June 13, 2013

Buyers Want In Quickly

Bethesda Now reports on Maryland. “The luxury housing boom delayed by the Great Recession is in full swing in Bethesda. At the annual Greater Bethesda-Chevy Chase Chamber of Commerce’s Real Estate Update on Friday morning, realtor Jane Fairweather said the first wave of resales in Bethesda’s existing luxury condo buildings has produced less than stellar results. Fairweather said two of downtown Bethesda’s newer luxury condos — Lionsgate and the Adagio — sold out a little less than a year ago. There have been six resales at the Lionsgate and two at the Adgaio. Sellers got less money than they paid for the units in five of those eight cases. The person who bought the first unit in the Lionsgate lost about half-a-million dollars on the resale, Fairweather said.”

“The average resale price for a luxury condo in Bethesda is $579 a square foot. The new condos coming in are asking for anywhere from $750 to $1,500 a square foot, including The Lauren, which is listing condos for $2.1 million to $7.5 million. ‘I think that’s audacious,’ Fairweather said.”

“Still, Fairweather told the audience she doesn’t think the so-called Bethesda Metro housing boom is a bubble because inventory is very low. The bigger issue for the Bethesda-area housing market could be affordability. Fairweather cited a Montgomery County report that estimated a household income of $120,000 would not be enough to buy a house by 2030. Some one bedroom rental properties include income requirements at $65,000. Larger one-bedroom units can include income requirements of $86,000.”

The Baltimore Sun in Maryland. “After a flat April, the median home sales price in metro Baltimore increased in May from a year earlier, according to data released Monday by the region’s multiple-listing service. ‘There’s still room to grow,’ Corey Hart, senior product manager for RBI, said of Baltimore-area home prices. ‘It appears to be sustainable. We wouldn’t consider this the beginning of a new bubble.’”

“Lynn Mauk, branch VP in Ellicott City for Coldwell Banker Residential Brokerage, said some agents in her office have been out canvassing neighborhoods, asking homeowners whether they’re thinking of selling, because buyers are clamoring for properties. At least one property sold through her office last month was under contract in less than a day, she said. ‘Buyers want in and they want in quickly,’ she said.”

The Gazette. “Ten Fairfax County residents have pleaded guilty in federal court to mortgage fraud and other fraud charges that involved “overages” or illegitimate, inflated costs added to real estate transactions that induced lenders to provide funds above and beyond what was actually approved to fund the transaction. According to court documents, eleven conspirators—10 from Fairfax County and one from Potomac, Md.— provided lenders, buyers, and sellers falsified real estate documents to mask their falsified overages.”

“‘These defendants have admitted to bilking millions of dollars from our financial institutions by falsely inflating costs of doing business while processing short sales, keeping payoffs from mortgages thought to have been refinanced, and illegally borrowing against escrow accounts of homeowners in Northern Virginia,’ said Valerie Parlave, assistant director in charge of the FBI’s Washington Field Office.”

“Court documents state the defendants’ conspiracies lasted from approximately 2009 to 2012, and involved the owners, operators, employees, and affiliates of several real estate-related businesses located in Annandale and other nearby Northern Virginia towns.”

The Charlotte Observer in North Carolina. “Six years after a scandal enveloped Beazer Homes USA over its reckless loan practices, costing millions of dollars and forcing hundreds of foreclosures, Janette Parker is the only employee from the company’s mortgage unit to be charged with a crime. To put that in perspective: Parker, a mother of two with a high school education, was the only person criminally charged with mishandling loans for one of the Fortune 500 companies at the heart of the nation’s financial crisis. Out of the dozens of executives and thousands of employees, Parker wants to know: ‘Why me? How me?’”

“Parker managed the Beazer Mortgage office in Charlotte, N.C., for seven years. She understands what Beazer did was wrong. What she did was wrong. She pleaded guilty to three counts of mortgage fraud and was sentenced in October to five years of probation and a year of house arrest and ordered to repay $837,025 in restitution. She is not contesting her guilt. But with the government’s investigation now closed, Parker and her attorney question why she was singled out to become the public face of mortgage fraud while more powerful, higher-paid executives avoided criminal prosecution. Even a federal judge asked why.”

