April 13, 2017

The Billion Dollar A Day Question

A report from the Atlanta Journal Constitution in Georgia. “Let this rattle around in your mind for a second: some ‘premium’ two-bedroom apartments in one of metro Atlanta’s hottest new live-work-play-shop oases rent for more than $5,000 a month. In Alpharetta. Deep in the burbs of north Fulton. Why, you might wonder — I certainly did — would people shell out rent equivalent to five house payments? That question would probably come to mind even if you aren’t one of those who believe paying rent is like shoveling cash down a commode.”

“But here’s three things Avalon execs think allows them to charge a premium: Effervescent concierges at the center of the community who will do things like hand out free wine and beer or order meals from Avalon restaurants and deliver them to you at the fire pit, pool, apartment, wherever. An open drink policy throughout the development. (I guess walking with a glass of wine or a mimosa dulls the rent pain.) A bounty of restaurants, watering holes, shops, free Wednesday yoga classes, Tuesday gatherings for kids, cornhole league competitions, and Friday night live bands beside the town green’s artificial turf. ‘It’s like sleeping on a cruise ship,’ Joe Peluso told me. ‘All I have to do is take an elevator ride down and I’m in the middle of the party.’”

From The Record in New Jersey. “From Franklin Lakes to Palisades Park and from Secaucus to Wayne, numerous residential real estate projects are in various stages of development all over North Jersey, a trend led by the rise of multi-family housing – specifically, higher-end apartment rentals. ‘I believe what we’re witnessing is a transition to a European model. We had a uniquely American phenomenon [of house ownership] that is being impacted by slow income growth and a high cost of living,’ said Jeffrey Otteau, president of The Otteau Group real estate research firm. ‘What killed the condo product essentially is that the decline in housing prices in New Jersey since the great recession has made condos unprofitable to build unless you are very close to Manhattan.’”

From The Real Deal on New York. “A duplex penthouse in the Time Warner building received its sixth price cut, and is now on the market asking $16 million. Apartment 54AG at 25 Columbus Circle was relisted Monday, Curbed reported. The condominium was first asking $50 million in 2013, although StreetEasy shows it debuted for $42.5 million in 2014.”

From Multi-Housing News. “To help banks struggling to deal with regulations on commercial mortgage lending that were enacted in 2015, a group of real estate trade organizations is working to introduce legislation that would clarify the rules. The confusion involves so called high-volatility commercial real estate (HVCRE) loans originated by commercial banks, which encompass loans on acquisition, development and construction loans.”

“‘Over the next three years, over $1 trillion—or approximately $1 billion a day—in commercial real estate debt is maturing. So, maintaining adequate credit capacity is vital for commercial real estate,’ said Chip Rodgers Jr., senior vice president of the Real Estate Roundtable (RER). ‘The HVCRE rule is disproportionally affecting bank commercial real estate lending and contracting much needed credit to the sector.’”

The Journal Sentinel in Wisconsin. “The developer of a higher-end West Allis apartment community is seeking a federally guaranteed loan to end delays on obtaining project financing. The situation involving Element 84 amounts to another example of a slowdown in Milwaukee-area apartment construction activity. Both John Stibal, city director of development, and Jon Ross, an Ogden principal, said they believe that Element 84 can still move forward.”

“Commercial lenders have been tightening their requirements for loans on apartment developments, Ross said. Most banks are willing to provide loans for up to 60% to 65% of a project’s costs, he said, compared to what had been 75% to 80% of those costs. That change is partly tied to concerns about whether too many new apartments are being built within a relatively short time, Ross said. Ross doesn’t believe oversupply is an issue in West Allis.”

“Also, Ross said the city’s financing help would allow Ogden to offer high-end apartments at monthly rents as much as $200 to $400 less than similar units being built in Brookfield, Wauwatosa and downtown Milwaukee. So, Ogden is seeking a loan guarantee from a U.S. Department of Housing and Urban Development program. That’s similar to what Barrett Lo Visionary Development LLC is seeking for The Couture high-rise on downtown Milwaukee’s lakefront. ‘We feel like we have a competitive advantage,’ Ross said.”

From Real Estate Business Online on Texas. “While it’s not an ideal time to be a multifamily property owner in Houston, it is a good time to be working on behalf of one. With their clients sitting on excess supply, apartment locators — middlemen who match tenant preferences to properties — are being increasingly called upon to deliver tenants. Locators work on commission, typically earning about 20 percent of the first month’s rent for their services. But in Houston’s soft market, that figure is rapidly rising.”

