Bits Bucket And Craigslist Finds For May 21, 2007
Please post off-topic ideas, links and Craigslist finds here.
The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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Derivatives, Derivatives, Derivatives……
People’s Bank of China Takes With One Hand, Gives With The Other?
excellent piece from kasriel
blast from the bast / retro news (via fleckenstein)
http://immobilienblasen.blogspot.com/
No magic LBO bullet
Make no mistake about it: The tightening of credit has (and will) radically altered the housing market — witness the softening of home prices nearly everywhere in the country as inventory builds and sales slow.
The deteriorating economy is a process that has a long way to go, even though Wall Street tries to throw a party every day that bad news does not absolutely pummel it into submission. No amount of hedge-fund and LBO speculation is going to make the average consumer whole again. Thus, I continue to see no way forward other than a recession and, at some point, a dislocation in the stock market.
Until the transient success of speculation comes to an end, I encourage folks to think about that ultimate unraveling — making sure they can either explain to themselves why it is not very likely or, if they expect events to unfold as I do, have a plan for preparing and/or reacting.
My only question for Fleck is that, in light of the fact that Bernanke is a student of the Great Depression and he and Paulson are collaborating on ‘containment’ of the subprime crisis (not to mention all other negatives that stand in the way of unbridled growth forever) how can he (Fleck) be so certain containment policy will falter within the foreseeable future?
Probably because history bears him out (no pun intended).
Way OT, but NYCityBoy, I am oging to be in your fair city this week. Is it safe to go running in Central Park in the evening? I’m only a Florida boy, I don’t want to be skinned alive…
It gets dark about 8:30 nowdays. Central Park is very safe. I think the whole city is pretty safe, even after dark. If you feel that there are any problems then just bring a friend to join you on your run. Remember, you don’t have to run faster than the bad guys. You just have to run faster than your friend.
If you would like to meet up for drinks with me and the wife just email me at nycityboyhbb at nyc.rr.com .
The weather is absolutely beautiful in NYC this morning. The bulls will be running on Wall Street following the news of the Alltel buyout.
You just have to run faster than your friend…Too funny..I’ll have to remember that when I go on an evening stroll through Camino del Sol Park in Oxnard, I’ll bring a slow friend…
Bring Mr. Glock. Oops, forgot it’s NYC so he’s banned……
There was just recently a story in the New York Times about someone being repeatedly harassed by a group of thugs hanging around the scaffolding surrounding a construction area as is popular nowadays. The author eventually ended up in a confrontation, got knocked unconscious, and broke one hand falling on the hard ground. The lesson that the author took from this was to just go around groups of thugs, and the lesson that I took from this is that New York City is an insane zoo which has a low crime rate because its citizens see more utility in writing emotional resignation pieces for the times than they do in reporting serious crimes.
The next time someone lays down for you the simple truth of living in one of the world’s greatest cities just understand that they are either ignorant or lying or possibly both. Simple truths are the very first things to be driven out of big cities, and are typically long gone before the population even hits one million, let alone twenty.
I agree with the comments. NYC is safer than Florida. Not to encourage you, I’ve even seen people use their laptops in the subway. Stick to areas with people on the street and you’ll be fine. Have fun running around the Central Park resevoir!
NYC is way safer than most of Florida. Just follow a simple rule –if there are lots of people around, you are safe, anywhere, anytime. But if you find yourself in an isolated location, especially after dark, you are in danger.
Also, keep IPODs, cell phones, etc. out of sight on the subway, especially if you are by the doors as they are about to close. You open yourself up to a snatch and run as the doors close, with perhaps a pause to laugh at you through the window as your train pulls away.
I agree with your post but I must add I have never seen any kind of theft in the City. I see a lot of people dangling iPods and other such electronic doo-dads but never once have I seen anybody get ripped off. I feel safer in New York than I have in any other City. Of course when you are a bad-a$$ like me you feel safe anywhere.
“NYC is way safer than most of Florida.”
Especially if you’re a German tourist.
Get off the metro stop on canal street (not the financial district one) and ask around for designer purses.
droog, I recall seeing a statistic not too long ago that rated Central Parl the safest area to be in all the US in regards to crime.
I agree i am more afraid of places like midtown south say between 14-42 5th- Broadway 6th, where all the mom and pop shops closeup by 6pm…flowers clothes chinese import export wholesale type store…..all closed except for a few underground clubs on weekends…
My area Sunnyside Queens has had a big influx of spanish but i dont see the crime increasing, i see lots of them out side watching their kids, on the street. so even at 10-11pm during the week the bodegas are still open, and normal people are walking around.
Thanks to all for the great advice! If I see anything untoward I will let you know. I really like the advice about just having to outrun my running partner
Droog,
if you want to be adventurous, try Riverside Park, entrance on W. 72. You can run along the fields up top or down along the Hudson River. At 79th, the boat marina, there’s a bar/restaurant that is packed nightly, does a good burger, has a seriously lively bar, and you can have a beer watching sailboats on the Hudson as the sun sets.
Place is packed til midnight every night. Very easy, very safe.
Stay in the open areas in Central Park. Avoid the paths that lead down into tunnels and dark overgrown spaces. I was running there one time and the path started down toward a tunnel. i stopped as it was early and not quite full daylight. When my eyes adjusted I could see people staring at me from the edges of the darkness. I chose to turn and head elsewhere.
The market has cooled, but the sky is not falling. It’s different in Rochester, NY
http://democratandchronicle.com/apps/pbcs.dll/article?AID=/20070521/BUSINESS/705210320
I should add that a limited supply of land, excellent schools, boomer migration and lots of high paying jobs should support prices indefinitely.
Upstate New York took its a$$-kicking in the early 90s. It has never really recovered. They don’t have far to fall so some of this article is actually correct.
“According to a new report by the Brookings Institution….older industrial cities of Albany, Binghamton, Buffalo, Rochester, Schenectady and Utica (and Syracuse)”..have…”landed on a list of the 65 economically weakest cities in the United States.
“Between 1990 and 2000, the Syracuse economy declined relative to most cities in the country.”
Problems cited:
People, jobs and money have shifted to the outskirts of the cities.
The poor are isolated in the urban core.
