A Guaranteed Cash Machine
The Summit Daily News reports from Colorado. “The latest round of property valuations by the Summit County assessors office has spurred a wave of appeals that’s running 170 percent ahead of the pace from two years ago. Summit County commissioners have been fielding calls from property owners who are wondering how their property could have appreciated so greatly during a recession. Commissioner French said…the gripes are natural during a tough economy — especially when people get a chance to blame the assessor, county government or the State Legislature.”
“But he also said that nearly everyone who bought real estate in Summit County did so with the expectation that its value would increase. ‘It was guaranteed cash machine … Now that it’s turned a bit, people are bitching. They just don’t want to pay more money. It’s not because they’re mean. It’s so complicated they just don’t understand,’ he said.”
The Coloradoan. “Norlarco Credit Union’s 2007 collapse was caused by management that routinely ignored sound lending practices, a board that failed to properly oversee management, and ineffective state and federal regulatory systems, a new federal report said. The report indicates Norlarco’s problems date to 2001, when it gambled on a Florida residential construction loan program that quickly ballooned to more than $30 million per month and forced further missteps to cover its potential losses.”
“By the time federal regulators stepped in to shut down the loan program, 97 percent of Norlarco’s construction loans were in Florida and only 1 percent in Colorado. And of 350 Florida loans reviewed by examiners, almost all were in the risky subprime category that required no documentation of income.”
“Norlarco’s gamble to concentrate its residential construction loans in Florida, 2,000 miles from its home base, paid off initially, netting up to a million dollars a year. Then the bottom fell out of the overvalued Florida housing market, leaving Norlarco with an insurmountable pile of bad home loans that should never have been approved in the first place, the report said.”
“‘For years and years and years, the housing gains were unprecedented,’ Inspector General William DeSarno said in a phone interview from his Washington, D.C., office. ‘If that had continued, and that’s a big if, they’d still be in business today and showing great returns. I don’t know how many people expected the housing market to get down as much as it did; that’s why it’s dangerous when dealing with a market 1,000 miles away. That was the main cause.’”
“In 2003, Norlarco agreed to fund up to $30 million per month in construction loans through First American to compensate for flat-loan demand for cars and home equity lines of credit and take advantage of the real estate boom, the report said.”
From KSL Newswire in Utah. “Government efforts to breathe life into the housing industry have created some huge helps for certain home buyers. For example, how would you like $14,000 of free money to help you buy a new home? If you fit the right profile, it can be yours.”
“Matthew and Amanda Coons are closing on their new home — a 1,400 square foot condominium with two bedrooms, two baths and a den. ‘It’s great! It’s exciting,’ Amanda laughed. Matt added, ‘[We're] excited to get into something.’”
“For the two and a half years they’ve been married they’ve lived in an apartment, and would still if it weren’t for a pair of government incentives. ‘The $8,000 grant was something that pushed us toward that; the $6,000 really pushed us over the edge to do it now,’ Matt said.”
The East Valley Tribune in Arizona. “A new study by Arizona State University suggests the rate of decline in Valley home values may be slowing. The latest report released Monday shows a record 37 percent fall in the index from February 2008 to February 2009. But that is followed by lesser declines — an estimated 36 percent from March 2008 to March 2009 and an estimated 34 percent drop from April 2008 to April 2009.”
“‘In this market, this would be considered good news,’said Karl Guntermann, a real estate professor at at ASU.”
“The index has declined every month for two straight years, eclipsing the previous record of 17 consecutive months of year-over-year drops in the early 1990s. The median Phoenix-area home price in April was about $117,500, Guntermann calculates, which puts prices back to the level of November 1998.”
The Tucson Citizen from Arizona. “The end of the downturn in Tucson is near, and the local economy will see a turnaround in the third — or even second — quarter, a University of Arizona economist says. Marshall Vest said a collection of figures, facts, trends, hints and a touch of consumer mood led him to the conclusion.”
“He said…the inventory of vacant houses still looms large, especially in a community where the economy was driven in large part by growth and the housing industry. He’s not alone in worrying about empty boxes cooling the recovery here.’
“‘You get an $8,000 credit’ for first-time buyers, Tucson real estate consultant and analyst John Strobeck also stressed. ‘You can buy it (a home) for less than two years ago, and for 4.5 percent interest. Everybody ought to be out there buying houses. The problem is, people aren’t economically set to buy houses.’”
“Vest said he is encouraged that investors are buying homes again, ‘but we actually need people to live in those houses.’”
From KTAR in Arizona. “With lower housing prices in the Valley, home buyers are finding lots of competition, with some properties drawing multiple bids. Persistence paid off for Mary as she helped her daughter look for a home. First, the daughter got pre-approved for a $100,000 loan, then the family went to work. ‘We used the internet a lot and used the multiple listing services. And several of those have little flags that will flash up to let you know that things are new,’ said Mary.”
“Her realtor checked out 30 homes — 20 already had been sold, she and her daughter looked at the other 10. They put bids in on two of the homes, but someone else put in a better offer. Then… the third time was a charm. ‘It was a new listing,’ said Mary. ‘We hurried to get there and put our bid in right away, and they were willing to work with us.’”
“Mary’s daughter paid $65,000 for a three-bedroom, two-bath home in north Phoenix which was in foreclosure. The same home sold for $220,000 two years ago. During the house search, Mary said they rejected some properties. ‘Some of them were pretty bad. Some of them you just kind of got scared and said, ‘Oh, this is a huge commitment.’”
The ee. “Phoenix’s housing bust has turned into a quasi-boom, a sign that its market may have hit bottom and a sneak preview of what a national housing recovery could look like. More homes are selling than at any time since 2006. Prices are slowly stabilizing. Buyers are once again finding themselves in frantic bidding wars — only this time over foreclosed houses selling at deep discounts rather than ranch homes listing for vast sums.”