“Todd Marix, a senior managing partner in HFF’s Houston office who spoke on an earlier panel, addressed the rising operating costs that landlords are facing. In his view, fees paid to apartment locators are quietly doing major damage to property owners’ net operating income (NOI). ‘Concessions are the most visible measurement of weakness,’ Marix said. ‘What gets lost in the discussion, in terms of the threat to NOI, is locator percentages, especially when that rate goes from flat to a certain percentage, and then that percentage goes from 75 to 100 and so on.’”

From CBS Miami in Florida. “A few weeks ago we reported on rents in Miami dropping. Now a similar story is playing out in the luxury sales market. Sales are slowing down dramatically and the worst may still be yet to come. CBS4’s David Sutta stepped off the elevator right into a luxury unit. On a typical day Seth Feuer’s listings would sell itself. Today though, he’s having to earn it. ‘This looks like it should be sold already. Why isn’t it?’ CBS4’s David Sutta asks. Feuer nods his head and says ‘That is the billion dollar question in our real estate market currently.’”

“Roy Gorin owns the unit Feuer is trying to move. He explains it’s been on the market for over a year now. He has agreed to drop the price of his unit in the Murano Grande by nearly a million dollars. ‘It has been disappointing,’ Gorin says when asked about it.”

“And yet no one is beating down his door to buy it. Feuer admits, ‘This is the toughest market that I’ve seen. I’ve been in the business for about 14 years. After the crash of 2006-2007, things were tough but I still had activity.’”

“There are a host of reasons why. Zika scared many New Yorkers off. The US dollar has strengthened, making units unaffordable for foreign buyers. And developers are adding new luxury units every day. ‘It has to get worse before it gets better,’ Sep Niakan, broker at HB Roswell Realty told CBS4. There are nearly 4,000 luxury units for sale in South Florida. At current sales rates, it would take five years to sell it all. In some places, it’s even worse. Downtown Miami has 6 and half years of luxury inventory. In Midtown, the number stands at 8 years.”

“He’s advising clients to get real quick. ‘If you want to sell within the next couple of years, do it now,’ Niakan said.”

RSS feed


Comment by taxpayer
2017-04-13 10:29:45

Ogden is seeking a loan guarantee from a U.S. Department of Housing and Urban Development program

see if Carson will nix this sht

Comment by Tortelvis
2017-04-13 10:43:23

“cornhole league competitions”

Goes perfectly with 5k a month rent. I bet those folks are really good cornhole players.

Comment by Ben Jones
2017-04-13 10:50:26

Let’s see:

‘a trend led by the rise of multi-family housing – specifically, higher-end apartment rentals. ‘I believe what we’re witnessing is a transition to a European model’

New paradigm thinking, check.

‘An open drink policy throughout the development. (I guess walking with a glass of wine or a mimosa dulls the rent pain.) ‘It’s like sleeping on a cruise ship,’ Joe Peluso told me. ‘All I have to do is take an elevator ride down and I’m in the middle of the party.’

New overpriced urban living based on barflies, check.

‘Ross doesn’t believe oversupply is an issue ‘We feel like we have a competitive advantage’

Clueless developers, check.

‘‘Over the next three years, over $1 trillion—or approximately $1 billion a day—in commercial real estate debt is maturing’

Short term loans need to be rolled over, check.

‘Most banks are willing to provide loans for up to 60% to 65% of a project’s costs, he said, compared to what had been 75% to 80% of those costs’

Credit contracting, check.

‘fees paid to apartment locators are quietly doing major damage to property owners’ net operating income (NOI). ‘Concessions are the most visible measurement of weakness’

Underlying value dropping, check.

‘He has agreed to drop the price of his unit in the Murano Grande by nearly a million dollars. And yet no one is beating down his door to buy it…its sixth price cut, and is now on the market asking $16 million…The condominium was first asking $50 million in 2013′

Huge price cuts and still no sale, checkity check!

Comment by 2banana
2017-04-13 11:06:34

“Where are the models I saw as neighbors when I did a tour????”

Comment by Andrew
2017-04-13 11:08:33

Wow. Its like people have Goldfish-length memories.

What was incredibly striking was the underlying social issue making people think that $5K to rent an apartment in the middle of the sticks was OK….
“It is, I think, a sign of how some people will pay dearly to be where the action is and where they can find pals”
These are people who are unable to connect socially with their neighbors or communities, for some reason, and think buying their way into a contrived party is a ticket to the good life. All of their social media use has left them without actual human contact. They want living in an open-container carnival atmosphere, but they want it sanitized.
Sounds like a hoot, a bunch of divorced graying 50ish types, people who obviously can’t do the work to make a marriage function. Why do the work to make a meal when you can call “Not My Problem” ?

