Bits Bucket And Craigslist Finds For August 6, 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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New material from November 2006. Booyah, Jimmy!
http://www.youtube.com/watch?v=f5zAvh-iFfU
Brilliant work! Bravo.
Excellent work ***** stars!!
Cramer is just total BS
Well done, Lou!
Awesome.
The fact that Cramer is still on the air speaks volumes about the level of American intelligence and priorities, as a whole. Hype over substance.
When ever NBC has Crama$$ on the evening news…it makes Brian Williams look like a person who follows their dog around with a plastic baggie on their hand filled with soft warm pasty Cr@p.
Hey, that’s me - at least I pick up after my dog, unlike some a–holes.
Thanx, Lou….Another Hit for main Stream Media. I am not a fan of FOX Opinion, but there really have hit the mark on how corrupt Main Stream Media is, and Crammer is the head of the class. NBC should be ashamed, as they count their money and court their advertisers. BOO! BOO!
“Open the discount window. Cut the rates!”
I just watched that for the first time.
My wonder is who he really cares about. The people losing their homes or the hedge funds?
Why doesn’t he care about those who are financially prudent and thus priced out by any reasonable measure?
He’s got himself invested big somehow in this in a way he can’t get out is my bet.
OH, the hedge funds without question. All his Wall Street buddies work at the hedge funds and he used his pulpit to plead with the Fed to save their bacon.
That is fantastic! And it raises an important question:
Is Cramer soon to be never heard from again, like (hopefully!) other former mainstays of the bubble, David Lereah and Gary Watts?
Hyper-inflation! $200,000 for 2.2lbs of sugar.
http://news.bbc.co.uk/1/hi/business/6924062.stm
“..seizure of white-owned farms.. starvation.”
gotta look at it from Karl Marx’s POV. After all, what is more important? Food? Or the victory of the proletariat?
Critics have blamed President Robert Mugabe’s policies, especially the seizure of white-owned farms, for ordinary Zimbabweans’ hardship.
Let ‘em rot.
We are on the way to the same thing.
The only one who tries to stop it is Ron Paul.
He has 1% support of Americans. Just 4 years ago 95% believed in the WMD BS. 80% believed in link of Saddam to Al-Qaida.
In the 70s they used to say about Russians: “every nation deserves its government.”
Wake up and show You deserve better.
I’m right there with you brother. Ron Paul may have 1%, but it’s the thinking 1% in this once-great country of ours.
I was in Zimbabwe in May. The unofficial rate at that time was 1 USD == 40,000 Zim. Things were already quite bad and they just seemt o be headed downhill. Really sad.
The WSJ is loaded with doom today, perhaps the beginning of the understated Murdock style. Among the usual information – a return to normal credit standards could force the housing market down further, leading to more defaults, the firing of the Bear Stearns second in command, an editorial discouraging Bernanke from cutting rates to stop the purging of stupidity in the marketplace.
Of interest is a column that claims the current price of one of the AA ABX indexes has priced in a 27% fall in the price of housing (The AA tranche has credit support and so is affected by the severity of the lost collateral more than the odds of default). The article said that this is excessive, although it also said that most of the bonds backed by this particular index came from California and Florida.
A 27% nominal decline, plus several years of inflation (two down, five to go), sounds about right to me in price bubble markets. That and perhaps a little more will be required to restore affordability to normal people based on normal loans.
The NY Times Week in Review section had these articles, thus showing the business strategy of putting happy talk in the real estate section for the advertisers and hiding reality in the news and business sections the sheep don’t read.
http://www.nytimes.com/2007/08/05/weekinreview/05norris.html?_r=1&ref=weekinreview&oref=slogin
http://www.nytimes.com/imagepages/2007/08/05/weekinreview/20070805_LOAN_GRAPHIC.html
I also read the WSJ this morning, and came away with the same impression! The WSJ has definately been on top of this housing collapse for the last 3-4 months; yes, they are definately late, but at least they are covering it in detail now.
27% from today’s prices, coupled with a few years of inflation working it’s magic, is probably about right. That will be about 50% down in my area (Palm Beach, FL) from the peak; which, IIRC, is just about what this blog predicted.
Prices in many areas have to drop 50% in real terms.
I wish we could all get on the same page with this nominal vs. real price decline debate.
To recap my understanding of our collective agreement on pricing affordability, the median price of housing should equate to roughly 2.5 X median wages. Now, assuming I haven’t misstated the formula, if wages are mostly stagnant (some folks are getting a raise but it doesn’t seem to be the predominant trend according to my recollection of gov’t stats on the issue?) and growth is slowing (a recession seems to be imminent by some accounts) then how do we come up with this idea that prices will only come down 30% and wage increases will make up the rest? Does it really matter what the price (inflation rate) of bread does (other than restrict the ability to save for a down payment assuming it goes up). I would think it matters what the growth of wages are (with regard to affordability). It seems that a case could be made that the higher the rate of inflation is reported without a subsequent larger increase reported in wages (which are taxed) the LESS affordable housing will be (due to rising cost of expenses not associated with housing) and the larger the nominal price decline necessary to get back into line with affordability. If we then tack on the issue of downpayments coming back into vogue (not to mention the possibility of rising taxes) then I would say we need a MINIMUM of 50% decline in nominal prices just to approach the ballpark of affordability, at least in the bubbly areas and this doesn’t even take into account the issue of rising interest rates. I’m thinking 60-70% nominal price decline from peak pricing myself, what am I missing here?
I don’t like the metric of “x.xx times annual earnings” I think “xxx times rents” is more accurate. Now, in some places like Southern California we will not get to historic levels of affordability due to the massive influx of immigrants, legal and illegal, who will accept less than historic levels of quality of housing (i.e. 2+ families renting one house.) And it seems the accelerated stratification of incomes and wealth will lower affordability for families seeking to flee places like Reseda and Pomona, can’t get into Manhattan Beach, and have to find something suitable in Costa Mesa or Torrance.
If the median household wage is 75k say in San Diego then a 2.5 times 75k means that houses should be priced at 187.5k. I thought that the average San Diego prices were over 500k for SFH. If that is true then the price needs to drop over 60%.
You didn’t even factor in increased unemployment or the possibility of decreasing wages! I think we may find that the old rule of thumb “wages always go up” is about as accurate as “housing always goes up”
I see no difference in X * avg_income vs. X * avg_rent because avg_rent = Y * avg_income.
and in Europe we need a 60-85% drop to get back to the trendline, and the decline in prices and return to sanity in lending standards has not even started yet …
assuming that credit markets are global it should be at least another ten years before it is off to the races again for RE(unless of course the FED and ECB choose hyperinflation as their way out)
Lou, auger, nhz,
While I completely agree with you all that selling prices have to drop at LEAST 50% (and I am leaning toward auger’s 60%+ at this point), I also think that the market will be slow to get there for one reason. It is going to take real and sustained pain for the adjustment. Pain in the form of foreclosures and lack of buyers at the higher prices. While the fundamentals and numbers may clearly support a downward adjustment is needed we must remember that the bubble prices were never based on the fundamentals, but rather on emotion and greed. In order for the sellers to reset their beliefs regarding what their properties are worth they must come face to face with the stark reality that the property “values” were a fabrication of a bubble mentality and IMHO that is going to require that they can no longer afford the payments and get foreclosed or are forced to sell into a market where foreclosures or other downard pressure has evaporated the bubble wishing prices.
Lou, Excellent work on the Cramer vids!
Location, Location, Location…highly desirable zip codes for educated, professional class..will not anywhere near what you think you can afford. The class separtion will
be more profound than ever, and the middle and low economic zips, and those 40 miles from job centers could drop the 60%, but the rich seem to be getting rich, the middle class getting squeezed, and the poor heading toward poverty. What a country?
don’t know about the US, but in Europe the group that is getting filthy rich from current economic policy is probably less than 1% of the population. If 1% of housing keeps rising in price (or stays simply unaffordable like before) and the rest goes down the drain, I guess the rich will be stuck in some kind of reverse ghetto
Also, I guess in the remaining 99% of the housing stock there will be enough nice properties left over for those with some money to spend after the bubble has run its full course (in Europe probably at least 5-10 years from now).
“…but the rich seem to be getting rich, the middle class getting squeezed, and the poor heading toward poverty. What a country?”
Stick around for a couple of years…the economic distortions are just starting to come into focus. ;-O
Stick around for a couple of years…the economic distortions are just starting to come into focus. ;-O
Disintegration is already starting.
I’ve never seen so many bank robberies reported in the news.
This is one of the best threads I have read on any blog. Excellent!
