‘Awkward Questions’ As The Housing Bubble Bursts
From Bloomberg. “Kara Homes Inc., the New Jersey builder known for so-called McMansions, filed for bankruptcy after $250,000 discounts failed to lure buyers. The closely held East Brunswick, New Jersey-based company sought Chapter 11 protection in U.S. Bankruptcy Court, saying it owes $296.84 million to lumber, concrete, electrical, plumbing and woodwork companies while holding $350.18 million in assets, primarily unsold houses and land.”
“One property for sale is a 6,319-square-foot, five-bedroom model with a three-car garage, listed for $1.5 million in Freehold, New Jersey.”
“U.S. housing demand is flagging after five record years, swelling the inventory of unsold homes. Almost half the people who sign contracts with builders are canceling before the house is finished, forcing companies to sacrifice profit margins by offering freebies to attract new buyers, according to James Hughes of Rutgers University.”
“‘There could be many similar filings in markets glutted with single family homes,’ said Gerard Cassidy, managing director of bank equity research for RBC Capital Markets. ‘Kara is already at the table. We expect more people to come to dinner, the question is, how many more?’”
“Kara began advertising in 2005 that it would pay the first year of mortgage bills for buyers, and said in January it would continue the offer this year. In August, Kara began advertising discounts of $20,000 to $246,000 for so-called ’spec,’ or speculative houses built without a buyer under contract.”
“More than half of U.S. homebuilders, 55 percent, are offering incentives such as free mortgage payments, fireplaces, hardwood floors or garages, up from 37 percent a year earlier, said Gopal Ahluwalia, director of research at the National Association of Home Builders. Four percent are giving away cars and another 4 percent are handing out vacations, Ahluwalia said.”
“Sales of new homes in August fell 17.4 percent from the same month last year. There were 568,000 new homes for sale in August, the second-highest on record after July’s 570,000.”
The Wall Street Journal. “As the housing sector cools, the mortgage market faces an awkward question: Who takes the hit when loans go bad?”
“A generation ago, nobody asked. Banks made loans and suffered the consequences when borrowers didn’t pay. Today, a complex Wall Street machine buys and sells mortgages and packages the loans into securities that are diced and sliced and sold again to investors world-wide.”
“Players on Wall Street and beyond are starting to grapple over bad loans, especially in the market for borrowers with scuffed credit, so-called subprime customers. ‘In a rising market, even a bad loan is a good loan,’ said Nate Redleaf, a research analyst with a Beverly Hills, Calif., investment bank. ‘You could be sloppy and it didn’t matter. Now people really have to do their jobs. They have to be more vigilant.’”
“Mortgage repurchases aren’t always reported, so it is unclear how many loans are being sent back to their lenders, or their total value. A study by Credit Suisse Group found evidence of a jump in the subprime market. It examined 208 bond deals involving pools of subprime mortgages totaling $234 billion. The study found nearly half of these mortgage pools had some loans repurchased in the first quarter of 2006, up from less than a third that faced repurchases in 2005.”
“The buybacks are the first real test of the modern mortgage market, said Christopher Mayer, at Columbia Business School. ‘This will continue to be an issue even in the case of a soft landing’ in real estate, he said.”
“Of the $3.1 trillion in mortgages originated last year, 68 percent were packaged into securities, Bear Stearns said.”
“‘You had a well-oiled machine,’ said Thomas Lawler, a former Fannie Mae economist. As loan volume declined in 2005, lenders got ‘a little more creative’ and loan quality declined. Credit Suisse estimates early defaults more than doubled on subprime loans that didn’t require income documentation between the first quarter of 2004 and the first quarter of 2006.”
“Investment banks and others are showing an unwillingness to wait for loans to default before taking action. Some are turning to companies such as Clayton Holdings Inc., which uses computer-driven risk models to find troubling patterns, such as brokers that sold lots of bad loans.”
“Mortgage investors and lenders are ’sharpening their pencils and using a thicker magnifying glass,’ said Keith Johnson, Clayton’s president.”
“In a lawsuit, Bear Stearns’s EMC Mortgage Corp. unit is suing MortgageIT Holdings Inc., New York, in an attempt to force it to buy back at least 587 loans totaling $70 million. MortgageIT denies the allegations in court papers.”
“EMC was among 11 lenders that unsuccessfully sought more than $20 million in loan repurchases from a Belleville, N.J., lender, D&M Financial Corp., which is in bankruptcy-court proceedings. A lawsuit filed by EMC in federal court in Brooklyn accused D&M of a wide-ranging scheme involving ‘vastly inflated’ appraisals and altered or forged down-payment checks.”
“Saul Berkman, an attorney for D&M, said its executives denied the fraud allegations. He added the company has little or no assets left to fund repurchases.”
In August, Kara began advertising discounts of $20,000 to $246,000 for so-called ’spec,’ or speculative houses built without a buyer under contract
_____________________________________________________
Does anyone remember the comments - We learned from the last down cycle, no spec homes this time around. Everything we build has a buyer…
What a lie!
“What a lie!”
Good for helping pump-and-dump operations!
” A generation ago, nobody asked. Banks made loans and suffered the consequences when borrowers didn’t pay. Today, a complex Wall Street machine buys and sells mortgages and packages the loans into securities that are diced and sliced and sold again to investors world-wide.”
I hope everyone is familiar with the term “systemic risk”. If not, you will be.
Some of the faceless losers:
Teacher & state employee pensions
Hedge funds
China
I knew there was a reason I didn’t go with TIA-CREF for my retirement.
Is this where the toxic MBS sh!t gets buried?
Yes.
Maybe I’m being meoldramatic, but I think this is one of the most important articles posted here in a long time. It seems like the first dominos have started to topple in the massive credit bubble that we laughingly call “our economy”. Systemic risk, indeed!
I fear many have no idea how far reaching this problem has become. It’s not a simple matter of bursting the bubble and returning to norms, not even close.
That is why I am counting on our economic leaders to do everything possible to (1) keep alive the facade that nothing is amiss and (2) cobble together stealth bailout programs to keep nature from running its course.
I agree that this article was extremely important, but I would have liked to see more specifics on who is going to get hurt by this, i.e., specific mutual funds, pension funds, hedge funds, lenders or gov’t sponsored agencies.
The words closely held were your giveaway. That means that almost no mutual funds would be allowed to own any of it. To find public investment vehicles with exposure the most direct line would be via banks they hold with loans to the company. It’s possible that the firm had been purchased by an LBO firm, but typically closely held means it’s still held by the founders or their decendants. If there were a private equity stake that filtered up to pension funds it would probably be something a loss on order of something like a basis point or two. The GSEs wouldn’t yet be exposed (they might guarantee the home buyer’s loans but not the builders). How much the lenders get hurt will depend on how much leverage the company employed. Most likely the majority of the suffering will be reserved to only the founders of the firm, this time.
I worry about this quite a bit. My concern is large corporations maybe involved in the “carry” trade where they have been borrowing money in Japan and lending out for mortgages here.
This would pump up earnings and could be hidden pretty well on the balance sheets. Then when the defaults come it gets ugly. While it probably wouldn’t sink the company, earnings could be wiped out for several years and even when they return, they will be less than they appeared to be in the good times.
I don’t want to be enroned.
Oliver
Four percent are giving away cars and another 4 percent are handing out vacations
I wrote a letter to CA Attorney General about this practice in CA and he was uninterested. His office said I should try the IRS.
