Like any party that went on about five hours after it should have ended, the mortgage mess has delivered up yet another story that you just couldn’t make up, even if you tried.
Caught up in the grip of an ongoing market nosedive, two enterprising mortgage brokers have apparently turned to the world’s oldest profession to earn a buck or two.
That’s the story in New Rochelle, New York, where Richard Werner and Heather Mezzenga have been charged with prostitution along with four others after a police raid at the property they own Friday night.
In a tale that simply boggles the mind, the failed pair apparently turned to "Pimp This House" after their attempts at "Flip This House" came up empty.
Complete with a red bow out front to signal that they were open for business, the brokers had turned the house they were trying to flip into a brothel. Instead of granite countertops and stainless steel appliances, it was nothing but hookers and heavy shades inside when the police finally arrived.
Needless to say, the neighbors were a more than a little shocked.
Said neighbor David Sapperstein, "The air conditioning was running all day and there’s no one there. But at night there’s five, six, seven cars there."
The reason for the big switch in the business plan? A housing market in free-fall.
Previously listed for $750,000, their flip had simply flopped–even at the reduced price of $600,000. That only fueled speculation that the brokers had decided on desperate and illegal measures to turn their venture profitable.
"I know they’re mortgage brokers," said one neighbor, "and I know it’s been a tough business, so I assume they might have had financial difficulty."
Talk of a tough market is something of an understatement these days. Some 52,000 mortgage jobs have been lost since the first of the year, with Countrywide Financial adding another 12,000 layoffs to the pile only last week.
That pain, of course, only continues to spread as the nation’s lenders turn back the mortgage clock in a moment of clarity after a long night of painting the town red.
Just yesterday, Washington Mutual, one of the nation’s biggest lenders, revealed that it has decided to set aside an additional $500 million to cover losses that it forecast would be between $1.5 and $1.7 billion just this past July.
A weakening housing market, said WaMu CEO Kerry Killinger, has created a "near perfect storm" for homeowners as higher borrowing costs, tighter underwriting and tough capital markets have put them under mounting pressure.
According to a recent report by the Federal Reserve, about 14% of the lenders surveyed have raised their lending standards even for their best customers, while a full 56% have made it more difficult to for people with poor credit to get loans.
That, says Moody’s Investor Service, will prolong the slump in housing until at least 2009. According to Moody’s crystal ball, tighter lending will lead to "a substantial hit" in the next several months.
"Even prime-qualified borrowers have found it harder to get a mortgage," said Joseph Snider, Moody’s senior credit officer.
So while some may believe that the Fed will ride to the rescue of the housing market soon, the facts tell a different story entirely. These are desperate times indeed.
Housing, unfortunately, has much further to sink.
That means that Richard Werner and Heather Mezzanga won’t be the only mortgage brokers to take up new professions in the years to come.
By the Way: According to the latest figures the credit crunch has slammed the Los Angeles housing market. Sales plunged 50 percent in August year over year. That came on the heels of a similar drop in July, when sales fell 25 percent.
"These numbers are the first to show the beginning of the impact of the credit crunch that materialized in the last couple months," said Robert Kleinhenz, deputy chief economist with the California Association of Realtors.
The big culprit, said Syd Leibovitch, owner of Beverly Hills-based Rodeo Realty, was the havoc being played out in the jumbo loan market. Jumbos are loans greater than $417,000, which is practically the entire market out West.
"Everything was great until about a month ago," Leibovitch told the LA Times recently. "Then, on one day–Thursday, Aug. 9–everything changed as lenders shot up rates on jumbo loans to 9 percent and further tightened guidelines. It became almost impossible to find a jumbo loan."
As a result, prices have also fallen in LA, with decreases between 6 and 15 percent depending on the area.
The bottom in housing is nowhere in sight.
Wishing you happiness, health, and wealth,
Steve Christ, Editor