Real Estate Blog

Its time to take some time off and recharge. All the excitement of the “08:08″ events wore me out.

And while we are considering lower oil prices, lets actually try to consider fixing the financial system problems of today. It really calls for a series of meaning regulatory overlays, not a bunch of restrictions. Here’s an interesting point of view:

Professor Shiller thinks our bankrupcty laws need to be overhauled as one of the fixes for financial system meltdowns:

Current bankruptcy law, and the system of bankruptcy courts, were put in place by Congress with the help of organizations like the American Bankruptcy Institute, the International Swaps and Derivatives Association and the Securities Industry and Financial Markets Association. It’s not shocking that these groups seem to have approached the problem of bankruptcies largely as narrow specialists, thinking mostly of the interests of their clients, rather than of the economy as a whole. We can’t expect securities lawyers to focus on issues like threats to consumer confidence or, for that matter, disruptions in the labor market.

But someone needs to do it.

An like any period of upheaval, there are winners, and there are losers.

Or better yet, think about our ability to to craft new laws to solve our problems.

And while you’re at it, think about this as a complete sentence while I am away:

Buffalo buffalo buffalo buffalo buffalo buffalo buffalo buffalo.

Does this make sense? Of course, not. That’s why I am taking a break.

Read the original here:
[Matrix Hiatrix] 08:08:08:08:08 Aftermath, It’s All Buffalo

This week, I decided to set a table and look at what is happening in the market as measured by dollars, not percentages in Three Cents Worth, my regular post on Curbed. Without a chart, I am expecting a lot of grief. Take a number, not a percentage.

Click to view post.

Check out previous Three Cents Worth posts.

Excerpted from:
[Curbed] Three Cents Worth: Table Change By Dollar, Not Percent

Source: RedKid

Just when I was able to cite “OFHEO” and Office of Federal Housing Enterprise Oversight (who comes up with these names?) from memory, along comes a new agency created from the Housing and Economic Recovery Act of 2008 recently passed into law.

FHFA: Federal Housing Finance Agency. No web site yet - I tried www.fhfa.gov

It has to compete with a bunch of others organizations that use the same acronym:

FHFA Fairfax Hispanic Firefighters Association (Virginia)
FHFA Fairly Homogeneous Farming Area
FHFA Family Health Foundation of America
FHFA Federal Housing Finance Agency
FHFA Florida Health Freedom Action (South Miami, FL)
FHFA Florida Home Furnishings Association
FHFA Florida Housing Finance Agency
FHFA Foot Health Foundation of America

I am hopeful the new agency will be better suited to provide better oversight than OFHEO did. OFHEO was essentially a rubber stamp for the GSEs until a few years ago when the FNMA accounting scandal woke it up. A new director took the reigns at OFHEO, James Lockhart, who seems to be doing all the right things (and one heck of a lot of press releases).

From the latest press release, it looks like the current director of OFHEO had a big hand in creating the new agency, FHFA. Since Lockhart has been pretty coherent, I’ll try to consider this as a good thing.

No web site, no information on the structure. Nothing but a press release so far. We’ll have to wait. Of course, credit and liquidity are very limited and need to be fixed before housing takes a turn for the positive, so I hope its not too long.

Takeaway: Odds are government will move too slow to provide meaningful solutions to the credit crunch in a world that moves much faster. In fact, the lack of action over the past several years set the stage for the condition we are currently in so I am not sure what we are waiting for.

By the way, freecreditreport.com …isn’t.

Credit:
[Acronym Update] FHFA From OFHEO Over GSE With HUD And FHFB

Good grief, I am in slow motion this month.

The Federal Open Market Committee kept the rate at 2% for the second straight meeting yesterday. The WSJ breaks out the announcment FOMC statement in a regular feature called Parsing The Fed.

Hint: Falling Oil Prices AND Falling Housing Prices

Two meetings ago, I suggested the Fed would hold for a while. I’ll stick to that with the slight modification that I would think they will raise rates after the November election. It’s a tough call because inflation concerns, while real, are…well, inflated.