“Phoenix experienced one of the most dramatic real estate crashes in the nation. Median home prices for resold homes peaked at $268,000 in June 2006. Now the median price is $120,000. It is the biggest decline in the top 20 metropolitan areas tracked by the Standard & Poor’s/Case-Shiller home price index.”
“The collapse was devastating in a city that has long depended on housing to power its economy. In the last year, Phoenix lost 41,000 construction jobs and 136,000 overall, accounting for 7% of its workforce. Home building came to a halt. Many illegal immigrants, discouraged by the sudden lack of jobs, returned to Mexico. Realtors cut staff. Home prices dropped faster and faster each month for two years.”
“Mike Orr, a Phoenix real estate analyst, thinks the market already has hit bottom. Among the signs: As recently as January, a year’s worth of homes sat on the market; in March, that dropped to seven months’ worth of inventory. ‘It’s a dramatic change in just three months,’ he said. ‘I never imagined it’d get this crazy this quickly.’”
“Orr thinks mid- and high-priced properties still will lose value in the coming months. ‘I wouldn’t be investing in luxury right now,’ he said. ‘But if you’re looking for inexpensive homes, you’re going to have a fight on your hands.’”
“After four years of renting because they were priced out of the real estate market, Jamia Jenkins and Scott Renshaw concluded the time had arrived for them to buy. They saw that home prices had dropped so fast here — faster than in any other big city in the nation — that mortgage payments would be less than the $900 they paid in rent. The city is littered with foreclosed houses, so the couple figured they could easily snatch up something in the low $100,000s.”
“Three months later, they’re still looking. They have submitted 13 offers and been overbid each time. ‘It’s just pathetic,’ said Jenkins. ‘Investors are going out there and outbidding everyone.’”
“Jenkins, who has looked at more than 80 houses, said she was being cautious not to get caught up in the frenzy. ‘It’s going to create the same damn situation we had before,’ she said. ‘You’re going to buy a house and it’s not going to be worth what you paid for it.’”
“Skeptics of the turnaround note that the competition for foreclosed homes may be artificial. They argue that the number of bank-owned properties has shrunk because some lenders held off on foreclosures early in the year as they waited for President Obama to unveil his plan to aid distressed homeowners.”
“Some warn that a potential flood of new bank-owned properties could drive down prices further.”
The Review Journal in Nevada. “News headlines scream almost daily about soaring foreclosures, that more than 1 million homes were lost to foreclosure in 2008 and the number is expected to top 1.2 million this year.”
“But the good news in Las Vegas is that bargain-hunting buyers are chomping through the foreclosure inventory at a faster pace than other parts of the nation. Clark County had 4,863 foreclosures for April, down 37.2 percent from 7,747 in March but up 154 percent from 1,911 in the same month a year ago, Foreclosures.com reported.”
“Banks have become more sophisticated and savvy with REO pricing, said housing analyst Larry Murphy of Las Vegas-based SalesTraq. They’ll list a foreclosure at below-market value to create competitive bidding between interested parties, bringing in multiple offers and getting a better price in the final analysis, Murphy said.”
“Banks need cash and their bulging portfolios of ‘hidden’ foreclosure inventory are one way to help them get it, said Alexis McGee, president of Foreclosures.com investment service. The ‘phantom’ inventory is lender-repossessed properties that are not shown for sale on the Multiple Listing Service. Only about 30 percent of REOs are listed on the MLS, McGee said.”
“‘This is a staggering low number,’ she said. ‘That leaves 70 percent of lender-owned REOs that no one knows about potentially available for sale.’”
‘Only about 30 percent of REOs are listed on the MLS, McGee said. ‘This is a staggering low number,’ she said. ‘That leaves 70 percent of lender-owned REOs that no one knows about potentially available for sale.’
Yeah, this is really what we need at a time like this. Massive deception and governments ‘pushing’ people ‘over the edge.’ I don’t have time to go into it, but there are some big games being played in the foreclosure process right now.
IMO, if these people in Washington were honest about the housing bubble, they would come out and say, ‘look, we’ve just been through something that has never happened. So everybody just be careful and mindful of that. Because in light of the biggest mania in history, anything could happen.’
Anyway, I’m headed into internet no-mans land today. Please be patient about the moderation, etc, and I’ll check in when I can.
Seems like the banks are holding back reo’s so they can get better prices as they trickle out homes.I wonder how long that can last.The carrying costs must be a small fortune.
Anyone had any luck buying a short sale.seems like most of the listings are short sales thses days.
Believe me, they aren’t holding them back. They are just trying to fool people about how many are out there. Plus, there is yet another ’shadow’ inventory that few outside the biz know about. That’s the huge amount of properties that should be REOs, but the lenders keep postponing the trustee sales. I’m talking a year and more in many cases. It’s anybodys guess how large that number is, but it could double the current REO list.
This is so blatantly being done to fool consumers, there should be congressional investigations. But what does congress do? They are making it even more confusing.
Way to go DC! This has happy ending written all over it.
Ben,
Thanks for confirming what I have suspected all along. What I don’t understand about the situation is, what do the banks think they stand to gain by riding the falling knife all the way to the ground? Doesn’t it generally make more sense to sell inventory before the price hits the very bottom and stays there, than to lose as much money as possible? Can’t these banks learn anything from the lessons of Japan, where, so far as I am aware, real estate prices are still dropping twenty years after their property bubble popped? Or is it that the banks are assuming some kind of government bailout is going to make it all good again after they have lost as much money as possible on their shadow inventory?
I find their logic very confusing…
What I don’t understand about the situation is, what do the banks think they stand to gain by riding the falling knife all the way to the ground?