Layout, contamination, and overlapping and inefficient government entities were also listed (good luck w/that last one)
http://tinyurl.com/286nk7
Meghan Rubado
Syracuse Post Std
5/20/07
How refreshing to finally find the place where one can really say……….”It’s different here”
You’re about the fourth person on here who has confused ROCHESTER, NY with NYC. Please, if you have a map, note that Rochester is closer to Buffalo than NYC.
Therefore it has more of the Upstate NY depressing characteristics.
I think you are referncing a post by Muggy and I think he was being sarcastic. I’m not 100% sure on either count.
“Despite free-falling real estate prices in some parts of the country”
It is funny to read such a line since not one town, village, borough, municpality, city or township will admit that they are such a place. Even in Florida, it doesn’t seem like they will admit to this. A rising tide lifts all boats. But not a falling tide? Hmmmm.
property tax increases in Houston, Dallas and Ft. Worth since 2000. No bubble in Texas though.
•The cap on annual appraisal increases for homestead property is 10 percent, and there are no limits on increases for rental or commercial property in Texas.
That means appraisals can skyrocket from one year to the next relative to other states with caps, such as California, which has barred property tax increases of more than 2 percent a year since the ’70s. This is from the Morning Snooze
Between 2000 and 2004, Houston, Dallas and Fort Worth showed property tax increases of 50 percent, 49 percent and 48 percent, respectively, Mr. Pauken said.
My buddy in Allen, TX is still having troubles selling. I think he is probably in one of the ordinary Allen developments. It’s not bad but nothing special. What are the chances for him without a large drop in price?
Zero. That’s a horrible area.
Thanks TXchick. I don’t think I will be passing that little bit of news along to him.
Do you mean McAllen?
No, Allen, which is a nasty bedroom community way north of Dallas. I’d put a bullet in my head before I’d live there even one day.
Oh, I don’t think Allen is that bad. I work there, living in a reasonably nice apartment near my job, and my wife’s daughter and son-in-law live there. It’s not my favorite place in the world, but it’s a lot better than putting a bullet in one’s head.
McAllen is down the other way, towards Brownsville and the Mexican border.
TxChic, don’t you dare grouse. Our school districts are strapped for cash. Don’t you think all school districts deserve at least one of these?
http://www.cfisd.net/bond/esc.htm
What is that?
Schools and school politics don’t even register with me. I would cheerfully volunteer to be a crash test dummy in the newest $3,000 Korean tin box before I’d ever attend a PTA meeting or school board function. Gawd. One of the few smart things I’ve ever done was stay off the kid wagon (no offence to those of you who actually like that sort of thing).
It’s a massive $80 million stadium/arena/banquet hall complex. What all kids need to get a good education.
I grew up in a relatively wealthy town in Connecticut. Graduation involved a whole bunch of folding chairs and the football stands, or if it was raining, folding chairs in the gym.
If these Texas schools do not have rudimentary football stands or an inside gym, this bond issuance would have been better spent on these. The mind boggles at thinking about who would consider such a center desirable, much less necessary.
I don’t think that there is such a thing as a Texas high school that doesn’t have at least a rudimentary stadium. This bond issue sounds like a “keeping up with Jones’s” kind of deal.
No wonder the property taxes are outrageous. You could probably put 11,000 people on those front steps all at one time. Never mind the question of need for this building, it looks like it could have been built with much less grandeur and still been perfectly functional. A McRip.
Houston real estate meltdown: The Water Edition.
http://louminatti.blogspot.com/2007/05/houston-real-estate-meltdown-water.html
I thought the prefered type of water torture in houston, was vis a vis humidity?
Hell is humid.
Heaven, Hell or Houston?
an old ZZ Top tune…
Lyrics of said song…
Hello darling.
Surprised?
Yes, it’s me again.
I have just returned from the island of Chandelier.
What am I doing in town?
Well, I’m glad you asked.
I’m just passing through in search of the ever elusive Thunderbird.
I got a job as a public relations man.
Passing out handbills on Austin Street.
Merely an effort to improve my financial situation,
And ward off a case of the D.T.’s
So farewell, my darling.
Perhaps we’ll meet again
On some sin-infested street corner in Houston Texas.
In Houston, they cant see the meltdown. A little data from SunCoast Post Tension….a multinational privately held building steel mfg:
summer ‘06: shipping >140 packages a day
spring ‘07: shipping maybe 100 packages a day.
ssss..lloooooo….wwwing d….oooooo…wwww…n
You boys down Houston way better tighten the belt and get ready to hunker down.
Okay Lou — get in the LouMobile and go out and get some pix to compare the reality to the splashy ads. I realize you might have to drive to hell and back to get to some of those distant developments, but it would make for some tasty video.
Mortgage fraud vigilantes, via the NY Times
http://www.nytimes.com/2007/05/21/business/21fraud.html?hp
These ladies, or other dedicated Mort fraud Vigilantes, are desperately needed in City of LA, which is rampant with Fraud. I, not a trained RE expert, have only done limited perusals of three LA run-down zips per zillow(lennox 90304,Pacoima 91331,LA 90011)and spotted obvious evidence of fraud, which I believe is just the tip of a hugh massive LA FRAUD ICEBERG.
Fat chance that there are such dedicated caring people such as those Altanta Housewives out here in LA, because much of the fraud is being committed in heavily immigrant poor run-down LA hoods where few speak English and besides are extremely neglected parts of LA which the LA times and CITY/state watchdogs could care less.
Good for these women, it is too bad that a group of local wives have to band together to do what our law enforcement authorities should be doing.
As for LA, and most of the rest of CA, they desperately need this, it seems EVERYONE, or almost EVERYONE has some kind of stake in real estate out here, hence, no real investigations.
Profits at Lowes are down. The yield on the 10-year is creeping up but not getting a lot of attention. The entire Goldilocks rally started last year when the 10-year dropped from a yield of 5% to a yield of 4.5%. What do you investors, such as TXchick, think of that?
CHARLOTTE, N.C. (AP) — Lowe’s Cos., the No. 2 U.S. home improvement chain, said Monday that its first-quarter profit fell 12.1 percent due to a slowing home improvement market amid a continued slump in the housing sector.