Here’s what bothers me about the practice, if you follow it to its logical conclusion
1. The item is a a true “prize” and not really included in the price of the house. Then, shouldn’t the recipient pay INCOME TAX on the value?
2. The item is included in the price of the house. This presents several problems:
a) shouldn’t the listed sale price be lowered by the amount of the item?
b) Why can the buyer take the Home Mortgage Deduction for that portion of the loan that covers the car?
c) Did the house appraise for the full price or the price of the house - price of car? If so, then are there any rules that a federally-backed mortgage is breaking for over-financing a house.
There’s a scam here, and you and I are paying for it, by people escaping their taxes on income (the value of a car) or your prop tax going up because of inflated sales price.
Spot on, Reuven!
Reuven,
That is an excellent point. I had not thought about the tax consequences in these giveaways. In particular that there are restrictions in the tax breaks on mortgages for certain items. But I believe you are completely correct about this.
I see another fraud going on that I would add to your list. When the bank loans money for these freebees, they are no longer backed by the house. If they were upgrades to a house, it seems reasonable that the mortgage debt matches the stated value of the house. But when you give away a car, cash, or vacation the house is no longer correctly valued. If the house is 100% financed it seems like a serious fraud is being committed, if the sucker (I mean sophisticated mortgage buyer) is not informed that the TMV is significantly lower than the loan amount.
Oliver
Not to mention that one is essentially taking a 30 year loan on a vehicle!! No bank in the world will bite off on getting a 30 year vehicle loan!! Well not yet at least since I do believe that banks actually keep vehicle loans in house.
Actually, you might try contacting the IRS on this.
I know someone that had a question re the methodology they were using in a certain situation. For him, the consequences were very minimal - $50 at the most. But still he was interested in their thinking on this particular issue so he wrote them and asked.
The results was quite a bit of correspondence and, as he lived in Washington, they finally invited him to a meeting. A couple of years later they changed their method to a version of one that he suggested.
And he isn’t a lawyer or CPA or anything like that. However, that was several years ago and given the atmosphere and stance of the gov’t today who knows how it’d turn out now.
You’ve just reminded me that CA state employees are only there to collect the paycheck. A cop who stopped me in Morro Bay, where I had a 60-day vacation rental cottage, complained that I had not obtained CA driver’s license and registration within the 30-day limit. I wrote to some State of CA tourism bureau in Sacramento asking them how they expected to promote tourism if you couldn’t take a 60-day vacation rental cottage without getting a CA license. Their answer: “Check with the highway patrol.” [huh?]
Don’t start the “I’m just visiting whine…..” If your qualify for the dual citizenship, just pay the fees, we all do …..
(if you want to promote tourism …..please)
Oh, and it’s 10 days for the drivers license, 20 days for the registration (12505CVC, 4152.5CVC). Maybe the cop just added all the days together …..
1.) Yes
2.) a,b,c NO
Here’s why there is a difference between “personal property” and “real property”. That’s why they told you to contact the IRS if you really are that “concerned”. “Personal property” does not affect value of real estate in most cases unless your talking about mass equipment in a large commercial piece of property. They could give you fixtures cast in 24 carat solid gold and it wouldn’t effect the value significantly of the “real property” to the bank or the appraiser. It should be noted and disclosed in a legal transaction but If a seller/builder wants to reduce his profits by giving incentives of “personal property” so be it. As far as affecting the value it has the same significance as the seller leaving a 20 year old bird feeder hanging in the tree or a gov’t entity giving you $2,500.00 for paint on a repo.
There is nothing illegal or scam about it it’s within the law and every Bank, Gov’t or Law Enforcement entity has used some form of it when liquidating real property assets long before your or my for that matter existence.
The buyers however, could run into trouble if the incentive is not disclosed on their taxes. If anyone cared enough to look.
The trick is determining true value and getting that price plus the incentive.
Mr incomestream .
I brought this up a long time ago . The incentives either have to be declared as a taxable gift charged against the buyer or it reduces the appraisal and the lender makes a smaller loan based on the concessions.
What is the difference between a builder slashing the price by 100k verses giving 100k in incentives or upgrades or cars or whatever ? The point is the builder has reduced the effective price of the house to get a sale that the builder otherwise would not of got .If you have to give a buyer 50 to 100K more in incentives to get them to buy your new home the value has gone down and the appraisal should reflect this .A house not offering the same incentives is not going to get the sale and would have to reduce in order to be market comp competitive .
I’m not talking about a seller of a used home giving a carpet allowance in a sale to bring the value up to the sales price ,that’s done all the time . Lenders have always allowed a sellers to pay for a certain amount of closing costs also if the amount is minor enough . But when you start getting into the kind of big incentives that have been taking place your just trying to avoid the fact that the property has gone down in value and a smaller loan amount should be made on the place and lower property taxes should be charged .The builder is going to take the incentives as a write off on their taxes .
I believe this will be a issue in the future when either a secondary market lender gets hosed or a FB buyer gets mad and make a issue out of it .
Really it would be the same as a seller on a used home saying they are going to give 50k in incentives yet they are going to keep the sales price the same . The Lender would not go for it ,so why are new home builders being allowed to do it ?
It’s a kickback ,while the builder is trying to keep the sales price up so they can get a higher loan amount .These current incentives are huge compared to anything Lenders usually allow IMHO .
Wiz-
I wasn’t disputing your assesment. I happen to agree it is a kickback because the true cost of those incentives plus labor cost maybe a quarter of what they are charging you. But it’s a legal kickback IMHO or maybe I should say one of those gray line areas that could really use a tune up. I was more or less responding to the question of why he was referred to the IRS instead of the CA AG taking action.
The reason they get away with it is because most of the builders own the lending company and can private label their loans via a warehouse line or correspondent relationship which reduces their obligation to disclose certain things to the street and to the buyer.
I wrote a letter to CA Attorney General about this practice in CA and he was uninterested. His office said I should try the IRS.
I know it is maddening, but don’t let it bother you, just remember you are not stuck in that situation.
In most cases, you will have to pay tax on a car when you register it, if you did not pay at the time of purchase. For example, if you buy from a dealer you pay at the initial purchase. But if you buy from an individual, or receive it as a gift from an individual, you will be required to pay before the registration is issued. At least this is how its done in many midwestern states.
The registration takes care of the state”sales taxes.” However, there is still federal and state income taxes to worry about.
Damn straight Reuven,
This practice is not only absurd (lower the price moron), but it is sleazy for seller, buyer, agent, and appraiser. Another turd foisted on the public by these slimers. Will it ever end?
Look at it this way: If you are not the one getting the car (or other incentive) with the mortgage, then the FBs who are getting the car are in fact subsidising your prop taxes.
The unfortunate thing is the number of people who did some form of funny-financing (and that includes “free cars”) is so large that nobody in government will take action against them. You can’t PO your core consitituency.
But, if a particular lender who allowed several stated income loans that were fraudulent on your block caused your “tax assessment” to go up (because your house’s value was based on comps from fraud loans), then that lender should be held accountable.
Unfortunately, the number of homeowners who feel cheated if the voodoo value for their house goes up tiny. I think all 10 of those people that exist are on this blog.
…so you’ll never see a nice class action suit against the lenders for causing their property values to rise.
The $296 million number is mind boggling… its like 200 $1.5 million McMansions…., they can start giving away the houses to their suppliers, use it as currency!
