and lasted for 18 months. The industry is still just as chock full of habitual liars as ever, seven years after Mozilo was exposed as a virtual sithlord of irresponsible lending and political manipulation.

There was really very little new to be said about the steady stream of price and sale increases being posted across the nation back in 2004, at the height of the U.S. housing boom. Every month, the numbers seemed to be up. When they weren’t it was usually because activity in the month-ago or year-ago comparison period had been amazingly strong.

The housing market had been transformed by asinine federal regulations – requiring Fannie Mae to repurchase just about any housing loan made by mortgage lenders like Countrywide – into a blackjack table where no one could lose. Lending standards plummeted under the rules as mortgage lenders passed on their most outrageous NINJA loans to federal regulators like ticking time bombs.

NINJA was lovingly embraced by the industry as shorthand for a loan made to a borrower with “No Income, No Job, and No Assets.” It was a loan made to someone with no visible means of repaying it, which never would have been approved had it been carried on the lenders’ balance sheet.

Our job as financial journalists at the time was simply to report the ups and downs of the monthly housing indicators, and to do so as rapidly as possible, before moving on to the next economic indicator. Investors were trading on our stories and headlines and the frenetic pace left little time for deeper exploration, tough questions, or meticulous scrutiny.

If I asked a housing CEO or economist why sales were up, they typically said something like “Baby Boomers buying second homes” or “new immigrants buying starter homes.” In retrospect, there was a lot of bullshit mixed in with the partial truths they were giving us, but there was little appetite for exposing them.

Just about everyone but Dean Baker, co-founder of the Center for Economic and Policy Research, seemed to be functioning as a market cheerleader to one degree or another.

Investors of every size and background were pushing up sales and prices. It was commonplace for elderly uncles and aunts with little financial acumen to be simultaneously paying off mortgages on 15 different condo apartments in South Florida back then. Their investment strategy was based on one very erroneous conviction – the idea that housing prices would always go up.

I knew otherwise and had my suspicions about what was going on. My own abortive attempt to buy a home in Washington, D.C., had led me to a real estate broker who couldn’t even be bothered to meet with anyone who wasn’t ready to make a purchase offer the same day they first talked with her.

The property I was looking at was a basement apartment. The price-tag was nearly $300,000.

That kind of outrageous pricing and realtor behavior just did not seem sustainable at the personal level.

A salesperson who doesn’t want to sell?

WTF.

The same mortgage professional was so desperate for buyers two years later that she began cold calling me. And continues periodically to this day.

This experience was the first of three “jump the shark” moments for me with regard to the national housing market.

The second occurred in early 2005, when over-extended homebuilders began handing out free cars, vacation trips, crown mouldings, and granite countertops to the shrinking pool of buyers. I pushed those peculiar details into my stories, even though the vast majority of housing economists and CEOs seemed incapable or unwilling to address them.

The third moment occurred in August of 2005 when I tried to organize a panel on the national housing bubble at The National Press Club in August of 2005. Only one of the four national economists scheduled as panelists – Dean Baker – would even admit a bubble existed. The other three refused to appear unless I changed the title to “Possible National Housing Bubble.”

These three “Jump the Shark” moments were followed by the housing collapse that began in the second half of 2006 and is still with us today. I knew the bubble was deflating when Angelo and his cronies stopped giving interviews from their fancy new studios.

Their relative willingness and unwillingness to cheer on the housing market may be the single most reliable housing indicator when it’s all said and done.

Today, readers are still subjected to a lot of the same financial bullshit by the mainstream news media.

Why does it happen?

It happens because the frenzied pace of news industry competition leads reporters to trade content for access. Those in the financial world know that if they challenge key sources too much those same people will stop talking to them and simply go to the competition with their quotes and exclusives. They also know their own management may not back them up if that happens.

Which is why most Americans still have no idea what’s really going on with housing. However, judging from the realtor story it’s safe to say the industry still cannot be trusted.

Here are three reasons why:

1) Misinformation
Every economic indicator related to housing activity is inherently flawed in a way that makes them look more robust than they really are. They’re not adjusted for population growth – an omission that means we’re constantly comparing purchases by a larger population to purchases made the same month a year earlier by a slightly smaller population.