I am keeping my bond portfolio limited to just 2 positions: short-term high quality corporate bonds and i-bonds and that’s it. It is really sad what has happened to long-term bonds. Somehow I think that there is a connection between the Fed announcing that inflation is low and the desire to keep bond yields low.
Having profitable long-term bonds would be a step in the right direction in encouraging people to think long-term instead of for-the-moment. When I was born, as one of their first gifts to me, my grandparents gave me a gift of long-term bonds. That’s how people used to think.
~Misstrial
~Misstrial
You have a good bond portfolio. I bond rates are very low, and pundits think they are a bad deal. However the tax deferral feature make them great to own if you can own them for 3 or 4 years. An I bond yielding 4% is a better deal than a 5 year note yielding 4.7%, assuming your federal tax bracket is 32% and if you hold it for two years. I figure an I bond at 3.4% is a better deal than any T-bill or note if you hold it for a minimum of 5 years. You are taxed over and over again on the bill or note while your I-bond interest compounds. That’s the downfall of t-bills, notes and the long bond. Still, if you think deflation is ahead, notes are okay. I like to buy 10 year notes occasionally. My next order is up for June 15. I’m hoping the yield is higher by that time, just like a year ago.
” Still, if you think deflation is ahead, notes are okay”. Gas is heading towards $4.00 a gallon, and you think deflation is on its way? I’d put my money under my mattress before I’d buy a taxable bond yielding 4%.
davidcee, agreed….no bonds….we have a classic hyperinflation starting from energy and food prices and then will come the deflation…..for the moment cash is King…..
In the year 2002 lots of people swore off stocks, gold, bonds, and anything else except Real Estate. I keep running into people who put all their eggs into one basket. That’s the American way (”super size it”). The winners are those who diversify. Sure, I buy gold and platinum bullion. Sure, gas will probably go above $7 per gallon, but real estate prices will fall like a rock, especially out in the long commute areas to city centers. There will be a mix of inflation and deflation. No one can easily know if deflation forces or inflation forces will be prevalent. That’s why a mixture of bonds and precious metals is prudent.
cash is trash, as the markets zoom to the stratosphere…if you dont have quality long positions (for the short term) you, like the economy, are going backwards…..market is bubbbling better get on the bandwagon…..make sure your stop losses are in place.
cash is trash, yada, yada, yada
One of the reasons I like this blog is because there’s talk on economic and investing ideas outside of real estate. My husband complains that I listen too much to the bearish arguments on economics.
My problem with following his advice is that bearish arguments seem to reasonably well thought out and the bullish ones are like those above. (Buy now or you’ll be broke forever!!!) *sigh* And what the heck is a quality long position for the short term???
perhaps: S&P Index
I say that because the market is running, and the S&P will follow suit. So, If you go long (buy the market) and watch very closely, (short term) you will make more money than in say, BONDS.
Lonmg position for the short term……market corrects after summer fun….ie: have a stop loss in place if you aint watchin real careful like.
thanks for playing.
In October of 87 my stop loss’ did not work as well as I thought they would. Set at -8% but when the dust settled the triggered sales at -30%. Just be aware that in a free fall even with a stop loss you may take a sizable hit.
I use a bond fund as a hedge against the fed. If BB wants to bail out the housing mortgage, he’s going to have to pay me with higher bond prices.
Yep - we are on the same page.
~Misstrial
I was in a Home Depot yesterday. El Con Mall store in Tucson. Floor traffic was quite light.
During my time there, not one, but two, employees asked me if I needed help with anything. Contrast that to two years ago, when Slim needed to send out a posse to locate an HD employee.
Interesting developments, abandonded dog-wise…
We now have a total of 4 dogs running around the neighborhood, totally domesticated, sweet non pedigreed canines, that must have been dropped off by i’m guessing, foreclosed folks, from the Central Valley.
They have the same survival skills their owners had, which is not much.
All had collars on, nice shiny coats, etc.
In my breed rescue group, we’ve seen an exponential rise in turn-ins by owners. I can’t seem to get the brain trust to make the connection between this and the rise in foreclosures, etc.
Where are you? Email me off line and I’ll see if I can hook you up with a rescue group in your area for these guys.
Methinks you are right…
People think domesticated animals have more of a fighting chance, in wilderness or close by wilderness areas, and when push comes to shove, and the Sheriff shows up with a foreclosure notice…
Sheriff John, in the old days:
http://www.tvacres.com/child_sheriff_john.htm
As luck would have, we wanted a couple of outdoor dogs, so we are ok with em’ for now. I know the local rescue group, if more show up.
Like I said earlier, these are bigger heinz 57 dogs, I wonder if we’ll start seeing the expensive breeds, dropped off here?
I’ll keep you klued in on kanines going on…
we wanted a couple of outdoor dogs, so we are ok with em’ for now
Bless you, aladinsane.
Bless you, aladinsane.
Amen
“The better I get to know men, the more I find myself loving dogs.”
-Charles de Gaulle
We named one of them Deux’d….
Sounds like: Doouuu’d
Here’s a little twist to consider. More people are waking up to the high prices and becoming renters instead of homeowners. Many rentals don’t allow pets, especially larger dogs. I say this from experience, because I caught hell trying to find a nice house in a nice neighorhood that would allow a dog…
While I was house hunting in San Diego last summer I ran into a lot of difficulty finding a rental that would accept pets.
Fast forward to this year and it’s totally different. There are plenty of rentals on Craig’s List that allow pets. Prices are better and there is more selection too.
Try having four!
Doesn’t matter though. I’d live in my truck before I’d give up any of my pets. Fortunately have a rental from a friend that allows all. Of course, during the summer when it gets up to 117 (last summer) and I have no A/C and I can’t leave the house because I am too afraid one of my pets will have heat stroke I do think about dumping them. 
But than I decide moving to Cleveland where I can buy a house with air for cash is a better choice.
BTW, if you don’t consider pets a lifetime commitment, don’t get one. Period.
aladinsane: 4 dogs running around the neighborhood … they must have been dropped off by i’m guessing, foreclosed folks, from the Central Valley
who used to be real-estate agents who drove Escalades and entertained their clients with mimosas - you could see it in their eyes
Speaking of dogs, owning an animal is now considered a status symbol. I went to a bar the other week and a ton of yuppies were at “doggy happy hour” with their pets, drinking beers and giving the dogs pieces of dog-cake. We just laughed because all the people were walking around in designer clothes and going home in Navigators and talking about their luxury condos. There is no shortage of stupidity around here.