Comment by 2banana
2017-04-13 11:20:42

This is ATLANTA.

Get a nice normal $1,000/month apartment

Be “Mr. Party” with the other $4,000/month…

And you can then party anywhere and/or stop when you want too…

Comment by snake charmer
2017-04-14 07:28:54

I agree with a lot of what you wrote there. Are we so desperate for community that we’ll turn it into a commodity priced at $5,000 per month?

Not sure of your vision of the market, though. Divorced graying 50s types playing cornhole and partying to live music around a fire pit? Can’t see that, unless it’s at The Villages.

Comment by rms
2017-04-14 08:04:45

After tax wages of $5000/month is a lot of money considering the daily expense of transportation, decent clothing, etc., to earn that paycheck.

(Comments wont nest below this level)
Comment by Bradford
2017-04-13 12:20:12

We have a BINGO!

Comment by CHE
2017-04-13 12:27:07

I. am. Astounded.

I have lived in several apartments. Never once has anyone hassled me about having an open drink. Besides, who the hell knows you have a drink if you pour it in a cup?

Just no glass by the pool!!!

Hell, the cops around here leave us alone walking around the streets with red solo cups as long as we’re not being drunk a-holes. And this is in California!!!

Cornhole? For crying out loud - at my old place my across the hall neighbors were recent college grads and they’d just set it up in the hallway. Again, as long as it wasn’t at 11 at night, who cared?!?!

Free wine and beer to the pool? WHO CARES? My friends and I just take turns going back to my apartment for refills. And that wine/beer is FAAAAAR less than $5000 a month. If I want someone to bring it to me I’ll go to a restaurant.

OMG… can’t. we. just. have. affordable. apartments.

I can do the rest myself.

What’s next? Maybe free prostitutes sent to your room?

Oh wait shh… don’t want to give them any ideas…..

Nope, no bubble here.

Comment by Ben Jones
2017-04-13 11:01:23

Yellen bucks looking for a place to die, check!

‘Pension Fund Investors Expect an Era of Lower Returns on Real Estate Plays’

‘In 2017, institutional investors are demonstrating increased interest in data centers, student housing, seniors housing and self-storage, according to Greg MacKinnon, director of research at the Pension Real Estate Association (PREA), reflecting a strategy shift from years past.’

‘PREA recently released the results of its first quarter Consensus Forecast Survey, which asked respondents about their views on real estate asset returns over the next few years. PREA’s NCREIF Property Index, which is based on the survey results, showed expected total returns (including income) on all property types of 6.6 percent in 2017, 5.9 percent in 2018 and 5.5 percent in 2019. The survey was based on responses from 22 firms, including investment managers, advisors and researchers.’

‘Greg MacKinnon: Investors are still as positive about the asset class as before. What has changed is the way they are looking at returns. I don’t hear anyone predicting a major crash, but in general, they are wondering, “When is the peak? When is the turn of the market?”

“What we’ve seen in a lot of cases is investors bringing in their time horizons. If you think there will be a turn in 18-20 months, you don’t want to go into a three-year project. So investors are doing value-add plays with 12-28-month timelines. After the bump in the 10-year Treasury, people are cautious about the markets and what the overall effects of interest rate increases will be. Investors are not predicting a crash, but looking at subdued increases in prices and appreciation. I think we are hitting a plateau in values.”

Yes, this guy is handling peoples retirement money:

‘MacKinnon: Certain types of investors, those whose profiles are less risk-averse, are eyeing repositioning of class-B shopping centers and class-B malls for alternative uses, but for most investors this is still considered more of a speculative, opportunistic play. High-end luxury apartments are overbuilt in some markets, with Manhattan being a prime example.’

“Investors feel they have to keep up with business as usual. There is no way to underwrite what is going on. They can’t predict it so they are trying not to worry about it,” MacKinnon says.’

Comment by Ben Jones
2017-04-13 11:05:55

Psst, Greg, here’s a tip: go all in senior housing, and plant your corn early this year:

‘It’s clear senior living has jumped on the technology bandwagon, but can all of the innovative tools bring a low-performing operator to the top?’