Michael, I was looking at a house in Mirasol which is near you. It was purchased last year for $800,000 and currently for sale for $699,000. There are probably six or seven identical houses in the development also for sale all. This house is vacant and was purchased by an investor, his third one. One just sold for about a $100,000 loss plus the cost of carrying the property for the past year. On the house I am interested in he just received a foreclosure notice (you can find anything on the internet). My rough guess is this house is going to continue to fall in value, how far do they think it actually will fall. As I am sure you know this is a really nice development. Could this house go for $400,000 in the next 18 months because that is what I am thinking about offering the bank for it. Here is the link to the house http://homes.realtor.com/search/listingdetail.aspx?mindt=1%2f1%2f0001+12%3a00%3a00+AM&maxdt=12%2f31%2f9999+11%3a59%3a59+PM&zp=33418&ml=3&mnp=34&mxp=33&bd=4&bth=6&typ=1&sid=3ec784060a9347b4989e366df360bd2d&pg=2&lid=1078290186&lsn=18&srcnt=31#Detail
Thanks in advance for you help.
Michael in Rockville, MD.
Michael,
First off, Marisol is a nice development, however, I would suggest that you continue to look in there for bargins. The reason, that’s got to be one of the most overextended communities in the area; 1M dollar homes with a 2 5K cars in the driveway is not at all uncommon. Sorry, but if you really make the necessary income to support a 1M dollar home (350-400K) you do not drive a 8 year old Honda Accord (not that there is anything wrong with them, just an indiciation of how over their heads many people are in that community).
400K? I think if you get it at 400K you will probably be OK in the long run. You may not be able to sell it for a few years at that cost, but it appears to be nearly 4000 sq/ft, so 100/sq/ft is, imho, likely to be nearing the bottom for home prices.
The thing about Marisol, as with many of these new communities out west, is that there is no shortage of land at all in that area. They could build 10 of these type communities right on top of one another; they are pretty far west, which dramatically reduces the cost of the land. That’s not a bad thing, just something to consider; basically, don’t overpay for the land! In that area land is plentiful, those lots are not worth much; all the value is in the recreation cost of the home.
Thanks, for the reply and info.
The investor who bought this third place took out a $695,818 mortgage at 10 3/8%. According to my calculations the payment is the P&I is $6,300 plus probably another $2500- $3000 a month for insurance, taxes, utilities, & HOA. It is just a matter of time before this property will be own be the bank.
I know the house is not worht $700,000, that for sure.
The investor who bought this third place took out a $695,818 mortgage at 10 3/8%.
Man he must have drank some really strong kool-aid!
Actually, I’ve found that the 1 MM house w/ the accord in the driveway is more likely to be old money than the one with the BMW. J6Ps that get themselves over their heads usually have to convince everyone that they can afford the alligator.
It looks like a highway runs behind the pool - wow what privacy!
Good info but I suspect Barrons and WSJ will be reduced to overpriced toilet paper considering its new owner.
A few weeks ago I was bragging that my uncle is married to Jane Cox MacElree, a Bancroft who was the chief holdout against Murdoch (even the NY Times said so). But she capitulated. I haven’t talked to her since July 13 so don’t know what changed her mind. Maybe she just saw that she was going to be outvoted by the other forces (e.g. her brother Bill Cox) and decided to bow gracefully.
I can appreciate why the Bancrofts took the money and ran but It is good practice to let everyone know what kind of scandal sheet the WSJ and Barrons will quickly become. I don’t think Murdoch can get away with printing pornography in these publications like he does daily on page 3 of The Sun.
Her timing might have been perfect…
Yes, the WSJ is/was the financial newspaper of record, but rupert’s buying the newspaper, as the internet is about to squash newspapers dead, on top of the the stock market getting ready to plunge, seems like a bad deal, for mr. fox…
“Mr. Fox” doesn’t care about the newspaper itself, only its brand image. He wants a WSJ cable channel to beat CNBC.
and maybe WSJ tv will be less bubbly than bubblevision (CNBC), which i would welcome.
Hey, not so fast on squashing newspapers dead. Sure, we all love the Web, but where does just about all the content, the reporting and the actual painstaking investigations come from that the bloggers (not to mention TV, radio & the wires) link to and spread around???
Yep, it’s still the papers who do the grunt work for the most part, filing the Freedom of Information Suits, etc. to expose at least a few of the sleazebags and put some fear into the rest.
Of course, I’m biased … I need em to last maybe 20 years to avoid some drastic late-career switch!
You used to rely on 2 income streams…
Readership & Advertisers
It’s down to one now, and I $ee the $tream is running dry~
punting on 3rd down is not against the rules…
But no, I’m not one of Rupert’s orcs! At least not yet.
Is there really a difference between Cocaine Larry Kudblow of CNBC and the freaks of nature on Fox? None at all. I don’t anticipate the WSJ channel to be any different.
Funny, I was under the impression that the vast majority of news reporting was done by wire services like AP. With notable exceptions (WSJ, NYT, WashPost, etc), most city newspapers really don’t have a lot of original content.
That is true at smaller newspapers, yes. But the major metros put a lot of stuff out there. And much of what local and network TV puts on-air was reported in much more detail in a newspaper that morning.
27% off is in the bag in FL , IE and a few other pockets
Jim Gaffigan “hot pockets”
Interesting stuff in the California thread about mortgage fraud. It’s gob-smacking how widespread it is. Two weekends ago, the Tampa Tribune ran a huge story about a guy in the area who has had quite a scam going in St. Petersburg, getting lots of people to “invest”. Blank documents were signed at places like Denny’s, according to the article.
Wondering if it is so widespread, maybe some of our battier representatives up on the Hill will propose legislation to legalize it. Maybe all the mortgage fraud shysters can demonstrate in the streets of all the major cities (there certainly seems to be enough of them) and demand their “rights”.
After all, the mortgage fraudsters were only working, and working is not a crime.
Palmetto, There is still many fraud scams still happening right now. Bank of America probably just got snookered for $1,368,000, 95% loan in Catte Verdera (Sacramento area, City of Lincoln, Placer County, CA). Right across the street, Countrywide foreclosed on a larger home with a nicer view last year. They have been trying to dump their turkey for $870,000 for 8 months, with no takers. Sheesh, where is BofA’s appraisor? Where is their underwriter. The buyer is Leah G. Cruz a single woman! She must make more income than any other single woman I know!! And the property sold for $970,000 in 8/2005. Can ANYONE in lending spell “Top of the Market: 2005″?
In the same area, Kim L.T. Nguyen and Hai Vu just sold a home to Luu Son. 100% financing from Bondcorp Realty Services, Inc. Here is Bondcorps phone book listing:
Bondcorp Realty Services Inc
1200 QUAIL ST STE 160
Newport Beach, CA 92660
Phone: (949) 250-1007
Fax: (949) 250-1007
E-mail: @yahoo.com
Wow, same fax and phone number? Very high tech!! And a nice e-mail address. If an HBB blogger lives in Newport, I would be interested to hear what the “office” is like, if in fact it is more than a P.O. Box. And the house on which they just lent $850,000? It has not had utilities hooked up for 6 months! And the identical model is listed around the corner in a better location for $668,000. In fact, three of the same models are in foreclosure or already bank owned. Soon to be four! I will bet dollars to donuts this will be a first payment default!
Some one could be going to jail when the dust finally settles. You can not hide the paperwork on real estate. It is all recorded at the county. Criminals all get caught eventually.
Criminals all get caught eventually.
really? in Netherlands NO ONE has gone to jail for mortgage fraud over the last 30 years or so, while there were plenty of cases with clear evidence where the banks where robbed for huge amounts of money. It is all white collar crime and our justice system seems to be totally uninterested in going after these criminals. And even when they are caught our judges usually think these criminals (layers, brokers etc. who organised everything) have been heavily punished by the bad publicity so they only get proforma sentences. In some cases the criminals even got huge sums of money after their case was dismissed because they were ‘falsely accused’.
Funny, I work on that street and am a few buildings away from there. I have a feeling they might not be there, as every building on that whole street has ‘Office Space For Lease Signs’.
eek, Will you go by and take a look at Suite 160. Just try the door and go in, appologizing that you were looking for XXXX (chose a name off the directory on the same floor.) Let me know what you see! Fun stuff.
Probably won’t drop by, I’m a lazy bastard and I think they close the same time I get out of work (5pm). I think I will drive by an RE shop near where I live to get a laugh, properly named Exit Realty.
“China Watch:
August 2 - Bloomberg (Zhao Yidi): “China’s central bank said will set up a deposit insurance plan to guarantee savings and protect depositors from bankrupt banks, seeking to instill public confidence in the country’s financial system. The People’s Bank of China today signed an accord with the U.S. Federal Deposit Insurance Corp. to cooperate on financial services and deposit insurance, according to a statement. China’s central bank, custodian of the world’s largest foreign-currency reserves, wants to shield the country’s 36.9 trillion yuan ($4.87 trillion) of local-currency deposits from bankrupt banks and maintain public confidence in the financial industry. The assurance plan comes amid increasing calls by government officials for banks to refrain from lending money to stock market punters and real estate speculators.”
From Aug 03, 2007 Prudent Bear
Am I understanding this correctly that the FDIC is helping to insure Chinese deposits? Also am I understanding correctly that the US tax dollars are helping to insure Chinese deposits? I got a chill when I read this one.
Or do I just misunderstand? Can anyone share with me what’s going on with this?
Looks like the FDIC is acting as advisor to the Chinese in this case. Providing technical and structural advice as the creator of a “successful” deposit insurance program.