And so the domino effect starts, they can’t pay plumbers and electricians, who in turn can’t pay their contractors, who in turn have layoffs… how come the guy actually getting his/her hands dirty gets stuck holding the bag?
“…they can start giving away the houses to their suppliers, use it as currency!”
Good thought. The thought that houses might work well as currency should provide solace for those who are worried about hyperinflation of the dollar.
And why not? They have been trading houses like shares of stock.
I guess it is the American way, under the Bushies. I must confess to some initial glee over the fall of the Kara McMansioneers, until I realized that their lawyers and Washington trolls rigging the bankrupcy laws will make sure they keep the goldmine and leave the working stiffs with the shaft.
In boom times the rich win, in bust times the rich win. It is sure good that we have worked so hard to put them in charge of all branches of our government.
It’s the American way, full stop. Or have we forgotten who presided over the LAST massive bubble?
posted Or have we forgotten who presided over the LAST massive bubble?
Hoover
I believe the reference was to the beloved Bill Clinton and the dot-com bubble. Clinton was truly the Alan Greenspan of presidents - did a lot of damage but left before the sh*t hit the fan.
I’ve come around a bit on the bankruptcy law. I don’t buy everything the TV tells me to.
I’ve actually flip-flopped on the BK law. I used to be for it. If credit card companies want the right to advertise 20% interest loans+high fees, and give credit to bad risks, then they must live with the consequences of non-payment. Some of those credit-card ads were slippery–telling people that the card lets them buy things they can’t afford, etc, and had it rigged so paying the minimum payment would never catch you up. I used to think: It’s a complicated product, advertised to the masses. To do business with the masses, the company offering this must accept chances of a BK.
I’ve flip-flopped (or is it waffling) because of the housing bubble. I think all involved should have “Clean Hands.” Certainly, no reasonable person could belive that $1200/month payments will ever pay for a $500,000 home. And I don’t care if someone who LIED on a mortgage application has to spend the rest of his life working paying off his debt–or be faced with prison.
The BK law becomes a bit problematic when the lenders are setting up low income households and people of color for 100% certainty of bankruptcy when they sign on the dotted line.
GS-
How so, please expand on that thought.
“Yield Spread Premium”.
http://www.emediawire.com/releases/2005/4/emw223707.htm
Side note, quite a few urban builders directed unqualified buyers to special non profits, many targeting minorities for “downpayment assistance” that was given to the “community groups” by the builders themselves to help get people into homes they normally didn’t qualify for. I wish I had more details but I read about the fraud on another bubble blog.
Yeah, definately one of those “A plague on both your houses situations.” One of the reasons for having bankrupcy protection in the first place is to limit how deeply insolvent people can get by cutting off the flow of credit to the insolvent. If the CC companies stand to lose they won’t continue lending money to the perpetually insolvent.
people of color for 100% certainty of bankruptcy when they sign on the dotted line.
I’m a person of color! (Mid eastern)
The bank should take responsibility to ensure that they are loaning to borrowers that will be able to repay the loan (not just make the first payment). The government shouldn’t act as a debt collector for a bank that failed to do due diligence in making loans. If a bank does a poor job of selecting borrowers it deserves to go out of business. Then only lenders who are able to successfully gauge risk survive, its called a free market!
It really pisses me off to see the biggest richest banks lobbying the gov. to become their collecting agency and delve into everyones personal business. True conservatives should be outraged at the new BK laws.
I’m just curious how “people of color” has anything to do with it? They take advantage of the poor and uneducated, full stop. The “people of color” argument is kind of like the “for the children” argument. Always pulled out to guilt people into swaying towards your opinion. When I see either argument my BS meter goes on high alert as everything surrounding them is usually conjecture, hear say, and anecdotal at best.
I might want to add,
In boom times the rich win, in bust times the poor lose. It’s part of a game called “head I win, tail you lose”.
Boom-Bust cycles have a definitive purpose in Capitalistic System — In Boom times most of the the rich rise and in the Bust times the most of rest fall. Such cycles can only be created once or twice in a lifetime. This one is going to be the Mother of All Boom-Bust cycles based on the Debt Leverage.
Jas Jain
There are still many ways to profit from it, however.
Jas Jain said_ “Boom-Bust cycles have a definitive purpose in Capitalistic System — In Boom times most of the the rich rise and in the Bust times the most of rest fall.”
In 1992 I was worth around $15K mostly savings and this and that. I grad. in 1988. Major Finance/Accounting.
In 1995 I went to work at Yahoo…
By 2000 I retired with cashing out my stock options.
I am worth $5.5M today. I live off my interest.
Where am I on your “Social class scale”?
There are always a small % of population who are in-between, in many cases interface, between the rich and the poor, or the masters and the slaves.
I retired From Cisco in March 2000, but not as well as you did. Important thing is that I could remain independent with my modest life-style and you will too as long as you conserve your fortune.
Exceptions don’t negate the general rule. We are best suited to watch the show!
Best of luck.
Jas Jain
Lucky. The whole option con game was based on the 401K hoax that forces the masses into stocks while publically traded companies rape this forced pool of buyers. Is it any wonder the masses wanted an alternative to stocks, and they chose housing. The masses were raped again.
Yes, lucky indeed. I grew up in Silicon Valley, graduated with an accounting degree in 1988 myself. 80% of the stock options people got ended up being worthless and used to light the BBQ. I have a net worth of maybe $200K, most generated in the last ten years after a divorce set me back near $0.
I coined the term Scam Options in my Cisco office in 1998!
Yes, the so-called stock options are clearly fraudulent. No doubt about that. My father was an accountant as a teenager and my son is an accountant (first joined Arthur Anderson!) now.
Jas Jain
“Comment by Thomas
Where am I on your social class scale?”
Lucky.
Stock options distributed the wealth rather unevenly. If you were out the right company at the right time you made it big. But in the tech world, at least they distributed the money to people at all levels of the organization.
As a side note, I myself seem to chose the wrong companies at the wrong time.
Nowadays stock options are becoming quite rare especially at larger companies. Of course that’s not true if you are the CEO, then there are lots of stock options.
So I am afraid we will be seeing less people like Thomas and Jas in the future.
Oliver
“There are still many ways to profit from it, however.”
Yes, for the 1-2%, some smart and some lucky. Good luck if you are in that short category.
Jas Jain
Oliver,
Yes, the past dozen years of the Twin Bubbles would prove to be a unique period at least in a lifetime.
Massive speculation always leads to massive fraud… like horse and carriage.
Jas Jain
posted ” Best of luck.” Jas Jain
Jas, you don’t need luck when you have 5 million bucks.
Is that $5 million paper dollars backed by the US government? You might need just a little luck. If you haven’t notice your $5 million in 2000 even with interest didn’t keep up with the current destruction of the dollar in terms of all other assets including ex-housing.
“Yes, the past dozen years of the Twin Bubbles would prove to be a unique period at least in a lifetime.”
The fuel for the .com and housing bubbles has been the boomer’s pension funds and home equity. Indeed, a very unique opportunity within the time frame of a man eating shark’s career.
What? The housing bubble has been fueled by home equity? Sounds circular to me. And don’t blame pension funds, i.e. saving, either. The housing bubble has been fueled by easy borrowing.
But the borrowed money has to come from somewhere else. There is no doubt that pension funds (and hedge funds, bond funds, mutual funds and FCBs, among others) have invested rather heavily in the MBS market. We can only hope they knew what they were doing.
