A Pyramiding Scheme Pre-Destined For Collapse
It’s Friday desk clearing time for this blogger. “A Newsday review of home sales data shows that, across Long Island, 88 of 127 school districts saw declines in median home prices of actual sales from 2006 to 2007. Ten of them, in communities across Long Island, including Quogue, East Williston and Oyster Bay, saw price declines of more than 10 percent; two saw more than 30 percent. Times are tough for those like Linda Imerti, who went into foreclosure this year after she tried - but couldn’t sell - her Bellmore home. Said Imerti, ‘It’s really bad out there.’”
“‘This is only the beginning,’ said Pearl Kamer, the chief economist with the Long Island Association. ‘This can go on for two or three years, well into 2010.’”
“A recent offer by the United States Coast Guard to buy land revealed more than the fact that younger members of the Coast Guard and their families are in need of affordable digs. The proposition letters went out last week, and as of Tuesday there were over 50 interested parties ‘willing to talk to us,’ the team leader said. Usually when you do a cold mailing, you’re lucky if you get 6 percent. We got 25 percent. What this means to me is that a lot of people are sitting there thinking, we have that second house, maybe it’s time to hunker down, or move on. The market offers something for the Coast Guard.”
“People are not looking for a windfall. Rather, they may be wondering how they can get out with their shirt. We see the same attitude everywhere in the country.’”
“Home prices around Charlotte fell last year…And the outlook this year is lousy. ‘The market we had in 2006 and into 2007, that was not a normal market,’ said Donna Anderson, president of the Charlotte Regional Realtor Assoc. ‘We’re finding that we’re in a market correction.’”
“One reason prices didn’t plunge as much as home sales is that people yanked their property from the market. Or they chose not to sell, holding out for better times. But the main reason is that, in general, the region never saw the exorbitant gains of some urban areas. In other words, we’re not a bubble market.”
“There’s no ironclad formula for determining a bubble, but it’s basically a gain in prices that’s unsustainable and out of proportion to what supports it. Skyrocketing California home prices, for example, were out of sync with wages. ‘I don’t think we had a bubble in Charlotte,’ said Mark Vitner, senior economist with Wachovia, now part of Wells Fargo. Some neighborhoods, such as Dilworth and uptown condos, he said, ‘got a little bubbly.’”
“Jack Connor has been an appraiser in Central Florida for 32 years. He first called me in February 2005 after I predicted the housing bubble would pop. Jack said I didn’t know the half of it. He said home prices were crashing 30 percent to 40 percent.”
“His first inkling of the crash to come came around 2002. He did appraisals on FHA foreclosures. There were about 120 of them a month, and then they suddenly stopped. ‘It was the first time in history that happened,’ he says. ‘I talked to my buddies, and they were mystified. None of us could see the locusts coming.’”
“The locusts were speculators, swooping in to snap up properties, putting them back on the market in six months with a 30 percent markup. Jack told me about two jail guards living near Clermont. Six appraisals raised the value of their house from $192,500 to $348,000 in 18 months. There were the million-dollar homes furnished only with a bed, couch and TV because the buyers had maxed out with plans for a quick flip. Topping off the insanity were condo converters, many from South Florida. Jack directed me to Web sites promising 20 percent kickbacks on the purchase price at closing. This came courtesy of jack-up appraisals and lenders who didn’t care because they sold the mortgages to Wall Street chop shops that dispersed them in pieces around the world.”
“The fast money had taken over the market. ‘It was coming in from California,’ he says. ‘We literally had hundreds of mortgage warehouse lenders based in California.’”
“Fannie Mae and Freddie Mac say they are tacking on these extra fees to counter higher risks and losses associated with certain loan products, buyer equity stakes and credit scores. Freddie spokesman Brad German said that some of the loan categories and credit risk combinations targeted in the latest round of fees ‘default at four to eight times’ the rate of other mortgages in the company’s portfolio.”
“However, realty agents, mortgage bankers and brokers are incensed at the new round of fee increases. Charles McMillan, president of the National Association of Realtors, complained in a letter to…the regulator of Fannie and Freddie, that not only were individual fee increases unjustified, but that in combination they could seriously deter home purchases.”