China’s going to need it. Their banks are probably the most fraud-ridden of any major nation’s. They have huge exposure to communist-era state enterprises and are hiding huge losses. In fact, they make the Japanese banks from 20 years ago look like a bunch of Boy Scouts.
The current financial frenzy is helping to hide these structural weaknesses but when it ends, there could easily be bank runs and the government is trying to preempt that. In fact, if the Chinese people understand the instability of the system, there should be bank runs. It would be the rational thing to do.
Here is the press release from the FDIC
http://www.fdic.gov/news/news/press/2007/pr07066.html
Thank you for that Deron.
and michael.
AHM files bankruptcy
http://www.marketwatch.com/news/story/american-home-mortgage-files-bankruptcy/story.aspx?guid=%7B365265FD%2D33D6%2D4DD3%2D8C0B%2DAAD55AB4446B%7D&dist=hplatest
As said many times in the past two years here, bankruptcy attorneys are going to be having a nice run here for awhile. It’s been a long time since there have been so many things coming together like this.
Instead of injury ads on TV attorneys will be running mostly bankruptcy ads.
I wonder how far behind Countrywide will be, or if they’ll make it? They’re 10 times bigger, with a balance sheet almost exactly shadowing AHM but an order of magnitude larger. I believe they’re less exposed to Alt-A and subprime than AHM was, but not sure. Anyone got any stats with regards to that?
Perhaps Countrywide will pull through, but with things melting down as fast as they are I have my doubts. There’s just going to be too much drag for too long of a period. My guess is that virtually all mortgage companies will be out of business within 5 years - only the banks will survive.
tin foil hat
Perhaps that was the plan all along!
/tin foil hat
How much in taxes will they have to pay on all the properties they now own and have for sale? Will that break the balance sheet?
RE: I wonder how far behind Countrywide
When I was doin’ appraisals for these boneheads the front office was a bunch of young female ditz’s who didn’t have a clue.
I couldn’t even begin to imagine how they would function in a major foreclosure and liquidation enviroment.
Another one bites the dust…
Another one bites the dust.
And another one’s gone
and another one’s gone
Another one bites.
Hey! Gonna get you too.
Anothr one bites the dust.
I have a question: Is a HELOC directly tied to the home title? If someone needs to sell a home and the sell price is below what their mortgage and HELOC requires, can the person just pay the mortgae and skip on the HELOC? Is the HELOC just a unsecured loan?
HELOC is usually a second lien. in case of foreclosure the first lien gets paid first, then other liens. they used to call them second mortgages back in the day.
if you sell you need to pay both of them off since all liens have to be satisfied in order to transfer the title or deed
“Beach Real Estate Caught in an Undertow”
http://tinyurl.com/2hnaxz
“Beach Real Estate Caught in an Undertow”
Drowning in Debt…
From the article:
“This year, Sussex County, where Rehoboth and Dewey Beach are located, collected $13 million less in transfer taxes than last year, according to the recorder of deeds.”
The Highway 1 corridor through the DelMarVa penninsula has to be ground zero for the 2nd/vacation house scheme. I lived there in 2005 and half of 06 and speculation in 05 was literally out of control. I saw plates from WA, Cal, Florida beside the usual suspects from VA, MD, NY, NJ, PA. Building was EVERYWHERE. When I hear people talk about Florida, I think of Sussex County Delaware.
I was offered an ice cream/swimsuit shop that is located on an island in N Florida for the bargain price of: $9,000,000. This shop will never sell for that or even near that. If it ever does, it will never make enough to call it a profit. Someone will be looking at a BR before long on this.
Roidy
“offered” at 9 million. What an bargain. I thought the prospective buyer is to make the “offer”?
Never mind the fact that the island probably won’t be there in 20 years time, what with sea levels rising…
Sea levels aren’t rising. I don’t care what Al Bore says. Unless they can rise in some places and not others, they are not rising where I live (northeast). I’ve been on the coast for 38 yrs. and nothing has changed..not one iota.
Actually, not Al Gore but the ever lovely ‘New Scientist’ says is possible. Possible, mind
Linky: http://tinyurl.com/yq922u
She’s considering a property along the canal, Blue Point Villas, where the developer is offering to pay her mortgage for six months, plus six years of condo association fees, $5,000 toward closing and a 15 percent “developer closeout” discount on the sale price.
She better get all of this money at the closing table. I would be very skeptical of this deal and probably for the first time that I ever bought a house would take a lawyer along.
couldn’t find a link, but Good Morning America had a segment today on the housing/stock market. They still keep coming back to “it’s a good time to buy a house” BS. The guest they had on said house prices are “the lowest in six years” - BS. Anybody who can’t see this as the fleecing is blind or holding the sheers.
Interesting link about underreporting of foreclosures:
http://www.startribune.com/535/story/1338609.html
“it’s a good time to buy a house” BS.
I’ve heard lots of NAR ads to that effect on the radio. One of the speakers said “why pay the same money to rent when I could own?”
Good point if you plan to stay there five or more years, use a 30 year self-amortizing mortgage, and the total cost of ownership including taxes, maintenance and insurance is equal to renting. But where is that true?
They’re not using the fully amortized rate!
All of that BS is going to go away really quickly with the new lending standards. The poor sods that believe they can rent for the same monthly payment are going to get a quick lesson in price-to-rent ratios from the remaining lenders.
Oh come on, for the love of God, is there anyone who does not already own a house that is truly stupid enough to believe that these are the lowest prices in 6 years. 6 years puts us back to 01, which in my neighborhood is still a 30-40% cut from where prices are today.
If the RE establishment would stop the BS, they might be able to get themselves back into the favor of the pubic; when the dissiminate garbage like this anyone watching the market just thinks they are idiots.
Remember to send everyone you know to this blog! There really are people who don’t understand current RE trends.
with the highest price to rent ratio since the big bang
I noticed an ad in a magazine (don’t remember which one) about how to “get rich quick” off of the “foreclosure boom”!
Talk about marketing spin! They make foreclosures sound positive and like the “next big thing”.
I like these changes at Option One:
“Appraisal Changes Effective Monday August 6, 2007 for all new submissions
Appraisals must contain 1 comparable sale
Not sure why my post got cut off. Here is the rest:
“Appraisal Changes Effective Monday August 6, 2007 for all new submissions
Appraisals must contain 1 comparable sale less than 3-month old and 1 current listing. All other comps provided on the appraisal report must be less than 6-months old.
Option One will not accept appraisals that are more than 90-days old”
Appraisals just got more appraisally over @ Option One…
also in it…
“Funds available for asset verification (down payment/reserves) from a 401K will be limited to 70% of vested balance.”
They’ll leave you 30% of your retirement money, intact.
Nice Fellows~
Nawww - they are allowing for a 30% drop in your 401k plan value. Who thinks they are going to lose more than that in a stock market crash? Anyone?
They are allowing for the tax that you will have to pay on the deferred income. I know a lender who would only use 50% of retirement money.
How can you do an appraisal without one comparable sale? Roll the dice?
Laughable.
You could use comps that are older than 3 months, you know, when there were still sales.
One person’s disaster is another’s opportunity. Here’s an article in the Sarasota Herald Tribune about a German real estate company that will be opening many offices throughout the U.S. to sell homes to its European clients.
http://www.heraldtribune.com/article/20070806/REALESTATE/708060347
I thought we would all be renting from the Chinese and Arabs.
My in laws were over yesterday. She mentioned that during the Depression, at least in the Syracuse area, renters often made their rent payments to banks instead to individual landlords or companies.
Perhaps some of these will be foreign owned when we revisit this experience? Or maybe Chase Bank will create a Chase Home Finance spin-off and be a front for rental investment group(s) too.
But what are these Germans going to do with these houses
Live in them? I doubt for more then a couple of weeks a year
Rent them out? How are they going to supervise investments worth hundreds of thousands of dollars when they are 4,000 miles away?
Flip them? I think the flipping game is over for a while
the flipping is not over at all in Europe. You shouldn’t think that EU citizens have any idea about what is going on in the US housing market (even many US citizens still don’t get it …). Germany has some catching up to do regarding RE speculation, and with coming favorable changes in investment rules regarding RE (jmf probably knows more about this) it will probably be very attractive for German companies to start new RE investment funds with US ‘firesale’ properties and sell those funds to German (or UK, Dutch etc.) customers. We still have those same glossy ads in the big investment magazines here boasting 20-30% annual returns on Florida real estate etc.
From Europe current US homeprices look extremely attractive in many areas (not talking about Manhattan or SoCal hotspots); with a further 20-40% drop those prices would be ridiculously low for the average EU speculator. And in Europe we usually don’t bother with renting out investment properties, price appreciation is usually enough for positive cash flow
As home prices in Europe continue to soar, people have tons of ‘equity’ that they want to spend on even more RE.
Live in them! They want to sell them to rich pensioners. With the current exchange rate, it might work out.