It was Easy Money fueled by “Emergency Rates.” All Boom-Bust cycles are caused by Bankers’ Mischief, according to Joseph Schumpeter.
Jas Jain
As I tell GetStucco below, I really like this revision. It captures the corruptness of things much better.
Seems this bankrupcy thread got folks thinking, good!
I too have limited pity for fools that go BK by not paying attention to fine print. or through simple materialism. What really frosted me about the lastest BK legislation, however, was that congress refused to authorize an exception for exceptional medical expenses hitting some poor schmoe, but kept landguage exempting businesses from accountability. This congress is full of corporate lapdogs, plain and simple. And I fear we will find out as this bubble meltdown plays out.
Jas Jain…I categorize you as being equivalent to a lotto winner (that’s the nicest term I could come up with). Though you probably were just along for the ride with Yahoo, the machine that was generating the tech stock bubble was able to lure in idiots (now we call them the Greater Fools) that overpaid and ran up your stock price, allowing you to basically (& yes legally) rob them by cashing in your options before things enevitably went south. What a perfect set-up. Did you do anything to actually earn those millions…No. So therefore you basically hit the Dot-Com Lotto. Congrats. A frat brother of mine who was a C+, B- level student in Marketing, ended up working for Cisco and his timing was as perfect as yours, though I think he only worked for them about 3 years and cashed in just before the dot com bubble burst (he wasn’t even a techie). He doesn’t brag about his money like you, but he did state “I never dreamed I would have this much money”. Now, he splits his time between his house in Spain and the San Fran bay area.
personal responsibility - better read the community banking bill
clinton/raines
Bushies or Clintonista’s….
After all Frank Reins was a Cintonista str8 from the cabinet into
CEO position at now accounting scandel infested Fannie Mae.
Bush and Republicans may wind up smelling like roses after the bubble pops.
Once again, no matter what happens…blame Clinton.
He was the best thing to happen to this country in a long time, unless of course you prefer idiots like Reagan, Chimp and Ford.
Let us say that W makes Clinton look great. For full disclusure, I did vote for W in 2000. I feel ashamed now.
Aren’t we lucky that we had the chance to re-elect W? What a racket!
Jas Jain
“Chimp and Ford”
I am confused. Weren’t they both chimps, along with that Bonzo fellow?
http://www.quickchange.com/reagan/
Republocrats are all the same. We probably have not had honest and competent in one person since Lincoln.
And the poles flipped at some point in political history; in modern parlance, Lincoln would be a Democrat.
I think Truman said it best when he said “You Republicans stop lying about us and we’ll stop telling the truth about you.”
Nothing has changed.
I hardly think so. He ignored the Constitution, issued unbacked paper money, and generally acted as a tyrant. Clearly a Republican!
(Note: I’m a libertarian, so don’t bother accusing me of being a Democrap)
Posted “And the poles flipped at some point in political history; in modern parlance, Lincoln would be a Democrat.”
You are correct. Lincoln would fit right in with the Socialist, nanny state, ban everything we don’t agree with, blame society, heavy handed federal government Democrats.
Geez, I love it when we get all political…best damn government money can buy. that’s all that needs to be said. Dems, Reps, doesn’t matter. Money rules…
“And the poles flipped at some point in political history; in modern parlance, Lincoln would be a Democrat.”
And JFK a Republican.
I would amend your take home message slightly:
“In boom times the rich win, in bust times the poor lose.”
I like it!
Maybe we should start buying houses with frequent flyer miles.
Oliver
“how come the guy actually getting his/her hands dirty gets stuck holding the bag?”
It is the vendor (bank, wholesaler etc) of this guy who gets stuck holding the bag.
Latest on San Diego from Casagrad:
“http://realtytimes.com/rtmcrcond/California~San_Diego~bobcasagrand
He’s reporting a 9% drop in price since last year, when you compensate for sq.ft., i.e. “same home”.
3rd Quarter 2006: San Diego Housing Market - single family attached and detached homes: House sales continue their decline. Sales for September were 2,150 homes sold; this is down 42% from last September’s 3,602. For the 3rd quarter sales were 7,562, this is a 33% decline from the 11,312 sold for the same period last year. Condo sales were down 45% and detached home sales were down 38% for September. If we look at the sales over the last 4 quarters we see steady erosion in sales from quarter to quarter. Last quarter of 05 was down 10% from prior year, 1st quarter 06 was down 20% from prior year, 2nd quarter 06 was down 26% from prior year and the 3rd quarter this year is down 33% from prior year, with the last month of the quarter down 42%. The month ending inventory was 22,017, this is down almost 1,000 homes in the past 2 months. While the absolute number in inventory has declined the important inventory supply has increased slightly to 314 days. This is due to sales declining faster than the decline in inventory. Thus, we continue in a buyers market with ever declining sales and increasing inventory supply. The average detached home in inventory is 2,282 sq ft with an asking price of $899,180 where the average home sold in September was 2,494 sq ft with an average asking price of $757,227. The same trend appears with condos - Active average asking price is $470,273 and the sold asking price is $459,541. It would appear that buyers are being price selective. I think that the balance of this year will see continuing sales declines, inventory supply remaining in the 300 day region and continuing downward pressure on price.
The typical detached home sold was 2,050 sq ft with an average selling price of $626,296, this is down about 9% versus last years average of $691,608 for the same home. We see the same trend with attached homes, with this year’s average of $395,936 down about 6.5% from last year. One has to be very careful with prices since you will see a lot of variance in the price changes from neighborhood to neighborhood, house style to house style, etc. However, one can conclude that in general prices are declining. These price trends will continue until we see a major downward movement in the current inventory supply of over 300 days. “
- The average detached home in inventory is 2,282 sq ft with an asking price of $899,180 where the average home sold in September was 2,494 sq ft with an average asking price of $757,227.
Put a Fork in San Diego.
As soon as we build that big wall keeping out our Mexican neighbors …. it will be nicely roasted.
There goes the free lawn service that comes with my rental agreement.
‘He’s reporting a 9% drop in price since last year, when you compensate for sq.ft., i.e. “same home”.’
I guess it is time to buy in San Diego, as the CME housing futures have priced in only an 8.5% decline by next summer.
I think that the balance of this year will see continuing sales declines, inventory supply remaining in the 300 day region and continuing downward pressure on price.
I do enjoy reading Casagrand’s report. He usually gives an accurate statement of the current nature of the market. I note that the current status of the market is 2 (market) and 2 (price trend).
Any bets when that hits 1 (market) and 1 (price trend)?
Any bets on the spring inventory and market trend? My vote? Inventory up, market (sales rate) misses the “spring bounce,” again… but this time in a brutal fashion.
Neil
I thought he predicted a couple months ago that sales would stay in the 2500-3000 range for the rest of the year. I think even he’s been a bit too bullish.
Oh, he’s a bit bullish, but at least he has a response other than “Now is the time to buy!”
I guarantee that we will be seeing a lot of this. Reminds me of environmental engineering after CERCLA was passed in the early 90s. This law made any engineering company that cleaned up a Superfund site liable for any future harm even if this harm resulted from environmental conditions currently believed to be safe.
The result: the major companies got out of the clean-up business. You were left with a bunch of little companies that would do the clean-up work and then promptly go bankrupt and dissolve.
Whats going on I thought that the RMBS market was supposed to make risk disappear; poof!