Arizonans:
I was told that there is monster traffic on the 10 fwy between Tucson & PHX. Is this true?
Are there backups/heavy traffic only during rush hours? I was recently in PHX/Scottsdale and came in (from NM - 10 to the 70 to the 60) during rush hour which was bumper to bumper. However, I have never been on the fwy between these 2 cities - at least not all the way, just to the 8 where I turn off.
I will be returning to my home in CA and would like to take the 10 from Tucson to PHX route instead my usual practice of taking the 8 to the 85 as a bypass route while in AZ.
Any perspectives/advice would be greatly appreciated!
~Misstrial
Going west on I-10 in the southeast part of Phoenix is not fun. Leaving at 6:10 in the morning it could take me 15 minutes to go 5 miles from I-10 and Ray road to the exit on 143/Sky Harbor. If I leave at 6:15 it could take more than 20 minutes. Traffic is wierd. Sometimes I left late, like at 6:40 a.m. and traffic is lighter going that route. It’s called the Broadway curve. I hear it’s heavier between the 143 freeway and further west. Best thing to do is start at either end at either 5:00 a.m. or maybe 9:00 a.m. Sorry! I think your I-8 route to the 85 is a better deal. I-10 is not scenic through Phoenix. You’ll just sit in traffic.
OK, thank you!
~Misstrial
If you’re coming through on a weekend, watch out. It has been closed near the split (where 17 branches off) every weekend for months for repaving work.
Noted - Thank you!
~Misstrial
FBR downgrades CFC. I guess they unloaded all their stock when we had the 50+million day last week. Probably short now.
http://biz.yahoo.com/ap/070521/countrywide_financial_ahead_of_the_bell.html?.v=1
CountryWide’s CEO is sounding desperate!
http://yahoo.reuters.com/news/articlehybrid.aspx?storyID=urn:newsml:reuters.com:20070521:MTFH00390_2007-05-21_12-45-41_N21306616&type=comktNews&rpc=44
Jeebus, he’s starting to sound like a shill.
I thought Mozilo was supposed to be the experienced operator, with the big company that was going to grab market share from the weak hands. Maybe he’s starting to realise that even 100% market share is no good if the market itself is collapsing.
This is like listening to Iacocca claiming that Chrysler was run into the ground by Daimler-Benz, simply because in 1998 (when oil prices were very low) they were in profit due to sales of their gas-guzzler SUV range, and ignoring the fact that they had NO Plan B for when fuel prices increased.
Let’s tweak around a song written in tribute to Muhammad Ali…
Here is the story of the uber tanned one, hey
Who changed his tune when the subprimes no longer did pay
He knows how to talk and he knows every tanning salon, yeah right
And all the contenders were beat out of sight
Sing, mozillo, mozillo, tanned was he
He loans like an i/o and stings like 80/20
mozillo, the tanned George Hamilton wantabe
Who calls to the other guy i’m mozillo, watch me cash in stocks, quickly…
Countrywide has been running ads again on television for 100% loans with no documentation, points or closing costs here in the Twin Cities market…..building a huge storefront office three miles away from me in a newly minting craptacular strip mall along with the tanning salons and coffee houses….
Last stages of bubble capitalism, boys.
Crapburner:
I agree. You can’t watch tv for more than 10 seconds without that John Kerry lookalike telling you about Countrywide’s loans.
they’re getting desperate.
I live near the Wells Fargo Mortgage Headquarters (the new one that is just off 35W)… usually, the lights are on and I can see people buzzing around even pretty late. It seems that the lights are off more often now.
Lowe’s Misses Targets
By TSC Staff
5/21/2007 7:13 AM EDT
URL: http://www.thestreet.com/newsanalysis/retail/10357899.html
Lowe’s (LOW) missed first-quarter earnings targets but said it expects to benefit from easier comparisons in the second half of the year.
The Mooresville, N.C., home-improvement retailer made $739 million, or 48 cents a share, for the quarter ended May 4, down from the year-ago $841 million, or 53 cents a share. Sales rose to $12.17 billion from $11.92 billion a year earlier.
Analysts surveyed by Thomson Financial were looking for a 49-cent profit on sales of $12.46 billion.
Sales in established stores fell 6.3% from a year ago.
“Multiple factors, including a difficult housing market in many areas, tough comparisons to hurricane rebuilding efforts, and significant lumber and plywood price deflation, continued to create a challenging sales environment in the first quarter,” said CEO Robert A. Niblock. “Those anticipated factors were compounded by mixed weather during the quarter. Mild temperatures and solid sales in March were more than offset by record cold and wet weather across much of the U.S. during the first two weeks of April. While the weather improved in the second half of the month, the drag created by the first two weeks substantially contributed to our sales shortfall to plan.
“We continued to gain market share during the quarter despite the challenging sales environment and credit that success to our commitment to providing great stores and great products as well as our employees’ commitment to customer service. Easier comparisons in the back half of the year give us continued confidence that our sales performance will improve as the year progresses.”
The company said it expects to make 62 cents to 64 cents a share for the second quarter, compared with a 60-cent Thomson estimate, and $1.99 to $2.03 for the year, in line with the $2.01 target.
Not surprising. A lot of people thought that the recent miss by Home Depot was due company specific problems, but a slowing housing market and a crimped consumer was a good part of it.
Maybe this is one of the reasons so many people are in ARMs right now.
I was talking to a friend yesterday. He and his wife are both CPAs. They purchase a new home at the beginning of 2005 (talk about poor timing). When it came time to financing, their Realtor® spent hours trying to talk them into getting an Option ARM. Then their mortgage broker broker spent hours doing his best sales pitch trying to talk them in an Option ARM and out of the 15-year Fixed they finally signed. The mortgage broker was adamant that they were making a huge mistake and wasting a load of money with a fixed mortgage.
Luckily, both are CPAs and had significantly more knowledge, education, and experience, than the mortgage broker and the Realtor® and were now swayed by their best sales pitches.
