ell, not quite. He’s not heartless, he empathizes with the suffering that inevitably accompanies the collapse of Wall Street and the loss of so many jobs. But financial consultant Steven Lazarus sees plenty of light at the end of this tunnel and, no, it’s not an oncoming train. In the end, he says, sounding more like the hero of a Science Fiction novel than a mortgage expert, reality was restored. More than that, in his opinion, to some people, the current economic crisis created a gift.

“It’s an opportunity,” says Lazarus, a senior loan officer at ESF Income Corp., a mortgage brokering firm that’s been very active in Co-op Village. “For every person that has a downside, there is an opportunity for somebody else to profit.”

GSN: As funeral home managers will tell you.

SL: One person’s depreciating values is another person’s opportunity. What increases the values of homes? Real estate is worth only what the next person is willing to pay for it. Obviously, when people were buying homes for $500 thousand, they weren’t walking in with half a million in cash and paying for it. It was only a question of what the banks were willing to lend them. And the banks were lending to unqualified borrowers, despite the fact that they truly couldn’t afford it. So we opened up a market for undeserving, unqualified buyers, people who should never have bought a home. We made the money too easy to get, so they said, Okay, we’ll give it a shot.

GSN: And that’s called neglecting your fiduciary responsibility.

SL: Absolutely. So now we inflated home prices by creating this accessibility for too many people, and, meanwhile, the people who really should have been buying this house, at $400 thousand, or $375 thousand, they couldn’t afford it, since the prices had gone up to $500 thousand. So good, hard, honest working people just couldn’t make their paycheck pay for such a house. It used to be that a nurse was able to afford a house and all of a sudden, three years ago, she couldn’t afford it. Was that right?

GSN: You’re saying there’s a measure of justice in this bubble bust.

SL: Absolutely. People who lost their house to foreclosure, in the majority of the cases, I don’t feel bad for them whatsoever, zero. The only exception are the people who are foreclosed on as the result of divorce, death, sickness in the family, loss of job – those cases always existed. Let’s say, for the sake of argument, that they constitute 10% of foreclosures. The rest of the guys who were foreclosed on were just greedy. GSN: But weren’t these buyers lured into it unfairly, without the ability to consider it in an educated fashion?

SL: I don’t believe it had anything to do with education. People are born with greed. It’s not just the greed of the real estate person who’s trying to sell them something more expensive. What about the greed of the person who wanted a three-bedroom, when they could only afford a two bedroom? Or the greed of the person who felt he should own something, instead of renting? Why is it any different? I drive by people’s homes, that have 12,000 sq. ft. – you don’t think there’s a bit of greed there? To be bigger than the next guy, more successful, more powerful, to create a bigger presence?

The buyer would say, I know I can’t afford this house in my wildest dream, this is crazy, I know I don’t really belong here, but you know what? I can do it, because I can make a low payment, of interest-only, for the first 3 years. He chose to ignore what his mother had taught him: If it’s too good to be true, it isn’t. And how many of the properties that are being foreclosed on were investment properties? Why should I feel bad for them? A guy invested in a business opportunity and lost his shirt. No problem. If he had made big bucks on it, I’d say that’s also okay by me.

GSN: That sense of justice and satisfaction is not going to save the economy. You were talking about the opportunities that the crisis has created.

SL: So now the market is flooded with homes that are being foreclosed on, and homes that have been built and there’s no market for them – there is so much more supply than demand – prices are plummeting. And they’re probably going to continue to fall.

GSN: But are they plummeting, or are they reaching their real value? Or are they going below real value?

SL: I said already that the real value is established by what somebody is willing to pay. I’m waiting to buy a house on my block today – the guy was asking for $799K, or $749K, probably by now is down to $600 thousand. When he is at five and a quarter, I’m buying his house. That’s what I decided for myself.

GSN: And the bank will give you five and a quarter?

SL: At five and a quarter, if I borrow $417 thousand – that’s the magic number – I’ll be able to get a mortgage. The nurse, who makes $75 thousand, can’t buy a house for $600 thousand. She doesn’t make enough for the monthly payments. Even though, by the way, she’s probably one of the most responsible persons in the first place. Today, with the property at $450 thousand, she is most likely going to put down 25% that she saved over the years. Her job demands responsibility, that’s her profile, she’s not going to do reckless things. She is the buyer who was likely to say, I can’t afford it right now. My rent is $1200, I can’t go up to 3500 a month. It’s out of my range. Now that the prices have come down, and her monthly payments will be only $2500, it’s more than what she pays for rent, but it’s within her budget, considering she’s going to own the place. It’s within her reasonable expectations.

GSN: Do all the teachers and nurses and firefighters know about this?

SL: I don’t think so, and they are the prime candidates for one-bedroom apartments. How many schoolteachers in Manhattan are not married? They are not all family people. I have written loans for them. How many people in Manhattan are married without kids? No expenses! They are a perfect fit for a onebedroom apartment. They may be renting one now. So, guess what, after all these years, they can afford one. The prices have come down.