“‘They’re shooting themselves in the foot,’ said Steve Stamets, a mortgage loan officer in Rockville, Md. With substantial down payments of 20 percent and more, said Stamets, ‘they don’t need to be that tough’ on applicants even if home prices decline slightly more before the cycle ends.”
“Arkansas residential foreclosures in January were up 29 percent from a year. ‘We got overbuilt here in Northwest Arkansas,’ said Kathy Deck, director of the Center for Business and Economic Research at the University of Arkansas at Fayetteville. ‘Builders and developers in a large way are the ones that can’t make their payments. Additionally, the cost per square foot in some cases was higher in Northwest Arkansas than in other places.’”
“Deck said many homeowners who are behind in payments are in a situation where they may have no alternative but to give in to foreclosure because selling may not be an option. ‘It used to be that people had to put 20 percent down to get into a house,’ Deck said. ‘But it didn’t take 20 percent [in the housing boom]. So if you put 5 percent or 2 percent down on your house and your house value falls by 10 percent, you are underwater. That’s when you see folks in many cases simply walking away.’”
“The annual Parade of Homes…gets a lot of criticism. Some people think that the parade is just a shrine to the gaudiness and excess that helped create the current financial crisis. They would rather see regularly priced homes that everyday people can afford instead of the million-dollar and above homes that comprise at least a portion of the show each year.”
“But the purpose of the parade isn’t to serve as an open house. The Parade of Homes is meant to be entertainment and to showcase the craftsmanship of the men and women of Southern Utah…It’s meant to show people the possibilities.”
“For example, I was intrigued a couple of years ago by a home that had a hidden room. I don’t have one in my house - probably never will. At the same time, it sure was fun to look at that room and dream a little of an honest-to-goodness hiding place from the troubles of the world.”
“Low housing prices are driving investors to White City, where the average number of days a single-family home stayed on the market dropped to 66 from 164 the same quarter a year ago, according to the Southern Oregon MLS. White City’s median price for existing homes fell 10 percent, to $148,500, during the most recent quarter, Nov. 1 through Jan. 31. ‘This is the first area you can get back into,’ said Stan Alexander, owner of DreamHouse Realty in White City.”
“Alexander said there is still downward psychological pressure on the housing stock, but that may produce an unwanted effect in the long run. ‘If the confidence level returns, you’ll see four times the buyers,’ Alexander said. ‘So much of it is based on fear. I actually am concerned and think we run the chance of running the prices back up a little more rapidly than any of us would like to see.’”
“Has the Seattle area’s real estate market hit bottom? One agent who recently predicted continued price declines set off a tizzy by declaring: ‘We’re at bottom.’”
“On Monday, Ardell DellaLoggia, an associate broker with Coldwell Banker Bain…said she decided to go public with her call after clients lost out on a house they wanted because co-workers talked them into lowering their offer. ‘They’re kicking themselves today for not listening to me,’ she said.”
“Last April, DellaLoggia wrote: ‘Anyone calling this point ‘bottom’ will have to eat some words in the next three years.’ On Monday, she said she wasn’t worried she would be the one doing the eating.”
“King County took a new lump last month, with the number of notices of foreclosure auction through trustee sale topping the number of houses and condominiums sold — 915 to 906 — according to numbers from the King County Recorder’s Office and Northwest MLS. The median existing house price in the Seattle area was $325,900 in the fourth quarter, the Realtors reported. That’s down 6.9 percent from the third quarter and 13.7 percent from a year earlier.”
“Erin and Aaron Donne saw Seattle prices had come down between a visit from New York last October and their move here just after Thanksgiving. They thought about renting but decided prices and interest rates were good enough to buy now, Erin Donne said. ‘We didn’t want to move in somewhere and rent for a year and have to move again.’”
“They closed earlier this month on a West Seattle house, paying nearly $200,000 below the original asking price and about $12,000 below the most-recent price, while also getting about $6,000 toward closing costs and another $1,000 for home repairs. ‘We’re pretty psyched,’ Erin Donne said.”
“If you have seen the St. George Foreclosure Tour bus traveling down the streets of your neighborhood, chances are there is a home in your area that is on their tour. Bus Tour Entrepreneur Blake Bench says…’I don’t see it declining anytime soon.’ Benches’ reasoning is due to a housing phenomenon called ‘ghost inventory,’ and according to Bench, ‘It is something I think the general public is better off not knowing about because it seems like we are all a little overloaded with doom and gloom.’”