My question is, why was the mortgage broker so adamant about placing them in an Option ARM? Were his commissions that much higher with an Option ARM than a 15-year Fixed? Also, why was the Realtor® so adamant as well? Are the Realtors® getting kickbacks from the mortgage brokers or are they simply that clueless? Keep in mind that this couple has no debt and bought a house well under 3 times their gross income — qualifying for any type of loan was not going to be a problem for them.
Commissions are huge compared to 15-year fixed. I think brokers were getting up to 4 points (4% of the loan) on option arms to people with bad credit. A 15-year fixed is worth virtually nothing to a broker–I think it’s just a small, fixed fee. The real-estate agent probably was due a kick-back for softening up the client to the idea of getting an option ARM, but they were too smart.
You answered your own question - brokers get paid quite a bit more on an Option ARM as opposed to a fixed. I have heard up to 3x as much. The Realtor probably had a relationship with the broker. Perhaps cash did not change hands, but constant business referral can be just as lucrative.
Yes, the “yield spread premium” (50 dollar phrase for kickback from the bank)is huge b/t these two products. The agent might be getting a kickback from the broker if the broker was a friend of the agent and/or if the broker was representing the “prefered lender” of the RE agency.
But for the buyers being financially savvy & highly educated as CPAs the tactics likely would have worked. Anyone knows that 15 years fixed is the most cost effective mortgage to get if you cna hangle the larger payments.
This subject really makes me mad . Thousands of borrowers were sold on these adjustables with teaser rates because the loan reps got the higest commissions on those loans . In alot of cases borrowers went on those loans because they were zero down products and the qualifying was easy .This way the borrower could either get more house than they qualified for or even get a house in spite of not qualifying at all ,(alot of these loans are the current properties going into foreclosure ).
My guess is that kick-backs were ongoing between loan agents and realtors during the boom and even now .Also, its just natural for realtors to want to get it done and a company/lender that could get it done would be pushed .
I have said it before that the realtors and loan reps would know up front if a borrower really qualified for a house in question or not .Property was sold based on the potential for appreciation and refinancing out of the loan product down the road or selling at a profit .
Because many of the home borrowers were thinking short term investment/flipping or property ladder investment ,they wanted the cheap teaser payments and zero down with stated loan type loans .
For so many people to go on low down adjustables/IO loans suggests just how short term the borrowers were expecting to use the loan .
This was a “let your house make you money “scheme that was pushed by the industry .Putting people on bad loan product only works if real estate keeps going up ,so the RE myths kept rolling out by the REIC real estate cheerleading campaigns .
IMO, during the boom real estate people would know what lenders got the questionable loans done and what lenders didn’t. Eventually all this business going to bad lenders would put pressure on the better lenders to get loose also .
Had the industry just stuck to actually qualifying people on their true loan qualifying merits the market would of contracted in 2002 . 4 extra years of mania buying and false run-up of prices is what happened and it was based on the worse possible borrowers ,being short term speculators and unqualified buyers for long term ownership .
The industry should of required investors to put 20 to 30% down and pay a higher rate and the unqualified buyers should not of been put into over-priced houses by faulty loan product at all .A market is defined by willing able borrowers , not faulty, fraudulent loan product aking it work short term . It’s a sick mess .
Housing Wizard,
I really appreciate your posts, they are always full of excellent information, but I just have to ask you, why is there always a space before your punctuation marks?
Is it the browser you’re using?
It’s kind of distracting to an eye that’s used to the space after the punctuation.
Fees!
Thanks for the insight; I had no idea there was such a huge difference in commissions between the two products. I guess from the bank’s perspective, giving someone with great credit and income like this couple is virtually a risk-free note. On the other hand, the 15-year Fixed definitely has some interest rate risk. Therefore, from the bank’s perspective, the Option ARM is a much better note and warrants a higher commission.
The sad fact is most home buyers are not have been as financially savvy and would have bought the broker’s and Realtor’s® sales pitches. After all, Realtors® and mortgage-brokers are highly-trained “professionals,” right?
Oh by the way, I also forgot to mention that the broker tried to talk them out of putting 40% down (the proceeds from the sale of prior home) and tried to talk them into 100% financing. He was more convincing on this issue and they actually considered it, but decided to stay with the large down payment in case she get pregnant and quits her job.
But, based on this anecdotal event, we can see why so many people ended up financing 100% of their purchase with Option ARMs.
The broker probably encouraged the 100% because the higher loan amount would jack up his commission also. The relitter wanted an OptionARM because the couple could qualify to buy much more house than with 15 yf. The banks want the Option ARMs because of a neat little scam where they get to claim earnings on the full payment even though 80% of all borrowers pay the negatively-amortizing minimum payment. Banks that sell these mortgages make big profit because the actual (non-teaser) interest rate is huge (9% maybe?).
The best choice for everyone, except borrowers. And ultimately lenders, but that story hasn’t been told yet.
Yes, amount borrowed is factored into the kickback the broker gets because the fee is a percentage, i.e. points of amount borrowed.
However, putting 20% down to avoid PMI and then putting investing the other 20% might have been more to there benefit in terms of generating income and appreciation if it stocks and which could be liquidated if needed for an unforseen event.
However, putting 20% down to avoid PMI and then putting investing the other 20% might have been more to there benefit
True, but don’t forget they probably overpaid for the house, so that 40% is in itself a kind of insurance against depreciation.
And I want to understand this.
Why do people refer to loans as products?
Aren’t loans more closely related to services?
In other words, is this just marketing, industry BS, or is there an actual reason for using the term product?
And why is “realtor” now often written as “Realtor”? An attempt to give the profession more status? Like “Doctor” or “Professor”?
A new subdivision (~1,000 lots) down the road from me south of Austin has only stared construction on 2 specs with no other home starts in the 4 months since the roads were finished. Advertised prices on the sign just dropped last week with prices beginning at $170K down from $190K. You know it’s gonna be bad when the builder starts to give up on a subdivision before they even sell a house.
Austin is different. Everybody wants to live there. Don’t you read the Statesman??????????
