Category: Real Estate

US loan default problems widen

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Banks are continuing to take losses and write down loans.

Poor quarterly results from banks across the US over the past two weeks suggest credit problems once confined to high-risk mortgage borrowers are spreading across the consumer landscape, posing new risks to the economy and weighing heavily on the markets.

This is not a problem limited to one portion of the market. It is wide spread, and it is systemic, driven by the Fed’s, specifically Alan “Bubbles” Greenspan’s, decision to create a credit bubble to address the dotcom meltdown of 2000-2001.

Too many people owe too much money, and much of this money should never have been lent out in the first place.

Lenders in La Now Slashing Prices to Unload Foreclosed Properties

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This is no surprise. The question is never been whether this would start, it has always been where, and when, and how much, and how fast it moves across the country.

There are very few places in the country that will be untouched by the real estate meltdown, and now the first three questions have been answered, and the 4th question is in process:

On average, a foreclosed property sells 20.3 percent below its market value. The median discount level is slightly lower in Orange County at 19.6 percent compared with 21 percent in Los Angeles County.

The real estate folks are saying that it won’t depress the market because it is only 6% of sales right now, but if 1 of every 17 house sales is at a 20% discount, it will have an effect, particularly as that number goes up, both in terms of percentage of sales, and in terms of discount.

I remember this joke from the 1989-1992 real estate crash in Massachusetts:
Q: Which of these things do not belong:

  • AIDS
  • Herpes
  • Gonorrhea
  • A Condo in Massachusetts

A: Gonorrhea. You can get rid of it.

The Grim Future of Real Estate?

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Here is a story that we will see repeatedly over the next few years, entire neighborhoods blighted by foreclosures.

In this case, you have half million dollar homes that people have simply walked away from, and police have to patrol in order to prevent squatters. There are swimming pools that have moved from assets to West Nile and Malaria infested health risks.

We are going to see a lot of this, and a lot of people trapped in their homes because the entire neighborhood is illiquid, because no one wants to live there at any price.

Pleasant picture this.

Luckily, I live in an old neighborhood, built in the 1960s, so we won’t see as many exotic mortgages, and hence foreclosures.

Holiday Shopping Season Looks Grim

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Retailers are expecting a 2-5% increas in retail sales over the holiday season, with most looking at the lower end.

Between the subprime meltdown, and dropping house pri9ces, people will keep their money closer to themselves.

Honestly, I expect it to be below 2½%, and when one considers that inflation is significantly understated, we’re probably seeing more than 6% right now, this actually means a drop in real consumer spending.

This is where more than half the profit in retail sales is made, so this will ripple through the economy.

We Are Starting To See Empty Houses in High Rent Neighborhoods

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It appears that we are starting to see An epidemic of abandoned houses.

This story is set in Chandler, AZ, just outside of Phoenix, but this is not the only place where this is happening.

A significant portion of the recent Chandler complaints are from newer neighborhoods in southeastern parts of the city where homes once sold for $400,000 or more and values have dropped, Carr said. Buyers who divorce, lose a job or can’t afford rising adjustable-rate interest are finding they can’t sell their houses for what they owe on them, he said.

This dovetails nicely into the return of Hoovervilles (Favelas) that I wrote about earlier.

The new economy that was supposed to be unleashed by deregulation is an old economy, a very old one. One that ended on Black Tuesday in 1929.

Even worse, it will be years before we can make what we need, because our economy has been hollowed out.

US Subprime Markets a “Dangerous Cocktail”

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Moodys Investor Services described the US subprime marketas a“relaxation of risk management and underwriting standards combined with the growth of little understood debt derivatives, many of them based on US sub-prime mortgages, had proved to be “a dangerous cocktail” yesterday.

You think?

A governor of the Bank of England said that, “there were still troubles ahead in the sub-prime sector and that the losses of large investors made it difficult to decide where borrowing costs should move next due to the volatility it created in financial markets.”

This is why I think that this is heading to an illiquid state. Exotic high risk instruments are coming home to roost, and when they do, prices will drop, because these instruments monitized (drove up the price) of residential real estate.

With people owning highly leveraged homes that are falling in value, they will be under water, owing more than they have in equity, and they will be unable to sell the homes.

Prime Mortgages Going Bad Too

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The refrain of the NAR, and other people pimping for real estate has been that the meltdown will be confined to sub-prime mortgages.

Coffin, meet nail.