“According to Bench, ‘These ghost inventory homes do not show up on the MLS yet and so almost nobody knows about them except for the neighbors who wonder, ‘That family moved out a year ago, why isn’t the home for sale yet?’ A large majority of the real estate agents don’t know about them or where they are. We have seen the first wave of foreclosures but there is a tsunami coming.’”
“‘We help educate people on how to do that so that they can benefit from someone else’s misfortune,’ says Bench. ‘It is sad to think that so many people lost their homes, but it is also rewarding to help those people who scraped and saved when everyone else was buying homes with money they didn’t have and income they didn’t really make.’”
“A newly renovated home on a quiet, tree-lined street near City Park sold last November for $387,000 — $125,280 less than the balance due on the mortgage. A McMansion in Evergreen was going to be sold for $1.5 million when construction started two years ago, but now the lender is mulling a $375,000 offer for the partially completed house.”
“‘Five years ago, no one knew what a short sale was,’ said Ed Jalowsky, owner of Hottest Homes Realty. ‘Now, every home being sold in the Denver area for less than $300,000 is a short sale - or at least that is the way it seems.’”
“A Denver Tech Center-based company believes it is taking the industry to a new level by offering one-stop shopping for all of the parties involved in a short sale. ‘We think of ourselves as the ‘thought leaders,’ in wholesale short sales,’ said Jason Byrne, one of the company’s three principals. ‘I think foreclosures will grow to be as big as the Resolution Trust Corp. by a factor of at least 10.’”
“The RTC, created by Congress in 1989, took control of troubled assets owned by failed savings and loans, selling about $500 billion in collapsed real estate and bad loans at huge discounts. Colorado was especially hard hit because the S&Ls had been big players here during the oil boom days of the mid-1980s.”
“The economic collapse our nation is experiencing today was experienced before by the oil producing states when the price of oil fell below $10 per barrel in 1986. Louisiana and Texas were hit hard but Alaska was the state hit the hardest. On average, between 1986 and 1990, real property across Alaska fell to less than half of its former value. Rental properties fell by two-thirds. Some condos fell to 20 percent of their original cost.”
“Since 2004, I have been warning clients of the coming nationwide real estate meltdown that we are now experiencing. In short, my experiences during Alaska’s mid-’80s meltdown gave me the kind of knowledge needed by those looking for answers today. The coming of today’s collapse was obvious to anyone who understood why rising home prices had outpaced inflation and rising wages ever since HUD, Fannie Mae, and Freddie Mac stopped assigning appraisers and began allowing mortgage companies to pick their own appraisers.”
“At the same time, they also deregulated the rules which had previously spelled out what closing costs buyers paid and what closing costs sellers paid, at closing. Those two deregulation measures set the stage for a nationwide ‘Ponzi style’ pyramiding scheme twenty years in the making that was pre-destined for collapse.”
“In 1987, the FDIC engaged New York based Hallwood Group Inc. to ‘rescue’ two, then later a third failing Alaskan Bank. It took 18 months for Alliance Bank to collapse under its own weight. The FDIC ended up doing with Alliance Bank what it could have done at far less expense with the three banks that formed Alliance Bank 18 months earlier. They took possession, made their depositors whole and liquidated its assets.”
“Hallwood Group also attempted to rescue banks in Texas with similar results. Between 1982 and 1992, Texas economy saw 506 banks fail, including seven of Texas’s largest.”
“Corrupt deal making and golden parachutes were also king with far too many of Alaska’s asset liquidation efforts. However one government agency got it right. HUD created in effect, a sales window through which they presented a steady stream of properties for the real estate industry to market.”
“Without favoring any person, agent, or company, HUD engaged the entirety of Alaska’s real estate industry by offering all real estate professionals an equal opportunity to market every property. While other government agencies were cutting sweetheart deals with insiders and giving away property to the connected at taxpayer expense, HUD established an open door transparent policy that consistently fetched top of the market while making buying opportunities available to thousands of under privileged Alaskans who may never have otherwise owned investment properties or homes.”
“The FDIC should be taking banks over, sending their management packing, and liquidating their assets the moment they see their net worth has reached negative territory.”