Mortgage rates are not doing much and banks are being forced to enjoy the spread between what they can borrow from the Fed (federal funds rate) and what they can lend (mortgage rates). The large losses are likely being released by financial institutions piecemeal: so as to not scare their stockholders combined with the lack of mortgage rate reduction suggests a lot more losses that are going to be announced over the next few quarters.

On top of it, a bleeding Freddie Mac will need to capitalize too.

Forget drinking milk, here’s how to win at rock, paper, scissors.

Excerpted from:
[FOMC 2%] Milking The Pause

Here’s an interesting chart given to me by someone (not a Realtor) who attended a presentation by the Leslie Appleton-Young, Chief Economist of the California Association of Realtors in July.

It is using data provided by ForeclosureRadar.com, the firm featured in that CBS 60 Minutes piece a while back and shows broad disparity within Sacramento, California by area divided by a highway. On the left features new developments, peppered with the damage of speculators and subprime.

I have long said that there is “no national housing market” and that macro real estate data can be misused or misinterpreted.

Let’s take foreclosures.

Are they are growing problem? Yes.
Can they represent as much as half the sales in a market (ie Sacramento)? Yes.
Is it a serious issue that will get worse before it gets better? Yes.
Will millions of homes be foreclosed in the next few years? Probably.

Is every town (are most towns) in America experiencing massive foreclosure activity right now? No.

View original here:
[Drawing The Foreclosure Line] A Picture Tells A Story

Hey, after a gauntlet of market report releases for the month of July, I’ve been sort of AWOL for the past several days. Hey. It’s summer. Tomorrow I ride on a rollercoaster…literally.

Last week, the FASB decided to delay the proposed accounting rule that keep banks from hiding assets via special purpose entities (SIVs)

The rules were tightened, but criticism erupted again last year after some banks suffered large losses from structured investment vehicles and other entities that had been kept off balance sheets under the rule.

Everyone seems to want less regulation:

SEC Chief Warns against Investment Bank Regulations

“Rather than extend the current approach of commercial bank regulation to investment banks, I believe Congress and regulators must recognize that different regulatory structures are needed for oversight of these industries,” Cox said. “Put simply, regulatory reform should not, and need not, amount to the elimination of the investment banking business model.”

The Mortgage Bankers Association was relieved about the delay, likely because it will give them more time to modify or prevent the change from happening.
Kieran P. Quinn, CMB, Chairman of the Mortgage Bankers Association commented in the press release about the impact of new rule on credit liquidity. (Incidentally, I am guessing this is the same Kiernan I spoke to fairly often as one of our mortgage clients. He was a straight shooter who was very loyal to firms who provided high quality appraisal work. So admittedly, I give more weight to what he says…). He today commented on the decision by the Financial Accounting Standards Board (FASB) to delay, by one year, implementation of a forthcoming proposal that would bring sweeping changes to securitization accounting.

Consolidation of securitization QSPE is likely to swell the balance sheets of the affected entities, adversely impact financial ratios, financial covenant performance and regulatory capital tests; and bring a new chill to credit markets at the exact time when all market participants are working to relieve the current credit crunch. We look forward to working with the FASB to implement the changes and make this transition as smooth as possible.

The full disclosure catch-22: If the accounting rule is implemented, the use of SIV’s and other off balance investments will be sharply curtailed,

1…causing the ratios to show an increased need for more capitalization which equals less liquidity in the market, which is just what the credit markets don’t need.

2…preventing what got us here in the first place - a lack of understanding about the true risk associated with a given lender.

So we need to ask ourselves a question…Do I feel lucky?” Well, do ya, punk? In other words, do we want greater liquidity to help housing out of its current mess, or do we instill the basics in a financial system that lost its way? I seem to remember last year at this time, we got in the credit mess because of the lack of disclosure, no?

If we feel lucky, we can ignore issues where we think there is a wide margin for error without the risk of serious consequences.

Or do we stand in line and get the new iPhone 3G?