A question for someone here. How accurate is melissadata.com? Has anybody checked their data? Thanks
Nearly all data is lagging. Some good but mostly way out of date. Melissadata is good for some things and bad for others but data these days, including government data, is basically useless if you are trying to get an up to date picture. The boom to bust in property began in 2005 but people were still buying in 2006 because the “data” indicated the boom was still happening. Where government data is concerned it’s highly manipulated so they get the numbers they want. Employment numbers are the quality of new jobs being a classic example. Government inflation numbers being another skewed area to suit the numbers they want. In fact, you can almost totally dismiss government numbers these days. However, of all the data sources, Zillow is the joker in the pack. I owned a condo in West Hollywood Ca, which Zillow lists and just over $1 million. I know it sold for just over $700,000. The financial world moves so fast these days it’s just not possible to get accurate information which is relevant.
I’ve been mining my own data. I find a bunch of houses in Zip that I like in a specific area of Fairfax Co. I then use Zillow to find the comps (I find them myself, I don’t use Zillow’s recomended comps). I then use the Fairfax County tax database to find the comps’ selling histories. Extrapolating for inflation using 2001 prices (the last time prices were in line with rents), I can come up with a fair price in today’s dollars. Most SFH are roughly 40% overprice, and townhouses are even worse. I haven’t looked at condos yet, but as a percentage I bet they’re overpriced more than townhouses.
Recently I’ve been using yahoo foreclosures. Since I don’t pay for the subcription, I don’t have the addresses. But, yahoo does give you the street (and an aerial map), so if you can find a place on the same street listing at the same price in ZipRealty, you can find the foreclosures.
It’s going to be interesting to see what these foreclosures eventually sell for. My favorite is in Vienna: bought in April ‘05 for $625k, sold in Dec ‘05 for $800k, and now offered by the bank for $696k. I estimate that it’s worth between $400-500k (the comps don’t have a rich selling history to extrapolate from, or I was too lazy).
I’m here in La Quinta, CA for a few days. Went for a drive yesterday…it’s simply unbelievable how many tracts of homes are for sale…literally, in the middle of nowhere. Most are on small lots in gated communities. Some tracts are fully graded with streets, curbs, gutters and the front security gate already in place…without a home in sight.
Went to the pool a few times…conversation some how always turns to real estate because everyone’s an expert. For this example, we’ll call my acquaintance “Bob”. Bob’s son, 30, has turned $15K into $200K in “equity” with an investment group. They’re selling land to developers in Arizona. Bob’s house (in Orange County) is worth $1.3M and he owns two others in Riverside. He’s keeping them all as rentals and moving to Boise. According to Bob, “everyone wants to be in Boise” where the RE market has only dropped just 1% whereas it has dropped as much as 5% in other hot areas like California. I hope he didn’t see my eyes rolling.
I hope he DID see them rolling, so that after the fall, he can remember that when he was raving about his son being a genius, other people were clearly seeing a different picture. Hope Bob Jr. has fun covering the mortgages on those properties with the rents! And enjoys Boise!
This was from a week ago, but it appears Boise may not be where everyone wants to be.
http://www.theolympian.com/130/story/104475.html
Mistrial,
I-8 to 85 is the better route. If you choose I-10 do it between 9:30 A to 2:30 p, or after 8 p. It will still probably add 30 minutes to your trip.
Foreclosures take a big jump in LA,
Checked on foreclosure.com and LA County foreclosures took a big leap to 4172 from 3600+ in less than a week. Seeing some pop up in the better parts of the City such as Cerritos,Sherman Oaks,Woodland Hills,Encino,Valley Village,Culver City , El Segundo,Bev Hills, LA Mirada.Pasadena, ect.
Before this past week one saw foreclosures mostly in the crapped out burgs such as Pacoima,Pomona,,Sylmar, Compton,SCentral LA, Inglewood,Sgate, Lynwood,ect. Now Seeing a bit more foreclosures creeping into the better parts OF LA, and even the Vaunted Westside.
Same thing happened in San Diego. I have been tracking San Diego county foreclosures since 7/3/06 (the number was 415 back then). Today it was 4174 (not any trend, we’re told, just up 906% in 10.5 months). It was kind of stalled around 3800 for a month.
http://www.foreclosure.com/search.html?st=CA&cno=073&z=&tab=f
You’re right, but it has a looong way to go.
Los Angeles county is huge and 4300 foreclosures are not so many, compared to the real bust counties like SD or Sacramento. It’s still less than the number of Bankruptcies there (6125). LA also has 13800 preforeclosures. Watch the ratio between them. IMHO, when number of foreclosures will exceed the number of bunkruptcies, prices will start to fall. They will keep falling sharply untill the number of foreclosures will get close to the number of preforeclosures.
It’s also natural that there are many foreclosures in Encino/Tarzana/Woodland Hills area. I personally don’t see how it is better than Pomona, yet the median sale price there in 2006 is completely insane (about the same as in Santa Monica). I think a lot of ARMs were taken there in last 2-3 years.
I have a community garden and the county drops huge loads of mulch next to it. I was out there going for my 2nd load for my garden and I was getting tired. I thought to myself - self - when times are starting to get hard I bet there will be Latino men standing here ready to do this for you. Less than 30 seconds after I thought that a Latino man popped out from behind the mulch pile with a giant pitch fork. He was unwilling to take any money at first (pride) but he did.
In No.VA. (Fairfax) the inventory has just surpassed last year at this time. The signs are not clustered on the corners. You have to drive into a development to see them.
What is suprising to me is the number of retail for lease signs.
My neighbor just came back from a tour of the West Coast and Asia. His mission was to scronge every available vehicle from the bases for shipment to Iraq. They are doing the samething for munitions.
Now we get to find out what I was told in a conversation about gas prices. Supposedly $4.07 is the tip over point for the economy. This was from someone who buys energy in huge blocks for a large business.
NOVA said:
Now we get to find out what I was told in a conversation about gas prices. Supposedly $4.07 is the tip over point for the economy. This was from someone who buys energy in huge blocks for a large business.
Very interesting point… I wonder how long it will take to get there?
It’s already $3.30+ here in my part of Los Angeles.
People are definitely going to be changing their habits. Imagine paying almost $200 to fill up the tank on the Suburban? I guess ordinary cars that get 30 mpg will become highly desireable. I suppose that it will also be a great time to pick up a low mileage mega SUV on the cheap.
i’m looking forward to the day when I don’t get ‘caynoned’ between 4 single-occupant Yukons/F350s (I drive a Nissan Sentra, and can’t see over the hoods, let alone the roofs of these behemoths).