Isn’t the banks’ logic that if the shadow inventory was added to the already considerable on-the-radar inventory, the sheer size of the glut would force prices downward to “unacceptable” levels and perhaps stay there for many years? Seems they want to delay in hopes of a sea change of some sort, whether that’s a consumer epiphany, a government bailout, or a serious uptick in the economy. Then they’d presumably release additional inventory in a steady but non-threatening stream.
I’m not saying any of that will actually work, mind you, I’m just making a guess at the prevailing mindset.
The logic is, “We do anything today that allows us to hide the losses today. We can worry about the consequences tomorrow.”
Fraud, deception, corruption.
Big bank money and politicians can’t have enough. It’s what they live on from today til tomorrow.
Tomorrow, tomorrow, they love ya, tomorrow; you’re always a day away.
And, as I love to repeat, anything they do that slows down the apparent price decline keeps more people from walking away. So it’s not just about the properties that secure non-performing loans, it’s probably even more about properties that secure perfectly-performing loans…keep those debt-slaves performing! and let the amortization keep up with the depreciation.
good deduction, az lender. I didn’t even think of that aspect of the bankster psyche-out. Sure, there are those who wouldn’t walk away, thinking that maybe as raw as their deal is, if they let go and prices don’t decline, they’d be right back where they started. So they might as well say “priced-in”.
“Isn’t the banks’ logic that if the shadow inventory was added to the already considerable on-the-radar inventory, the sheer size of the glut would force prices downward to “unacceptable” levels and perhaps stay there for many years? Seems they want to delay in hopes of a sea change of some sort, whether that’s a consumer epiphany, a government bailout, or a serious uptick in the economy. Then they’d presumably release additional inventory in a steady but non-threatening stream.”
Your explanation only makes sense for a monopolist, a cartel, or an otherwise uncompetitive industry where a small number of firms with overwhelming market power (like what I often figuratively refer to as Megabank, Inc.) can coordinate their behavior. With a more competitive banking industry, the incentives facing individual firms would be to unload REO before everyone else exits the burning theater, which would work much better for bringing the housing crisis to a quick conclusion compared to having banks hide 70 pct or so of their inventories in the shadows.
PB:
It is a cartel, run by the federal government, which wields bailout money in one hand and Congressional investigations in the other.
+1, Big V.
It’s like a python that swallowed a pregnant pig and is only trying to digest the piglets. Eventually it’s going to have to poop out the whole thing.
It sounds like the snake may explode before it is finished the digestion process.
My brother in law is a realtor in upper Sacramento. He claims there is a lot of foreclosed property he knows of that is not being listed on purpose as the bank are trying to limit their losses by releasing only a few houses at a time to keep pricing up. And it’s working, they are getting multiple bids on the listed homes as new buyers and investors enter the market and think they are getting a rock bottom deal.
I’m betting one whole heck of a lot more than the 600-700k Realty Trac says it CAN’T account for.
Claims for state jobless benefits up 77.5% to date
By Joel Dresang of the Journal Sentinel
Through the first 20 weeks of 2009, Wisconsin received more new claims for unemployment insurance benefits than it received by week 36 last year.
“Nothing to see here, move along folks, the soup line forms on the left !”
http://www.jsonline.com/business/45488247.html
“the lenders keep postponing the trustee sales”
If you dismiss collusion, what is their incentive to do this? Is it possible that the servicer makes more money by postponing the trustee sale, or is it possible that the actual lender appears to not take the loss as long as they let it ride?
“This is so blatantly being done to fool consumers, there should be congressional investigations.”
Perhaps the newly proposed Obama consumer watchdog could tackle this mass REO scam. But frankly, I don’t see how it works without coordination from on high, or at least collusion among members of Megabank, Inc. Firms in a truly competitive banking industry would appear to have little incentive to hang on to falling knife REO inventory.
What an idea: Barney Frank, Chris Dodd,
and Angelo Mozillo could team up and form an REO “Truth Squad” that would get to the root causes of the whole thing. Then Turbo Tax Tim could give us a reassuring sermon about how the markets are just now turning around on all the good news.
It does seem quite likely that the foxes will end up guarding the hen house, no?
And despite being fleeced year in and year out, the sheeple still return the same Republicrat thieves and charlatans to office year after year. Simply amazing.
“What an idea: Barney Frank, Chris Dodd,
and Angelo Mozillo could team up and form an REO “Truth Squad” that would get to the root causes of the whole thing.”
“And despite being fleeced year in and year out, the sheeple still return the same Republicrat thieves and charlatans to office year after year. Simply amazing.”
“That’s the huge amount of properties that should be REOs, but the lenders keep postponing the trustee sales. ”
That is the component of shadow inventory that really pisses me off, and I believe is a huge fraud being perpetrated on the bondholders by the banks.
If the banks want to hold of on foreclosing properties where they actually OWN the lien, fine—they will lose more in the long-run, but I guess that is there business.
But most of the liens aren’t actually owned by the banks, they’re owned by the bondholders of the MBSes. So it is a clear lapse of fiduciary duty on the part of the MBS trustees and on the part of the banks as servicers for those pools.
They have a clear obligation to do what is in the best interests of the bondholders; and the best interest of the bondholders is to exercise the lien and liquidate the property as soon as possible. In a rapidly-declining market, the best financial move is not to wait to foreclose, and after foreclosing, not to hold the property on the books; both just amplify losses.
Note also that the government’s load-mod package is structured in such a way that it gives the banks a large conflict of interest.
As servicer, they are responsible for pushing the foreclosure process forward; but as servicer, they are being incented not to do so, in favor of trying to work out a loan modification—the government will pay the servicer (not the MBS pool) for successful loan mods, so that is where their bread is buttered. So their interests lie directly opposed to those of the MBS bondholders, in spite of their fiduciary duty.
