Joseph L. Shaefer

What REALLY Caused the Mortgage Crisis - And What to Do Now

Charlie Howard and JerryR --

First, Mr. Howard, you hit on something I neglected to discuss. You're right, of course -- in addition to no skin in the game from the buyers there were no penalties for mortgage brokers who wink-wink-nudge-nudged buyers into falsifying documents, no reason for banks to be concerned about due diligence in terms of creditworthiness since they were only going to hold the loan 24 hours, and Wall Street -- well the less said the better.

Congratulations to you both for practicing something that has been out of fashion for too long -- fiscal prudence in your personal affairs. Like both of you, my wife and I figured what we could afford, put enough into it to keep the payments low, and are now reaping the benefits after having borne the slings and arrows of those who thought we just didn't 'Get' The New Economy. We didn't. We thought the old one, with regulation of the hucksters, a Chinese Wall between banks and brokers, and personal responsibility was just fine...
Joe

What REALLY Caused the Mortgage Crisis - And What to Do Now

On Jul 06 02:01 PM Glen L. wrote:

The wild card in the rent vs. buy decision is inflation. If mass inflation occurs in the next couple of years, as I think it will, anyone who walks away from a fixed loan they can afford to take advantage of temporary cheap rents will be walking into a trap. First, they will NOT get a new loan, primarily because of market conditions rather than banks using prudent lending standards. Second, they will watch their cheap rent rise year-by-year in lockstep with inflation.


Well said, Glen L. For many people, "Better the devil you know than the devil you don't." People "underwater" on their current property values have a FIXED, KNOWN monthly nut for their mortgage. Walk away to save a few bucks now and you subject yourself to the whims of the landlord and the possibility of getting locked out of getting another home, not because the price is too high (though that may happen as well) but because the terms are too onerous.

What REALLY Caused the Mortgage Crisis - And What to Do Now

On Jul 06 10:50 AM SoCalGal wrote:
Mr. Schaefer, do you have any idea whatsoever about credit "seasoning" requirements when applying for a new loan? If a person walks from a property, he won't be getting another loan anytime soon...

JS replies -- Ah, right. Requirements. On / in the banking and mortgage industry. "Banking requirements" is an oxymoron like jumbo shrimp. political leadership, and Congressional ethics. If the bankers et al followed any requirements or the regulators enforced them, rather than the former pursuing greed and the latter pursuing their next day off, we wouldn't be IN this miss. Apologists for the bankers and regulators can daydream about such things. In the real world, we have to think intelligently and act as if it were our money, not just numbers on a piece of paper.

What REALLY Caused the Mortgage Crisis - And What to Do Now

On Jul 05 06:02 PM Swashbuckler wrote:

Given the name of your firm, "Stanford Wealth Management", I would
guess sharing the same name as "Sir Allen" has probably brought your
people a few headaches they could do without. Enjoyed the article.

///// JS replies -- Thank you for your concern, Swashbuckler! No client or Investor's Edge subscriber was confused, but you never know who might have contacted us that didn't. We deal with that with equanimity and good humor, figuring that people who confuse, say, Stanford University with Allen Stanford, probably aren't going to get into Stanford! Below, for a not entirely without tongue in cheek comparison of our two firms, is my response to an SA reader who asked the question back when this story first broke...

Allen Stanford of Stanford Financial Group…
Organized in Antigua, one of the more “liberal” islands for lax banking laws

Joe Shaefer of Stanford Wealth Management LLC…
Disorganized at Lake Tahoe, and subject to lifelong SEC, NYSE, FINRA, State of Nevada and peer review scrutiny. Also holder of an Intelligence community TS clearance for his adult lifetime, and REALLY poked and probed regularly to gain that.

Allen Stanford of Stanford Financial Group…
Knighted in Antigua, not England. Gained his title of “Sir” Allen by spreading joy and Franklins around Antigua -- which gave him a title and passport in return

Joe Shaefer of Stanford Wealth Management LLC…
Got his titles (Private, Lieutenant, etc.) the old-fashioned way. Earned ‘em. Some in spots slightly less idyllic than Antigua.

Allen Stanford of Stanford Financial Group…
A dual citizen of the US, where he was born, and Antigua, where he plied his trade until the US Attorney asked him to not leave the US.

Joe Shaefer of Stanford Wealth Management LLC…
An American and proud of it. I don’t need no steenking “escape” passport.

Allen Stanford of Stanford Financial Group…
Claims to have assets under management of $50 billion. Unfortunately, some of that may have been garnered from new investors wowed by hypothetical returns presented as if they were actual returns. (This according to former employees who FOR YEARS tried to get the SEC to investigate, all to no avail. Note to SEC: How many employee affadavits does it take to get you out of your offices to check out FRAUD? Can you spell P-O-N-Z-I??)