If somebody is borrowing up to $417 thousand, if they have a decent credit, and they can document sufficient income –they can borrow 40% of their income, if they put down 20%, they'll have no problem at all getting a mortgage. When people are saying that it’s harder than ever getting a mortgage, when you’re talking about these kinds of mortgages, it means that now the underwriters want to see proof, documentation, for the claims you’re making. It’s not enough that you’re telling them you’ve been working at your job for a certain number of years – they need to see documentation. If you’re self-employed, we’ll need your tax return. If you’re gainfully employed, show me a pay stub, and W-2s for the last two years. You also need to show where the down payment is coming from.

The magic number is $417 thousand, which is the limit on the mortgage that can be sold to Fannie Mae. It’s some median number that they came up with for a single family home price across the United States.

The underwriters now are giving us a bigger hassle on some ancillary things. For example, if somebody owns another apartment – they are selling one and buying the other – today, they are given scrutiny: How do I know that this is going to be a primary residence? Maybe it’s going to be an investment property? Prove it to me. I want to see that your other residence is pending sale, that it’s in contract. I will only approve the mortgage once the other property was sold. Okay, there are more hurdles to jump over, but, absolutely, the money is readily available. And to be frank, I wish they would have done this for the last five years.

GSN: In the past, you talked about the fact that Manhattan co-ops suffered less because their boards have been so hard-nosed.

SL: I still believe it. But now the problem is that the buyers are convinced that they can’t get a mortgage today. Baloney. There’s no problem getting a mortgage up to 417,000 dollars.

In March, 2008, HUD, through the economic stimulus package, raised the housing loan limits, based on area home prices. Obviously, if you wanted to buy or refinance in a high-priced area, $417 thousand wasn’t going to do the trick. So they were going to lend depending on the different locations. The highest category – Manhattan was part of it –went up to $729 thousand, which Fannie Mae was telling the bank, I will buy this from you. That was the stimulus act. Now, those loans were documented with slightly more rigorous guidelines. Initially, they didn’t include co-ops, for example. Later on, in the middle of the year, they came to include co-ops.

GSN: Why not co-ops?

SL: They were reluctant, initially, because in a co-op you’re not underwriting only the individual, but the whole project. You are affected by the underlying mortgage in the complex. Many banks don’t know how to deal with co-ops, so they don’t do them. Others say, I understand the risk, I evaluate it, I know what I need and it’s fine. So the economic stimulus package was redrawn to include co-ops. Again, that’s up to $729 thousand. Any loan above that, the bank has nobody to sell it to. We used to bundle these jumbo loans together and repackage them and sell them, but today there’s no market for them. Nobody wants them. So banks who are writing them are charging as much as 2% above the regular mortgage rate, if they’re even willing to write it. Because they’re going to sit on them. Since that’s the case, so now they want to see the quality of the loan. Suddenly, they remember that whole thing about integrity, and the qualification of the borrower. Now they’re really going to bust your chops.

GSN: Okay, fine, all the greedy people were punished and all the righteous ones now get to buy homes at reasonable prices. Does that salvage the US economy?

SL: When I heard that Chrysler started pulling their deals on car leases, I was very happy, and very hopeful. Listen to this: A car lease is based on the residual value. The car company says, I have a car that’s worth $25 thousand today. I figure that after 36 months it will be worth $15 thousand. I’m going to lose $10 thousand, so that’s what I have to get from you over 3 years. And after 3 years, I’ll sell the car at an auction for $15 thousand. Plus, I’ll get from you financing charges, because I did lay out $25 thousand up front for you. So, add another $1800 – make it $327 a month for a 3-year lease.

But a few months ago, Chrysler realized they didn’t know what in the world their car was going to be worth after three years. If gas goes up again to four dollars a gallon, nobody’s going to buy cars. People are going to buy little Vespas. So they stopped leasing. Because if they get a few million cars returned to them that they can’t sell, they’ll go out of business.

I’ll tell you why I love it. Because now Chrysler has to tell people they must buy what they can afford. Now they’re willing to say, I can finance your car, you’ll pay $750 a month, and you’ll have the car paid off in 3 years, or $475 and pay it off in 5 years. Now the person actually has to buy what they can afford. It’s no longer a rental. Reality bites.

There’s a story my father always tells me, it’s a rich man-poor man story. Every year, for the high holidays, the rich man bought himself a brand-new hat for a hundred dollars. The poor man also wanted a new hat for the high holidays, but he couldn’t afford a new hat, so he bought the rich man’s hat that was only a year old, for fifty dollars. Every year, the rich man would get the fifty dollars from the poor man and add fifty dollars of his own. So each one of them got a new hat for fifty dollars. The rich man got a brand-new hat, and the poor man got a used new hat, for the same fifty dollars. Because the poor man didn’t have the focus and the discipline to wait a year and get himself a brand-new hat.

To me, that’s the entire mortgage crisis in a nutshell.

Interview: Yori Yanover