Even with the favorable exchange rate, it doesn’t work for foreign ownership–they get hit hard with prop. taxes because of SOH, and what foreigner is going to live in a house in Fl. and face American health care costs?
health care is not an issue, because many EU citizens have medical insurance that also covers the cost when they are in a foreign country (with some restrictions).
Until I saw “Sicko”, I was entirely against universal health insurance. Now it sounds like a good idea. We have it for seniors…
They’ll get Homer Simpson to be the property manager.
Doh!
This is a great development. The Japanese caught the falling knife during the last U.S. real estate bust (early 1990s), and now the Germans are stepping up to the plate to do the same. They have much more experience with deflation than the average U.S. citizen, so it seems only right that they would step up to catch the falling knives…
Am I understanding this correctly that the FDIC is helping to insure Chinese deposits? Also am I understanding correctly that the US tax dollars are helping to insure Chinese deposits? I got a chill when I read this one.
China is the largest buyer of US Treasure bonds. That is it. You can imagine what is going to be if they start to get rid of them.
a fall in the dollar is as bad for the chineese as for us. chineese companies are profitable only due to the current currency situation. if the dollar were to tank a lot of chineese companies would go belly up and cause a recession there
they are probably getting some more of the sound financial advise that got them into Blackstone (14% down and counting).
Way to go, Wall Street!
the CEO is a genius
sell stock right before the market plunges. him and the ibankers are laughing all the way to the bank. right before the IPO i saw someone reading the prospectus on the NYC subway. i think he is the proud new owner of some Blackstone stock
yes very clever CEO, but this deal might b(l)ackfire on the US and I’m not sure if the guy still looks smart in a year or so.
Before anyone goes crazy, please realize that I am a long time poster here, and am totally on board with the bubble, and have tried to help many people avoid a huge mistake.
However, all that said, I am starting to think that I should plan for the coming bottom (eventually there will be a bottom, we all agree on that), and am considering getting my RE license. Really, I want to do this for 2 reasons; first to understand the market much more fully, and 2nd to cut out as much comission as possible when I finally do buy my own home (by acting as my own buyers agent).
What does everyone here think about that idea? How hard is it, and how much will it cost me to get my RE license? I am a good tester (I test 1-2 times a month for work, so I am very used to taking all kinds of different tests) so as long as the test is not that hard, I don’t see a huge problem passing. What will it cost me to maintain the licence (I am in FL, btw)?
Any help/experience is appreciated!
Thx.
(I am starting to think that I should plan for the coming bottom (eventually there will be a bottom, we all agree on that), and am considering getting my RE license.)
No doubt a whole generation of less than able or honest RE brokers, mortgage brokers, etc. will be purged in the coming storm. So there will be an oppotunity when things finally level off. But take your time.
I think the real opportunity might be fixed-fee buyer’s agents. People are going to be terrified of being ripped off by lenders, builders, etc. and will want someone to arrange inspections, real appraisals, scrutinize loans, check titles, go over personal budgets, estimate and navigate insurance, check possible property tax implications, and generally avoid doom.
People might be less likely to trust “experts” hired by sellers or housing, money, etc. after the next few years.
WT, interesting…. When you take a step back you can see how out of date and corrupt this whole RE industry has become. Sooo many fingers in the pot…
With this whole industry shattering into many pieces, like a bowl dropped on the floor, it will be much easier to “clean” it up, throw it in the bin, and start anew.
YES YES - You hit the nail on the WT. Many people should gladly pay for service that really helps them through this process. Of course having been a realtor in the past I would never pay for such a service.
I am a Ca real estate Broker. The Agent test in most states is fairly easy to pass, so I’ve been told. You might want to upgrade it to a Brokers License, since you’ll have complete control, but the down side is liability. If you plan on going solo- personal use (not having agents work for you) its the way to go. In Ca it was another 24 units of actual real useful classes- Finance, Appraisal, R E Economists, etc…). I don’t know your state requirements. Google Fl Dept of R E, and check it out. The cost is minimal to the savings!
For personal savings and control over your own deals only, a Brokers License is great.
Thanks for the great info. Can you please let me know what a broker can do that an agent cannot? Again, I have NO interest in selling RE, or in helping anyone but myself buy and sell RE. I just don’t want to pay someone 10’s of K for something I can do myself, and also (primary reason) want to understand the whole buying/selling process better.
Also, does the brokers license automatically grant the agent’s license? Do I need to get both, or just the broker’s license?
God, I feel so dirty thinking about this.
Thx for the help!
Michael Fink-
email me at inqrymind@verizon.net, so we keep this off the blog. BTW, you’re on the right track. You are thinking clearly.
I have a broker’s license in Illinois.
In practice, there are two main differences.
1) A salesperson can only work for a broker; they cannot work on their own. It’s sort of like an apprenticeship.
2) A broker takes on all liability for the actions of the salespeople that they sponsor. Well, most liability anyway.
If you want to work on your own, you have to be a broker. Most states require you to be a salesperson for a number of years first, however (Illinois does not).
The truth is that if you are only acting for yourself, you don’t need to be licensed as anything. The only “advantages” are increased access to information, increased access to legal forms, and the ability to collect a commission for the sale (which you will owe taxes on).
The internet is getting very close to providing all that info (and just might be able to provide everything you need). A competent real estate lawyer can provide you with all the legal forms and stuff. And finally, letting the listing agent keep the entire commission in exchange for a price reduction might increase the agent’s take while giving you the same net outcome (and not having to deal with the tax headache).
Just keep that in mind. I got my license for a technology project I was working on - never intending to sell or otherwise get involved in the business. For a while I thought it would be worth it to pay for all the continuing education classes and license renewal fees to keep it active for when we actually got around to buying a place. But now I think it’s a waste of money to continue it.
Do the math and make sure it’s worth $3-5k before jumping in!
You should rent it out folks here pay 5-10k a month for broker licenses, but make sure you have a way of overseeing the contracts that flow through.
MIKE FINK: I am a licensed Real Estate Broker in the State of Florida. I have been reading Ben’s blog for approximately two years and am grateful for all of the information related regarding Real Estate.
I have both a Salesman’s license and a Broker’s license. You must have an active Salesman’s license for a minimum of 2 years before you can qualify for a Broker’s license. Your sales license must be registered under a Broker’s license for those two years. Because you wish to use the license for personal use only, your best option for placing your license would be at a 100% Broker’s office.
The 100% sales office (Florida has this - many States do not) requires you to pay a set fee per month ($250.00 at my office). The Broker takes no commission - but agents must pay for all of their own advertising. At my office, there are over 700 agents, most of which work out of their own homes. I’d say at least 30% are Broker’s themselves - but it is more cost effective for these Broker’s to belong to a 100% office. Also, the Broker does not care if you’re bringing in commissions or not - he’s just interested in his set fee that each agent pays monthly. This option would be ideal for you because you would not be pressed to perform in real estate. At our office, our Broker requires someone to have at least 2 years of Real Estate experience before hanging their license. There may be other offices that do not have this requirement.
The Real Estate class tests are not that difficult. The State test can be difficult - more than most people think. After passing the State exam - you must take an additional 60 hours within a 2 year period. This is usually divided up of a 30 hour class + test you must pass, and an additional 30 class + test you must pass.
Hope this is helpful.
Hope this is helpful
You can fog a mirror, right?
If so, you’re in…
i’d tend to agree.. the difficulty of obtaining a RE license is roughly the equivilant of getting a driver’s permit.
..after which one knows practically nothing and, because one is a distinct danger to society, in need of constant supervision.
If the desire to learn is there, a license is unnecessary imo.
although i hate wasting server space on corrections but since i wasn’t sure, forgot to look it up and wasn’t even close, it’s spelled equivalent..
It can’t be hard. Look at all the idiots who are brokers and real estate agents. Hardly any brain surgeons there!
Michael Fink,
Have you considered letting the seller’s agent rep the sale on both sides of the deal and hire a real estate attorney to review the paperwork? In my mind, it’s the only way to beat real estate vermin at their own game. Let some greedy listing agent smell a double commission and he’s your new best friend…
Seems like this way would be alot easier for you..imho.
I agree with you, and that does sound like a reasonable plan. I just think that allowing any “expert” to represent me in an issue this big where their pay is directly related to how hard they can scr*w me is a bad idea. Honestly, I don’t care to collect the commision myself, I just want to make sure that I understand the entire process, and if necessary, can act as my own buyers agent (cutting out that part of the commission entirely). If I can save 3% of the home price by cutting out an additonal comission (and possibly more by understand the market/process better) that will pay for LOTS of classes and study time to pass the test.
Thx!
I don’t know how it is in FL but you have to be careful when you buy for your own account in CA. Learn all the disclosures and how to word them. The lenders that will let you collect a commission are very few and will be more expensive, in some cases borderline hard money. So make sure anything you buy is worth the extra cost.
Good points MIS. Another reason for the straw buyer /double escrow transaction during this boom I’m sure was to hide the true interest of the players .
Brokers have alot of liability in a real estate transaction ,I think you would agree with me on this mrincomestream, and I’m wondering why they were sleeping on the job regarding oversite during this boom ?