However, here in L.A I’d wager that people will sell their children into slavery before they sell their SUVs.
Ah, good times ahead…..
No doubt some people will try to act like nothings happening. Last summer I bumped into an acquaintance at a gas station filling up his Suburban at $3 a gallon. When I saw that the pump showed $100 I told him “ouch” and his reply was a gesture that said “no biggie”. I wonder at what price point will he finally say “yes biggie”? $200 a tank? $300? When his is Visa is maxed out?
The bigger challenge for a good number of these people won’t be the price up to even $6 or $7+… it will be when they get 10 gallons / month worth of ration coupons in 2010, 2012 or whenever…. $100 / gallon on the black market. Then the vehicle becomes worthless.
An interesting question. Will we ration gas, or just let market forces take care of things. At $8 a gallon hybrid and diesel compacts will sell like hot cakes. Sure, a few bozos will pump $300 into their behemoth’s tank and shrug “no biggie”, but those will be few and far between.
Heck, I am already concerned that my 30/23 mpg sedan will be a guzzler 5 years from now.
Won’t let market forces, probably….many, many will be screaming at $4 much less $8 / gallon. Then it’s coupons or lines or a combo.
Shipping every vehicle to Iraq from all Pacific bases? Hmmm….sounds like what the Germans did in advance of the Ardennes’ offensive in Dec 1944… Iran?
err..similar to what the Germans did….round up every vehicle in the Reich and send to the Western front that is!
Well Army…My Uncle and Father got in the “Bulge.” My nephew is “surging to Anbar” with the USMC. What I know is the carrier group’s won’t get away unscathed this time.
What I heard is that that Iran was scheduled to go but the JCS said it could not be done. That was the reason there was a sudden rash of stories on how overstretched the military is. They were doing CYA and letting the adminstration know how seriously opposed they were in a back-door DC kind of way.
I think the current administration could f%^K up a wet dream so my guess is it will probably be a go.
(rant on)
I read the CA thread this morning on my walk (HBB makes one healthier!!) I was impressed with the story of the Phillipino couple, he a med tech at AF base, she a nurse. They drained their savings trying to feed the alligators. Now, I know quite a few phillipinos (correctly pronounced “pilipino”) and after reading this story I thought to myself that entire extended family is screwed. These people won’t be satisfied with bankrupting themselves, they’ll also convince dad, mom, uncle, aunt, brother, sister, etc. to pony up to save their “investment”.
That made me think of 1rst and 2nd generation immigrants overall. America to them is a land of plenty and when they see their chance to grasp the brass ring they go for it. Most first gens think all white people are loaded so if the powers that be say debt is good, they accept that and go elbow deep into debt.
The pain to come in socal is well beyond what even most HBB bears imagine. The wealth of this state is being flushed down the toilet. Even if the amnesty passes we will be screwed because most recent end game buyers an knife catchers are the same people who will benefit from amnesty.
Nuff said. (rant off)
After a bit more research I did find out that the Orlando couple from last September did sell their house. In fact they sold it on the same day that the news story on CNN came out. http://tinyurl.com/39dn66
It sold for 325,000 on Oct 24
They paid 167,000
http://tinyurl.com/2wdxd6
I guess they got lucky, if you want to call it that.
They still paid 562,000 for the new house, so unless they had no mortgage on the one they sold they now have a big nut to crack each month.
Anybody catch today’s Tampa Tribune? There was a special section dedicated to county tax delinquencies. The section itself was equal to the size of a normal Sunday edition with coupons, etc. I have never seen anything like it in my life. It was in small print too. I can’t imagine how many of these are flippers and subprime borrowers who didn’t have their taxes escrowed.
This link was already posted…but not sure if anyone caught the “Hundres” sign….. I can’t spell but I gots me a 700K hause
You can’t make this stuff up.
http://www.pe.com/localnews/inland/stories/PE_News_Local_S_rally20.9e7f42.html
OT,
But apparently the illegal alien lobby in California is once again campaigning for taxpayer subsidized college for illegals.
This burns me up to no end. In the 70’s I spent some time (a few years) outside the US. When I returned the “residency deputy” at UC San Diego informed me that I was not a resident, even though I had paid California taxes in the past and was considered as a resident by the registrar of voters (I voted on an absentee ballot while away). Once classified as a non resident, it took 3 years to regain residency status at UC. To add insult to injury, they were granting instant residency to southeast Asian refugees as they literally walked off the boat.
Here is an LA Times link:
http://www.latimes.com/news/local/la-me-students20may20,1,5798329.story?coll=la-headlines-california&ctrack=3&cset=true
My husband applied to medical school a long time ago. He got a very high MCAT score and it looked good for him to get into the school he wanted (UT Southwestern). He got waitlisted, however, in favor of a Hispanic, non-citizen, female who was working as a hotel maid (with lower scores, of course). People wonder some times why I’m so bitchy. You just haven’t seen some of the things I have.
I saw a lot of cr@p in California, which is why I eventually left in complete disgust. If Disneyland wasn’t in SoCal I wouldn’t even visit the place.
That 5k “fine” is to cover all back taxes owed the IRS, forget local or state taxes.
How many citizens would like to settle up for a flat 5K.
This whole amnesty scam is outright theft from citizens.
How much do they typically earn in a year? 5K seems pretty low to cover back personal income tax. What sort of income in one year owes 5k- maybe $30k gross revenue?
And don’t forget, they will get full Social Security credit for the years they’ve been here as well.
This has been really burning me ever since I heard it.
If they’re not going to make people prove that (a) they’ve paid taxes on the income earned since they’ve been here, and (b) that they have not misused anyone else’s social security number to obtain employment, then isn’t this amnesty not only for violating the country’s immigration laws, but felony identity theft, tax evasion, and other crimes that would send a US citizen to prison for years?
Apparently, if you live here, abide by the law, pay your taxes, and work for a living, YOU’RE the second class citizen…
I hope that everyone here that has expressed reservations over this idiotic Immigration Bill will at a minimum write their representatives.
http://www.senate.gov/
I understand that it is a somewhat useless excersise but please take the time to at least email them.