Countrywide feels pain of ailing mortgage market – Los Angeles Times
CEO reports that even ‘prime’ borrowers are having more trouble making payments. Company’s second-quarter profit slides 33%.
By Annette Haddad
Times Staff Writer

2:25 PM PDT, July 24, 2007

Shares of Countrywide Financial Corp. tumbled today after the nation’s biggest mortgage lender signaled that rising defaults and delinquencies were spreading beyond the troubled sub-prime market to higher-quality “prime” loans.

The Calabasas-based company reported a 33% drop in its second-quarter profit and slashed its outlook for the rest of the year, citing an “increasingly challenging” housing market.

“We expect difficult housing and mortgage market conditions to persist,” said Countrywide Chief Executive Angelo Mozilo.

During the quarter ended June 30, softening home prices in many areas of the country caused delinquencies and defaults to rise for Countrywide borrowers with all kinds of mortgages, Mozilo said.

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People paid more than they could afford for houses because they were afraid that rising prices would lock them out forever, and they paid too much, and got mortgages that were too bkg.

ONLY $2 Million???? ONLY?????

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The New York times has an article on the difficulties of finding a family sized apartment in New York.

In truth, they mean Manhattan, because they can be found in good neighborhoods Brooklyn and Queens, but generally it would be no never mind to be, but for this quote:

The elusiveness of these large apartments is hitting people with budgets of, say, $8 million just as hard as buyers with only $2 million to spend. And the fights for the apartments that are available are being won or lost in bidding wars.

Only $2 million? What the hell is up with that? Based on a simple rule of thumb, that means that these folks are making at around $700K/year.

Only in the Times real estate section is this poverty.

On the HedgeFund/Subprime Meltdown

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A survey of what is out there has the New York Post approaching this in its typically sensationalist manner, though there are some pieces of useful information:

HEDGE HORROR

SUBPRIME MELTDOWN COULD WIPE OUT BILLION$

By PAUL THARP
The stunning formal disclosures, which eventually could affect as much as $2 trillion in various mortgage securities, is expected to trigger widespread revaluation of the paper, which some analysts believe could wipe out 40 to 50 percent of their values.
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“The hedge funds are so over-leveraged, they’ll be the first to crack,” said Peter Schiff, CEO of Euro Pacific Capital.

By of perspective, that is about $6500 in mortgage securities for every man, woman, and child in the US, and the point about leverage is a telling one.

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The housing crunch sent the dollar plunging to a new low against the euro for the second day, to $1.3787. The greenback fell to a 26-year low against the British pound, at $2.0271.

This is where a lot of foreign investment is going, and if it’s scared off, it may not come here at all, pushing the dollar down and interest rates up.

The rather alarmist Post headline is reinforced by the fact that two Bear Stearns mortgage hedge funds have basically been wiped out. Investors have lost everything because of a relatively small drop by virtue of the amount of leverage.

So much for smart investors.

On the other side, we have Ben Bernanke claiming that everything will be fine , that the housing collapse will just a small bump int he road.

Juxtaposed with this, you have Vulture Hedge fund Black Pearl preparing to snap up cheap mortgage securities. They believe that, “The subprime market is approaching a point where ‘widespread price dislocation’ is likely.”

Translated from the legalese, this means that folks are panicking, and they intend to capitalize on this.

I trust them more than Bernanke.

Even With the Sub Prime Market Crashing, Bad Paper Still Flows Freely.

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People know that this is crashing. People know that someone will be left holding the bag on trillions in bad loans, but they are still making bad loans.

It’s simple: In our “flexible and deregulated economy” the crooks make their money, and get out of town before the house of cards collapses.

At some point, a risk premium will be associated with investing in the US, and it will get very ugly here.

Subprime lending: Business as usual

A consumer group charges that many subprime lending abuses continue to plague the lending industry despite the recent crisis.
By Les Christie, CNNMoney.com staff writer
June 28 2007: 3:25 PM EDT

NEW YORK (CNNMoney.com) — It would appear that subprime lenders have yet to learn from their mistakes. According to a consumer advocate group, abuses persist industry wide, despite the recent subprime mortgage meltdown.

At a Senate subcommittee hearing on ending mortgage abuse this week, the Center for Responsible Lending (CRL) presented its findings on subprime loans included in 10 recent packages of mortgage backed securities.

“A lot of the terms that make these loans so dangerous are still being used,” said Keith Ernst, CRL’s senior policy counsel. “We had been told that these things are going away.”

More than three quarters of the subprime loans CRL looked at turned out to be adjustable rate mortgages (ARMs). 90 percent of those were hybrid ARMs – otherwise known as “exploding” ARMs.

Hybrid ARMs have two- or three-year periods of cheap, low-interest, fixed-rate payments, or “teaser rates.” But after two years, the loans reset at much steeper rates, which can prove fatal for homeowners who can’t handle the higher payments.