Greed….the fact is that they have been doing it for many years and not gotten caught. But the numbers during the boom got too large and people started paying attention. It used to be 25k here 50k there no one gave it much thought especially if you cleaned the place up and planted some flowers. But when you get into the 250k, 500k arena people are bound to notice and get curious about what is exactly happening for those types of increases.
Its true, that in some states you have to “work” under a Broker, having an Agent’s License, and in Ca its 2 years . The insights I learned (how God awful slimy the industry is (IMHO), and how the forms are filled out, have been a great education. I didn’t join to many of the associations, just enough to get to what I needed.
I learned about all the tricks, the way to stay out of court, and will apply it for my own purchase(s) later on.
My God, I have never met a more morally bankrupt, intellectually lazy group of people in my life. And that’s putting it mildly.
if you are buying and selling only for yourself, you dont need a license…..take the classes, learn the lingo.
Licensing is for CYA in others transactions.
With the amount school costs and all the testing, licensing, insurance and NAR fees (different in every state) you aren’t going to save much money. Again depending on the state, buyers don’t pay a realtor commission and any knowledge you get, you can get at the library in a lot less time. Unless you are going to use the license it would be a waste of time and money.
I’ve thought of the same thing. Sounds like a good idea.
A scene from the film,
“A Few Good Mortgage Brokers”
Col. Mozilo: Son, we live in a world with mortgages, and those mortgages have to be provided by men with CDOs. Who’s gonna do it? You? You, Mr. Jones? I have a greater responsibility than you could possibly fathom. You weep for the foreclosures, and you curse the brokers. You have that luxury. You have the luxury of not knowing what I know. That the subprime forclosures, while tragic, probably increased homeownership. And my existence, while grotesque and incomprehensible to you, increases homeownership. You don’t want the truth because deep down in places you don’t talk about at parties, you want me writing those mortgages, you need me writing those mortgages. We use words like equity, collateral, commission. We use these words as the backbone of a life spent defending something. You use them as a punchline. I have neither the time nor the inclination to explain myself to a man who rises and sleeps under the blanket of the very liquidity that I provide, and then questions the manner in which I provide it. I would rather you just said thank you, and went on your way. Otherwise, I suggest you scrape up some cash, and make a loan. Either way, I don’t give a damn what you think you are entitled to.
Nicholson as Col. SPF?
Lovin’ it~
LMAO!
Masterful parody, thank you!
(”You can’t handle the truth!”)
–
One of my favorite movies.
MPs, please escort the Colonel.
Jas
Golf Clap. Job well done.
Lt. Hubbard “DID YOU AUTHORIZE THE 105 LTV!”
Col. Mozilo ” YOU GOD DAMN RIGHT I DID!”
Michael Fink: I have the same plan. In MD and VA you also have to take 60 hours of classroom. Thats the sticking point for me.
How about going online, and seeking out online classes offered by a local real estate school. Some offer them, at least in Ca, so I assume its getting more common.
University units in related subject matter can be applied to a license. It cut down on my Broker License academics.
Are we talking 60 actual hours of class time, or 60 credit hours?
When I went in Ohio I went 3 hours a night 4 nights a week for 3 months. Every state is different. My license is still active, although I don’t practice. I do referrals to a couple agents I know that are honest and not sleezes, but 3/4 of the time the agents you have to deal with on the other side of transactions make you want to come home and take a shower. I think I was too honest and cared about the clients I worked for too much to stay in such an underhanded, crooked business. Glad I’m out.
Bobby Z…
You type into the blog
With the mouse in your hand
You see the financial world naked
And you say, “what was their plan”?
You try so hard
But you don’t understand
Just what you’ll say
To those that bought overpriced homes
Because something is happening here
And you know what it is
Don’t you, Mister Jones?
I’m not always the best at reading tea leaves, so I am not sure what this story says about the real estate sector of the economy, but I am sure it says something:
Missing attorney arrested at Canadian border
Published Sat, Aug 4, 2007
By SANDRA WALSH
A Beaufort attorney, who police say stole $2.35 million from a client, was found Friday trying to cross the Canadian border back into the United States after being the focus of an 18-hour Coast Guard search near Edisto, according to authorities.
Michael Timothy Jordan, 45, whose real estate law office is in Professional Village Circle on Lady’s Island, was arrested Friday by the Charleston County Sheriff’s Office on a felony breach of trust charge, according to a release from U.S. Customs and Border Protection.
“The warrant stated that Jordan willfully, unlawfully and feloniously breached the trust of a client after he illegally transferred to his personal bank account, $2.35 million that was acquired in the sale of property owned by his client,” the federal release states.
O.k.,this does happan quite often here in S.C…never,EVER CLOSE ON REAL ESTATE,AND Let the funds go through the lawyer’s hands.In this state the plumber,the carpenter,even the lawn guy,is insured better than your local friendly lawyer.I know ,it’s happaned to us,
So escrow is not handled by Title Insurance Companies in SC?
What a dumb @ss! He got busted sneaking back in the US. Good luck with getting bailed out of jail, you greedy fool. I expect the little wifey wasn’t too pleased with your disappearing act.
OK, so who else besides me thinks Bob Nardelli is a really lousy choice to run Chrysler?
He got tossed from GE when John “Just call me Jack” Welch appointed Immelt as CEO and Home Depot got ripped by 250million for a 5 year loss under his “leadership”. What is amazing is Frank Blake who worked directly for Nardelli at GE PowerSystems in Schenectady is now the new CEO at HD. I’m sure Frank is on the take too.
The situation with this guy is how I know this country is not a meritocracy. Nardelli will never lack for a job.
Nor will Frank Blake apparently.
Nardelli is perfect for this type of take under. His reign at Home Depot was cut costs to maximize profits. It was not just his compensation from Home Depot that did him in, it was that Home Depot was no longer a desirable place to shop, dirty stores and poorer product lines; Lowes killed Home Depot. His problem was he stayed at Home Depot 2 years to long. In the take under game, he is ideal. He will make Chrysler look profitable at the expense of long term strategy and then Cerberus can take it public.
In other works he is uttery incapable of turning Chrysler into a viable, long term success. He is a con man who specializes in putting lipstick on a pig.
doenst matter whose at the helm at Chysler..
Plug in JohnnyChimpo, and just start closing the doors and moving production to China…..thats the plan anyway..
So true.
From Dane County, Wisconsin…
Dane County Foreclosures Up Five-Fold
http://www.channel3000.com/news/13826899/detail.html
LUM and IMH are getting creamed this morning.
Uh Oh LUM halted on NYSE - news pending.
Another one (so soon) bites the dust?
A small anecdote: I was at a wedding in Beaufort County, SC, this weekend. Reception held at a nice country club on Dataw Island. Two people spontaneously started housing bubble conversations with me - one a resident of north New Jersey, complaining about his $11,000 annual tax bill, and the other from somewhere in rural South Georgia. Mr. South Georgia even went so far as to blame Mr. Greenspan for the entire mess, which gave me a chuckle as it was the first time I’d heard that argument outside of this blog. So I asked Mr. S.G.’s son what his dad did for a living, and he responded “UPS Driver, 27 years and counting”. Makes me wonder if those guys have a better pulse on the economy than most, as they drive several neighborhoods every day and they have some idea of consumer confidence (and the implications for the economy) by the volume of packages they deliver.
Plus they see all the houses that are suddenly empty with weed infested yards.
Not to mention the garages filled with junk that was bought with the home ATM.
“Makes me wonder if those guys have a better pulse on the economy than most, as they drive several neighborhoods every day and they have some idea of consumer confidence (and the implications for the economy) by the volume of packages they deliver.”
Good point.
Funny how the Polar Bears and Bear Stearns are going extinct at around the same time?
Washington Post - Beach Real Estate Caught in an Undertow
http://www.washingtonpost.com/wp-dyn/content/article/2007/08/05/AR2007080501221.html
Look at this dog’s breakfast of inducements - anything to keep from having to lower the price, I guess:
Susan Gordon, a former Bethesda resident in the market for a condominium or townhouse in Rehoboth ….. [is] considering a property along the canal, Blue Point Villas, where the developer is offering to pay her mortgage for six months, plus six years (!!!) of condo association fees, $5,000 toward closing and a 15 percent “developer closeout” discount on the sale price.
If you were a sane buyer, and you looked at the list of what the developer was willing to do to unload the place, wouldn’t it suggest to you that buying was not a good idea? Or maybe it’s just me.
Elvis, if you are out there, please log in…
Hedgefunds let me be
Your loanin’ teddy Bear Stearns
Put a chain $ around my neck
And lead me to BK
Oh let me be
Your teddy Bear Stearns…
http://creditboards.com/forums/index.php?showtopic=275940
the story of the day
Unbelievable.
“My parents have lived at the same house for close to 18 years. They owe almost more than what the house is worth (10-30K more than worth) due to refinancing. It’s now time for them to retire and they can’t afford to live here anymore and they want to buy a house out west and retire there. Their home has been for sale for 9 months now and they have not gotten 1 offer. The price has been lowered 50K and still no offers.”