Net result? The bondholder takes it in the shorts while banks delay, trying to line their own pockets.
Good point, Prime.
I can confirm BIG TIME. I have many cases where it has been months and months and the mortgage companies are refusing to file NODs.
The home i purchased was a short sale. It took about 6 weeks from the time the sellers accepted our offer to when the bank finally accepted it and we were able to move in.
It also took quite a bit of prodding of our real estate agents (who were fine — and much better than the ones we started with –long story there) to make sure they continued to prod the bank to complete the sale.
“Seems like the banks are holding back reo’s so they can get better prices as they trickle out homes.I wonder how long that can last.The carrying costs must be a small fortune.”
I made this point a couple days ago and got a very interesting response.
It was basically that the Banks were not eating these costs the Bond Holders were. That the Banks/Servicers were ignoring this portion of their responsibility or useing loop holes to avoid it. I have no idea how true this is, or if it is even possible.
If the individual who posted in regards to this can once again clarify their information and or opinion, it is quite interesting.
I did not write the original post, nor have I read it, but the banks often packaged the mortgages, sliced and/diced them, and sold interests therein as securities to investors. The extent that the banks retained an interest varies. Decisions are often made by trustees or servicers that often don’t have to act, or cannot act, until directed by a certain percentage of the investors. If they were credit enhanced, the credit enhancer usually steps into the investors shoes as far as direction. The interesting thing is that trustees or servicers often want indemnity before taking actions such as seeking remedies, for which investors dont want to contribute. If its a big enough pool, the costs of some investors indemnifying may be greater than the returns.
This is a good point. If it’s been securitized and sold, either to somebody who is now bankrupt, or a foreign owner, chances are probably quite good the foreclosure is just a pile of paperwork somewhere nobody knows what to do with.
I suppose the real loser is the Local, County & State Governments that do not get the Tax revenue(?).
Is it time to start buying Tax leins and wait to take quiet title. Depending on your State of of course.
Thanks, Ben.
I’d definitely be interested in hearing more about the “games being played” when you have more time. I don’t doubt its happening in a big way. There are perfectly nice homes - new construction even - in my area sitting vacant and not for sale.
Just as the lack of snow plowing highlighted the number of vacant homes this past winter, the foot-tall grass overrun with dandilion fields are illustrating which ones are vacant or in foreclosure right now. If the local government wants to raise money, it need only start enforcing its own ordinances.
I sat in a waiting room this AM while my car oil was being changed. A man also waiting was talking into his cell phone about he’ll be ruined if someone doesn’t pay him back. Then, on the television, some soap opera character was devistated he “didn’t get the loan” because of “the economy”. A soap opera! Ha!
What about the percentage of ‘investors’ that are out there buying these low-priced homes?
Aren’t the percentages THE SAME as during the height of the bubble?
SMF, I talked to a neighbor last week who bought in our new home community a little over a year ago (retirement community in NW Phoenix area). He said he has been trying to sell his house in central Phoenix area for about 14 months with no success. He added that his realtor has purchased 28 foreclosed homes recently. I don’t know how common this. I have heard that a lot of first time buyers are buying at prices below their monthly rent payments. I also saw a list on msn this morning that indicated that Phoenix is 4th in growth due to relocation from places like Cali. Of course, Tx and NC rounded out the top five.
Phoenix is #1 in the nation for kidnappings now. Drug dealers and human trafficers are doing it.
SMF,
Right, as we’d discussed earlier, there’s a consensus ‘these’ are pretty much the same people that brought us the original bubble so I guess we’ll have to call this the “Echo Bubble”.
Still, I don’t get why everyone’s wigging out about the banks sitting on these FC’s? If they did, homes would essentially be like kittens given away to “a good home”. Is that what everyone thinks is going to happen here?
If allowed to enter the distribution channel ‘en masse’ WHO would have pockets deep enough to absorb it? So… there’d be a few nickel/dime players that made out and the rest of it is now “officially” foreclosed on?
If the banks place all their homes on the market, their losses would become official.
SMF,
The losses are ‘there’ whether they realize them or not, right? Typically, I’m the kind of guy that would much rather take his @ss-whoppin’ and get it over with.
But I’m not running this show. I ‘get’ where Ben and others are coming from on this one, really I am. We’re the tax payers that bailed YOU out so quit doing sweetheart deals w/ your butt-buddies and open up your inventory! I get it.
At the same time though, the have a responsibility to preserve the value of their collateral. Not that it’s theirs, but preserve nonetheless.
As long as the house is not for sale, the loss is not official.
Say that the bank owns 10 similar homes, each with a $200K loan on it.
4 of those homes are placed for sale at $100K each. The bank then has a $400K loss.
But if all 10 are placed for sale, the loss grows to $1 Million. And with the excess inventory, the loss would most likely grow by a significant amount.
And by holding on, they can pray that the other homes that they hold will keep their value.
The big banks may be playing against each other. Seems the first to admit how bad the balance sheet really looks will topple. For example, DB is keen on “wealth management”. Who will put their wealth with DB (or the others) once they know how big the red figures are, and the leverage? Every public statement of Ackermann seemed like a half lie to assure everyone. Isn’t this a game of who’s left.
Wasn’t this the whole purpose of relaxing the FASB mark-to-market accounting rules?
It allows the banks to pretend that the values on the foreclosed assets are much higher than they are, until they finally let them go, which they will then have to do for years on end… vewwy, vewwy slowwwy.
Or in other words, it allows Big Finance to pretend it’s still solvent, when by all sane accounts, it no longer is. They’re just buying time, counting on Uncle Sam to help them over the rough spots for who knows how long.
