Housing Market Crash – I’ll Take the Blame

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From Fannie mae [FNM] to Joe the Homeowner everyone wants to quickly hand over that hot potato called blame. I want to be different. I’m going to grasp on tightly to that potato, and as it scalds my hands I’m going to confess how this entire economic crisis is entirely my fault. So, borrowers can stop blaming lenders. Main Street can quit blaming Wall Street. Government politicians can leave the corporate elitists alone, and just continue to let them play Monopoly with real money. But, all of you should take just a couple minutes to listen as I fess up and tell you what I did to cause this entire debacle.

I’m Joe the Contractor, Joe the Plumber subbed for me on a couple jobs. I’m from the corrupt little state of Rhode Island, where it’s all about “lobstas and mobstas.” [sic] I started my business in 1992, with zero capital, a pick up truck that was a year older than my wife, and a milk crate full of junk tools. Oh yeah, a couple other important tools of the trade I fully possessed back in those days were ambition and high hopes. Those things, not even five years after I started, got us into a home of our own, a middle class income, and a well established small business doing about $750,000.00 per year gross, with three employees -jobs I created, for real, not the way a politician claims to.

Then came the “mobstas”. I started getting screwed over left and right by crooked people in power, even if not officially in the mob. One of these douche bags, “The Prince of Providence” ended up in jail. Another, I sent for a gurney ride the day he tried to extort money from me for the second time (he succeeded the first time). I laid off my crew, sold my tools, closed my business, and went fishing…commercial fishing, off shore, for guess what? -“lobstas”. That’s tough work, even compared to construction. You would be amazed at how this industry is so over regulated that a fisherman can barely make a living, while the mortgage industry is so under regulated that some schmuck loan officer can make six livings with so much less effort.

So then I became a schmuck loan officer. For once in my life my timing was on point, and during the refi boom that ran concurrently with the sub prime fiasco, I was making ten to fifteen thousand a month…doing refinances, not ruining peoples lives by suckering them into those sub-prime-crap deals. I didn’t do any max premium deals either. That’s a deal where the loan officer refinances his own, or his buddies’ houses at the highest rate, getting the highest commission, and then using that commission to pay costs and escrows, and even a couple principle and interest payments, therefore only making one mortgage payment per quarter, and at the same time screwing the banks by refinancing four times per year. Greed and corruption at all levels, ya gotta love it.

Rates began to climb, so my refinance business started to dwindle, and not to sound like sour grapes, but I was ready to trade in my tie for a tool belt anyway. I missed working with the class of people we know, thanks to Sarah Palin, as Joe Six-Pack, – people with more class and less money than Patrick Trust-Puppy. I didn’t want to get back into the contracting scene I fought, literally, to get myself out of. But, I still wanted to build. So this is what I did, and it was this next move that caused the unprecedented drop in the artificially inflated values found in the housing market, that by domino effect sunk banks and insurance companies, and will soon kill retail, except for the immortal zombie, Walmart[WMT], and lead to a depression just like in 1929 when people bought over inflated stock for 10% down.

I took $100,000.00 of equity out of our home, an additional construction loan, and built a house on speculation. No customer with color choices, no deadline with liquidated damages, no certified payroll, no bribes to receive final payment, no mobstas, no lobstas. All I had to worry about was a drastic drop in home values. I planned on a worse case scenario of a 20% depreciation. This was the real life scenario: In the 70 weeks that it took to virtually single handedly build this house, it lost over $140,000.00 in value. So I basically worked my ass off for negative $2,000.00 per week.

As my wife pleaded with me not to do this project, and put at risk the house we live in, and worked and prayed so hard to get, I heard another voice screaming in my other ear. This voice said “Joe, you know that if you go ahead with this venture, you will cause the whole bottom to fall out of the housing market.” It also said “You saw first hand how these home values got so inflated. You loan officers get the appraisers to push up the values so the loan goes through underwriting. Then when the buyer hears what homes are being appraised at, they believe that is what they are really worth. Of course their Realtor agrees, after all, the higher the price the higher the commission. So the buyer figures why not pay what our dream home is worth, after all the bank said we can afford it, and they wouldn’t lend us the money if they thought that we couldn’t pay it back. The deal goes through at the price based on the inflated appraisal, and then that sale price becomes the comp. for the next inflated appraisal”.

I argued with my wife, to the point we separated and I spent five cold months living in the foundation of this house I went ahead with building. I also argued with that voice in my head. I explained how I had done loans for people with property overseas, in Australia and Portugal, and they reported the same double digit appreciation with the properties in those countries. “It’s happening all over the world”, I reasoned. It must have something to do with there now being seven billion people on the earth. Plus, if property values are what they are, then my net worth is somewhere around $300,000.00. – not bad for a guy who started out only ten years ago with a net worth of negative $10,000.00. This is America. Isn’t this what to expect after ten years of consistent, honest, hard work?

So there you have it, I ignored my wife, and I ignored the voice…to my own and everyone else’s peril. Incidentally, this was the same voice that told me a few years earlier “choke that crook till he turns purple, then thrown him down and stomp on his head. You’ll only get a couple weeks in jail and a year on probation – the memory will last a lifetime. You will even get your final payment without having to grease anyone” That damned voice hit the nail right on the head, that’s exactly what happened. If I had only listened this time too, we all wouldn’t be in this mess that’s going to take a lot more than a trillion dollars to bail us out of. Are they not already asking for more? It’s all my fault…and I’m sorry.

Now the voice is telling me that as soon as I, Joe the Contractor, along with Joe the Plumber, and our buddy Joe Six-pack have all short sold our houses, or given deed in lieu, or just plain gotten foreclosed on, then things will get better…For Patrick Trust-puppy. Because the Government gave all that tax-payer money to the banks, admonishing them to be sure to lend it and not to hoard it. And lend it they will -to Patrick Trust-puppy, at a low interest rate, so he can buy up these now under valued properties. Then he’ll rent them to us, if we pass the credit check. He’ll hire us at somewhere between minimum wage and a living wage to fix them up, as he takes credit along with the politicians for creating jobs with the bailout money. We’ll work eighty hours a week because we have that American work ethic, the best in the world. And with enough ambition and high hopes, after about five years, our credit will be good enough again, and maybe we’ll have some down payment money, so we can buy these properties back from the twerp at what they should have been worth all along, figuring 4% appreciation per year. Of course this will give Mr. Trust-puppy a 100% return on his investment of our tax money, and about a 1000% return on his out of pocket investment, because there is no investment like real estate when it comes to buying on margin…And the whole silly cycle will start again…Unless it brings on the Second Great Depression, followed by the Great Tribulation.

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