Full disclosure: I finally got my Apple lemming fix and waited in line at the Apple Store. Was in the store with my son getting a 6 year old laptop resuscitated (couldn’t) and stood, on a whim in the line for the iPhone in front of the store. The Apple employee informed us the store had 7 iPhones left for the 10 customers in line. She also informed me that some of the people may not be able to get out their existing phone carrier contracts and may exit the line. A few minutes later, the first person left. 2 more to go. Was wishing I had a voodoo doll handy. 5 Minutes later, the next person in line was informed by his wife via phone that it would be a cold day in hell before he was buying another cell phone. One person in front of us in line with no one behind us. Like the man on the bubble position at the Indianapolis 500. The last remaining customer was speaking with ATT and getting more and more aggravated. My son and I winked at each other because the prospects looked good. 10 minutes of wrangling the store manager on the phone, pleading and scolding the telcom rep were unsuccessful. An Apple employee came to me congratulating me as if I won the Publisher’s Clearinghouse Sweepstakes. A few cheers were made by Apple employees as I was taken into the store. The white 16 Gig iPhone 3G was mine…(as long as I bought an ice cream cone for my 9 year old who patiently waited the half hour with me).

Credit:
[Waiting In Line] Disclosing The Delay For Balance Sheet Full Disclosure

I think the future holds more licensing requirements in store for real estate professionals. After entering a credit crisis like we are currently experiencing, all professionals connected to the real estate industry may face new licensing or additional requirements.

In an interesting piece written by two economists—Fed visiting scholar Morris Kleiner, of the University of Minnesota, and Richard Todd, vice president of Community Affairs at the Minneapolis Fed called Licentious Behavior:

On the face of it, this makes perfect sense: If incompetent or dishonest brokers have encouraged borrowers
to take out loans beyond their means, then targeting
these abuses through stricter governmental requirements on brokers should help prevent future problems.

But a recent empirical examination by two Fed econ-
omists casts doubt on that solution. In the first compre-
hensive assessment of relationships between mortgage
broker licensing and market outcomes, the economists
find that most regulatory steps appear to have no clear
connection to consumer outcomes, but one financial
regulation (surety bond and minimum net worth
requirements) is consistently related with conditions
that seem worse for both brokers and borrowers.

Deja Vu

The appraisal industry faced new licensing requirements in 1991 as a result of the S&L crisis of the late 1980s. Think Vernon Savings & Loan and property values being appraised higher every few hours by appraisers who must have possessed incredibly precise and masterful valuation skills and adequate supporting data (yeah, right).

Appraisers ended up being licensed, waiting in line with other professionals in the testing centers such as pool cleaners and hair stylists.

Appraisers were part of the problem in the current credit crunch as well. Licensing did not prevent bad appraisers from crossing the line then or now. In fact, I would venture to guess that the quality of the average appraiser (not the median) declined sharply after implementation of licensing 17 years ago.

Was it licensing that created the deterioration in quality of appraisers?

No. It was a bigger systemic problem but it did play an unintended role. Licensing of any profession provides a false premise of quality. In this case it was presented to the mortgage industry, but more importantly, allowed a shift in liability to the appraiser who had a freshly painted bullseye on his or her back.

Licensing alone does not promote better quality work.

Quality only gets noticeably better by an incentivized private sector who is enticed through regulation to require better quality reports. It is not enough to say you “can’t do something.”

Is licensing a good thing?

Absolutely. It provides a minimum barrier to entry and a process to allow for the removal of bad appraisers from the business.

Licensing alone won’t improve quality, however. An example would be a town whose police department cracks down on speeders - this alone doesn’t make everyone a better driver, but it does play a role in improving safety. People still get into accidents when they have a drivers license.

A side benefit to municipalities becomes an important revenue opportunity for the licensing bureau, especially with a weakening economy in most of the country. Revenue funds some enforcement for blatant violations, and provides some oversight and regulation. I am fairly certain that a portion of earmarked licensing revenue ends up channeled to other departments, essentially defeating a primary argument for licensing.