He added the company has little or no assets left to fund repurchases.
Welcome to the next phase of the bust. The small originators are disappearing and leaving the MBS buyers holding the bag. Wait until H&R Block, Countrywide and WaMu start running low on cash…
“U.S. housing demand is flagging after five record years, swelling the inventory of unsold homes. Almost half the people who sign contracts with builders are canceling before the house is finished, forcing companies to sacrifice profit margins by offering freebies to attract new buyers, according to James Hughes of Rutgers University.”
Does that mean we can deflate the official new home sales statistics by 50%
Right, and as Bloomberg reported, these cancelled homes are not added back to the inventory by the government counters. So that 568,000 number is probably under-stated by tens of thousands of homes, maybe more.
Sounds like it’s time to BUY homebuilders stock. Nothing like a little BK with one of the players to rev up the stock. And just like magic, Pulte (PHM) closes up again on Monday. Forget the bottom out guess for this bubble, lets guess who the next BK candidate is? I vote for Pulte as this is the way American corps learned to do business from the Airline companies.
Take a look at this chart: http://tinyurl.com/znstt
Nice dead cat bounce…
lets guess who the next BK candidate is?
WCI is gone do KARA next. This dead cat bounce is a massive short squeeze which HB executives can unload into
“Four percent are giving away cars and another 4 percent are handing out vacations, Ahluwalia said.”
I have asked this before, but is it legal to artificially inflate the appraisal on a new home by the value of a fancy car? And is it smart to amortize your exotic vacations expenses over the life of an exotic home loan (even if this does turn out to be much shorter than the initially-planned 30 years)?
I was talking with a broker who did bank work-out in Orange County, CA during the last bust. He pointed out that these incentives like countertops, don’t add much to the core value of a house. It is based more on location, size, etc.
Good question, GS. but don’t forget:
For newly constructed homes in new neighborhoods the appraiser has few comps to go by(if any these days). The appraisaled value is, no SHOULD therefore highly dependant on the cost-to-build the same home from scratch, not recent sales.
So are you suggesting that the purchase cost of incentives such as a new car or of a fancy vacation is part of the cost-to-build, and should thus be taken into consideration when coming up with the appraised value?
No, not at all (and I’m not sure how you took that to be my inference). Such incentives are in no way part of the cost to build. They are just the builder’s way of buiders avoiding (albeit temporarily) lowering the asking prices of their overpriced p.o.s.’s as we all know.
I was just pointing out appraisal guidelines for homes constructed in new neighborhoods that an underwriter would expect to see if they were to underwrite a loan on such a home.
So are you suggesting that the purchase cost of incentives such as a new car or of a fancy vacation is part of the cost-to-build, and should thus be taken into consideration when coming up with the appraised value?
Usually, the builder will write off these gimmicks as “marketing incentives”. That way they can deduct more from their taxes. It also helps keep the peace with the municipality they’re building in since the appraised value of the home is the sales price. Nothing makes the county appraiser happier than keeping the comps up.
“(and I’m not sure how you took that to be my inference)”
Sorry, sometimes I am deliberately dense in the hope of getting further clarification. Thanks for giving it.
Honest, competent appraisers make adjustments to comparables that have “atypical” seller consessions. Problem is, these homebuilders have in-house financing arms and in-house contracted appraisers. So you can bet your bottom dollar these negative adjustments are not being made, which would reduce the appraised value of the subject property. The system is broken, with too many incompetent, shady appraisers, brokers and loan officers, and no meaningful regulations that can stop this orgy happening all across America. Things wont change until more lawsuits are filed, and borrowers start to cry fowl for their stupid borrowing decisions made in the past. We are not there yet, but with the market in free-fall mode, maybe we are not far.
Don’t worry, OC. underwriters are cutting appraised values like there’s no tomorrow these days. Many brokers and appraisers are getting blaclisted. The cleansing is underway.
Slightly o/t: Today I spoke to an Account Executive who told me that his company has decided to outsource its’ whole underwriting team to India. I expect more lenders to follow suit.
Too bad we can’t black list loan officers..
I have said see ya later to the shady fly bye night start up mortgage companies and I have survived however I could have made more $$$..I would be in trouble, Thats why honesty is the best policy. I am tired of hearing about over inflated appraisals.. One way we can fix the broken system is when the appraisal is recieved by the lender it should be treated as the TRUTH and the appraiser should not get any phone calls pressuring the appraiser to higher the value…
Lol, I cannot agree more. I still hear newbie LOs trying to get comp checks upfront from appraisers and giving their business to the appraiser who “promises” them the highest value (sigh). Then the file gets underwritten, the value gets cut and the loan is not approved so all that time and effort was wasted on a loan that could not be done from day one.
oh well…. glad it was their time wasted and not mine.
I don’t know why appraisers keep chanting this. Take away all the cruft and at the end of the day it’s all abut making money via lending for the bank. How long do you think the nirvana will last if you don’t hit the numbers for the bank on a consistant basis and they and yourself start losing revenue. How many chances do you think your going to get on the spinning wheel if you don’t hit the numbers when some underwriter or lending dept is getting their collective a$$es chewed because there numbers are down and the seat shining V.P. wants to get a bonus. At the end of the day it’s about sales bubble or no bubble. Be careful what you wish for.
“At the end of the day it’s about sales bubble or no bubble. Be careful what you wish for.”
Agreed. I do believe, however that everyone involved in mortgage loan origination should be required to get some sort of licensing, regardless of how difficult it might be. if appraisers and stockbrokers have to be licensed I believe loan officers should be. it has become a little too sales oriented. This self-policing idea is a pipe dream.
“it has become a little too sales oriented. This self-policing idea is a pipe dream.”
True enough… But whenever I see appraisers chanting too take loan officers out of the process. It shows they really haven’t thought it through. I wonder how many of them could survive on $50-75 a report 5 to 10 times a month some of them are already complaining about the hack shops that pay $125.
And whats the alternative to self policing gov’t intervention. Federal licensing do you really want too see that.
We need the mortgage lending equivalent of a series 7 license for all loan originators. It would minimize the numbers of sart-up brokerages that emerge in times like the ones we have recently seen. Firms like Ditech would have to hire people with more qualifications than someone with a pleasant phone voice and companies like Ameriquest would have been put out of action much sooner.
Maybe, but getting a series 7 is practically the same as getting a brokers or agents license just more steps.
But in order for something like that to take place you would probably have to restructure the entire banking industry. I really think people have no idea how easy it is to get a federal or local charter to become a bank. Most of the capital requirements to get the license can be satisfied with bonds.
“Maybe, but getting a series 7 is practically the same as getting a brokers or agents license just more steps.”
Yes but anyone can work under a broker…. that’s where the problem lies:
“Got a nice voice and a pleasant disposition? Great! when can you start?
Here’s your desk, your phone, your computer and some leads. Now get dialling. Oh, you don’t have to worry about knowing any of the jargon…. you’ll pick that up later. For now I just want you to get comfortable in talking to people.
Just find out what they are looking for, get their social and dob and promise them a call back tomorrow….. it’s that simple….. and you’ll looooove all the money you’re gonna make. Beats waiting tables any day…..”
When everyone in a broker shop or a call center is required to have a broker’s license there will be a measurable improvement. This would lessen (not eliminate) the need to completely restructure the banking industry.