“Beazer Homes and two top executives escaped prosecution by paying back millions of dollars. A third executive was convicted of securities fraud, but has asked for a new trial. In the subsidiary loan operation, where most of the irregularities occurred, only Janette Parker was indicted. Prosecuting Parker, said attorney Tricia Derr, is comparable to charging a clerk at Target because the sales tax was computed wrong: Parker did what her bosses trained her to do.”

“‘She’s so far down the chain,’ Derr said. ‘She’s a nobody. She’s not the CEO. She didn’t come up with the idea. … The person who came up with the plan to go around (federal) guidelines, that’s the person responsible.’”

“Like other companies, Beazer was taking advantage of loan guarantees provided by the federal government to promote home ownership to first-time and lower-income buyers. In the past, many of those applicants had been considered too risky. But the Federal Housing Administration guaranteed that if a borrower defaulted, it would cover the mortgage payment - and it was increasingly willing to gamble on risky borrowers. Lenders and home builders had little to lose.”

“In the Charlotte area, Beazer began experimenting with building low-cost homes. Prices were so affordable in the Southern Chase subdivision in Cabarrus County - starting at less than $80,000 - that people camped outside the sales office the night before lots went on sale in 1997. Parker said she was taught how to process government-backed mortgages during a PowerPoint presentation in Miami: ‘If the buyer needed additional money - say the sales price was $105,000 and they needed a $3,000 down payment - then you would add that to the sales price … . Anybody that did government loans did it the same way.’”

“Her motive, prosecutors suggested, was greed. The more homes she sold, the higher the prices, the greater her commissions. Between 2002 and 2007, a prosecutor said, Parker earned $1.3 million from Beazer. Prosecutors said Parker was too well-versed in the mortgage industry to be unaware that what she was doing was wrong, and they cited emails as evidence that she knew Beazer was circumventing federal regulations.”

“Ian McCarthy, former CEO of Beazer Homes, repaid $6.5 million in bonuses and stock profits, but admitted no wrongdoing. Three months later, in June 2011, Beazer’s board ousted McCarthy and gave him a $5.2 million exit package. James O’Leary, chief financial officer of Beazer Homes, reimbursed more than $1.4 million. He left Beazer in March 2007 for a job with Kaydon Corp., where he is chairman, president and chief executive.”

“Michael Rand, Beazer Homes’s former chief accounting officer, was convicted of falsifying profits in publicly reported financial statements and - after being notified about the federal investigation - of trying to cover up the fraud by deleting nearly 10,000 emails. He faces 125 years in prison and has asked for a new trial. Ron Kuhn, president of Beazer Mortgage, who hired Parker, is a mortgage broker in Arizona. ‘It’s probably not in anybody’s best interest to dig that one back up,’ Kuhn said when contacted by the Charlotte Observer. ‘Janette did some wrong things and got punished for it, and that’s the bad news. … Frankly, what I know is exactly what you know, which is what was published in the newspaper.’”




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37 Comments »

Comment by Ben Jones
2013-06-13 07:53:49

A comment to the Bethesda article:

‘Does anyone else think the phrase on that sign “Residences from the several millions” is just super ostentatious?’

There’s a photo of the sign at the link.

Comment by Whac-A-Bubble™
2013-06-13 08:06:34

I find the phrase “From One Million” at the Pardee Homes construction site along my daily commute audacious, and that’s in San Diego.

Comment by rms
2013-06-13 16:55:42

“I find the phrase “From One Million” at the Pardee Homes construction site along my daily commute audacious, and that’s in San Diego.”

+1 I hope there’s not a fannie/freddie logo next to it.

Comment by Whac-A-Bubble™
2013-06-13 21:37:23

May as well be. I can’t imagine most buyers will pay all cash; most will probably use a $729,750 F&F loan to help leverage the transaction.

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Comment by joe sees your PPQ and counters that it's immaterial to your unpopulated joint venture
2013-06-13 08:33:32

Bethesda, moreso than anywhere else, is where the people who run formal US institutions live. Certain areas of Bethesda are generally $5MM +. Those signs probably catch attention along Wisconsin Avenue, etc., because it implies you could live in Bethesda for like $2MM.

