If they do this, they deserve to be swept out of office

[OL FU]

Earlier article confirming the CMBS involvement.



Actually there was nothing wrong with securitizing mortgages that were underwritten properly. In fact they were a very useful tool in spreading manageble risk and adding liquidity to the mortgage market. But a combination of risky underwriting and rating agency screw-ups blew it all up.

Add into that combination many, many hundreds of thousands of loans that WERE underwritten properly, then securitized, then defaulted on when the value of the home didn't hold up.

People paid on home loans only inasmuch as they were able to use their home as their own private ATM. Once the music stopped on THAT little charade, all bets were off.

Well, hindsight is 20/20. If the value of the home didn't hold up, then they weren't underwritten properly.

I do understand the point, appraisals, enough down, yada yada. But I do think there was a point that someone should have said you know that house in Vegas that is selling for $700,000 was only worth $300,000 five years ago.

But I'm not in the business so.

[danefan]

Add into that combination many, many hundreds of thousands of loans that WERE underwritten properly, then securitized, then defaulted on when the value of the home didn't hold up.

People paid on home loans only inasmuch as they were able to use their home as their own private ATM. Once the music stopped on THAT little charade, all bets were off.

Well, hindsight is 20/20. If the value of the home didn't hold up, then they weren't underwritten properly.

I do understand the point, appraisals, enough down, yada yada. But I do think there was a point that someone should have said you know that house in Vegas that is selling for $700,000 was only worth $300,000 five years ago.

But I'm not in the business so.

That house in Vegas was worth $700,000 five years ago wasn't it? A house is worth what someone else is willing to pay for it. And those houses were selling for that price. Its just not worth it today. Doesn't mean it wasn't worth it then.

[OL FU]

Well, hindsight is 20/20. If the value of the home didn't hold up, then they weren't underwritten properly.

I do understand the point, appraisals, enough down, yada yada. But I do think there was a point that someone should have said you know that house in Vegas that is selling for $700,000 was only worth $300,000 five years ago.

But I'm not in the business so.

That house in Vegas was worth $700,000 five years ago wasn't it? A house is worth what someone else is willing to pay for it. And those houses were selling for that price. Its just not worth it today. Doesn't mean it wasn't worth it then.

Remind me not to invest in any offering you are sponsoring.

Anyone who has been in the real estate business knows the type of property value increases that are reasonable and expected. On the other hand, the market tends to ignore bubbles. But that doesn't excuse it.

In case you haven't figured it out, that's how you lose $400,000. Keep to lawyering.

[OL FU]

Btw, That was a little harsher than I intended. I clearly said I understood what AZ was talking about and that hindsight is 20/20.

But back to the other point, during bubbles the applicable assets are over valued, so no, the house really wasn't worth $700,000. If you sold it then it was a good for you, but the real value of the house we were discussing was not worth $700,000. Just like the stock price of Buyyourpetoline.com was not worth $100 per share in 1998. Just because someone paid the price doesn't mean that was the value of the asset.

[danefan]

Btw, That was a little harsher than I intended. I clearly said I understood what AZ was talking about and that hindsight is 20/20.

But back to the other point, during bubbles the applicable assets are over valued, so no, the house really wasn't worth $700,000. If you sold it then it was a good for you, but the real value of the house we were discussing was not worth $700,000. Just like the stock price of Buyyourpetoline.com was not worth $100 per share in 1998. Just because someone paid the price doesn't mean that was the value of the asset.

Call it purely theoretical if you'd like - but the fair market value of anything is what someone else is willing to pay for it. If someone was willing to pay $700k for that house, then that's what it was worth at that time. Your 20/20 hindsight is in regards to the decrease in value, not the value at that time.

Maybe its just semantics, but then again semantics is my bidnuess.

[AZGrizFan]

Btw, That was a little harsher than I intended. I clearly said I understood what AZ was talking about and that hindsight is 20/20.

But back to the other point, during bubbles the applicable assets are over valued, so no, the house really wasn't worth $700,000. If you sold it then it was a good for you, but the real value of the house we were discussing was not worth $700,000. Just like the stock price of Buyyourpetoline.com was not worth $100 per share in 1998. Just because someone paid the price doesn't mean that was the value of the asset.

Call it purely theoretical if you'd like - but the fair market value of anything is what someone else is willing to pay for it. If someone was willing to pay $700k for that house, then that's what it was worth at that time. Your 20/20 hindsight is in regards to the decrease in value, not the value at that time.

Maybe its just semantics, but then again semantics is my bidnuess.

Where would we be today if there were people lining up to pay $700,000 for those houses and NO ONE was willing to lend them the money?

[OL FU]

Btw, That was a little harsher than I intended. I clearly said I understood what AZ was talking about and that hindsight is 20/20.

But back to the other point, during bubbles the applicable assets are over valued, so no, the house really wasn't worth $700,000. If you sold it then it was a good for you, but the real value of the house we were discussing was not worth $700,000. Just like the stock price of Buyyourpetoline.com was not worth $100 per share in 1998. Just because someone paid the price doesn't mean that was the value of the asset.

Call it purely theoretical if you'd like - but the fair market value of anything is what someone else is willing to pay for it. If someone was willing to pay $700k for that house, then that's what it was worth at that time. Your 20/20 hindsight is in regards to the decrease in value, not the value at that time.

Maybe its just semantics, but then again semantics is my bidnuess.

I understand. And yes to some degree it is semantics. But the purpose of underwriting is not only to establish value at the time but to project the ability to maintain the value. And as I said, a real estate market (outside of NYC during a market boom) increasing way beyond reasonable amounts, is suspect.

BTW, the definition of a bubble is generally the increase of asset prices above a level that the market can sustain. In other words the prices are higher than a reasonable market valuation.

[OL FU]

Call it purely theoretical if you'd like - but the fair market value of anything is what someone else is willing to pay for it. If someone was willing to pay $700k for that house, then that's what it was worth at that time. Your 20/20 hindsight is in regards to the decrease in value, not the value at that time.

Maybe its just semantics, but then again semantics is my bidnuess.

Where would we be today if there were people lining up to pay $700,000 for those houses and NO ONE was willing to lend them the money?

We would not have had a bubble or a crash.

Of course that would never happen. Like I said previously, I have never seen real esate buyers, developers, lenders etc that recognized a bubble or if they did they still stayed on the band wagon assuming they could get off in time.

Never really worked with houses but I would imagine in many ways they are the easiest to underwrite (technically speaking) and the easiest to get wrong. (mainly because we haven't had a big downward shift in the housing market in a long time) All you really have is comparables. and comparables are going to reflect bubble prices, if a bubble exist. Honestly my biggest concern with many real estate prices during the boom was simply interest rate driven. I didn't see how mortgage rates for real estate could sit at 4 and 5% over the long term which I thought drove the boom. My concern was more on the commerical side than housing but interest rates impact both in similar ways. I assumed that interest rates would eventually correct up to normal levels which would drive the price of all real estate down. Well I got the drive down part correct but not the reason.

[CID1990]

Fools.


NO house.. built on a slab, with yellow pine frame and vinyl siding that I could punch my fist through the wall.... is worth the money anyone has paid for it over the last 25 years. period.

I could'nt bring myself to buy a house back when the market was so good simply because I have a fundamental problem with buying a new house of modern quality and cheap materials, built buy Mexicans and sold for $400,000 when the cost of materials and labor ran somwhere between 50,000 and 75,000 dollars.

It's like spending 35,000 bucks on a Trabant.