Joe Shaefer of Stanford Wealth Management LLC…
Stanford Wealth Management has a slightly lesser amount of assets under management. On the other hand, our assets are real.


Allen Stanford of Stanford Financial Group…
Personal fortune estimated by Forbes at $2.2 billion.

Joe Shaefer of Stanford Wealth Management LLC…
Inexplicably, Forbes neglected to include Joe on the most recent list of US billionaires. I’ll contact my friend Steve Forbes and see what the problem is.

Allen Stanford of Stanford Financial Group…
“Sir” Allen is separated from his wife and six children, but has a girlfriend, Andrea Stoelker, he may or may not have been with for 7 years. He may or may not have fired her recently from her “job” as president of the Stanford Super Series (Caribbean cricket) after she did or did not have a “liaison” with Chris Gayle, the captain of the Stanford Superstars cricket team and a somewhat more athletic specimen than Sir Allen. He (Stanford, not Gayle) was also recently the defendant in a paternity suit in Miami, the plaintiff with whom he may or may not have had two additional children.

Joe Shaefer of Stanford Wealth Management LLC…
Positively boring by comparison. He’s been married to the lovely and talented Heather Williams for 14 years. Ms. Williams has also been thoroughly reviewed and registered with the SEC, the NYSE, the NASD, etc., etc. She is the Chief Compliance Officer of Stanford Wealth Management, LLC, and keeps its books, records, and policies in complete conformity with all regulatory rules and guidelines. I’ll bet right about now, “Sir” Allen wishes he had someone like Heather to keep him from having to hire fancy-pants lawyers to defend him against angry investors. You have chosen poorly, grasshopper.

What REALLY Caused the Mortgage Crisis - And What to Do Now

On Jul 05 03:53 PM Asif Suria wrote:

A nice summary of what occurred and I am with you about the apartment REITs and wrote an article about them (specifically AvalonBay) a few months ago, seekingalpha.com/artic....

What are your thoughts about the effect of unemployment on these apartment REITs, especially the more leveraged ones like AIMCO and Equity Residential.

JS replies... Dear Mr. Suria, I just read your article on AVB and AIV and recommend it to anyone in this thread who wants more information on the subject.

I may be wrong but, with unemployment benefits, possible savings, and a spouse in the family often still employed, I don’t see all families with an unemployed family member living on the streets. I think they are locked out of the homebuying market, but they will still want a roof over their heads and a safe place for their kids. I believe they will rent.

The most fortunate of them, with enough cash flow to afford it, will rent from the upscale landlords you mention. As long as occupancy rates stay high (and with little building of new apartments, I actually see occupancy rates increasing) I imagine cash flow at these firms will continue to easily cover debt service and debt coming due.

People may sell their car and take the bus, wear the same clothes another year, or eat less expensively but, employed or unemployed, people will take care of the basics – food and shelter – first.

What REALLY Caused the Mortgage Crisis - And What to Do Now

On Jul 05 03:49 PM Market Sniper wrote:

Also agree with most of your points. Well written. One fly in the ointment: what happens as prices continue to drop? ...Why would someone continue to make payments on a $200,000 loan when the same residence can now be purchased for $150,000?


JS replies… All well-thought-out and valid concerns, Market Sniper. I believe a number of factors contribute to someone continuing to make payments on their current home, rather than flitting from house to house for the $50,000 net credit. Among them: the points, origination fees, lenders fees, FedEx fees, title insurance, and unexpected move-in expenses we all encounter when buying a new or existing home markedly narrow the $50,000 net credit.

But I think more important are the intangibles that led one to spend so much time selecting their home in the first place. Intangibles like your spouse just finished painting 3 rooms and is working on number 4, you just put $10,000 into new lawns and plants and spent countless hours watering and weeding, you really like your current neighbors, the kids have established playmates in the current neighborhood, you prefer the schools there, and so on.

Finally, perhaps less tangible but equally valid, are inertia (“a body at rest tends to remain at rest,”) confusion over the new rules of the road, stubbornness / common sense (“It may be down, but I put $50,000 into this place and it won’t stay down forever,”) and having to sell your current home to get the cash to buy the new one (and the disruption to your family’s lives – and additional expense -- as you live out of a motel between the sale and the closing on the new place.)

For all the reasons expressed herein, this is one’s home, not a stock most people will sell just because they find a cheaper one. For most people, if they believe their home will ultimately recover in value (as I do) they view their mortgage payments as money they would have spent on rent anyway, and this way they are increasing their equity. They are increasing their equity in a currently-diminished-v... asset but that’s really no different than putting more money into a stock you really like when it’s cheaper by dollar cost-averaging.

But it isn’t a stock. And it isn’t, when you have both cash equity and sweat equity in it, just a house. It’s HOME!