‘Some industry leaders think not. Speaking last week at the Senior Housing News Summit, they revealed why tech alone cannot save the day, and what the industry is still lacking when it comes to big data. In a wide-ranging discussion, they also hammered home why some providers need to realize that certain marketing techniques should be left for used car dealerships.’

‘Pricing is also a hot topic throughout the health care industry, but senior housing can’t be sold like you would a car, Bacon explained. “I saw an ad for a competitor of ours and its says ‘Spring Sale $99/day All-Inclusive’ — now that is for the care of your mother. Nobody wants to put their mother in the cheapest place that’s having a sale,” she said. “It is brand destroying as far as I’m concerned.”

‘Elmcroft Senior Living is on board with this thought process and has stopped doing deals and sales completely, said CEO Pat Mulloy. “We made the same decision six months [ago]. We just put a brake to it…we’re selling services for your mother,” he explained. “This isn’t buying a used Volkswagen for your kid to go to college.”

‘Louisville-based Elmcroft Senior Living operates 83 senior living communities throughout 18 states. There are brand new developments going up in the South that are charging $2,500 per month, Mulloy added—a cut-rate price that is not going to be sustainable, he believes.’

“You can’t stay at a Hampton Inn for $2,500 a month,” he said. “It’s ridiculous and is going to come back to bite them [operators] in the shorts.”

Comment by Patrick
2017-04-13 15:20:40

Retirement homes have made the private room the norm in the last five years. Prior to that, semi-private and prior to that we had ward.

In Ontario almost all new rooms are private with some older units still with semi.

Ten years ago private was about $3,500. Today it is about $3,500 !!!

Ward used to be about $900 and I don’t know of any around today.

Semi used to be about $900 and is about $1,500 today. If you can find it.

Government run homes are basically free. But first you have to give your assets to your family so that you can be designated in need.

Yes, your million dollar debt free home has to be given away to your family so that taxpayers are allowed to look after you.

Comment by 2banana
2017-04-13 18:01:42

“Government run homes are basically free. But first you have to give your assets to your family so that you can be designated in need.”

The government is on to this scam.

They can and will claw back any assets given away within the last 10 years.

(Comments wont nest below this level)
Comment by Karen
2017-04-13 12:27:22

‘MacKinnon: Certain types of investors, those whose profiles are less risk-averse, are eyeing repositioning of class-B shopping centers and class-B malls for alternative uses


Comment by Ben Jones
2017-04-13 12:36:05

‘The origins of what’s currently called City Place began in 1929 when the old Leonard’s Department Store started construction of the 25-foot storefront at 200 Houston Street. Tandy Corporation demolished the Leonard’s Department Store after buying the store and subway from the Leonard Brothers in 1976. The Charles D. Tandy Center was built in its place housing a shopping mall anchored by Dillard’s, an indoor ice rink, and two landmark office towers.’

‘The entire complex was completed in 1978 and became known as The Tandy Center. Popularity of the mall began to wane in the 1990s leading Dillard’s to move out. Virtually vacant, the mall was reborn in 1996 as a 200,000 square foot in-town outlet mall, Fort Worth Outlet Square, but was still not successful. The mall and ice rink were both eventually closed and converted into office space for RadioShack Corporation, Tandy’s new name as of 2000.’


I went to this mall in the mid-80’s. It was like a movie: half the people there were police. I guess they had a crime problem. I left after 5 minutes.

Comment by Aqius
2017-04-13 14:37:34

Tampa equivalent was Floriland Mall.
EastLake Mall = close second.

(Comments wont nest below this level)
Comment by snake charmer
2017-04-14 07:37:44

Heh. I remember Eastlake. After it closed, it became a “technology incubator” called NetPark. And Floriland is where traffic court is now.

Comment by Karen
2017-04-13 18:36:45

I didn’t see any police when I went to La Gran Plaza a couple of weeks ago, although it was a weekday before 5pm. I can only imagine what it must be like on weekends when it’s swarmed. Plenty of stores had signs asking parents to please watch their children. I’m sure there are hordes of unsupervised kids.

It’s a pretty strange place to walk around. Most of the businesses are small no-name Latino stores selling stuff like cowboy boots and quinceanera dresses.

Then there is one entire section of the mall where you enter a series of stalls and it’s like you are in some 3rd world bazaar. It’s much more closed off than a flea market. It definitely has the potential to get kind of weird because there’s no real visibility to or from any other section.

If I were alone on a weekend, I’m not sure how comfortable I would have been in that area. And it was kind of disorienting. I found myself unsure which way to go to get back to the “regular” mall. I had heard about it and I just had to see it for myself.