As we saw from that house polly posted the other day, $1.8MM for a small house on a busy street corner (used to be an XMas tree lot) is not unusual and will sell. IIRC, that house is under contract.

I have to say this for Bethesda, its nice parts are beautiful, along the lines of Greenwich, CT or Alpine, NJ. But it’s not worth that price unless you truly have money to burn and money means nothing to you. One bright spot about Bethesda is that Montgomery County MD has low property taxes, I think just 1.2% of assessed value. MoCo also has great schools and police force, unlike Prince George’s County MD. (Not surprisingly Mont County is blindingly white with assorted asians whereas PG County is majority black.)

Comment by Ben Jones
2013-06-13 08:53:59

‘you truly have money to burn’

Should make for some interesting trash-outs when the foreclosures start.

Comment by Mugsy
2013-06-13 09:10:50

I thought that I would never see another housing bubble again in my life but I guess I was wrong. And there I was ready to sign off the HBB for good after 7 years…

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Comment by Ben Jones
2013-06-13 09:32:15

I was talking about this the other day and thought of something. As you may know, some of us think this is the same bubble, others think it’s a new bubble. I’ve said before that it doesn’t matter as it can’t be proven. But it may be possible to know. If it’s a new bubble, it’s plausible that it could run as long as the previous mania. If it’s the same bubble, it would be more of a last gasp, and shouldn’t last near as long as what we experienced before.

 
Comment by Mugsy
2013-06-13 09:37:25

Somebody will still walk away with a lot of dough and leave the rest of us holding the bag. I can guarantee that.

 
Comment by Carl Morris
2013-06-13 10:20:36

If it’s the same bubble, it would be more of a last gasp, and shouldn’t last near as long as what we experienced before.

That’s what I’m expecting.

 
Comment by perkonkrusts
2013-06-13 11:37:42

“And there I was ready to sign off the HBB for good after 7 years…”

I was here all the time from ‘06-’08, then when the first bubble popped I thought it was gone forever, so I quit visiting. Last year I came back, the good (bad?) times are rolling again.

 
Comment by Neuromance
2013-06-13 15:06:35

There’s a concept, a little like the Peter Principle, that a tactic will be applied again and again until it fails. The last housing bubble made a lot of money for a lot of people (obviously not the bagholders). I mean politicians, executives - top leaders.

So - what’s not to like? Congress has consistently had very high incumbent reelection rates. They ultimately make the rules. Their contributors are making money too. So… why disturb the apple cart?

During the S&L crisis, 800-some bankers went to jail. This time, not a one involved with the crisis has gone to jail (yes, they took down a few insider trading types which had nothing to do with the mortgage meltdown). High incumbency rate in Congress. Same people at the helm.

So, with the same people directing policy in both the government and in the financial sector, it’s unsurprising the result would be a repeat of the 2000’s.

Are the mechanics identical? As long as lenders are able to completely offload repayment risk, there is a perverse incentive to create the largest loan possible, without regards to its repayability as long the paperwork required by the government checks out.

I think there are some differences in the mechanics this time around - banks not realizing losses till they sell so are incentivized to avoid foreclosing; bank leadership making profits regardless of their prior lending policies, courtesy of the Fed; houses not allowed to go on sale to the public, but rather to hedge funds only; hedge funds testing out their hands at landlording.

But just remember this - the same corporate leaders, advisors and politicians who created the system which led to Bubble version 1 are still mostly in charge. So a repeat - with some minor adjustments - would be unsurprising.

 
Comment by rms
2013-06-13 17:00:23

“Somebody will still walk away with a lot of dough and leave the rest of us holding the bag. I can guarantee that.”

+1 Sure hope the historians record this correctly.

 
Comment by Whac-A-Bubble™
2013-06-13 21:39:46

Yep. Once the bubble is history, someone will have Madoff with a bundle of money.

 
 
Comment by joe sees your PPQ and counters that it's immaterial to your unpopulated joint venture
2013-06-13 09:36:52

It’s a pissing contest, all about appearance and location. Look at this quote from that article:

“•The difference in price for homes within walking distance to downtown Bethesda and homes that require car travel is significant: Homes within walking distance range from $2 million to $5 million. Homes out of range typically fall in the $1.2 to $1.8 million area.”