I hear you Ben. You definitely need to be careful out there. The places we are looking at either have to be 2000 prices +3% inflation, $100 per sqft., or less. Slim pickings in the places we want to live.
But I am very concerned about interest rates. I think it is going to get ugly shortly.
“interest rates … going to get ugly shortly”
Hey, interest rates are ugly now! For those afraid to own Morgan Stanley bonds or to lend their money to trailer residents, the interest available is pitifully LOW. I’m talking from the savers’ point of view. I guess you mean rates will rise? Many at HBB would be quite happy about that. So long as rents and tax rates don’t rise at the same velocity.
What’s this I’m hearing about the “Build America Bonds”?
Like they are “taxable muni’s” or something? Sounds like dehydrated water.
“Build America Bonds”?
Sheesh…I just hope that old Joe isn’t printing those up in his mom’s basement in CA or FL.
FYI (old Joe was what my mom called the VERY REAL bogeyman who used to HANG on MY upstairs outside windowsill when I was 4 yrs old)
I hear you AZ. We get nothing for our savings, mainly because the banks are getting unlimited money for free. Why would they give me a decent rate?
But when interest rates rise, it will be even harder to get a loan, and I think it will add years to the wait for people wanting to buy a house. Sure it might also cause interest rates banks pay depositors to rise, but then inflation will be ugly so you still aren’t getting anywhere.
Frustrating.
AZ:
Think of the millions of CC that have adjustable rates….
Will this new law be able to stop the rate increase on the old balances, or will it be passed through because its tied to the prime rate, and not your credit score?
I’ve never seen THAT question asked.
Ditto. Rising interest rates would be the best thing possible for us. (1) we could actually get a return on our substantial savings; and (2) we have enough cash to purchase a house with cash, so higher mortgage rates knock out the competition.
Yep! That’s what we’re waiting/hoping for!
Please, please, please…let us have higher interest rates so we can fix this mess once and for all! I truly believe the ANSWER to the problems with our economy is higher rates.
The thing that’s really going to get really, really ugly is inflation. The Fed is running the printing presses like crazy, while embarking on the most insane spending and bailout schemes in history. This massive flood of Bernake Bucks, created out of thin air and back by nothing, zilch, nada, is going to create hyperinflation on a scale not witnessed since the Weimar Republic. Interest rates are eventually going to be jacked up into the stratosphere because no one is going to want to sell tangible assets, like their home, for increasingly worthless fiat currency.
Obama voters, was this the “change” you had in mind?
Hard to see hyperinflation if the Fed can’t find a way to push that rope. Credit = money. Less collateral = less lending. Damaged credit histories = less lending. Falling wages = less lending. Greater unemployment = less lending.
The Fed is pumping out money as best they can, but if credit is contracting that money evaporates. Even if they manage to inflate another bubble will that asset be widespread enough to lift all boats? Unlikely. If wages continue to decline, will home prices increase? Not likely.
I agree completely that Bernanke will do everything in his power to inflate away unpayable debts, but does he actually have enough power? Will he just start paying every US family a salary out of freshly printed dollars and promise to continue these payments indefinitely? That might be what it takes, but it is hard to see that action as politically viable.
I always suspected that banks/lenders are using this method of creating bidding frenzy, and now it’s confirmed.
It only means that the current new owners will be the knife catchers.
I am hoping that a disproportionate share of the new knifecatchers are the likes of investment banks like Deutsche Bank (reported in today’s news that they are snapping up residential foreclosures). The Schadenfreude from hearing that Deustsche Bank lost lots of money investing in foreclosure homes would warm my heart.
Wall Street Journal
* REAL ESTATE
* MAY 20, 2009
Investors Pounce on Distressed Homes
By MICHAEL CORKERY
The pace of housing sales has been rising in many markets this year, but it is only partly because families seeking affordable housing are returning to the market.
It also is because of investors like former Deutsche Bank managing director Matthew Cooleen, whose firm has spent $30 million buying pools of foreclosed houses from banks.
His newly formed Greenwich, Conn.-based firm, HudsonCross Financial, is betting it can make a profit reselling in beaten-down markets in states like Nevada, Arizona and Florida and in Southern California because it is paying so little for the homes.
It sounds from that article like former Megabank, Inc employees are funneling their pirate’s loot into foreclosure home investments. This could help explain why San Diego’s price level seems to have achieved a quasi-permanently low plateau just below $200/sq foot. This seems much too high to be supported by end-user demand in a bad recession where there are few new entrants to the housing market and even fewer who are both qualified to buy and interested in gambling with their household finances. I am glad that ueber-rich investors are willing to step in and do the housing market’s heavy lifting.
“quasi-permanently low plateau just below $200/sq foot. This seems much too high to be supported by end-user demand in a bad recession ”
Does seem high doesn’t it
To me, this doesn’t say DEUTSCHE BANK is buying the FCs. It says that one of their former employees is buying the FCs (probably largely buying them FROM deutsche bank). Could get burned, that’s for sure. I reacted to your post because my Florida Flippers of last fall bought REO from DB at below listing.
Sorry for the misinterpretation — I guess I need to consume more caffeine before posting.
“It also is because of investors like former Deutsche Bank managing director Matthew Cooleen, whose firm has spent $30 million buying pools of foreclosed houses from banks.”
How many defaulted loans in the exurbs of Phoenix were originated by Deutsche Bank? Based on the online recorded docs that I have perused, many.
Dragging it out will make sense until one bank caves and dumps everything on the market as fast as it can. Then it’ll be a rush to the exits.
The problem is that top economic policy makers have stated that supporting home prices is a policy objective. This is an open invitation for deep-pocketed specuvestors to attempt to cash in on officially-instituted, Fed-funded price support measures (such as pushing mortgage rates as low as possible).