Since I keep all the notes I originate, I do not see why I should have to be licensed. I am not trying to repackage or sell any of my notes. If I make a bad loan, I am stuck with it. Nevertheless, all kinds of weirdos send me postcards every week saying “wanna sell your notes?” No, of course I don’t want to sell them. My clientele pay 8% to 10%. However, if I DID sell any of my notes to any of these people (who always want to buy them at half price), it would be, in my view, their problem to evaluate the risk.
Yeah, see when you have folks like az_lender, hard money lenders, and trust note exchanger’s floating around you would have to re-create the entire lending industry. Most bank LO’s which you find at WAMU, Wells and places like that don’t have any form of licensing. I could see how requiring them to be licensed could very easily turn into the consumers worst nightmare. Jobs would be created yes, but at the same time you increase cost via salaries and commissions which turns to hire pricing.
If you can share the lender that’s going to do that. As a whole I really don’t think thats a good idea on their part.
Xbancorp, a wholesale lender. I am as yet undecided as to whether or not it’s a good idea (an underwriter in New Delhi is about as unbiased as one can get). Time will tell.
“his company has decided to outsource its’ whole underwriting team to India.”
Which will mean even more people in the US won’t be able to pay their mortgages.
Exactly which is the prime reason I think it’s a bad idea. Nevermind the fact that communication is key in that type of job.
Why not just use a computer program and be done with it?
A computer program is why Fannie/Freddie are where they are today. It’s called DO/DU and it’s funny you should mention that. I just had a conversation with someone about manipulation techniques. Sometimes you just can’t replace the good ol etes and ears no matter how hard you try.
“Things wont change until more lawsuits are filed,”
I am quite optimistic the free market will take care of this if the law ignores it.
maybe it’s quite optimistic to think there is a free market in housing …
The system is broken, with too many incompetent, shady appraisers, brokers and loan officers, and no meaningful regulations that can stop this orgy happening all across America.
whooeeeee…now there’s an understatement…
It’s o-kay to add these perks if you use the builder’s *approved* lender or the builder’s in-house lending unit.
Are these incentives still contingent on using the fb using the builder’s “approved” lender or are concessions being made in this area also?
Most of the mail offers I receive for 12 month w/out pmts, buy-downs, and other financing type incentives say contingent upon seller approved lender. What’s more, some of the builders have their own lending units which raises all kinds of accounting and earnings managment type questions.
“What’s more, some of the builders have their own lending units which raises all kinds of accounting and earnings managment type questions.”
It will be interesting to learn how the bookkeeping of these lending units contributes to the success or downfall of the builders over time.
Are these incentives still contingent on the fb using the builder’s “approved” lender or can the purchaser use any lender they wish and still get the incentives?
Mark my word ,the incentives are a kickback that reduces the appraisal so the lender is giving a over 100% loan ,and when the shit hits the fan the final bagholder will sue . I knew the only way they were getting this incentive cr-p was by the builders using their own “special lenders “.
It would be interesting to find out if the builders are disclosing to the lenders/appraisers the incentives. It’s going to be very interesting .
If you can’t get the incentive deal without using the builders “special lender ” ,than it’s a little funny isn’t it ?
- It examined 208 bond deals involving pools of subprime mortgages totaling $234 billion. The study found nearly half of these mortgage pools had some loans repurchased in the first quarter of 2006, up from less than a third that faced repurchases in 2005.”
If this was a thermometer, the temp would be 96 degrees.
96f……….or 96C ?
He must have meant C.
Lets not forget this rumor for a couple of weeks ago:
Meanwhile, we’re hearing that one large POA funder selling billions of dollars of these loans to Wall Street has been — in the words of one source — “screwing up” the index on the mortgages, and may be forced to buy back mortgages. The problem, said the source, has been going on for two years…
9/18/2006
What We’re Hearing
“The buybacks are the first real test of the modern mortgage market, said Christopher Mayer, at Columbia Business School. ‘This will continue to be an issue even in the case of a soft landing’ in real estate, he said.”
I predict the test will result in a spectacular failure.
Even if the original lenders win the lawsuits, they still lose future business. At a minimum, fixed income investors will become much more wary of purchasing exotic loans.
Fool me once, shame on - shame on you. Fool me - you can’t get fooled again,” as some say.
I loved that line by W
“Mortgage repurchases aren’t always reported, ”
Does this have something to do with a certain company which has an indefinite pass on producing its financials?
Sweet Fannie Adams?
LOL
…or her brother, Bugger All.
“Of the $3.1 trillion in mortgages originated last year, 68 percent were packaged into securities, Bear Stearns said.”
Where is all this toxic waste going to settle. And is there any chance of passing a mortgage market Superfund law to clean up the residue?
……and yet the secondary market’s appetite for these toxic mortgages never seems to be dwindle. There still remain great incentives for brokers to sell Payoption ARM Mortgages.
It seems these defaults simply do not faze these big investors one bit. The return on backing these loans seems to work well for them.
I cannot wait until a comprehensive book is published that explains why these (seemingly) unattractive investment packages continue to attract hoards of “savvy” investors.
Where’s the catch?
Google Yen Carry Trade and read the last 3 months of http://www.xanga.com/russwinter
“It seems these defaults simply do not faze these big investors one bit.”
I can only think it is a game of hot potato. Just like flipping homes! Big money to be made as long as the potato is passed. Nobody believes he will be the one to get caught when the music stops.
Exactly right. As i said somewhere above, I keep all the mortgage notes I originate. Therefore am very careful about LTV ratio, especially in the last couple of years. Also have a great clientele, mostly retired so invulnerable to labor market conditions. I don’t EVEN ask them to state their income. All I ask them to state is whether they can pay $521.82 per month, or whatever, for their manufactured home or their RV park lot. My experience has been, if they think they can pay it, they can. Note that these deals are all fixed rate and mostly 10 or 15 years. Good clean old fashioned way of exploiting people. They don’t even feel exploited. They send me Christmas cards.
This is another non-event - except for people holding the bag (toxic mortgages). Where’s Mikhail when you need him.
Seriously, fraud is so rampant in the mortgage industry and the regulators turned a blind eye and is now just releasing guidelines to cover their behinds. I was watching Dateline NBC last night (The Milkshake Murders) and one of the brothers bought a mansion in CT, faked documents that he paid off the mortgage and applied another mortgage for the same house. He got the second loan! Amazing how lenders are so lax.
“He got the second loan! Amazing how lenders are so lax. “
It because the mortgage paper no longer sit in the bank or mortgage company vault, it has been shipped out and passed through half a dozen companies so that its out of sight and out of mind. The originator no longer has the hot potato in their office so they just concentrate on getting the next originator fee. That is the problem when you spread responsibility over too many people, it spreads the risk so much that no one worries about the consequences and without personal consequences people tend to do stupid or bad things.
“That is the problem when you spread responsibility over too many people, it spreads the risk so much that no one worries about the consequences and without personal consequences people tend to do stupid or bad things.”
Dang you just defined the entry “federal bureaucracy” for Merriam-Webster!
Didn’t the lender do a title report /check on that loan to check for current loans on the record before funding ? How can you get a title company and a lender both screwing up at the same time .
I was thinking the same thing… doesn’t sound right at all.
That’s just how Dateline reported the scam. It went through so the lender and title company either turned the blind eye or did not do due diligence.
Sure doesn’t
> ‘Kara is already at the table. We expect more people to come to dinner, the question is, how many more?’
May I translate: Kara is already on the table. We expect more people to become dinner, the question is, how many more?