It’s akin to comparing the height of a 13-year-old to their height and weight the same month a year earlier and then suggesting the growth is due to better nutrition or parenting, instead of the inevitable result of their own natural aging.

2) Worker exploitation
It makes no sense for poor and middle class Americans to buy a home and tie themselves to a single geographic area right now, given the scarcity of good jobs and lack of employer loyalty to their own people.

Publicly traded companies like Wells Fargo often simultaneously fire and hire thousands of employees to shift their resources from slowing business sectors and regions into hotter business sectors and regions. That means a nonunion worker with a home to sell is more likely to remain unemployed because they can’t pull up stakes quickly enough to relocate to the areas with jobs.

3) Trust
The housing industry has yet to public acknowledge that it exploited millions of American families and knowingly inflated the housing bubble which spawned the Great Recession. It’s paid more than $51 billion out to those families since the start of 2012 for everything from predatory lending to foreclosure fraud, but has never admitted wrongdoing.

In the absence of that admission most Americans simply do not trust the mortgage industry, which is pretty friggin intelligent of them.

This mistrust makes perfect sense to me, because I know how instrumental former Fed Chairman Alan Greenspan was in creating the pile of wrecked middle class families the housing industry stacked up like so many discarded oyster shells.

Back in 2004, Greenspan (right) was probably the most respected public official in Washington, D.C. He was so trusted that members of Congress competed to ask him scripted questions they didn’t understand during their televised hearings with him.

However, at his core, Greenspan was just as big an imbecile as the Uncle Bubbas and Sols buying up condos in South Florida who thought housing prices would never go down. He knew a bubble was building, but actively fought against efforts to regulate the housing market’s excesses.

Why?

Because Greenspan is part of a DC-NYC caste system of elites, who view themselves as a breed apart and above the rest of us. His developmentally disabled economic thinking was that the market could police fraud better than government.

What’s that mean?

It’s akin to thinking that if you cut the number of police in a bad neighborhood people will learn to avoid it once enough of them have been robbed, beaten and murdered.

Only a person living in an Ivory Tower with no chance of being victimized in such a neighborhood would embrace such a terminally idiotic economic mindset.

For housing, Greenspan’s sheltered convictions meant that once enough people got ripped off by the big banks he thought they’d take their business elsewhere. In effect, he was insulating the big banks and mortgage lenders from professional accountability while tossing decent American families into the fire for them.

You have to have a pretty big pile of wrecked American families for this POS economic theory to work. And Greenspan succeeded in stacking one up:

-An estimated 750,000 American families were subjected to improper foreclosure procedures from 2008 to 2011.
-More than 8 million Americans lost their jobs after the housing market imploded.
-Over 16 million foreclosure notices have been filed since 2007.

Many of the breadwinners in those wrecked families wound up committing suicide and having divorces after losing their homes.

Our national economy is not the same and may never be the same due to the huge amounts of middle class wealth that were taken by the big mortgage lenders. Big bank payouts under the national mortgage settlement have topped $51 billion – that’s “Billion” with a “B” – since 2012. Additional settlements are in the works.

So far, we’ve only seen one prison term for an upper level member of the DC-NYC banking and political elites who now plague our nation like a dose of syphilis: Credit Suisse executive Kareem Serageldin.

By contrast, financial regulators made over 30,000 criminal referrals and 1,000 felony convictions during the Savings and Loan crisis of the late 1980s. The $160 billion price-tag for the S&L scandal dwarfs the $1.9 trillion cost of The Great Recession, which has seen the percentage of Americans in the workforce fall more the five percentage points to less than 60 percent since 2000.

Know why the rate was so low prior to 2000? Fewer women in the workplace.

That’s not the case now. So why’s it so low?

The painful truth is that The Great Recession never really ended for the faltering middle class. Although the wealthy are now wealthier than ever before.

Bottom line, the entire housing industry has been without a moral compass for about 20 years now and my sense is that actual housing activity is far below what we’re being told for a number of reasons. The No. 1 being that people just don’t trust the industry and its banking buddies any more.

In that respect, and that respect alone, Greenspan was kind of right. However, instead of avoiding just the bad actors in the housing sector American consumers have elected to avoid the entire industry altogether.

Dumbass didn’t see that one coming.

He should have.