WTF? Retire? Sounds like they’ve been retired for the past 18 years buddy!
Gosh I’ve been in my house 21 years and it’s paid for. At 18 years their’s should have been 1/3-1/2 paid for even if they got a 30 year loan. Those home equity loans are the downfall of most people’s financial problems.
I don’t feel sorry for anyone who does this just to buy things. I have a sister who’s been in her house 31 years and still owes 8 years on the mortgage. They don’t understand how we can retire in our mid-late 50’s and they can’t, even though they make a little more than we do. They’ve never gotten it and they never will. Plus we didn’t do without, we still ate out, traveled, etc. Sometimes you have to sacrifice a little to get ahead.
The poster lists all his credit cards (including Gap and Chevron), has a picture of his AMEX card, and lists his FICO scores and the car he drives (it’s a lease). He takes empty materialism to a new level.
That’s so odd. I always feel slightly embarrassed on the occasion that I actually need to pull out my credit card. I certainly would never go around posting that I had over ten of them.
some things cannot be explained… one such is a bondage fetish.
It’s encouraged there for the people on the credit forum. since that place is all about getting the most amount of credit you can so that when you use a portion of it, it looks small in the ratio for your FICO.
From Bloomberg, prime mortgage defaults to soar over the next year:
http://www.bloomberg.com/apps/news?pid=20601087&sid=ahUV75mW4Mjs&refer=home
Intersting quote: ‘The rate for prime “jumbo” mortgages will rise to 0.53 percent, from 0.37 percent in May, and 0.22 percent a year earlier, Youngblood said. For subprime mortgages, the rate will rise to 14.6 percent in May 2008, the highest ever, from a 10- year high of 12.4 percent and 6.72 percent a year earlier, he said.”
I assume that for Jumbos, they mean the net rate over a similar conforming mortgage. But could the subprime rate quoted be correct, and mean what I think it does?
Not sure that article talks about interest rate? I think that is the “default” rate. Meaning that people behind more then 90 days on their prime loans will raise to almost 1 in a hundred loans while for subprime it will be almost 1.5 loan out of 10 (!).
Here’s a quote from Muolo:
“I’ll put it bluntly: if you operate a non-depository mortgage firm (lender or servicer) and don’t have a deep-pocketed parent or hedge fund as a sugar daddy you’re likely to be out of business by year-end, probably sooner. In the 20-plus years that I’ve been covering residential finance I haven’t seen a financial meltdown this swift since the S&L crisis of the mid-to-late 1980s.”
http://www.brokeruniverse.com/hearing/
Very OT but I thought the cold war was dead.
If there is an escalation here what effects could this have on the markets?
Russia Starts Production of Ballistic Missile to Counter U.S.
“Aug. 6 (Bloomberg) — Russia will start producing an intercontinental ballistic missile for its new generation of nuclear submarines as it moves to counter a proposed U.S. missile defense system in eastern Europe.”
http://tinyurl.com/2kdnxc
I posted this earlier but was wondering if anyone had any comments? Or Is there nothing too worry about here?
Trust me…there’s nothing to worry about!!!!
I concur.
With a 20billion arms package for Saudi Arabia, to counter Iran, it’s all contained.
We are at war with Eastasia. We have always been at war with Eastasia.
Chili,
so we’ve lost 190,000 arms in Iraq that probably went to the insurgents. Are we doing this on purpose, so we can keep the war going? WTF??
No problem dude, we the tax payers are paying for these guns so they can kill are soldiers.
The news release has all the typical earmarks of fear-mongering. Same old same old.
The growing uncertainty in foreign relations should affect the price of all assets. One of the reasons for all asset multiples rising during the 1990s was the increasing certainty and confidence about the future after the defeat of communism. This was magnified even further after the easy victory of the Gulf War.
Now, we have hostile nations rising in power. Old emnities returning, plus a serious threat to the homeland in the form of terrorism. Yet, market valuations completely fail to reflect any of this. Certainly, there is still little political risk priced into the US stock and bond markets, far less the overseas stock markets. We’ll see what happens to spreads and multiples when the credit crunch causes a default or two in the Latin America or SE Asia. Maybe China will overreact to a consumer-led boycott of its products. Political risk is far higher than at any time since 1990 at least and the markets show no sign of recognizing it.
i wouldn’t worry over it nor do i think the markets pay much attention.. A world at war is the natural state of affairs.
Good observation. And what do I see? insiders are starting to buy stocks. BAC, NYB - both are banks, for goodness sakes!
Insider transactions
BAC
insider
Purchases 11,000
Sales 258,957
Net sales 247,957
institutional Net Shares Purchased (Sold) (4,823,120)
NYB
Purchases 43,500
Institutional Net Shares Purchased (Sold) (4,823,120)
MY bad!
BAC institutional sales Net Shares Purchased (Sold) (30,010,200)
If you wish to buy some quantity Goldman has a chunk for sale.
NYB net insider purchases since July 30, 2007: 100,000 shares. Check again.
http://www.secform4.com/insider-trading/910073.htm
Correction: That’s additional shares. Additional shares bought by insiders since January 1 2007 of NYB: 170,000
Sure if you wish to call all purchases at $0.00/share
LOL
Submarines- Nothing to worry about. The US Navy can still sweep the seas clean.
ex-submariner
Submarines- Nothing to worry about. The US Navy can still sweep the seas clean.
ex-submariner
(Sorry for the double post, I meant to post here)
With the deterioration of sub-prime and alt-a lending markets, the rating agencies have taken heat for giving near-junk mortgage-linked securities (CDOs, etc.) “AA” and “AAA” ratings. We’ve learned that one reason for this miss-labeling is the absence (denial?) of the posibility of falling house prices (negative “HPA” [House Price Appeciation]) in their credit rating models:
CFA SOCIETY OF CHICAGO SPEECH
June 28, 2007
Absence of Fear, by Robert L. Rodriguez,CFA
http://www.fpafunds.com/news_070703_absense_of_fear.asp
“We were on the March 22 call with Fitch regarding the sub-prime securitization market’s difficulties. In their talk, they were highly confident regarding their models and their ratings. My associate asked several questions. ‘What are the key drivers of your rating model?’ They responded, FICO scores and home price appreciation (HPA) of low single digit (LSD) or mid single digit (MSD), as HPA has been for the past 50 years. My associate then asked, ‘What if HPA was flat for an extended period of time?’ They responded that their model would start to break down. He then asked, ‘What if HPA were to decline 1% to 2% for an extended period of time?’ They responded that their models would break down completely. He then asked, ‘With 2% depreciation, how far up the rating’s scale would it harm?’ They responded that it might go as high as the AA or AAA tranches.”
However, we have no way of knowing how accurate this conversation was…how much was the denial of the possibility of declining house prices a factor in miss-rating these mortgage based investments?
Well, if we set the way-back machine to early 2005, we can get the story right from the horse’s mouth:
Fitch: Performance of SF CDOs Inextricably Linked to U.S. Subprime RMBS
Business Wire, April 18, 2005
http://tinyurl.com/368deq
“While consensus among SF CDO investors is that U.S. RMBS remains one of the safest collateral asset classes, rising interest rates coupled with a potential slowdown in home price appreciation could put stress on leveraged subprime borrowers.”
“Fitch’s approach to rating subprime RMBS incorporates multiple stress scenarios that simultaneously include reduced home price appreciation and rising interest rates.”
Possible ’stress’: SLOWDOWN IN HOME PRICE APPRECIATION
Stress scenario: REDUCED HOME PRICE APPRECIATION
Ummmm, guys, I don’t think that the phrase “stress test” means what you think it means. Are you saying that you (the a financial rating service) never thought that declining house prices was even a POSSIBILITY?
I was once told that the mortgage industry business model was to loan people more than they could afford, have them bleed and pay a pound of flesh for a few years while being hit with late fees, and then foreclose and resell for a profit based on rising home values.
It’s not as if home values haven’t fallen before. The most recent bust was 20 years ago.
That model would break down due to the rising home values. Any potenial foreclosee would be able to sell his appreciated home and pay off the note.
I think they just want the interest and fees. Foreclosure costs waaayyyy too much.
Paul
Yep, that’s what they were saying. After all, everyone knows that real estate always goes up!
Few expect home prices to rise soon
http://biz.yahoo.com/rb/070806/usa_economy_housing.html?.v=1
And so that is were the consumer confidence numbers come from?
Hey everyone - long time reader, seldom poster.
I was perusing ziprealty over the weekend for San Diego and Temecula and Murrieta, California areas for the first time in months. I was shocked to see how much things have changed in Temecula and Murietta in 7-8 months time. It is starting to come down hard over there it seems. All those suicide loans seem to be resetting and people are trying to get the heck out of dodge if they haven’t already foreclosed.
Anyways, even though it seems to no being happening as bad yet in Northern San Diego County yet, I found this little gem and I wanted to get everyone’s take on it.
