“Nobody had models for that,” said David E. Zimmer, then one of the executives at People’s Choice, a subprime lender based in Irvine. “Nobody had predicted people going into default in their first three mortgage payments.” Wake up Dave – it is called How to sell your house to the bank with a new loan – and the idea is to get refinanced while intentionally planning to never make a payment. No models for that? Back in 2001 through 2003 my wife and I bought foreclosures, often commenting on how fast some homes went into foreclosure. We joked about people who sold their house to the bank. If the neighborhood was going downhill just sell your house to the bank. White flight? If you can’t sell then do a cash-out refi to start your new life elsewhere, and never make a payment.
As house flippers we watched the trend continue. Television shows showed everyone else how easy it was. ‘Flip That House’ and ‘Property Ladder’ were fun to watch. Where did the houses come from Dave, and why were they foreclosured? If investors and small retirees like us could see it, the lenders knew about it. I strongly disagree that “nobody had models for that” as Zimmer said. That is not to say that careless lending only made matters worse. I am saying that a team of PhD’s, as claimed by HSBC Finance and Household International, should be able to see what Zimmer could not see.
Real people know a few things. If you work on a remodel and your tools are stolen right off of your truck, while you are working, that neighborhood might suck. Gang activity and unabated drug dealing will ruin a good neighboorhood. Gunfire at night, or rats running on the fences, are a good sign that a neighborhood sucks. I doubt that PhD’s and Dave Zimmer live there. When appraisers do drive-by appraisals along side gangsters doing drive-by’s – you guessed it – the neighborhood needs help. Either as a scam or a family decision, selling the house to the bank is not unheard of.