Yearly Income, $14,000. Purchase of House, $720,000. Have we All Lost our Minds???


I’ve referenced many times Alberto Ramirez and his family and how he was able to purchase a $720,000 home on a yearly income of $14,000. Below is a quote from the article:

“Despite making only $14,000 a year, strawberry picker Alberto Ramirez managed to buy his own slice of the American Dream. But his Hollister home came with a hefty price tag, $720,000. A year and a half later, Ramirez has defaulted on his loan, and he’s hoping to sell the house before it’s repossessed.”

“So how did Ramirez, with an annual income of just $14,000, purchase a $720,000 home without any money down? He had help, for one thing. Although Alberto Ramirez was the only one to sign the purchase agreement and the only one named on the loan documents, he actually bought the house with his wife Rosa Ramirez, as well as their friends Jesus Martinez and his wife.”

“However, even in a good month, the Ramirezes and Martinezes together don’t earn much more than a combined $6,500, and their official monthly payments were around $5,200.”

“The Ramirezes said Rancho Grande real estate agent Maria Avila promised they could refinance their home in three to six months to an affordable rate; until then, Rosa Ramirez said, Avila said she would pay for whatever they couldn’t afford.”

You can read the rest of the article here. Trying to wrap my mind around this one is like beginning to assemble a 1,000 piece jigsaw puzzle. Where to begin. I’m not going to yell bubble because we are beyond that stage. If you still have a hard time seeing a bubble I suggest an appointment at Lens Crafters. Am I the only one feeling that the world around me has gone bananas? We are living in financial Wonderland where anyone can make up anything as long as the intended purpose is buying a home. You got your eye on that nice Newport Beach home for $2.5 million and you only make $100,000? Why not go stated income and tell your broker that your close intimate friends Larry, Moe, and Curly will help pitch in to make the remaining $25,000 monthly payment. Your word is bond. After all, it is your god given right to own a million dollar home. Why check your W-2? That only reflects in reality what you are earning and reality is so passé.

How in the blue and green universe this isn’t criminal is beyond me. Think about this. If you were to rob a bank (don’t get any ideas), you might get away with $50,000 to $100,000 if you are extremely lucky. When you get caught, you get a felony and years in pound you in the arse prison. However, if you work in the mortgage industry you can create money out of thin air beyond the $100,000 mark and what happens? Nothing. How ethically one is better than the other is beyond me.

Here is another paragraph that highlights so many ills in the industry:

“With their combined incomes, the Ramirezes and the Martinezes estimated that they could afford monthly payments of $3,000 – around 50 percent of their income. However, the Ramirezes said Rancho Grande real estate agent Maria Avila promised they could refinance their home in three to six months to an affordable rate; until then, Rosa Ramirez said, Avila said she would pay for whatever they couldn’t afford..”

So even at the maximum they would safely be able to handle $3,000 a month. This is the equivalent of purchasing a $300,000 home with 30 year fixed conventional financing. So the agent pushed a $720,000 home because? Whoever raised their hand and said the $43,200 commission check wins a free appraisal by the agent. This is absurd! I know many housing apologist out there are saying, “financial responsibility falls completely on the buyers” and other distorted logic that mitigates the outright fraudulent intent of the agent. Blame is not assigned equally in this case. Things are not black and white in this world. In terms of percentages the majority of the blame falls on those with a professional fiduciary responsibility; this includes the agent, lender, and those on Wall Street greedy for returns at any cost. The fact that this loan went through the system shows how relaxed and pathetic the industry really is. Do you really suspect the agent felt that they could refinance in 3 to 6 months? On what basis? Two OTHER families moving in? And this family will pay by being foreclosed upon and having whatever credit ruined and potentially all their savings wiped out.

Thinks this only applies to this family? Look at our beloved New Century and their recent announcement that they’ll be laying off another 2,000 workers. So by a rough estimate that leaves 750 of the initial 7,200 original workers. That’s a big change in two months. These liars also gave the impression that they were going to be saved starving off any further job losses to unsuspecting current employees. When you owe $8.4 billion and your company is worth $80 million you got some serious issues. 105 X $80 million = maximum leverage. And you wonder why so much pain is ahead and is destined for housing.