Supporting home prices is indeed a policy objective. Here’s the latest proof:
http://www.whitehouse.gov/blog/Protecting-Homeowners-Protecting-the-Economy/
Methinks that bolstering troubled homeowners’ house prices by $6k isn’t going to help matters.
“…bolstering troubled homeowners’ house prices by $6k…”
Don’t confuse political window dressing with serious policy measures.
“It’s going to create the same damn situation we had before”
‘going to’?
I’m afraid it’s already here. Unlike most here, the only real objection I have to the way the banks are sitting on FC’s is that ( again ) they’re being allowed to have their cake and eat it too.
If they were actively working with existing FB’s ( not specuvestors, FB’s ) that really ‘did’ want to work things out, then you could say they were acting in the nation’s interest. But by refusing write-downs on one end and encouraging bidding wars on the other, what can we do other than hope they fall on their own sword?
I’ve been posting on the REO inventory for months, notably the higher end houses. I can conclude the banks are holding them with a wish that the market improves. It seems like the carrying costs are being absorbed by the taxpayers in the form of bailout cash.
The lower-end houses, especially in decent school districts, go fast.
The number of houses that are listed “pending with contingencies” which are short sales is high. But past a certain price range, the houses languish on the market with no escrow or close.
“It seems like the carrying costs are being absorbed by the taxpayers in the form of bailout cash.”
There’s the rub. The lending industry has enlisted the captured government to preemptively extract their inventory carrying costs from households who have no interest in real estate investing. The TARP must have been the biggest bank robbery in history, and it was an inside job.
Anecdotal evidence for ya:
Went looking at SFHs yesterday here in the Inland Empire (Redlands/Highland/Mentone area). Now I make a decent salary as an engineer, well above the median in CA. But I’m still a one income operation (single, no kids, mid 30s). So for me, an “affordable” house pencils out at about 175k-210k, and I’d really prefer to only spend about $125-$150k, using a 40-50% down payment and using a 15yr fixed mortgage for the balance.
I’m not real picky (except price/value), but I have been bubble sitting for about 4 years now.
Short version: Many SFH here are at 50% of peak prices…and are STILL too high. From what I looked at yesterday, lots of specuvestors bought low end REO in the Dec08-Mar09 time frame, and are currently trying to flip them for 20-50K profit (or 20%-80% more than they just purchased them for) after doing minimal work on them.
Here’s an example from the listing for one place. Bought in 4/08 for 212k, in 3/09 for 68k, put right back on the market in 4/09 130k.
http://www.trulia.com/property/photos/11579635-1007-Lawton-St-Redlands-CA-92374
http://www.redfin.com/CA/Redlands/1007-Lawton-St-92374/home/3047656
Old listing first, new one second…notice the difference? Different color paint (the prior paintjob was practically brand new…I looked at this same place a few months ago in person) and changed out the front porch columns, added some flooring.
The other 4 places I looked at were early/mid century bungalows (1920s-1950s) in the 80k-160k range and roughly $100/sqft. All were in weird areas (SFH in an otherwise mostly commercial area on minor arterial st), needed susbstantial work, and/or were some flippers’ latest project where they feel entitled to a 30k profit for a month of “work”.
We got a long way to go yet here in the IE, I’ll likely buy once the newer construction 1400-2000 sqft 03/2s and 4/2s get into the $175k range with plenty of choice on the market. Not there yet, which seems incredible considering the foreclosures here (1 in 54 is the data I’ve got)
Given B.Dogs comment about “games” and shadow inventory and Professor Bears article above, this thought occurred to me….
Does anyone else think that these banks, “investor” groups, finance companies etc are passing around all this REO like old time ironworkers toss hot bolts? It keeps it off the market precluding a real collapse in prices and they can keep it off their books (albeit temporarily) long enough to report decent quarterlies.
Conspiratorial? Maybe. Crazy? I wouldn’t put anything past the Great Housing Fraud perpetrators, REIC and FIRE.
There’s really nothing wrong with this. If you had a lot of something to sell, say on ebay, you would parcel it out a bit at a time to keep from saturating the market. Same with stocks. Why is this bad?
I thought collusion was illegal. But please correct me if I am wrong.
This is bad because it only works as long as someone else isn’t about to flood the market first.
I can see this will only end when interest goes higher on homes and savings. People will invest elsewhere while home prices finally get to affordable for those who want to live in them. So it will be a long wait yet.
Don’t know if you’ve brought this up here before, but what about this…seeing it in Cali…example of the moratorium’s unintended consequence:
Deadbeat landlord that the bank won’t kick out because it can’t, or won’t in order to hide the repo numbers (or avoid writedowns, etc)landlord collects rent, never pays bank, and eventually, just disappears with renter’s money over considerable amount of time…could take over a year till bank finally throws in the towel and forecloses….by then deadbeat landlord is long gone, and some of these specuvestors own several homes…their credit will be trashed, but big deal if they can collect 2k per month for 5 homes…that’s 120k a year FOR BEING A CROOK…this is going on more than people are aware of…
Crush
Crush,
In my profession, its common to have ‘field assignments’ that last a year or two with comp travel back home for the team. I have found records of teams renting a home for the last 60 years and split the rent. Why this historical tidbit? Coworkers of mine are being bitten by the very scenario you describe. The difference is, they are web savy. Most stop paying the rent when the landlord stops paying the mortgage. They live there a few months rent free until they can find a new place. Not all though… I know of three homes that were foreclosed upon where the renters received quite the surprise.