On a $200,000 loan with a teaser rate of 5 percent, for example, borrowers would pay about $1,074 a month. At reset, the interest rate could jump to 8 percent, adding nearly $400 to payments, which could continue to increase every six months.

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The Real Estate Panic Begins

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Markets do not react in linear ways. They are vehicles for mob psychology, so people hold on past where the top should be, and then panic, and head for the door.

This is panic time.

Future shock: Central Florida markets will fall
A short-sale expert says he can predict market slumps by client traffic. Next stop: The Sunshine State.
By Les Christie, CNNMoney.com staff writer
July 6 2007: 12:55 PM EDT

NEW YORK (CNNMoney.com) — A tidal wave of foreclosures may be heading toward Florida, if you judge by the number of homeowners looking to get rid of their homes as fast as they can.

Duane LeGate, president of House Buyer Network, arranges quick sales for home owners in distress. He claims he can predict where markets will go bad by looking at the traffic on his Web site.

“We can tell you what’s going to happen nine months from now,” he said. His most endangered market right now is Orange County, Florida, home of Disney World.

“Orlando has blown up. There’s been a 700 percent increase in traffic of people filling out our forms,” he said. “I could put a bull’s-eye on Orlando and write the headline for what will be going on in January and February.”

What will be going on could include a large increase in foreclosures as well as lower prices, longer inventories and a slower sales pace.

Here’s how the House Buyer Network works: A homeowner wants a quick sale and signs up. The network connects the homeowner with a real estate agent who gets an appraisal for, say, $200,000. The agent markets the home at $195,000. If it fails to sell within the time stipulated in the contract, the agent will buy the house at a prearranged, discounted price of perhaps $180,000.

LeGate estimates the discount from what sellers would get if they didn’t need to sell quickly is 5 percent to 8 percent, once all the costs and fees are figured in.

LeGate’s forecast runs ahead of the latest home price statistics. According to the National Association of Realtors (NAR), Orlando prices for the first quarter rose 2.5 percent compared with a year ago, which would point to a weak – but more stable – market. Nevertheless, LeGate trusts his indicators.

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Would Someone Pleas Throw Him In Jail for the Next 8-12 Years

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Let me get this straight. This snake oil salesman gets fired over his financial shenanigans, and Fannie Mae is told NEVER to hire him again, and they are still giving him stock options?

Would someone please throw this corrupt jerk in gaol?

Raines Sues OFHEO Over Stock
By David S. Hilzenrath
Washington Post Staff Writer
Friday, July 6, 2007; D01

Former Fannie Mae chairman Franklin D. Raines has mounted a new challenge to the government’s power over the federally chartered mortgage funding company, arguing that regulators have no authority to delay his receipt of a $3.9 million stock award.

Raines sued regulators this week to get the shares released, and yesterday a federal judge scheduled a hearing on the question for July 16.

The fresh challenge comes as legislative efforts to give federal regulators more power over the company have stalled.

Raines is one of many current and former Fannie Mae executives who have been waiting to receive payouts pegged to the company’s performance from 2003 through 2006, including periods when Fannie Mae’s earnings were misstated and, regulators allege, the company was mismanaged.

Raines left the company after the Securities and Exchange Commission ordered it in 2004 to correct years of financial reports that overstated profit by billions of dollars. In reaching a $400 million settlement with regulators last year, Fannie Mae agreed never to employ Raines again.

As the company worked on straightening out its books, it delayed deciding how much stock its executives should receive under certain incentive plans. Last month, Fannie Mae’s board proposed releasing millions of dollars of awards — subject to approval by the Office of Federal Housing Enterprise Oversight.

The agency has since sought more information from Fannie Mae about how it arrived at the amount of the awards and told the company to keep the payments on hold until it completes its review.

The agency has warned Fannie Mae that any stock awards it released “could prove irretrievable” and could leave the company liable if later found to be excessive, according to a document filed in court yesterday.

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drop of half the value is not unrealistic right now if a seller needs to sell

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A 50 percent drop means that anyone who has bought or refinanced in the past 15 years would be owing more than they could sell the home for.

This is why short sales, where the bank accepts a loss, are becoming more common.

Seller cuts price of house by $1 million

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Mary Anne Windes, a veteran broker in Destin who has Real Estate Professionals of Destin, said in an e-mail interview, “The trend is that prices are moving to the same level that they were in 2003. As you will recall, 2004 and 2005 saw tremendous and often unrealistic growth. The market has now corrected itself. Many properties doubled in value during that time, so a drop of half the value is not unrealistic right now if a seller needs to sell.”