(Comments wont nest below this level)
Comment by 2banana
2017-04-13 11:14:11

No wonder Warren dumped them…

Wells Just Reported The Worst Mortgage Number Since The Financial Crisis
ZeroHedge - Apr 13, 2017

When we reported Wells Fargo’s Q4 earnings back in January, we drew readers’ attention to one specific line of business, the one we dubbed the bank’s “bread and butter”, namely mortgage lending, and which as we then reported was “the biggest alarm” because “as a result of rising rates, Wells’ residential mortgage applications and pipelines both tumbled, specifically in Q4 Wells’ mortgage applications plunged by $25bn from the prior quarter to $75bn, while the mortgage origination pipeline plunged by nearly half to just $30 billion, and just shy of all time lows recorded in late 2013 and 2014.”

Fast forward one quarter when what was already a troubling situation, just got as bad as it has been since the financial crisis for America’s largest mortgage lender, because buried deep in its presentation accompanying otherwise unremarkable Q1 results (EPS small beat, revenue small miss), Wells just reported that its ‘bread and butter’ is virtually gone, and in Q1 the amount of all-important Mortgage Applications has tumbled by a whopping 23% to just $59 billion, below the lows hit in early 2014, and at fresh lows since the financial crisis.

And while Wells’ application pipline was not quite as dire, it too was just shy of fresh post crisis lows at only $28 billion, in line with the lowest numbers reported this decade.

The lagging mortgage originations number was nearly as bad, plunging 39% sequentially from $72 billion to only $44 billion, “due to higher rates and seasonality.” Since this number lags the mortgage applications, we expect it to post fresh post-crisis lows in the coming quarter.

What these number disturbingly reveal, is that the average US consumer can not afford to take out mortgages at a time when rates rise by as little as 1% or so, which is where they peaked in the first quarter. It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.

Comment by 2banana
2017-04-13 11:23:03


Remember our conservation from a few days ago on why the Fed left interest rates at near ZERO for the entirety of obama’s regime?

Below is one from the list…


“It also means that if the Fed is truly intent in engineering a parallel shift in the curve of 2-3%, the US can kiss its domestic housing market goodbye.”

Comment by sleepless_near_seattle
2017-04-13 12:04:16

Opportunity is on the way!

Comment by new attitude
2017-04-13 13:22:31

+1, now who wants to lose their freedom and buy a home? step up!

(Comments wont nest below this level)
Comment by Ben Jones
2017-04-13 12:27:40

ZIRP and QE were “emergency measures”. Funny how it became semi-permanent. Obviously they were afraid of what would happen if they ended either. Problem is if prices stay too high for too long, you’ll eventually get overbuilt, like San Francisco and Manhattan. And if those places can turn into Miami Beach, what market can’t given enough time?

Comment by azdude
2017-04-13 15:03:04

why has our economy become so addicted to artificial stock and home prices?

It seems once breadwinner jobs starting going away they went to leveraging assets to produce growth.

(Comments wont nest below this level)
Comment by Carl Morris
2017-04-13 15:49:55

why has our economy become so addicted to artificial stock and home prices?

It seems once breadwinner jobs starting going away

Seems like you answered your own question.

Comment by Professor Bear
2017-04-13 21:24:53

Why would the Fed strangle in the cradle the real estate Echo Bubble that it so tenderly nurtured? Makes no sense!

Look for more headfakes on rate rises ahead. A lot more!

Comment by JSandusky
2017-04-13 16:34:26

That Chinese Buffet from Omaha always knows it before anyone.

Comment by Albuquerquedan
2017-04-14 07:55:37

Certainly, would have know in the previous administration. He might be a little butthurt over the pipeline since it cost his railroad a lot of business.

Comment by Apartment 401
Comment by Aqius
2017-04-13 15:12:37

the gulf between classes is getting wider here in CA:
I’ve noticed that local govt agencies & utilities routinely raise the rates for essential services quite often as an “end-run” around the Prop 13 restrictions. school bonds also. 3 passed in 10 years here in San Juan school district. leaky roofs, dontcha know.

(I have 3 kids in several different public schools & have NEVER EVER heard of or seen any “leaky roofs” but that’s a convenient heart-tugging catchphrase to get a new bond measure passed)

no pesky votes needed. and no watchdog govt oversight committees ever deny rate increases. or on the RARE occasion a rate hike IS denied the applicants just quickly file again & its approved, with the cover story “it’s overdue because haven’t had a rate increase in X years !!”

it’s now a free-for-all to gouge the public to cover wage increases & pensions under the guise of “infrastructure” repairs.

told the wife CA is now just a place for the tsunami of rich chinese dirty money escaping ruined China that pays for the underclass of Latin illegals. the only middle-class left are the union govt drones & the Patels.