13 Responses to “Yearly Income, $14,000. Purchase of House, $720,000. Have we All Lost our Minds???”

  • Ben Franklin

    Great explanation as always, Dr. HB. Here’s my take on this:

    Ramirez is what’s called a “bag holder” in the real estate business: the market is dying, so every Carleton Sheets grad who wanted to “get rich quick” by over-leveraging their way into real estate is now stuck with property that won’t appreciate anymore (the boom is over), so they must find someone, ANYONE, to sell to.

    These sellers are generally people who waited too long to ‘sell and bail’ as the market turned last year, so they now must find a greater fool than themselves to save them from their own financial ruin for holding too long!

    So who’s a good bagholder? Someone who doesn’t follow the market, and is willing to pay too much for a worthless bag o’ beans? How about a foreigner or recent immigrant? Realtors and brokers have been scouring swap meets, markets, etc, looking for a prey. Hispanics see someone who speaks Spanish and wears a suit, etc, and then tells them they can afford a home of their own. The agent says they’ll do them a “favor”, arranging for a broker who can push the paperwork through to get them in a home of their own. They tell them all the lines: “Buy now, or you’ll be priced out forever”, “home ownership is the American Dream”,etc.

    Licensed “professionals” have a fiduciary responsibility to the public and the State not to take advantage of the consumer, but are making out like banditos wearing suits.

    Let’s see: the real estate agent (6% commish on $700k = $40k; even co-mingling her personal funds to keep payments up in violation of State law, she’s STILL way ahead if she wasn’t exposed), the mortgage broker (bagged a fat commiss on the deal, PLUS a “fatter” yield point spread on a juicy sub-prime loan). Let’s not forget the unmentioned appraiser who may have made his higher fee for “hitting” the numbers needed to make the deal workable.

    Another clear winner is the prior owner who bailed at the top of the market last year, milking the fat “phantom equity” in a house they probably only paid $200k for a few years ago. Not a crime, of course, unless he played more of a role in this (or if the property WAS owned by the principals involved in the deal).

    So did Ramirez “win” anything out of all of this?

    Hell, no: he’s screwed up his credit (is that an issue for someone who operates in a cash-based economy?). He’s dumped alot of $$$ into a house (that he clearly shouldn’t have been allowed to buy in the first place) that he’ll never see again. It’s cruel to set people up to fail so spectacularly, especially when the motives are personal profit of so-called “professionals”!

    Oh, what about the bank? Arguably they lost something, but let’s remember they still have the house: that’s the nice thing about making loans on a collaterialzed asset! They took a chance by giving loans to anyone who could fog a mirror, and as usual the lenders will avoid the consequences of their risk and shift the costs elsewhere.

    So who pays for the “professionals” game?

    YOU DO, the average taxpayer and home buyer! The majority of Americans are too ignorant to realize they’ve just funded someone else’s real estate scam, since the crime has been diffused to everyone!

    You’ll pay more in the form of higher property taxes on an over-valued asset (home), you’ll pay higher interest rates/points since the appetite for such loans on Wall Street has diminished (hmmm, wonder why?), and most importantly, you’ll pay about 2-3x higher price for a home, as the fraud helped sustain the neighborhood comps (and ironically, this also makes it harder for other home sellers to locate a buyer when sales stagnate after the house of cards collapses). What’s worse, you’ll also pay for any future bail-outs proposed by retards in Washington (Hillary?) who fail to understand what happened and who was ripped off!

    All of this, so some salesman who dropped out of Junior College can pocket his fat commission to help finance his $500k Mercedes, or Armani suits, and ego…

    @@@@

    I don’t expect people to understand:, they will try to blame the “bag holder”, blaming this all on the mexican farm-worker (who whines about how no one spoke Spanish: well, duh, that’s what happens when you live in a foreign nation, legally or not!). Clearly he’s no genius (and since when did you expect lettuce pickers to be geniuses? He’s doing manual labor, for crying out loud!), but at least he’s smart enough to figure out that he’s the mark, the sucker, the stooge: he’s the only one who didn’t profit from the scheme.

