By Kevin Leland
I live in the beautiful state of Vermont now. On a recent trip back to Rhode Island, I found out that my house just sold to someone I used to work for in the fishing industry. They bought the house to “flip” it…More on that later, but this post is going to be mostly a ‘repost’ of a very popular article I wrote in 2008 called “I’ll take the Blame for the Housing Market Crash.” Four years later, both of these houses that I built with my own hands, are in the hands of new owners. The first one I built was the last to go. When I borrowed on the first, to build the second on 1010 Main Street, in June 2006, at the very peak of the housing bubble in RI, it was appraised at $320,000. It just sold, at auction, in November of 2011, for $74,025.
Repost of Housing Market Crash Article:
Originally posted November 2008, at Associated Content
by Kevin Leland
From Fannie mae [FNM] to Joe the Homeowner everyone wants to quickly hand over that hot potato called blame. 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 [fiat] money. Because here I am, about to fess up and tell you what I did to cause this entire debacle.
I’m Kevin 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 junky tools. Oh yeah, a couple other important tools of the trade that I fully possessed back in those days -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, Vincent “Buddy” Cianci, “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 Countrywide [CHL] a.k.a. Satan. 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 $10K -$15K per 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 eventually 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. For once, I was truly my own boss. 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, with the help of my Dad and my son, it lost over $140,000.00 in value. So I basically worked my ass off for negative $2,000.00 per week. A year and a half ago, in 2007 this house appraised at $300K , now it’s on the market for a short sale at $99K and still hasn’t gotten an offer. I wonder if the bank will accept half of what I owe them! It has since sold in 2010 for $74,025.
As my wife pleaded with me not to do this project, before I started it, 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 “Kevin, 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 deals go 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, for the realtor and loan officer alike. 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 comparison 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 throw him down and stomp on his head. You’ll only get a few 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 again” That damned voice hit the nail right on the head -that’s exactly what happened after I left my boot-print on the side of his face… 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? The credit card companies will soon be begging for the same amount. GM is next in line for a taxpayer hand-out. They are ‘too big to fail’ which means, as Alan Greenspan put it -They are ‘too big.’ Unfortunately, I’m too small to succeed…It’s all my fault…and I’m sorry.
Now the voice is telling me that as soon as I, Kevin 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 AGI and 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 an historically 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 other 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.
- Where home prices are headed in 2012 (freedommortgage.com)
- Springfield Illinois Housing Market 2007 (ngap.net)
- Madigan Sues S&P For Role In Housing Market Meltdown (chicago.cbslocal.com)
- Americans Want Government Aid for Housing, but Lack Ideas (247wallst.com)
- A Really Bad Plan for Reviving the Housing Market (zerohedge.com)
- National News: Housing market ‘to remain subdued’ (coventrytelegraph.net)
- Fixing the Housing Market: The Principal of the Matter (avidlawblog.wordpress.com)
- Gina Raimondo Math Convinces Rhode Island of America’s Prospects (businessweek.com)
- Housing Market: No Signs of a Pickup (britishmoneynews.wordpress.com)
- Sense and Sensibility in Rhode Island (steelcityskeptics.net)