CA = Elysium … then Matt Damon landed. now it’s District 9

Comment by new attitude
2017-04-13 15:39:05

Aqius - where are you in CA? So Cal I am guessing? Tustin?

Comment by Aqius
2017-04-13 17:33:41

NorCal. Citrus Heights: suburb of Sacramento

(Comments wont nest below this level)
Comment by Young Deezy
2017-04-14 07:41:36

Hey Neighbor. Posting from the Pocket/Greenhaven area here.

Comment by new attitude
2017-04-14 09:56:55

Ah, I think Tustin would be your sister city in the north. ;)

Funny how even Sac is expensive now.

Comment by snake charmer
2017-04-14 07:41:53

District 9 is an awesome movie. I was bored on a long flight a few years ago, and started idly watching. Before long I was glued to the screen.

Comment by Senior Housing Analyst
2017-04-13 13:04:04

Flower Mound, TX Housing Prices Crater 15% YoY


Comment by Jingle Male
2017-04-13 13:42:58

The bloom is off the rose in Flower Mound? Where do you find these tiny bits of non-sense? The price/SF is the same…..smaller houses account for your headline. HA, Ha, ha, ha….such a jokester.

Comment by Race Bannon
2017-04-13 15:35:07

Remember my good friend…… A housing ‘recovery’ is falling prices to dramatically lower and more affordable levels by definition.

Boulder, CO Housing Prices Crater 6% YoY


Comment by Apartment 401
2017-04-13 13:36:40

Median sale price is 6 times median household income, no bubble here:


Comment by Carl Morris
2017-04-13 13:44:48

I’m curious if it’s mostly locals overpaying or mostly Californians thinking they are getting them so cheap? Not a lot of Chinese buying there.

Comment by Ethan in Northern VA
2017-04-13 15:12:22

For every low end house that is overpaid for you end up with a potential move-up buyer that can snag a bigger place, rolling forward the money.

Comment by 2banana
2017-04-13 15:19:38

It’s a great leveraged ponzi scheme

And works great up until the day houses don’t appreciate or even lose value…

(Comments wont nest below this level)
Comment by new attitude
2017-04-13 14:58:38

What is property tax in CO? Is it super high like TX?

Comment by Carl Morris
2017-04-13 15:51:39

No. But there is an income tax.

Comment by Ben Jones
2017-04-13 15:21:34

This was directed at me in the previous comments:

Jingle Male

‘How can you not understand the mortgage market after all these years?’

“After purchasing mortgages on the secondary market Fannie Mae pools them to form mortgage-backed securities (MBS). MBS are asset-backed securities that are secured by a mortgage or pool of mortgages. Fannie Mae’s mortgage-backed securities are purchased by institutions, such as insurance companies, pension funds and investment banks. It guarantees payments of principal and interest on its MBS.”


‘You were dealing with the servicers who represent the investors in the foreclosure actions.’

In 2007 I started going to what are called sheriff sales in Flagstaff. This is the actual foreclosure. If the sale went though either a third party owned the shack, or it went back to the first lien holder (in a rare case here or there a second or third lien holder would buy it). After about 100 of these I had learned all I was going to. In late 2007 I started a property preservation company. Among many things I was asked to do was secure pre-foreclosure properties.

I had to go through training, because HUD, the GSE’s and the various lenders had specific, differing ways they wanted things done. So I had to know who owned it. And if law enforcement showed up and asked me why I was on the property (happened all the time), I had to produce proof I had a legal right to be there. Written proof the owner had authorized me to drill a lock or crawl through a doggie door (did the latter several dozen times) or haul their junk to the dump. I knew who the owner was every time I visited a property: I had to. In the case of a pre-foreclosure, I had to demonstrate I had a right to gain entry (if that was requested) even though it still belonged to the FB. You can bet your boots when confronted by some pissed off yokel, I could show them proof the party that was no longer getting paid sent me. I never had to leave for lack of authority. (One time I changed a secondary lock and the FB changed it again. Then I changed it again and so did he. This went on for about an hour and he left.)

I was doing more foreclosure work at the height of the bust than probably everybody else in N AZ combined. From the New Mexico, Nevada and California borders I took care of maybe more than a thousand houses in a few years, I couldn’t begin to guess. I saw the paperwork: I was often the one who posted it. I always knew who owned the property I was on.