I also know of one where they never moved in much of value, so they continue to live there rent free. When the landlord threatened eviction… they threatened to send copies of the cashed checks to the IRS…
Coworker’s sister has gone 20 months sans mortgage or rent payment (Riverside, CA) and still no NOD. Hmmmm…
Sad part is, coworkers also bought with other coworkers renting rooms to help pay the rent on 2 or 3 year field assignments. Every single one has had to ‘volunteer’ to extend the field duty and its creating interesting work situations as no one wants to overpay for rent to subsidize the ‘owner…’
I’m thinking this investment mania will continue until its common knowledge that rent will not cover the mortgage (again) and we will rinse and repeat at a new price point.
Got Popcorn?
Neil
somebody is sleeping with one eye open…no way to live…thanks for the confirmation!
crush
btw i’m renting for 2k / mo for a house that was purchased 3 years ago for 650k…great business model!
What you described is EXACTLY what my former LL did to me, to a T. He had this scam going for a year on multiple properties and pocketed all his tenants rent payments and didn’t pay a dime to the banks. Meanwhile I finally got kicked to the curb (only got 2 mo’s free rent before the bank sicked the lawyers on me with threatening letters to get out of their condo).
I just checked into this Home Run grant thing that Utah is offering. Has to be a new house, never lived in.
So, you get 6k in grant money (but not tax free) from the state to help bail out some builder. Smacks of collusion to me, just another tactic to get more people into houses they can’t afford.
Too bad it doesn’t apply to used houses, I just found a really cute bungalow (1600 sq ft) in excellent shape in one of the cutest (and undiscovered) towns I’ve ever been in for a mere 40k, big yard. I would be tempted, but it’s probably worth about half that.
BTW, check out my new blog, click on my handle - though only if you like reading about being lost in Utah. I’m in the process of setting up a non-profit to help animals, the 501(C)3 is pending. Something I’ve wanted to do for some time, wish me luck.
So why not make an offer at $20k? Do you want to live in this town?
I’m not sure, but I do like it. Maybe not a bad idea, when you get that low, half off really isn’t that much money. It’s a thought, might go for it.
“I’m in the process of setting up a non-profit to help animals”
Thank you!
Went to an open house last weekend just for kicks. Asking price 940k! Who knows what the “peak price” would have been. Anyway, nothing wrong with the house except the insane price, which we could never afford even if we were crazy enough to spend that much money (we’re not). The realtor dismissed us once she found out we rented, and she kept thinking we rented in a cheaper area instead of in the exact same neighborhood (as if there were no renters in the vicinity…) [rent less than 1/2 mortgage cost for the (smaller) house we live in]. Anyway, she chirped at us that now was the best time to buy and that there was free money from the government. I explained that we make too much money to qualify for the “free money” so that was irrelevant. But, I’m wondering who is out looking at this crazy expensive house that can (1) take advantage of the “free money” and (2) buy a 940k house! Seemed to be mostly young, Chinese families with several young children?? The only thing I can imagine is people who sold their similarly overpriced house and would need a much smaller mortgage?
Well I hope you at least keyed her car on the way out?
I can’t believe I just said that! ( Ben does not tolerate that, no matter how much some snide realtwhore had it coming? )
That’s not as bad as what I regretfully said yesterday. I’m sure YOU will survive…
ATE-UP,
Why? Did you talk about pulling the infamous “top tanker” dump at the open house leaving the realtor to figure out where “that awful smell” is coming from?
The infamous “upper decker”, did you get her card so you could sign her up as an interested buyer at all the other open houses… haha.
You’re not in back in Chicago DinOR !!
Banks are just doing what TTT and BB are telling them to do. This is the ‘plan’ they worked out about three months ago. Makes me wonder what is next when ‘they’ realize that this terrible plan is not working. The next ‘fix’ is guaranteed to blow everyone’s mind. The government will never throw in the towel - they promised us that.
From the original post:
“Some warn that a potential flood of new bank-owned properties could drive down prices further.”
One wonders how long banks will want to be in the “landlording of see-through houses” business. Especially when more and more municipalities are, gasp, holding them responsible for the upkeep of their vacant properties.
Summit County commissioners have been fielding calls from property owners who are wondering how their property could have appreciated so greatly during a recession.
They also did this in Larimer County. Apparently my house appreciated 20% these past two years. Fortunately for me there are tons of comps in my hood that show that just the opposite happened, so my protest has been filed.
I protested my assessment as well.
The report indicates Norlarco’s problems date to 2001, when it gambled on a Florida residential construction loan program that quickly ballooned to more than $30 million per month and forced further missteps to cover its potential losses.
And why did they do this? Its not like there was no construction going on here in Larimer County. IIRC it was because they were getting better rates from the Florida builders.
“Vest said he is encouraged that investors are buying homes again, ‘but we actually need people to live in those houses.’”
Its those pesky low wages plugging up the works once again!
What is this ‘live in the house’ thing they talk about?
I thought homes were too valuable as trading items to utilize. Sort of like bennie babies…
Got Popcorn?
Neil
Bennies = Jim Bouton, Elvis Presley, et al.
…bennie babies…
I see what you did there.
Nice Catch. lavi d!
They might get hurt if someone lives in them.
bahhhh! Who needs wages? We got God, guns and gays to lose sleep over!!!
“The median Phoenix-area home price in April was $117,500 … back to the level of November, 1998.”
Wow. Couple of comments.
(1) One of my clients who owes about $50K on a small MH plus “Arizona room” (and the lot) in an RV park has been trying to sell the property for something like $160K. Ha ha, think again. I did say I would lend up to $90K to a new buyer, but that was a while ago, and I’m not inclined to repeat the offer, considering that “real” homes in PHX are probably no more expensive. Of course, the $117K could include a lot of MHs, not to mention condoze.
(2) Another prospective client last fall tried to get me to lend $82K on a small MH and lot with NO “Arizona room.” I kept saying no, make the seller provide a small part of the financing. The seller, insisting on $98K firm price all cash, has not sold yet. Ha ha, tough zheet.