    FWIW, this is not a unique incident: it’s being played out around the country, with potential trapped fliptards (ALA Casey Serin types) looking desparately for a bag-holder. Expect more of this, as the market gets uglier as prices continue to plunge.

  • stupid spic

  • This one is pretty simple, like many of the others.

    One or more of the people involved, buyers, agents, mortgage brokers, appraisers or sellers, commited fraud.

    Prosecute them.

  • Stupid lettuce picker! Its people like him ,who help create an artificial supply and demand. Buyers like him who have no money but eager to own a home, created a demand. Thus making housing unaffordable for all of us. No wonder he’s a lettuce picker. Musta been all those fertilizer he’s been inhaling. I guess its true. The guy has an education of a lettuce. So whats the wife? cabbage picker? or strawbwrry picker?

  • LOL at the comments special when you know US has the poorest education system of the industrialized countries, now wonder the majority of US citizens are unbelievable retarded!

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  • I am very saddened by the fact that people that are uneducated are refered to as retarded. These people have made the biggests mistake of their lives. This is especialy bothersome having a child that is retarded. With that said…

    I think it was the families fault but equally to blame was the agents who said she would help them pay if they came up short. Also promissing that they can refinance in a few months. In theory you could refinance but thatis providing the documentation was on the up and up. but since it was all smoke in mirrors to begin with this is what happens. I am sure we will be seeing much more of this in the near future and it will shoot forclosures through the roof. The good thing is once the dust settles we will see who are the reputable companies and we will see a more genuinely priced and financed real estate market.

  • Dr Housing Bubble

    ben franklin,

    I agree that Ben is a bag holder. The problem with the fiduciary responsibility with these “professionals” is that they have no ethics training. They simply do whatever they need to do to get their cut.

    I know many in the industry that wore a suit like you mention and therefore they are professional. Yes, they went to Men’s Warehouse and now with a 1 month training license are already prepared to help people with the largest financial decision of their life.

    These crooks need to be prosecuted for what they are, wolves in sheeps clothing.

    All,

    There is a lot of anger starting to brew in the industry. These outright fraudulent cases go to show how corrupt the industry is. Does anyone pause and think, this loan should of NEVER happened! But greed, fraud, and outright unethical behavior has led to this massive bubble. This isn’t new. In past bubbles at the deflating stages crime and corruption are at the highest because those who benefited from the bubble fiercely fight to keep their place in the Peking order. This doesn’t last long and they are washed from the system like sewer rats as time progresses.

    If you think putting a person with a $14,000 yearly income into a $720,000 isn’t corrupt, I’m pretty sure you need to take a social responsibility course in a business program.

  • I totally agree with Ben. People who are willing to leave someone holding the bag.. I am sure knowing full well that the outcome was going to be forclosure but did it anyway so they can make a commssion lack moral compass. very sad

  • If you think putting a person with a $14,000 yearly income into a $720,000 isn’t corrupt, I’m pretty sure you need to take a social responsibility course in a business program.

    Unfortunately, I think that America has become so Reaganized that most people polled believe that “fiduciary” describes a personal hygeine product. If you want to see an example of this in action, just watch the bloomberg special on phantom shorting–brokerages know they can’t deliver the securities but sell them anyway, take their commission, post the charges, and then run it through a shadowy clearinghouse which just sends a little “failure to deliver” notice out. That’s securities fraud, pure and simple–and unfortunately, most of the people who have I know who are familiar with the situation either dont’ care and think it’s a vaguely “liberal” sentiment to be concerned (1% of all transactions get failures to deliver, that’s a lot of money), or can’t understand the process. What’s wrong with selling 125% of existing shares in a company and claiming commission on the imaginary 25%?

    My point it is that the abandoment of fiduciary duty is utterly systematic. It’s Gordon Gekko all over again, only now every shithead with a DiTech loan has bought that dream and earnestly believes he’s going to be putzing around in a $3000 suit and a luxury sedan. Anyone getting in the way of that ego-stroking dirty-money fantasy and advocating professional responsibility is a permabear or a Democrat.