Does a security owner own a house? No. They have a claim. Does a MBS sue to get a shack? No, they want money. All this mumbo-jumbo about tranches, MBS and selling and reselling didn’t matter in the field. So someone here may not know about how mortgages work, but it ain’t me. I will grant you that when it comes to knowing how it feels to have a huge mortgage hanging around ones neck, you would have the advantage because I have none and you have several.

Comment by Race Bannon
2017-04-13 16:12:30

One isn’t very informed when they don’t know the difference between a title and a claim on a title.

Comment by Jingle Male
2017-04-14 06:34:08

….or the difference between a loan servicer and an investor.

Comment by Bradford
2017-04-13 16:22:58

I have followed you for 12 years (off and on), Ben. This comment is one of my favorites.

Comment by Financial Moralizer
2017-04-13 16:57:20

Just curious, of all those foreclosures you worked on, appx what percentage were intentionally damaged by the FBs as revenge? (as opposed to just leaving trash around).

Comment by Ben Jones
2017-04-13 17:13:21

If you count little things, around 10-20%. Much more damage was caused by not foreclosing quickly, which has to do with the shadow inventory we were talking about originally. At the start of 2008, it was all about property preservation and safety. I’d get assigned a pre-foreclosure, inspect it even if just from outside. I’d contact the listing agent (they were always for sale) and work out some cooperation. The day or hour the utilities went off I’d be over there winterizing it. As soon as it was vacated I’d secure it and keep it that way. Get all the health hazards out. Maintain it weekly. Very organized. Then the moratoriums started. By the end of 2009 I started getting work orders for houses that had sat abandoned for a year or two. That turned into 3 years, or more. Everything goes to crap when a house is abandoned and not cared for.

Comment by Patrick
2017-04-13 17:47:42

Good general article on mbs. If these mbs were gauranteed by GSE but the mbs was traded like a commodity in Montreal I guess the end owner still had the insurance from GSE.

So it sounds like the GSE are the real bag holders (taxpayers) of the shadow inventory.

Sooooo - why aren’t the taxpayers up in arms ?

Oh, what they don’t know won’t hurt them - until it does.

But what percentage of these loans went thru the GSE ? I thought it was a very high percentage.

Soooo - GSE seem to be the real owners of these MBS.

Comment by Financial Moralizer
2017-04-13 18:38:46

Well… the Fed owns a lot of the GSE debt, from their QEs starting in 2009, I think. I read somewhere that the Fed represents about 30% of the total GSE/MBS debt market.

Here’s a link to the FHFA gov site, there are some PDFs that show how much the Fed has been buying over the years, as of Feb 2017. Many billions every month. It’s amazing how much money it really is.


Comment by Financial Moralizer
2017-04-13 18:50:19

2008, sorry..

Comment by Financial Moralizer
2017-04-13 19:15:43

Here’s a pretty good summary of all the things that happened, back in the previous crash.


Even though the US government spent a lot of money to “guarantee”
(bail out) the banks and GSEs — to fund the bailouts they had to issue new Treasury bonds, which the Fed buys. All roads lead back to the Fed, so they are a bagholder. You are right though, the taxpayer is the ultimate bagholder because the Fed had to dilute the money supply, spreading the losses over everyone. We are all poorer because of it.

Comment by 2banana
2017-04-13 18:45:19


Even though a long shot…

You should write and book and get a movie made about your adventures.

It would be funny and really open people’s eyes.

Especially to what is shortly coming in round 2.

Comment by Jingle Male
2017-04-14 06:27:34

This thread started with the comment the banks were holding inventory off the market to serve their economic interest because they owned the loans. My point is the banks don’t own the loan, the investors do. The banks continue to SERVICE the loans. Your orders came from the loan servicers

The rants on this blog claiming the banks are in collusion to protect the value of their loan portfolio are completely wrong. The banks have no vested interest in the loan or payments anymore. They sold the loan withing a few months of booking it. There is no big conspiracy by the banks to hold property off the market.

I do agree the SERVICERS (the groups from whom you took your marching orders) have a vested interest in keeping the loans in the special servicing portfolio, because that is where they are able to generate the most fees, charged back to the investors from the portfolio income stream. That is why a lot of properties sit idle: so the SERVICERS can continue to bleed fees from the investors (pension funds, insurance companies, etc).

