Mortgage fraud expert: Orange County median home should be $300,000

The Orange County Register reports:

Bob Simpson is president of IMARC , an Irvine-based company that works as an investigator for mortgage insurers seeking to understand why their mortgages went bad. Simpson bought the company in July 2007 when it was a subsidiary of one of those insurers – AIG, the company that got an $85 billion federal bailout last week. Simpson's company gives him an insider look on the lending industry and what people can afford. Based on his reading of the market, the average family in Orange County can only afford a $300,000 home, which is where the market will go when it returns to sanity. Excerpts from his interview:

Q. What do you think of the $700 billion bailout proposal?

A. My impression is that no one yet has overestimated the cost of any of this. Merrill Lynch says they're going to lose $1 billion and they lose $5 billion. No one has ever shot on the high side yet. (Fed chairman Ben) Bernanke said today that this isn't an expenditure; this is an investment in assets and we may come out on the up side. My opinion is we have so many bad loans on our books and values are decreasing so fast that I don't think we can cover it.

Q. Do you think the government should help people with loans they can't afford?

A. The wild card is if you paid $600,000 and your neighbor's gone into foreclosure, and it's the same house and you can buy it for $450,000. Do you get it and walk away from your current house and give yourself a $150,000 gift? Even if you can afford your current house, if your home value's down 30 percent, why not walk?

Q. How will the government figure out what to do?

A. Paulson said let's get to the homeowners later and worry about keeping the financial system greased first. Barney Frank (Chairman of the U.S. House Banking Committee) said let's not help the speculators. But be honest, who in California in the last 10 years wasn't a speculator? Now the government has to decide: Do you stay in that house? Who's Solomon among us? That's a bloody business and it should be left up to people at the kitchen table, saying, "Honey, do we own or do we go back to renting?"

Q. At what point are prices going to stop falling?

A. I'd ask what's the median income in Orange County? I'd say multiply that by three or four and that's the median home price. That's about $300,000. Right now, anyone who bought their home since 2003 has lost money. … I've been on record that the median is going to return to 1999 or 2000 or worse. That's about $300,000.

Q. Are the speculators gone?

A. Yes, because there's no more easy money out there. We took down Lehman Bros., and Bear Stearns and Merrill. They're gone on the backs of bad loans that no one had the intestinal fortitude to fight against.

Q. Are you surprised about what's happened to our national financial community?

A. Not at all. I've been vocal since at least the spring of 2005. It's not coincidental we have a run-up in prices, when we have a drop in lending standards. Who exactly can pay $700,000 for a home? You should make $250,000 or $275,000 to carry that debt load.

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