    The idea that the sole blame lies with the buyer, when he had no place even being offered a loan, is utter idiocy. His agent deserves punishment just as well. Think about it like this–if you walked into a bank, robbed them for $700k, kept $40k for yourself, and gave the remainder to your retarded cousin, who is responsible?

  • While I agree with the sentiment, a whole bunch of people don’t accept responsibility for their actions anymore. Unfortunately, it is much easier to lob political jabs when the “blame” might be better directed at the “go go” late 90s and the culture of feel good, and the definition of what “is” is. Instead of archaic blame tactics, look at the present day. A political system that assigns evil to domestic politicians, and foreign countries without any regard for facts, a culture of “legal lottery” where lawsuits are entitlements, and a sense that everyone “deserves” instead of earns.

    Following the real estate tumble, watch the next debacle as a small but growing number of state and federal employees feel they deserve higher pay than they would earn in the private sector, and retirement benefits that would embarass Adam Smith. As they continue to feed at the taxpayers all “all you can eat” trough, will they own up to personal responsibility as Orange Counties bankruptcy becomes an Standard Operating Procedure in the next decade. Probably not, as they spike their retirement benefits, and organize growing legions of union actions for ever growing compensation – what will they demand!! That any one who was wise and saved for themselves be forced to turn over their “largesse” because they earned it.

    Next 10 year should be fun as the Repubocrats continue to focus on what is right now instead of what is right. Oh well, at least they will find new people to blame, because that is what is important now, not taking responsibility.

    Remember, the latest polls on Self -esteem show that as a population, it is higher in Men’s Prison then in the general population or schools. Maybe we should just save time and replace teachers with people who can really show our youth how to develop self-esteem, America’s future prisoners – Real Estate Salespeople, and Mortgage Brokers.

  • While I agree with the sentiment, a whole bunch of people don’t accept responsibility for their actions anymore. Unfortunately, it is much easier to lob political jabs when the “blame” might be better directed at the “go go” late 90s and the culture of feel good, and the definition of what “is” is. Instead of archaic blame tactics, look at the present day. A political system that assigns evil to domestic politicians, and foreign countries without any regard for facts, a culture of “legal lottery” where lawsuits are entitlements, and a sense that everyone “deserves” instead of earns.

    Following the real estate tumble, watch the next debacle as a small but growing number of state and federal employees feel they deserve higher pay than they would earn in the private sector, and retirement benefits that would embarass Adam Smith. As they continue to feed at the taxpayers all “all you can eat” trough, will they own up to personal responsibility as Orange Counties bankruptcy becomes an Standard Operating Procedure in the next decade. Probably not, as they spike their retirement benefits, and organize growing legions of union actions for ever growing compensation – what will they demand!! That any one who was wise and saved for themselves be forced to turn over their “largesse” because they earned it.

    Next 10 year should be fun as the Repubocrats continue to focus on what is right now instead of what is right. Oh well, at least they will find new people to blame, because that is what is important now, not taking responsibility.

    Remember, the latest polls on Self -esteem show that as a population, it is higher in Men’s Prison then in the general population or schools. Maybe we should just save time and replace teachers with people who can really show our youth how to develop self-esteem, America’s future prisoners – Real Estate Salespeople, and Mortgage Brokers.

  • Clearly, the homeowner was undereducated here and not sophisticated as to real estate. That does not make him a retard nor does that make any of you superior to him and his family. What you fail to realize is how little self esteem you have and that your only compensating skill for your lack of self esteem is the putting down of others. Insulting others does not elevate you. You are still the same worthless piece of dung you were before the insults.

    There are plenty of Caucasians, African Americans, Asians, etc. that also fell prey to the vultures that created this mess. Unfortunately, the predators knew no boundaries and preyed upon people of all races.

    The real issue here is the lack of fiduciary responsibility by those in the business. It is obvious to all that the loan should never have gone beyond the application stage, period! This is a good example of the low underwriting standards that fed the bubble and it is UNACCEPTABLE. That should be the subject of our outrage. Focusing on the race or economic status of the victim is not the issue.

    Given the option, I would rather be a humble, trusting, hardworking migrant farm worker than a low life, suit clad, serpent who unjustly enriches herself by damaging others.

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