They’re talking about a difference of several million dollars for nothing more than “walking distance to downtown Bethesda” (translation: overpriced shopping and fancy restaurants).

People are willing to pay millions extra to 10 blocks in one direction or the other. To be in the “nice area” of what is already one of the nicest places you could ever imagine living. Ten blocks!

Shear ego-fluffing, nothing more to it than that.

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Comment by Mugsy
2013-06-13 09:39:14

Bethesda was a healing pool outside one of the gates of Jerusalem in ancient times. I don’t think anyone in Bethesda is getting healed by this mania.

 
Comment by polly
2013-06-13 09:52:53

The “small” house was over 3000 square feet. The lot was very small for the suburbs. The house, not so much.

And the restaurant scene in downtown Bethesda is fine, but not that outstanding. It is basically a very good suburban downtown (library, regular and art house movie theater, shopping (including an Apple Store), all levels of public schools, play ground, kids activities, a little night life, grocery stores, etc.) within an easy commute of DC. That is the difference - truely walkable downtown and you can get to DC. And I think if you really want to find the movers and shakers, you have to include Chevy Chase, Potomac and McLean. Bethesda doesn’t have a lock on them. And the contractor big wigs are almost all in McLean and other parts of Virginia. Montgomery County may have reasonable property taxes, but it also has a county income tax. Virginia doesn’t have that.

And with all that, you should google “Trillium Bethsda.” It is the sign on a building site for a condo building. I remember when they were trying to pre-sell. This must have been 4 years ago, now. It is still a giant hole in the ground. Check the google satellite picture. Nothing but dirt.

I’m not interested enough to try to figure out the story of that hole in the ground. I’m guessing it involves a bankruptcy and a bunch of liens, but it could be even more complicated than that.

 
 
 
Comment by "Uncle Fed, why won't you love ME?"
2013-06-13 20:12:38

Yeah, property tax in CA is 1 to 1.2%, depending on the nabe. I can’t imaging anywhere in MD being worth more than coastal CA.

 
 
Comment by United States of Moral Hazard
2013-06-13 11:13:44

“From the low $500k’s” seems asinine to me. I guess I am old fashioned.

Comment by rms
2013-06-13 17:10:03

“From the low $500k’s” seems asinine to me.

Sounds like you don’t want to be bothered with writing a $2,500.00 mortgage check every month while you’re busy shifting your seated weight from one cheek to the other trying to find a dry spot in your adult diapers?

 
 
 
Comment by In Colorado
2013-06-13 08:03:42

Parker and her attorney question why she was singled out to become the public face of mortgage fraud while more powerful, higher-paid executives avoided criminal prosecution. Even a federal judge asked why

Because the law only applies to the “little people”? But never mind that, somewhere out there someone is driving their Escalade to the store to buy lobster and steak with a SNAP card.

Comment by Ben Jones
2013-06-13 08:22:57

From the article:

‘Some families did not have money for a down payment despite an FHA requirement that borrowers pay at least 3 percent of the sales price. It’s against the law for a company to give money for a down payment directly to a homeowner because the gift could be construed as an inducement to buy a home. In Charlotte, the Observer discovered, Beazer helped provide many down payments.’

I’ve seen many Fannie/Freddie flyers in houses offering 3% toward appliances, with a 3% down loan.

I mentioned the coupon book I get in the mail. I got another one yesterday with a page that says “Want to buy a home with ZERO down financing?” The next line says “100% financing in Anthem AZ with the USDA loan program.” Then it lists practically every town in N AZ as included. “Rates as low as 3.5% $0 DOWN PAYMENT.”

Comment by United States of Moral Hazard
2013-06-13 11:18:43

I have seen those USDA signs in a few different states. They are really flaunting the zero down thing.

Comment by Resistor
2013-06-13 16:19:50

Yes, but USDA will garnish your wages if you default.

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Comment by 2banana
2013-06-13 10:11:39

1500 bankers and CEOs went to jail in the S&L scandal.

obama jails a HS grad floor manager.

THAT is your hope and change.

Comment by "Uncle Fed, why won't you love ME?"
2013-06-13 20:20:22

IT WASN’T OBAMA WHO DID THAT!