(3) Yet another client who owes only maybe $15K has been trying to sell an older MH, lot, plus “AZ room” for $150K. Last summer these people were feeling a little desperate and fed up and offered to sell it to ME for “only” a hundred grand. Thanks a lot but no thanks, I said.
(4) About a month ago I lent $44K of the $55K purchase price for a MH lot in an RV park, including your 1/250 share of the swimming pool, the ballroom, the laundromat, etc. I don’t mind these deals so much, because the association keeps up the central recreation facility pretty well. This particular park has no significant HOA shortfall, since almost all residents are SS (not a losable job). BUT with the whole area falling into a housing depression, I don’t know how long these silly prices can persist. Certainly the 1998 of THAT lot was not $55K — more like $22K !!
You’re referring to Happy Trails in Surprise, AZ aren’t you?
I have relatives that are inmates, uh, I mean, residents there. They’re afraid they’ll die in the Happy Trails park. Well go ahead, I told them, it’s a damn good place for it.
I’m more concentrated in Mesa and adjacent areas. Thanks for the tip! — I should go to Surprise and surprise myself by expanding my business there!
“Certainly the 1998 of” = “Certainly the 1998 price of”
[sorry, sometimes the hands don't keep up]
AZL,
REO homes in 85086 are creeping down to $75 per sq ft, which is about $90k for a 1200 sq ft house. Wonder what will happen when the banks let all the REPOs go?
Lip
A litle off topic, but a gift to my friend’s at Ben’s. This is an excellent read.
http://www.theatlantic.com/doc/200905/goldberg-economy
Friend’s = Friends
Thank-you, I enjoyed that, the journalist sounded a little too much like me….
Thanks for reading it, Captain John!
Good post, ATE.
Actually though I love Merrill Lynch. They have a big bond inventory (briefly interrupted when they were flat broke last fall). You do have to know to tell your ML “account executive” or whatever they call them that you will NEVER be interested in buying what Merrill is pushing. Their “quality research” can be an advantage if you have a specific question. Your guy or gal at ML can get the answer in a hurry if (s)he is sharp.
The more general point, that a whole generation slurped up the hogwash of Ever Rising Stock Prices for the sufficiently-patient, is perfectly right. I guess I’m still sufficiently patient to await my idea of fair value for common stock — the inflation-adjusted duplication of the 1974 bottom — the big 3000 on the Dow. OK, OK, if it gets to 5000 I’ll probably be buying.
Wife and I have been out looking at homes in the Ahwatukee Foothills area of Phoenix. Homes below 200k in decent shape are going under contract fairly quickly. Some of these homes need a good amount of work to make them suitable for anyone other than a landlord type of “investor”. I can’t see many couples or families wanting to “snap up” any of the lower priced homes that my wife and I have viewed.
My Realtor™ knows we are in no rush and that we think prices will stabilize even lower than they are now, so she does not give us any of the NAR speak. My target house is 3/2 no pool <170k, move in ready. I may have to wait a while longer or just keep happily renting.
Saw something disquieting today.
Lady stands in the sun with homeless sign by side of suburban intersection.
Van cuts me off and pulls alongside her. Cash donation? No.
He hands a Costco-size jar of nuts out the drivers’ side window. Woman smiles a nice smile, tucks food under her arm. She looks like she just won a lottery.
Disquieting because the donor apparently didn’t have a $10 or $20 to donate. Those who don’t peek out of their upper-income social and business circles may not notice cash is in very short supply.
Maybe the scene was a bit encouraging, though, since he shared food.
Reality check: Spouse recently extended some bills out her window to someone who was at the side of road in a wheelchair. Upon seeing the donation, the man rose eagerly from the wheelchair, accepted the money, and returned to his seat. Spouse unlikely to respond the same way again.
Wow. What a story.
I’ll give food, but not cash. I have even handed over food from Costco before when I walked by someone I thought was in need. Disquieting is her smile… she really needed food.
I have a heart/brain tug-a-war with homeless veterans. I want to hand them $, but I don’t want to support drinking and cigs. Gee, you serve your country with honor, and wind up homeless (sometimes with mental illness). Breaks my heart.
One time in LA area I stopped for gas where a woman was holding “will work for food” sign. I’d just come from a party where I’d been persuaded to take home the rest of the fried chicken. When I gave it to the Will Work for Food woman, she actually looked a little cross. Maybe because I didn’t ask her to work for it? ha ha
Can anyone comment on this HR1728 that passed the house and is now in senate?
—————————————————————-
Want to end the fraud?
End the toxic loans?
Reverse the grossly inflated housing prices of 1999-2008?
Call your senators in support of H.R. 1728, Mortgage Reform and Anti-Predatory Lending Act.
It will:
essentially eliminate all “No Cost” mortgage loans for borrowers.
will steer lenders toward offering a 30 year fixed rate mortgage.
Requiring creditors to keep a 5% credit risk as a way to demonstrate that they have some “skin in the game”
A firm led by Hall of Fame quarterback Steve Young plans to foreclose on a house in Park Meadows and put it up for auction next month, determining that the owner defaulted on the payments starting in the middle of 2008.
Young is the principal in a firm called Split Timber Holdings, which provided financing on the sale of the house, 23 Sandstone Cove, from Split Timber to the husband and wife purchasers, according to an attorney representing Split Timber. The husband and wife, Lee Hindin and Karen Hindin, later defaulted on the payments to the firm on the financing, said Steven Ingleby, the attorney for Young’s side.
[park record dot com]
notice of trustee sale
http://parkrecord.kaango.com/feViewAd/14373351?IADID=Search-parkrecord.kaango.com-www.parkrecord.com
home
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