And the worse thing is that this amnesty will trigger an even bigger wave of illegal immigration.
And the pundits in Mexico City are miffed, they don’t like the bill! What are they expecting? Perhaps that we send airliners to pick people up in Mexico, give each family 50K in “seed money” and perhaps exempt them from another 10 year of income tax?
How exposed are the hedgies and private equity funds to residential real estate investments?
http://www.blackstone.com/real_estate/index.html
Great wall of cash to follow Blackstone investment
Commentary: What does the 1980s Japanese experience signal for China?
By Tom Bemis, MarketWatch
Last Update: 12:54 PM ET May 21, 2007
LONDON (MarketWatch) — China’s acquisition of a stake in private (for just a little longer) equity firm Blackstone suggests that the paltry returns Beijing’s been getting on U.S. Treasurys are no longer enough. The amount involved here, single-digit billions, is trivial when compared with the $1 trillion in spare change lying around Shanghai and Hong Kong.
So what will the Chinese government buy next? Trophy properties, perhaps? Pebble Beach? Rockefeller Center?
OK, maybe it’s really more of a judicious “friends and family” allocation by Blackstone to China than any kind of heavy-duty strategy shift by the Chinese.
But anybody in the U.S. with any kind of business plan should certainly be paying attention, because there’s plenty more cash where this came from, and the Chinese can’t keep building infrastructure forever. There’s hardly enough concrete and rebar in the world to sustain even the current building boom.
http://www.marketwatch.com/news/story/commentary-great-wall-cash-follow/story.aspx?guid=%7BBF63692B%2DF506%2D40AE%2DB8C2%2DDEB161955CCA%7D
Press Release from Fair Isaac
May 17, 2007 - (San Francisco, California, USA) - Fair Isaac Corporation (NYSE:FIC) today announced from its InterACT 07 conference that U.S. businesses have now used more than 100 billion FICO credit scores to make smart decisions about their customers and prospects. Also today, Fair Isaac announced that its researchers have added key innovations to the Classic FICO credit risk scoring model that will significantly enhance its predictive power, without changing important features such as the score range of 300-850 .
The company plans to begin delivering the new FICO score innovations starting in September.
Fair Isaac’s development tests indicate that the new Classic FICO score research model increases predictive strength by 5-15 percent, with the largest increases coming in three important consumer segments:
*Originations and new accounts
*Borrowers who pose higher risk, often referred to as subprime borrowers
*Borrowers with thin or young credit bureau files
… Anyone have ideas on how the calculations will change?
Uh-oh, here we go: “Mortgage lenders get creative”
http://money.cnn.com/2007/05/21/real_estate/new_mortgage_products/index.htm
It starts out with describing some relatively benign loans, the comes this:
“Credit unions are also getting into the act, offering a new version of what the Credit Union National Association (CUNA) has dubbed the “home loan payment relief,” or HLPR, loan. It works somewhat like a hybrid ARM, or the so-called exploding ARM that has caused so much turmoil in the subprime lending world.”
“Like exploding ARMs, HLPR loans come with interest rates one percentage point below the national average at the time of the loan for the first three years. That’s where the similarities end.”
“Like exploding ARMs, HLPR loans come with interest rates one percentage point below the national average at the time of the loan for the first three years. That’s where the similarities end.”
OK, so the question is: where’s the catch? Or is the cridit union giving away money? If it sounds too good to be true……
Or how about this one: earn money by spending!!:
“Ditech, an online lending arm of GMAC, has come up with its own version of the 30-year fixed, bundling the mortgage with a home equity line of credit (HELOC) and a credit-card rewards program.
Borrowers automatically have access to any equity their home has accumulated via the HELOC. There’s no application process or fee.
And credit card charges earn points that can be used to reduce the mortgage principal. Putting $2,500 in purchases on your card will reduce your mortgage by $25.”
Sorry: This quote should replace the repeat quote:
“When the HLPR resets, it only goes up to the national rate average at the time of the initial loan. There are no surprises; borrowers know just how affordable their mortgage will be three years down the line when they first sign the papers.”
When I was driving around Sonoma County yesterday, I saw red home builder signs (those fold out temporary ones) pointing several blocks away to new development. They were mostly places next to existing home open signs. They were deliberately trying to steal traffic away from the used home buyers.
“Surging defaults on subprime mortgages, which cater to borrowers with poor credit histories, and more than two dozen collapsing lenders are exacerbating the already precarious U.S. housing market.
Countrywide Chief Executive Angelo Mozilo said depreciating home values are the main culprit.
“The cause of the problem that we have today is decreasing values. That’s the cause of the problem, because we didn’t have delinquencies and foreclosures when values were going up,” he said at a Mortgage Bankers Association conference in Manhattan.
“First-time home buyers were begging us to make them loans because they thought home values were going up significantly, and so they put a lot of pressure on us to make them loans,” he said.”
http://tinyurl.com/2qjulw
http://au.us.biz.yahoo.com/seekingalpha/070521/36012_id.html?.v=1
Very good news to report from Pullman, WA.
As I reported earlier, we offered $265k on a home reduced to $290k from $300k, they countered at $278k and refused our $270k offer. Then they contacted us through a mutual friend to try and cut out our agent (turned out to be impossible as they had signed a flat fee listing agreement promising 3% to buyer’s agent). They then offered to “split the difference” and come down to $275k. Their logic: they had pulled equity out of the house over the past 4 years as the husband went back to school so they needed that much to “break even”. Like that is OUR problem.
Okay, the good news. My wife was so turned off by the whole experience that she decided we should forget about buying a house until next year!!!!!!! Party at my place.
Yay!!! Congratulations!
Now you just have to convince her to wait another 5-10 years.
Sellers always think you should pay to bail them out of what they owe on their house. Sellers, listen up, buyers do not care if you mortgaged yourself to your eyeballs. If you’re stupid enough to do it, that’s your problem, not the buyers. Bail yourself out of your own mess. Maybe next time you’ll be smart enough not to get into that situation.
Your words are like sand poured down a rat hole. In many cases, sellers will hold out for the price they need to cover their loan balances until the day they are foreclosed, at which point disposing of REO becomes the lender’s problem.