MLS #076060080
3161 Sycamore Crest Place
Escondido, CA 92025
$450k
3,300+ sq ft 4 bedroom 4 bath built in 2004
21,000+ sq ft lot
outskirts of Escondido - about 5 minutes from Wild Animal Park.
ziprealty has nine pictures of the place.
I like that it is located in a more central part of North county - its not in Timbuktu like Murietta and Temecula is for people driving to San Diego county for work. It is basically 30-35 miles away from downtown San Diego or La Jolla. And less to Carlsbad and Oceanside.
My first impression is it a misprint? Secondly, what is wrong with the place? Even though I am a firm believer in this correction causing lots more pain and price adjustments, the price does seem to about $150k to $200k lower than what the current comps are in the area. Or, does the homeowner see the writing on the wall and needs to get out before its too late?
Any opinions? Does this seem to be a pretty good deal? I welcome any input.
I’m assuming you saw that the property is offered as a short sale.
Here’s a little information for you that I got from a title company’s web site
The house was last sold to Gonzalo and Belem Vasquez on 2/3/05 for $735,000 using %100 financing. The prior sale was for $546,000 on 2/6/04. Looks to me like these transactions were merely more evidence of the ponzi scheme that we like to refer to as the housing bubble.
I live (and rent) in the OC and I would find the price attractive if it was $300k or less. This house is nothing special and my guess is it would rent for less than $2,500 mo.
30-35 miles of the 15 can easily equate to hours (plural) of driving in rush hour. The 78 (to Oceanside or to get to the 5 and down to La Jolla) is almost as bad. Also, Escondito gets very, very hot–temp-wise and has many other negatives.
If you are going to need to commute, I wouldn’t go any further north than Penasquitos. Even that is too far out for me, and I work from home!
I like your guys opionion.. I sold 1629 collingwood 92109.. what do you think it’s worth today.. how can this guy make it?
Looks like the wizards at Wall Street pointed their wands at the stock market and said: Reparo!
–
August 06, 2007; 11:05 PST
Breaking News — Former Fed Pres Wm Ford Blames Fed Policy for the Mortgage Mess
William Ford, the former Atlanta Fed President, is on Bloomberg TV right now. He blames the 1% rate policy for the current woes. On Saturday, Former Fed Gov Gramlich, who voted for rate cuts to 1%, also indirectly admitted that the 1% rate was responsible for the sub-prime fiasco. He said” “We didn’t know” that the policy would lead to the abuses.
Jas
This is from Saturday from one of the comment threads. Based on this info, and it makes sense, what as an individual do about it.
Comment by KIA
2007-08-04 12:59:37
Wall Street is only just now realizing the dilemma they are in. Each institution needs to call the margins they hold and exercise their rights so they can restore their own asset balance and avoid margin calls on themselves. That doesn’t sound too clear, so lemme put it this way: Remember how some folks have been complaining about the fractional reserve lending system? Well, the big houses and brokerages didn’t cough up 30% + returns over the last five years by engaging in normal brokerage activities. They all leveraged themselves out 12x to 20x or more in imitation of what the banks have been doing for decades.
All of that leverage is unwinding, and the more firms that get called, the more firms have to make their own calls. When the calls go out, and the assets don’t support the calls, then they need to dig into their own pockets for the cash. Everything is selling off worldwide as the big houses attempt to recapitalize and avoid the brutal losses being inflicted by calls in a down market. Carry trades are going, stocks are going, bonds, everything. They won’t actually succeed in their efforts of course, because the leverage is too high. What they may think of doing is cherry-picking those assets which might survive. If they’re really, really smart, they’ll do the reverse of a merger: they’ll create new holding entities for the assets which are worthwhile, transfer said assets for cash, use the cash to stall for just over 90 days to avoid the bankruptcy preference period, then you’ll see a huge wave of bankruptcies. Meanwhile, the execs will have exercised all their options (again, before the 90 days) and jumped ship to the new holding companies or simply left town for a while. Probably the latter, because who wants to hang around and explain all of this to frowning investigators?
Meltdown began July 24 (as predicted) therefore new prediction: Total carnage by the last week of October or the first week in November. I’ll call it election week just to be sure. This time, barring unforseen intervention, it will be financial blood in the streets.
Comment by Foreclosure Central
2007-08-04 15:31:05
KIA excellent post. I want to expand on your post.
Wall street is currently experiencing a flurry of margin calls on a good share of the derivatives that they themselves created. I believe the total amont is in the neighborhood of 40 Trillion dollars or 13X the GDP of the US. How in Gods name are they going to cover these margin calls is anyones guess. My guess is the majority of the companies facing margin calls are going to fail and soon (this quarter). Short term, I don’t see how a lowering of the FED Funds Rate will accomplish more than lip service to the banking sector and potentially set the dollar into a free fall. Remember, we are running record defecits with the rest of the world and need to finance our treasury debt as we are unable to pay for guns and butter on our own. Why would a foreigner want to earn even less interest on his savings if the Fed lowers rates? If the Fed lowers, we are apt to see lower short term rates and even higher long term rates with the much weaker dollar. That would add to the misery of the housing market but may in fact help the banks in the long run.
In a perverse way if the long rate is 1-2% higher or more than the short rate, banks will borrow money from you (CD’s), eachother (fed funds rate) or from the Fed (discount rate) and invest the proceeds into ten year gorernment bonds. If you have ever purchased government bonds, you should know that you can actually leverage your position up to 9 times. Over time this would once again reliquify the banking system. This is what happened during the early to mid 1990’s The FED will rescue the banks as they are owned by the biggest of them. I don’t see them rescuing the dollar (Bernanke said that’s the Treasury’s problem) or the fools who bought into the overpriced real-estate market. Once again there are some banks that are Too Big to Fail. They own stock in the Federal Reserve. Everybody else is running for the lifeboats.
I predict the bottom of the current sell off on Wall Street will occur in mid-October 2007. That is when the 3rd Quater earnings results will finally show how widespread the impact the credit crunch is having. Their can’t be too many businesses that prosper in this kind of environment. I expect most businesses to stay mum about what kind of quarter they are having unless they are experiencing margin calls that can’t be met and are forced to come clean. The rest of Wall Street will wait for the October Surprise. Auto sales should continue to rapidly fall as HELOC lending is all but dried up. Auto and housing related employment should now go into a free fall. Those numbers will start to show up on the weekly unemployment claims by mid August. Other business will soon follow. We are headed for hard times.
This whole overleveraged economy will bottom in time. My best guess is 10 years or so at the earliest. Our standard of living is going to suffer. Millions of families who thought they were middleclass are going to be utterly devestated by their past behavior. Everyone will be touched by this, and a lucky few who planned for this may even prosper from it.
Your comments?
Does anyone have any advice, because understanding what might happen is one thing, but understanding what your options are and the best way to survive the possible given condition is another. Thanks
I’ll explain my strategy and reasoning. Feel free to pick and choose which parts you like.
The credit system is broken and many elements are completely shattered. This is the pump the Fed has used to inflate our money supply and I believe that this will cause the money supply to shrink (deflation) in the near future and there is very little the Fed can do to stop it. Deflation is already showing up in the areas where the damage is most advanced - housing with the busted lenders and risky bonds due to the collapse of CDOs and hedge funds. In a deflationary environment, cash is king but should be kept ultra safe since default is the biggest risk. I have most of my funds either shorting stocks or in a T-bill money market fund.
Now, the one thing the Fed can do to reignite inflation, is print a lot of paper money. That should show up very rapidly in rising bank deposits and accelerating consumer spending. If that starts to happen for no apparent reason, I will get a big chunk of my portfolio into other currencies (probably UK or Euro govt bonds) and commodities (especially gold). But unless there is massive money printing, commodities especially should be a terrible investment as falling demand pushes prices down.
Thank you very much.
I think the Realtors are doing their clients and the buyers a dis-service with their inflated ideas.
A couple I know sold their home, banked the money and are renting.
My friend was out on Sunday and saw an open house sign so she decided to stop in .
The house didn’t have the features she wanted. The realtor said she thought she had just the house they were looking for and wanted my friends tel no to schedule an appointment.
My friend said no thank you, she only stopped in because she in the neighborhood and frankly she and he husband don’t plan to buy another home until the prices come down to 2.5 x medium income.
The realtor said, ” Well that is NOT going to happen , sellers are holding firm. I have a few sellers that have “increased” their asking price to make buyers realize if they wait they will pay more”
My friend said, ” We will be paying cash when we buy again. However, the interest we are earning on the money from the sale of our former home paid for a great vacation to Europe this summer. If prices don’t come down to a reasonable level we have no incentive to ever buy again”
She said the Realtors jaw dropped.
The realtor said, ” Well that is NOT going to happen , sellers are holding firm.
They’ll only hold firm until their money runs out.
Maybe a bit O.T., but this board has in the past talked about multinational companies whisking mfg jobs away from U.S. workers to other lands and what the effect might be on our economy and health.
Guess what - it appears Colgate toothpaste is not made in the U.S. anymore.
I wrote Colgate-Palmolive to see where they make their toothpaste these days. I asked if it was made in the U.S., where I trust the purity of the water that goes into the toothpaste. (I would not trust their toothpaste if, as I suspect, it is made in China, where the water is not exactly pure.)