Comment by Ben Jones
2017-04-14 07:24:32

You really don’t have any idea WTF you are talking about. There’s no loan any more - it’s a foreclosure! I only did this 7 days a week for something like 6 years. Let me school you more: either mortgage field service companies give the day to day direction, or REO brokers. They are interchangeable except REO brokers are hands on, more invested in the shack cuz they fund the rehab and don’t get paid until it sells. The playbook is generalized. There is protocol about what to do and when because there may be no phone service and emergencies arise or are discovered. It’s pretty much the same thing shack to shack. Mold here, abandoned vehicle there, but it was just a box of chocolates really. Should actual contact with a higher up be needed they called the asset manager, also a third party working for the owner.

Loan servicers send out envelopes and call FB’s. You do know about that, seeing as how you have so much contact with them.

Comment by Jingle Male
2017-04-14 12:15:48

I understand you deal with the realities out in the field. I agree with you on all counts. You are completely missing my point about the mortgage capital: The “banks” have no economic interest in the interest payments or in the principal payoff of the loan. They no longer own the loan. They sold it years ago into the investor market (pension funds, insurance companies, etc.)

The loan SERVICERS (who are not invested in the loan anymore) make their economic decisions based on their ability to earn fees, which means if they can keep the asset in their special servicing department longer, they get more fees. I appreciate your comment about the foreclosure brokers wanting to sell the asset ASAP, since that is how they earn fees.

Again, my point is the banks (who continue to service the loan after they originate it, but have sold the loan to a third party) do not have a big conspiracy to hold the properties off the market for appreciation. They just have no economic interest in the loan, since they sold the loan years ago and got all their capital (plus an extra yield) returned within the first few months they originated it.

(Comments wont nest below this level)
Comment by Senior Housing Analyst
2017-04-14 14:09:14

The massive excess inventory grows by the day irrespective of ownership.

Comment by Jingle Male
2017-04-15 06:57:00

I know, I know…..25,000,000 empty, foreclosed houses……you probably think there are more now than in 2009……clueless. HA, ha!

Comment by new attitude
2017-04-13 15:40:59

Why is Denver so expensive and ABQ so cheap. Less traffic in ABQ and more sun.

Comment by azdude
2017-04-13 16:05:01

papa johns!

Comment by JSandusky
2017-04-13 17:30:54

Goofy looking midwestern millennials

Comment by Financial Moralizer
2017-04-13 18:55:34

Rocky Mountain High :-)

Comment by whirlyite
2017-04-13 19:53:07

According to some friends, no jobs.

Comment by new attitude
2017-04-14 10:03:19

You can work at Costco in ABQ and still buy a home. (if ya want)

Comment by oxide
2017-04-14 10:45:43

Buy a home on $30-50K? That’s Oil City territory.

(Comments wont nest below this level)
Comment by new attitude
2017-04-14 15:35:22

Married - and houses are under $200k.. Why buy if you are not married??? Go out an play.

Comment by Senior Housing Analyst
2017-04-13 16:01:39
Comment by Financial Moralizer
2017-04-13 16:29:02

They look so happy. Job well done. (btw that is Volcker on the right)


Bernanke’s latest blog post is interesting:


They expect us to be at the zero-lower bound interest rates (ZLB) appx 30% of the time, from now on.

Meanwhile, Janet said the Fed won’t even release their “plan” for scaling back QEs until the end of this year. Maybe. I call bulls*t. QE will never stop. And they will never actively sell their holdings. The minor interest rate increases to the Fed funds rate this year are just “for show”, imo. They printed too much money, and now we’re stuck with it.

Comment by palmetto
2017-04-14 08:26:48

“They printed too much money, and now we’re stuck with it.”

Stuck with what? Too much money? Lemme check my bank account….Hmm, looks like I haven’t been stuck with it. Anyone been stuck with it?

Comment by Financial Moralizer
2017-04-14 09:31:01

You didn’t get your check, palmetto? Hmm. There must have been a mistake somewhere. :)

Comment by Senior Housing Analyst
2017-04-13 16:35:38

“Realtor Charged After Rummaging Through Cabinets”


Comment by Professor Bear
2017-04-13 22:53:18

“… one of those who believe paying rent is like shoveling cash down a commode.”

This comment is a reference to stupid people, right?

Comment by MightyMike
2017-04-14 09:07:10

That would mean that most middle class suburbanites are stupid.

Name (required)
E-mail (required - never shown publicly)
Your Comment (smaller size | larger size)
You may use <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong> in your comment.

Trackback responses to this post