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Where People Will Find Themselves Under Water with Their Mortgages

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Under water means owing more than it is worth.

Top 10 Places Where the Housing Bubble Will Bust
The current housing bubble first reared its ugly head in 1997. Prices began to climb so rapidly that they quickly became unaffordable for potential buyers making the median household income. By 2006, some of the air started being released from the bubble, and now the balloon is on the verge of busting.

What Goes Up…Must Come Down
Experts say that prices need to fall to 1997 levels to be sustainable.

Which experts? Nice Chart though. Also, there is always an overshoot.

Metro Area 2007 Price 1997 Price* % Decline to Return to 1997 Prices
SF-Oakland-Fremont, CA $748,100 $288,484 61.4
Miami-Ft Lauderdale, FL $385,300 $148,900 61.3
Riverside-San Bernardino, CA $404,400 $157,011 61.1
Sarasota-Bradenton, FL $337,000 $135,977 59.6
Los Angeles, CA $589,800 $241,976 58.9
San Diego, CA $595,200 $249,553 58.0
Orange County, CA $697,300 $293,362 57.9
San Jose-Sunnyvale, CA $788,000 $390,660 50.4
Nassau-Suffolk, NY $479,800 $240,933 49.7
Sacramento, CA $365,500 $196,738 46.1

*1997 prices have been adjusted at the general inflation rate and are reported in 2007 dollars.

Note also, that anyone who got a conventional old fashioned mortgage, 20% down, fixed rate, will be under water in these locations, and in many more not shown.

For those with interest only, no money down, negative equity, 5% down, etc., these numbers will be much higher.

Some Things Never Change

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One of these things is that you will never find a more useless, self-centered, inbred, addle brained royal family than the House of Habsburg.

That being said, why the hell did this guy, get this back in the first place? Its a national treasure, not a plaything for the idle wealthy.

The estate is a duty to those who choose to serve their land in word and deed as nobility, not a toy to be discarded when bored.

Heir puts ‘Dracula’s Castle’ for sale

By ALEXANDRU ALEXE, Associated Press WriterMon Jul 2, 2:18 PM ET

A Habsburg heir is hoping someone will take a bite of his offer Monday to sell “Dracula’s Castle” in Transylvania.

The medieval Bran Castle, perched on a cliff near Brasov in mountainous central Romania, is a top tourist attraction because of its ties to Prince Vlad the Impaler, the warlord whose cruelty inspired Bram Stoker’s 1897 novel, “Dracula.”

Legend has it that the ruthless Vlad — who earned his nickname because of the way he tortured his enemies — spent one night in the 1400s at the castle.

The Habsburgs formally put the Bran Castle on the market Monday, a U.S.-based investment company said. No selling price was announced.

Bran Castle was built in the 14th century to serve as a fortress to protect against the invading Ottoman Turks. The royal family moved into the castle in the 1920s, living there until the communist regime confiscated it from Princess Ileana in 1948.

After being restored in the late 1980s and following the end of communist rule in Romania, it gained popularity as a tourist attraction known as “Dracula’s Castle.”

In May 2006, the castle was returned to Princess Ileana’s son, New York architect Archduke Dominic Habsburg. He pledged to keep it open as a museum until 2009.

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Opposition lawmakers have claimed the government’s decision to return the castle to Habsburg was illegal because of procedural errors.

Rich People Are the Only Ones Still Buying Houses in NY.

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Condos in New York are seven figure, and sometimes eight figure purchases.

The very well off, as opposed to the hyper-rich, cannot afford this, and they buy into co-ops.

The housing market is losing ground everywhere except with the at the very, very, very, top.

Co-ops Slip, but Condos Lead Rise in Manhattan Apartment Prices
By CHRISTINE HAUGHNEY

While housing prices are falling in many parts of the country, the cost of a Manhattan apartment is continuing to rise over all. But a stark divide is emerging between the prices of co-ops and condominiums. More buyers are choosing condominiums over co-ops and are paying far more for them, according to studies being released today.

The average price of a condo in Manhattan rose by as much as 28 percent in the second quarter of this year compared with last year, according to data tracked by four large real estate brokerages. In the same period, the average co-op price dropped by as much as 10 percent. Buyers paid an average of $1.49 million for a condominium, compared with $1.13 million for a co-op, according to figures from Brown Harris Stevens.

Brooklyn did not share Manhattan’s price rise. There were more deals, but the average apartment price dropped by 4 percent, to $629,000, compared with last year, according to data from the Corcoran Group.

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