 
 
 
 
Comment by Whac-A-Bubble™
2013-06-13 08:04:59

“The average resale price for a luxury condo in Bethesda is $579 a square foot. The new condos coming in are asking for anywhere from $750 to $1,500 a square foot, including The Lauren, which is listing condos for $2.1 million to $7.5 million. ‘I think that’s audacious,’ Fairweather said.”

Contractors making $120K+ a year can easily afford those luxury condo prices.

Comment by joe sees your PPQ and counters that it's immaterial to your unpopulated joint venture
2013-06-13 08:40:32

Contractors tend to live in Arlington VA/Fairfax County. Newer construction, less fancy/hoity-toity. You see more people who moved to DC from the south or midwest in NoVA. Out by Dulles Airport is where most defense contractors work/live.

Bethesda is fo for the Wall Streeters of DC, so to speak. Probably the best public schools in the US, yet many still send their kids to Sidwell, Landon, Episcopal, etc. You can bet that Obama’s kids (Sidwell students) know all the Bethesda kidz. Bethesda tends to be more northeastern people.

NSA is at Ft Meade MD which is closer to Baltimore and not that close to Bethesda or DC. Contractors there tend to live further north like Howard County (west of Baltimore) or Baltimore/Harford counties.

Comment by Ben Jones
2013-06-13 08:56:13

‘Ten Fairfax County residents have pleaded guilty in federal court to mortgage fraud and other fraud charges that involved “overages” or illegitimate, inflated costs added to real estate transactions…the defendants’ conspiracies lasted from approximately 2009 to 2012, and involved the owners, operators, employees, and affiliates of several real estate-related businesses located in Annandale and other nearby Northern Virginia towns’

Let the fraud reports begin!

 
 
Comment by 2banana
2013-06-13 10:13:58

???

120K/year means you can afford a $360K condo MAX.

So how so they do it?

Easy and cheap money.

Thank you obama. Thank you Ben.

Now the rest of you pay your fair share.

Comment by In Colorado
2013-06-13 12:49:09

So how so they do it?

Two (his and hers) 120K incomes plus overtime?

 
Comment by joe sees your PPQ and counters that it's immaterial to your unpopulated joint venture
2013-06-13 13:00:28

As stated before, 120k is the low end. Mid career people with kids make a lot more. Also most contractors rack up the overtime.

I haven’t seen BiLA explain before why he doesn’t do overtime. I just remember him saying he didn’t want to do it. Seems like he’s leaving a lot of money on the table by checking out at 5pm everyday.

 
 
 
Comment by "Uncle Fed, why won't you love ME?"
2013-06-13 16:29:17

OK kids, I think we need to come up with a definition for what a bubble is. Apparently Ms. Fairweather does not understand. She feels that if inventory is low, then there must not be a bubble.

Ms. Fairweather: Low inventory is always part and parcel of a real-estate bubble, DUH! The low inventory results from the buying frenzy.

 
Comment by "Uncle Fed, why won't you love ME?"
2013-06-13 16:34:54

“Beazer Homes and two top executives escaped prosecution by paying back millions of dollars.”

That should be the punishment for every one. If you get caught stealing, you have to give it back. If you don’t get caught, then you can keep it. Smrt!

 
Comment by "Uncle Fed, why won't you love ME?"
2013-06-13 16:39:56

‘It’s probably not in anybody’s best interest to dig that one back up,’ Kuhn said when contacted by the Charlotte Observer. ‘Janette did some wrong things and got punished for it, and that’s the bad news. … Frankly, what I know is exactly what you know, which is what was published in the newspaper.’”

REALLY? You mean her own boss didn’t notice she was committing fraud for five years? Her biggest mistake was admitting it. She should have admitted nothing. That’s what separates the grain from the chaffe. If you admit having done something wrong, then you will get in trouble. Her boss simply denies that he knew, even though he must have known.

Comment by United States of Moral Hazard
2013-06-13 22:05:26

That’s what we teach in our society. Lie your face off. Only honest people go to jail. Lie, cheat, and steal your way to riches, and you are fine. It’s the lesson learned from this entire meltdown.

 
 
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