Let the feast begin? Hardly, in the upcoming recession.
‘Kara is already at the table. We expect more people to come to dinner, the question is, how many more?’
In biblical terms……….a replay of the last supper.
Guess there will be a lot more crucifixions this time round
As I read these stories, I can’t help but think of one funny conversation in the 1989 movie Casualties of War. A guy gets blown up by a mine, if memory serves, and two soldiers talk about it. The exchange:
Eriksson: Who got hit Sarge?
Hawthorne: The cherry. Man, that boy was bagged and tagged the minute they cut his orders to this place. They should’ve just shot him at home.
The connection: So many of these mortgages are like “instant, prepackaged foreclosures.” The attorney might as well draw up the paperwork right after the borrower closes. In other words, the borrowers are “bagged and tagged” from Day One.
Good metaphor. Lucky for future FBs that federal regulators are politely suggesting these bag-and-tag loans might not be a very good idea.
(The connection: So many of these mortgages are like “instant, prepackaged foreclosures.” The attorney might as well draw up the paperwork right after the borrower closes. In other words, the borrowers are “bagged and tagged” from Day One.)
It wouldn’t surprise me if lenders made loans expecting to foreclose, tacking on all kinds of delinquency and sales fees to what the borrower owed.
What they didn’t count on is a falling market, and selling for less than the value of the mortgage.
That is too funny Mike_in_FL,
At closing:
Lender: O.K. Mr and Mrs. FB, we have one more paper for you to review.
Mr F.B.: What is that?
Lender: Your foreclosure papers of course.
Mr F.B: But we haven’t even moved in yet, we have not had a chance to even miss a payment yet!
Lender: And we are not going to give you that opportunity Mr FB. According to our underwriting guidelines we have figured that we already made the most money we possibly can from you via our closing costs etc. We have found this method to be the most effecient for all involved. It saves you the moving expenses and us the cleaning and relisting costs. Now if you don’t mind we have another couple in the waiting area ready to close on this house and their appointment is in 10 minutes. They are quite anxious to buy a foreclosure.
Mr FB: How much are you selling it to them for?
Lender: 10% more than you paid! You don’t seriously believe that the price would go down?? Real estate is an investment. We have already sold your loan to some investors who were tired of making a mere 5% on their retirement accounts. You know about investments don’t you Mr FB? Pension funds, securities, hedge funds and the like? You don’t think that it is actually a place to move into and live in do you??
Classic!
Great script for a comedy (movie).
So Kara is claiming that trade creditors forced it into Ch. 11?
BS
Just like the short sellers forced Enron stock down.
These guys don’t understand! If they’d just let us sell a couple more houses, we’ll have the money by Friday, I swear!
Yeah, the last time I checked, guys who sell lumber and electrical wire aren’t “investors” in real estate per se. They’re more like suppliers who sell things to builders. Take home lesson to suppliers: get your money up front, or you might be in for a long wait.
Not a lawyer here - but have worked some litigation support. And I agree. TOTAL BS. There is now way trade creditors could force someone who had “their best quarter ever (from another post)”. There is something else here. I would guess they have been bleeding some quite some time and ran out of cash and/or can’t obtain any new financing (as their bankers have seen their financial condition).
So what does this mean for other builders? Are they in the same boat?
The word among contractors up here in Sacramento is that virtually every residential builder (even the larger established ones) are undercapitalized in terms of access to liquid funds. A lot of balance sheets look like Kara’s: 80%+ of current assets are in unsold (and overpriced) inventory.
My company was approached recently to jump into a townhouse project that was about to startup in South Sac, 95823. The big electrical contractor that they had been working with apparently doesn’t want anything more to do with this GC. Our accounting department did a cursory review of their standing with a handful of their vendors–they were 30 days or more past due with 6 of 7 different vendors. We took a pass on the project, even though it was have been cost + 30%–there’s very little chance that we’d ever get paid.
Are there no requirements as to the amount of liquid assets a builder must have access to in order to continue operating?
There are, but during a hot market, pretty much everything gets rubber-stamped. Enforcement is pretty laisse-faire and the only time anyone gives it even a cursory glance is when application for the building permit is filed. Many builders probably did have stable cash-flow and sufficient cash reserves when these projects started, but a cold summer has disrupted cash-flow.
And a lot of builders are leveraged out the wazoo (like their target market) so it only takes a bad quarter or two to send these companies into total financial distress.
That’s the nature of going under. The merry-go-round doesn’t stop when the company becomes insolvend, it stops when no body will lend to them any more. This is the scary think about all of the non-banking players in the home financing business. After all the bank failures of the great depression, the FDIC was instituted. In exchange for government insurance for the depositors (who are the creditors to a bank), the banks put up with a much higher level of reguation than other businesses. The intention is that the government will shut down the operation shortly after the bank becomes insolvent, to prevent huge losses and systemic risk. OFHEO has no authority to put F&F into receivership. There are many other non banking enterprises involved in this mess.
If someone already posted about this, please forgive me. I’m a little behind in my reading. But did you all read news coverage of Alan Greenspan’s recent speech about the housing bubble? His take was that the worst is over. I had some fun deconstructing his comments, and you can read them here, if you like:
http://interestrateroundup.blogspot.com/
The oddest thing? Greenspan apparently thinks the fall of the Berlin Wall … in a roundabout way … created the housing bubble. Er … okay. If you say so.
C’mon, he get’s $100k a pop for these speeches. He has to come up with some new stuff to make them interesting.
When I read it, I didn’t quite get what decade he was talking about, this or the 90’s? How can the Berlin wall have such a delayed effect? Is Alan Greenspan actually Chancey Gardener in disguise? All his mumbling and incoherent babble?
“In the garden, growth has it seasons. First comes spring and summer, but then we have fall and winter. And then we get spring and summer again.”
If you haven’t noticed, it’s fall.
I was thinking nuclear winter…
The old man never fails to come up with new material for his comedy gigs.
I wonder how Easy Al explains then that the country of the Berlin Wall is about the only one in the civilized world that has NO serious housing bubble.
excellent example of the usual Greenspeak (Greensh*t). Unfortunately I don’t think he is going to live long enough to face prison time for the unprecedented financial damage he has done to this world.
I have seen a spike in appraisal orders from lenders who have come back to me saying that they need them to be done right.. gee i wonder why… I guess all the skippys trainees have been taken off the lists and the regulators are telling the sleazy originators find some highly qualified appraisers… I am actually happy that the bubble burst now maybe something will get done..
Is that due to the appraisal review? They are everywhere now. Makes you wonder where they were when they were really needed….. i.e. the last 7 years. Of course everybody looked the other way until the fan started getting clogged up. I’ve luckily never had a problem with my appraisals getting slashed as I’ve continued to do business with the straight shooters.
I don’t like doing review work becuase the appraisal is 9 times out of ten a extremely difficult assignment the appraiser had.. I wish I had 1-2 more staight shooter clients. Go Detriot anybody that beats the Yankees are alright in my book..
This might have something to do with it: http://tinyurl.com/g3xrh
Wow!!! I’ve been working too hard in my ivory tower. I didn’t know there was THAT much fraud going on.
I haven’t felt so naive since, err…. a long time ago.
Did everyone see the latest story on CNN finance?
Tick. Tick. Beware the mortgage time-bomb
http://money.cnn.com/2006/10/09/real_estate/arms_nightmare/index.htm?postversion=2006100913
Neil
a predictted negative 0.2 % loss in San Jose ? That just ruined the credibility of that report for me.
