Retirely
1
All posts from Retirely
Retirely in The things you own end up owning you,

Goldman Sachs guy who spurred the financial crisis by packaging garbage mortgages for sale has a brand new booming business: selling garbage homes at outrageous interest rates to people who can’t get a traditional loan thanks to the financial crisis

As the head of Goldman Sachs’s mortgage department, Daniel Sparks helped make the bank more than a billion dollars betting against the market as housing prices began to crash in 2007. Today, he is betting on home buyers who no longer qualify for mortgages in the fallout of that housing crisis.

“There’s a whole underbelly of real estate that’s not through traditional sale,” said Robert Doggett, general counsel for Texas RioGrande Legal Aid and a critic of contracts for deeds. “It’s not a problem of yesteryear. It’s coming back.”

A ‘garbage loan’ would be giving a loan to someone who isn’t qualified, or at too low an interest rate for their risk profile. So when he stops this practice and charges the appropriate interest rate for the risk profile, as you all demand, he is now charging outrageous interest. Nice. And, no one is being forced to take loans at ‘outrageous interest’. If you can’t get normal rates and terms, you shouldn’t be buying a house.

According to the article, an exemplary home was bought in bulk from F&F for $8,000, sold and resold by profiteers such that the current buyers are now paying 10% (with the Fed rate still below 1%) on $32,000 (that’s four times the government (F&F) sale price, for those who are mathematically challenged).

Why doesn’t the general public have the opportunity to buy a house from F&F for $8,000, you may ask? I don’t know the answer for sure, but I suspect wealthy men in suits who know each other were able to broker large deals under the guise of efficiently cleaning the F&F balance sheet of unwanted REO assets. Which gives the REITs monopoly pricing power and leaves the average American citizen out in the cold, as per usual.

The answer is that the financial firms aren’t buying a single F&F home at $8,000. They’re buying a hundred (out more) homes at a time. F&F can sell them a home for that cheap because at that volume, the transactional cost is spread across so many homes that it’s virtually zero per unit.

I run a small chain of shops. When I was ordering a hundred parts from my wholesale supplier, I was paying $x per unit. When I opened another store and started ordering two hundred parts, my price went down to $x- $y per unit to account for a volume discount. When I opened my third store and started ordering three hundred units, my price per unit went down to $x-$2y per unit, etc.

If you buy in large quantities, you get volume discounts (on to of the fact that you are already paying a wholesale rate, which is not the same as the retail rate). There’s nothing nefarious about this, at all. If you went to Freddie or Fannie and offered to buy a hundred homes, they would likely give you the same prices. If you’re just buying one home, however, it costs F&F too much to sell you a home at that price.

The guy at Goldman Sachs who helped cause the foreclosure crisis that crashed the economy in 08, but pushing lendees to make risky mortgages so he could package and sell them as bonds, has found a way to make more profit on the misery he caused. His group buys up broken down foreclosure houses for cheap, then sells them to low income people, whose credit was so damaged by the 08 crisis that they can no longer qualify for a mortgage. They use a device that’s called a “contract for deed” that lets them bypass all the mortgage lending reforms put in place after the crisis THEY caused. This allows them to charge double digit interest rates, and bypass all homeowner protections under foreclosure laws. And since these homes are sold as-is to low income buyers, they are almost guaranteed to default when expensive repairs crop up, which given the house’s condition, is a near certainty.

In fairness, Goldman Sachs simply followed the JP Morgan model that the Brits figured out how to turn their lemons into gold. Mind you, the mortgage fiasco was essentially the logical progression of this model, especially when you look at the American markets. Yes, it took American know how and boundless greed to make a really sh*tty British financial weapon of mass-destruction into something guaranteed to escalate uncontrollably.

The long and the short of it is, though, this ingenious wee fellow needs to be cock-punched by every single one of the clients that he hurt. Which should render his jubblies into jelly, which should prevent further sullying of the gene pool. It won’t stop the greed index, but at least we can have some closure on his particular actions. Plus, the satisfaction of jubblie punching someone who desperately deserves it. Which IS the best kind of jubblie-punching.