In reply to my letter, I received a letter stating the following…
“Some product is manufactured outside the U.S. and is not approved by the U.S. Company for sale in this country, while some product is specifically made for sale in this country even though it may be manufactured somewhere else.
To determine if a product made my Colgate-Palmolive is intended for sale here in the U.S., locate the company information on the package. If it states `Distributed by Colgate-Palmolive Company New York, NY 10022′ it is made for sale here.”
What I get from this gooble-de-gook is that while the toothpaste may be distributed by a U.S. company, it is no longer MADE by a U.S. company. So I wrote this 2nd letter to Colgate-Palmolive.
Dear Colgate-Palmolive,
I received the the enclosed letter from you in regard to my letter asking where Colgate toothpaste is manufactured these days.
My concern was that you are manufacturing Colgate toothpaste outside of the U.S., in places where the purity of the water cannot be guaranteed.
In my opinion, the enclosed letter was not at all clearly written.
It did not say in plain English whether or not Colgate toothpaste in manufactured in the U.S.
However, as far as I could tell, the letter writer was saying that Colgate toothpaste is not manufactured in the U.S., which was what I was trying to determine.
Thank you for this information, which I will now dispense to all my friends and family and to several blogs to which I contribute.
I will also urge everyone I know to check the labels of products and to write letters such as mine to determine where products are being manufactured.
I am also enclosing the coupons you sent me, as I will not be needing any more products from Colgate-Palmolive.
Today, I contacted Tom’s of Maine to find out where they manufacture *their* toothpaste, and I’ll let you know what I find out.
(Note: I have NO financial interest in either Colgate-Palmolive or Tom’s of Maine.)
Sally,
I like this letter and your approach. Colgate was off my list because of the anti-freeze scare, but I hadn’t thought of water purity. Since Colgate is now permanently off-limits, what else do distribute that I buy that I should now avoid. I’ll have to check their web site.Clearly, they’re in the “distribution” biz, not the manufacturing biz. If Mattel was supposed to have the best quality control in China, and lead paint for tots is the result, I expect everybody is getting suckered by the Chinese.
I am sending a version of your letter to Dwight and Church, since I like Arm & Hammer…will let you know.
Also, Sally, I think I will send a follow-up letter to Colgate, saying I saw your info posted here…who signed your letter, so I can be sure they catch the blowback.
You can address the letter to Lamon Allen. (And I apologize to all for the multiple posts…I must learn more patience.)
P.S. Sally O’Maley is my “nom de plume”.
If you’re really worried about the purity of your toothpast, brush with straight baking soda.
Thanks!
I tried to post this comment before, but it didn’t “take”, so sorry if this comment becomes a repeat. This time, I’ll copy my post before pushing the “add comment” button.
Contributors to this blog have written before concerning the effect of whisking U.S. mfg jobs outside the country. I had written Colgate-Palmolive to see if their toothpaste is still manufactured in the U.S. with U.S. water, whose purity I trust more than the water in other locales.
Here is the gooble-de-gook I received in a reply letter from C-P.
“Some product is manufactured outside the U.S. and is not approved by the U.S. Company for sale in this country, while some product is specifically made for sale in this country even though it may be manufactured somewhere else.
To determine if a product made my Colgate-Palmolive is intended for sale here in the U.S., locate the company information on the package.
If it states `Distributed by Colgate-Palmolive Company New York, NY 10022′ it is made for sale here.”
What I get from this gooble-de-gook is that while the toothpaste may be distributed by a U.S. company, it is no longer MADE by a U.S. company.
I am contacting Tom’s of Maine to find out where they manufacture their toothpaste, and I’ll let you know what I find out.
(Note: I have NO financial interest in either Colgate-Palmolive or Tom’s of Maine.)
And here is the letter I wrote in return to C-P. (I’ll be writing more such letters!)
Dear Colgate-Palmolive,
I received the the enclosed letter from you in regard to my letter asking where Colgate toothpaste is manufactured these days.
My concern was that you are manufacturing Colgate toothpaste outside of the U.S., in places where the purity of the water cannot be guaranteed.
In my opinion, the enclosed letter was not at all clearly written.
It did not say in plain English whether or not Colgate toothpaste in manufactured in the U.S.
However, as far as I could tell, the letter writer was saying that Colgate toothpaste is not manufactured in the U.S., which was what I was trying to determine.
Thank you for this information, which I will now dispense to all my friends and family and to several blogs to which I contribute.
I will also urge everyone I know to check the labels of products and to write letters such as mine to determine where products are being manufactured.
I am also enclosing the coupons you sent me, as I will not be needing any products from Colgate-Palmolive.
Thank you.
Are we getting close to the point when Wall Street with the help of Congressional allies hands the tab for the mortgage meltdown over to the U.S. taxpayer, with a replay of the S&L bailout (but this time engineered by Fan and Fred)?
P.S. Scroll down the FT’s article to see an interesting graph. Not sure exactly what it means, but it sure looks like a depiction of a crash in progress.
US stocks rebound on credit hopes
By David Wighton and Anuj Gangahar in New York and David Oakley and Gillian Tett in London
Published: August 6 2007 21:58 | Last updated: August 6 2007 21:58
US stocks rebounded on Monday as financial shares gained ground on hopes that Fannie Mae and Freddie Mac, the giant government-sponsored mortgage companies, would help stabilise credit markets. After falling 2.7 per cent on Friday, the S&P 500 Index rose 2.4 per cent before Tuesday’s meeting of Federal Reserve policymakers, the first since the current round of market turbulence began.
Fannie and Freddie gained 10.4 per cent and 7.7 per cent, respectively, as investors bet that their funding advantages would help them profit from the current turmoil. Because of their links to the government, Fannie and Freddie are able to raise money more cheaply than other companies that buy mortgages, either to hold as investment or to package as securities for investors. Investors were also reacting to speculation that the two companies would be given greater opportunity to buy mortgages by their regulator, the Office of Federal Housing Enterprise Oversight.
The rumour that the caps on their holdings could be lifted were fuelled partly by comments made by Mike Perry, chief executive of Indymac, a large home lender, about the willingness of lawmakers and Fannie and Freddie to help the lending industry. He quoted Fannie Mae’s chairman as saying that it was “prepared to step up and help the industry”.
http://www.ft.com/cms/s/450538ac-445e-11dc-90ca-0000779fd2ac.html
An interesting contrast to Freddie’s CEO, who basically said the didn’t want any more subprime exposure. Interestingly, Fannie hasn’t even filed their 2006 Annual Report yet, so they don’t even know how much capital they have.
If the GSE rumors were the main mover behind stocks today then the more gullible equity markets were the only ones buying into it.
Check the subprime indicies. The ABX-HE-BBB- 07-1 fell to a new all-time low today at 35.14 before a small uptick to close at 35.67.
Junk bonds showed us the same picture. HYG was down $0.21 (falling price = rising interest rate), while the Bloomberg HY Index showed the cost of borrowing up 11 basis points (0.11%). I suppose this is improvement in that junk bonds are bleeding to death a bit slower than last week. But it still got tougher and more expensive for weak borrowers today.
Stocks today looked like a total headfake. Advancers barely outnumbered decliners: 1779 up to 1558 down on the NYSE. On the Nasdaq, there were more stocks down than up: 1614 to 1450. An even greater divergence was seen in the new 52-week highs vs lows. NYSE had 38 new highs and 638 new lows. Almost 20% of the stocks listed on the exchange made a new low today. Nasdaq was similar with 68 new highs and 538 new lows.
Tremendous technical weakness on a big index up day.
“Check the subprime indicies. The ABX-HE-BBB- 07-1 fell to a new all-time low today at 35.14 before a small uptick to close at 35.67.”
That’s 65% or so off from the level of less than a year back. Good thing houses and stocks can’t fall in value by 65%, or I would be worried…
“Allowing Washington-based Fannie Mae and smaller rival Freddie Mac to buy more loans would help ease a slump in demand for mortgages. Lenders including Wells Fargo & Co. and IndyMac Bancorp Inc. last week cut back on making some loans as other investors recoiled. IndyMac Chief Executive Officer Michael Perry said last week he is asking the companies to help.
“There is significant pressure coming from lenders to the regulators asking for steps like that,” said Howard Glaser, a mortgage-industry consultant and lobbyist based in Washington, who’s a . “Lenders themselves are requesting Ofheo allow Fannie Mae and Freddie Mac to step in.”
Bloomberg Aug 6
http://tinyurl.com/2ghlfv
Trying to manipulate the credit market is probably the most effective way to slow the bubble’s deflation.
Fannie Mae is a good candidate for the job, as it is easy for them to hide financial mischief behind the black hole of a missing balance sheet.
Cramer is such an idiot. This housing sector is going through a MAJOR market correction and he doesn’t like it. If he just step back and look at the bigger picture, remember what he learned in business school, research back at US economic history, this is normal.
What does anyone think about the opinions of Mike Witney? I have seen is articles on various websites.