“They got a 1.2 percent ARM in February with a monthly minimum payment of $1,372. By April, the loan rate had reset, jumping to 8.375 percent, and their loan balance had ballooned by $3,000 in just two months.”
…. methinks they waited 2 months before actually reading their mortgage statement. That balance was going up from they day the loan funded.
Meanwhile in Tucson, it looks like apartments are the hot new investment:
http://www.azstarnet.com/sn/hourlyupdate/150325.php
I’m wondering how hot they’ll be as all those failed condo conversion attempts come back on the market as “re-partments.”
In search of market equilibrium; to be determined.
I’m watching a condo conversion here in Portland, OR that looks rushed to market - the place is still being renovated and looks mostly empty. Given the times - I wonder if they’ll finish.
I’m watching a condo conversion here in Portland, OR that looks rushed to market - the place is still being renovated and looks mostly empty. Given the times - I wonder if they’ll finish.
anyone have the name of a builder NOT offering a discount or incentive ?
Ciny Schwanke offers only cupcakes
The one thing that has gone long under considered is that maybe the FBs have it right. After all, in the current situation it looks like the real risk is the Fd Lenders. A lot of companies now have “wishful” mortgage rates on loans they’ll probably never get repaid on. They can’t forclose (well they can, but) because then they’ll take a huge loss, who’s going to buy the house, it may be very well better for the lender (and they may decide) to just write new terms for the borrowers. Everyone talks about “the Housing ATM” but maybe that just mean, while in the past mortgages were the credit “gold standard” now, everything is like a credit card, where once the borrower starts to go in default the bank is edgy and starts to renegotiate. You think the bank wants the title to that property and to sell at 60% of the mortgage price when on the same block are 3 other properties in that lenders portfolio. I think not.
It’s the same thing I haven’t gotten about the trade deficit. People talk about the US trade deficit as though it is the most terrible thing in the world. My personal opinion…I’d much rather be the debtor nation US then the creditor Chinese. They’ve over lended, I don’t see how it’s solely the debtors responsibility. (Hmm, that sounds wrong, it’s the debtors responisbility but it’s as much the lenders problem how’s that). If someone gives you virtually free money, it’d be dumb not to take it. At least we got hard assets in the process, they got worthless paper.
It’s just silly to spout the cliche that they got worthless paper. As soon as the exchange is made they have dollars, which are a highly-liquid asset. They can immediately invest these dollars in interest-bearing accounts or other financial or capital assets denominated in dollars. Or, if they think the dollar is “worthless,” they can immediately exchange them for other currencies, and do the same, or, if they want, use them to buy gold.
The sometimes irrational housing market notwithstanding, nobody sells anybody anything unless they perceive the value of what they get in exchange to be equal to or greater than what they are selling (producer surplus); conversely, nobody buys anything unless they perceive the value of what they are buying to be greater than what they are exchanging for it (consumer surplus).
I was thinking the same thing, that lenders would not want to foreclose in this market if they can avoid it. Then again, lenders haven’t done anything rationally so far, so I wouldn’t be too surprised if they let their books fill up with foreclosures that they have to dump for pennies on the dollar.
WOW! Someone just set the new comps! This home is now for sale at $138/ sq ft. That is late 2003 pricing.
$309950 3 BR+Loft Coleman 2100 sq ft 2-Story MOTIVATED
Seller wants to move out of state to be near grandchildren. Currently listed with agent, but listing expires soon and price will come down 6% ($291,500) Best schools in Bakersfield - Columbia Elementary, Fruitvale JH, Liberty HS. Open ceilings, loft overlooking living room (perfect for home office or den/guest area), tiled entry, fireplace open to both living room and family room, ceramic tile entry and kitchen/breakfast nook. Master bedroom with oval tub and separate glass shower, walk-in closet, mirror doors. Quiet cul-de-sac. Mature landscaping, lots of trees. NO AGENTS PLEASE
http://bakersfield.craigslist.org/rfs/218146072.html
http://bakersfieldbubble.blogspot.com
I am glad things are coming down, my brother and wife live in B’field. But $309k still seems very excessive for anything short of a mansion in the SJ Valley.
Seller wants to move out of state to be near grandchildren
In a couple of months we’ll see
“Seller wants to move out of state to get away from mother-in-law”
crispy&cole ….What would that house of gone for in June of 2005 in Bakersfield ? Its really does seem like a 2003 or 2004 price .
Last summer - at the peak - I would guess $400k. -$410k. I need to find the address and pull up the tax records and purchase/sales history. I will upate on blog if I find more details. This will not make the neighbors very happy. LOL
Thanks C&C . If people start cutting this much this fast ,the correction will go really fast ,but I agree with you the neighbors are not going to be happy .
Hey everybody, check out this article from 2000, about SF Bay Area home prices:
http://www.sfgate.com/cgi-bin/article.cgi?file=/chronicle/archive/2000/04/24/MN14965.DTL
Median home price $369,700, LOL! People back then thought it was too much. Now it’s $700K.
What’s also (sad) funny about this article is the two examples of people moving to the area, and getting sticker shock, work for Sun and 3Com. Times really have changed in many ways.
Leslie Apple etc. actually says something prophetic.
““How long is this going to last? At least a few more years,” said Leslie Appleton-Young, chief economist for the California Association of Realtors, noting that the state’s economy is expected to show good growth until 2003. “But will it last forever? No — the real estate market is cyclical and will continue to be.” “
I worked in a division of a large lender that packaged loans into MBS they sold off as fast as possible for a couple of years during this bubble. I couldn’t quite believe what I was seeing and tried to determine where the risk flowed, thinking of buying puts on the publicly traded reinsurance companies. However, I decided not to after reading several articles like this Morningstar report at http://biz.yahoo.com/ms/060927/174353.html?.v=1. There were so many piggy backed loans that a record number of shakey loans were passed without PMI to the secondary markets. I believe FNMA will be hit hard when the true percentages of nonperforming loans in their portfolios become clear, probably by around this time next year.
BRK.A owns General RE? They’ve gone up 10,000/share in the past 9 months or so, and I’m trying to figure out why. It’s not “Sees Chocolate” that’s doing it, or even Geiko….
That Kara Homes spec house at $1.5 million is 6300 sq. ft. I’ve seen a lot of similarly huge homes going up in New Jersey in the last 10 years and have been wondering about that market. Utilities and upkeep and landscape maintenance have got to be so much money and effort to stay on top of. I would think people would get tired of it. I hate having people working around my house; that loss of privacy even when they’re working out doors is draining.
We bought this house at a price under the town tax assessment and applied to have the house reassessed down to the price it was actually worth, i.e., what it sold for. The tax assessor came to the house and inspected it and he was very chatty about houses he’d looked at. He told me that there are 2 scenarios going on in these McMansion homes:
(1) The house is very nicely decorated and well appointed but the husband is never home; he’s off traveling for work all the time and the wife has just about “had it.” She’s stuck looking after this behemoth house and she’s had it.
(2) The owners got into that house by the skin of their teeth and have no money to do anything. Theres hardly any furniture. Living room has pillows on the floor. Bedrooms have mattresses on the floor. The formal dining room has the computer set up in it.
The assessor was surprised by the condo prices and couldn’t understand that market, either, where people have their barbecues set up on the driveway and thats their outdoor living space.