Friday 7/23/2008 9:32AM

Well, I have been wondering to myself, Who got us into this mess? And how is it that I can show houses in certain suburbs with one out of three either in foreclosure or bank-owned? As further evidence of the number of houses in foreclosure, MLS has added the search criteria, “Bank Owned”

Then, on July 19 - 20, 2008, an article by James Grant appeared in The Wall Street Journal on section W1 entitled Why No Outrage?. Find it online and read it for insight on the issue.

The very, very short version is that Wall Street’s biggest broker-dealers leveraged themselves from a safe one dollar of equity capital for every $10 of loans to one dollar for $30 in loans.

And interestingly, last year Morgan Stanley paid out 59% of its revenues in employee compensation, up from 46% in 2004. And, yes, MS has a slug of subprime mortgages.

So through Federal assistance, we, the America people, will be spending our money to support their bad decisions.  End of Article.
 
Joel's ramblings:

Another little known fact is that many subprime mortgages carried huge extra charges to the people (mortgagors) taking them out. Mortgage terms were lousy and closing costs often outrageous; an agent in my office talks about Loan Officers bragging at a bar about charges being piled on and then the LO's shutting off their cell phones at closing so the mortgagors could not get a live person. This did not happen with most LO's, but it happened with enough of them to be part of the current mess. If you went to my favorite LO, Susie Hay (612-597-1646) at Wells Fargo, you never had a mess.

I sit at the dining room table with sellers as they break out their HUD1, and I see they paid nearly 4% as an origination fee. This 4% is 400% more than the 1% that is most common. So my question is, Who got that money? I am guessing it went to the LO and the lender. And if the lender sold the mortgage to someone, then he or she may have gotten a taste too. And those mortgages were the type the local mobsters would write. If the lender did that to someone, why should we bail them out? We may be better off without them around making mortgages.

There are many, many reasons a seller needs money from a mobster mortgage. And now we may be bailing out some homeowners with mortgage troubles. I wonder how that will work since foreclosures have (obviously) depressed house prices, and if you own a house worth $200k in 2005 and it’s now worth $170k (or less) and you owe $200k; what incentive is there to stay?