Sunday, October 21, 2007


I can't stop thinking about Homer Simpson after reading this news story. Palm Beach County has now surpassed one billion dollars in defaulted mortgages during the first six months of 2007. That is insane. Currently, for every one property sold, there are two entering foreclosure.

The problem? Everyone that pretty much wanted a home, bought a home-sometimes 2, or 5, 0r 70. Yes 70. It's just like doughnuts. We call can eat one, maybe two if they are the good ones. How many can you eat before you get sick?

Now that the housing bubble has popped, houses are sitting like stale doughnuts. The problem is, no one is telling the builders to stop making them, and with almost a four year current supply, I have a feeling that these "doughnuts" are going to get old, moldy, and half price.

Read on and find out.

"Michael Sichenzia has a problem. The former mortgage whiz who spent time in New York state's prison for mortgage fraud knows that bad home loans claimed some victims and fattened bank accounts for others.

But telling them apart isn't easy. "The thing we have the most difficulty doing nowadays is figuring out who has legitimately been taken advantage of, as opposed to who went into the transaction with their eyes open," says Mr. Sichenzia, now lead investigator for the Deerfield Beach law firm of Glinn Somera & Silva, which handles foreclosure cases.

That's because so many had something to gain from the mortgage bubble, says Bill Davis, president of Private Funding Specialists and past president of the Florida Association of Mortgage Brokers' Palm Beach County region - and many of those people went about their business winking and nodding. "It's everybody," he says. "The Federal Reserve participated, the big lenders played a part, the credit ratings agencies had a part, so did hedge funds and borrowers, appraisers."

"I had a guy who called me who owns 70 homes," says Stuart broker Michael Morgan. "I know a lady who owns 16. It's the room of 1,000 doughnuts. How many can you eat? Two? Three? Well, how many houses can you live in?"

Dozens of local borrowers now in default loaded up on risk by taking out two mortgages simultaneously: one for 80 percent of the home price and another for the remaining 20 percent. Fifty-eight of those piggy-back loans imploded within four months."

Did anyone notice the recent slew of announcements by several major banks and lenders about the deterioration of their loan portfolios? Even non financial sector companies in manufacturing and retail have publicly disclosed the housing crash is affecting their business, and the it is not contained. The ABX index and the dollar continue to make daily lows. The bottom line is that America has eaten its fill of housing and is now on a crash diet. I cannot imagine how someone is allowed to purchase 16 properties, much less 70. I do know of many, many would be real estate moguls that purchased a second or third 'investment' property without a clue as to cash flow, price to rent or price to income, etc. They simply got greedy and wanted to make a quick buck.

Finally, I thought it was curiously funny that if there is a correlation, the Krispy Kreme doughnuts stock chart going back three years ( KKD) paints a gloomy picture for housing prices.