What about mortgage brokers?

So for mortgage brokers who are on the verge of being licensed in New York state, with a economic slowdown already being felt, I think it is a long shot that this effort will be defeated.

Will it increase the quality of mortgage brokers in New York state? I doubt it, only on the lower fringe.

I saw first hand the basic financial conflict in their role as commissioned provider of mortgage business, paid only if the loan closed. As in every profession, there are good and bad “professionals.”

All who touch the mortgage should to be licensed, at the very minimum.

Original post:
Licensing Doesn’t Really Work, But A Necessary Revenue Opportunity

Decided to look at the length, width and height of the market in Three Cents Worth, my left side of the brain attempt for clarity on Curbed. This week I am full of luxury.

Click to view post.

Check out previous Three Cents Worth posts.

Read the rest here:
[Curbed] Three Cents Worth: Luxury Speaks Volumes About Condos

The online version of the Prudential Douglas Elliman 2Q 2008 Hamptons/North Fork Market Overview [Miller Samuel] is available for download.

I have been writing various incarnations of the New York regional market report series for Douglas Elliman since 1994.

To build Hamptons/North Fork custom data tables

To view Hamptons/North Fork charts

An excerpt

…The upper price range of the housing market continues to outperform the overall housing market. In each of the past four quarters, the luxury market, defined as the upper ten percent of all sales, saw a higher year over year quarterly increase in median sales price than the overall market. The luxury market increased 10.3% in median sales price and the overall market declined 9.2% in median sales price compared to the same period last year. The market area south of the highway consistently has the highest overall prices as compared to the areas to the north and on either side of the canal. Of the four regions, only south of the highway saw an increase in median sales price of 1% as compared to the prior year quarter…

Download report: 2Q 2008 Hamptons/North Fork Market Overview [pdf]

Credit:
[East End] 2Q 2008 Hamptons/North Fork Market Overview Available For Download

Ok, now we are getting somewhere, albeit slow as molasses.

Treasury Secretary Paulson is pushing for covered bonds as a financial instrument to create more liquidity for US mortgages.

From my perspective, these are the types of things that have to happen for the US to see our way out of this credit crunch.

Covered bonds are debt securities backed by cash flows from mortgages or public sector loans. They are similar in many ways to asset-backed securities created in securitization, but covered bond assets remain on the issuer???s consolidated balance sheet.

The key here is recourse. In other words, if the bank goes under the bond holder has “recourse.” A basic concept but became obsolete during the securitization hay day because as it turned out, the bond holders had little recourse since the asset was split into so many pieces, it was very difficult to track down the asset.

Covered bonds are big in Europe.

Paulson issued best practices guidance (is that corporate speak or what?) to try to get the market jump started and was joined by FDIC, OTS and OCC as well as Bank of America, Citigroup, JP Morgan Chase, and Wells Fargo (WaMu and B of A have experience in these instruments). I wonder if WaMu didn’t attend because they are simply trying to survive?

Bankers involved in the field reckon that a US covered bond market could ultimately outstrip the roughly ???2,000bn European market. However, it faces limitations in the near term due to restrictions placed on the bonds’ treatment by the FDIC, which importantly has oversight of banks if they become insolvent.

For example, the FDIC said banks should be restricted from using covered bonds for more than 4 per cent of their funding in order to avoid depleting the assets available to repay ordinary depositors and other unsecured creditors if a bank failed.

In the US, the cost of issuing covered bonds and the FDIC restrictions mean they could lie low in the pecking order of banks’ funding preferences, at least initially, according to analysts at Citigroup. Funding through Fannie and Freddie or through the Federal Home Loan Banks both appear more attractive for now, the analysts said.

FDIC created an expedited procedure for recourse for bond holders in the spring. Covered bonds are capped at 4% of total liabilities so its not a major fix, but it’s a start.

Here’s a better explanation, in the way that only Felix Salmon can provide.

The investors have to be brought back into the fold.

I repeat:

“Covered” seems to be a synonym for collateralized, but it also has other meanings that may be appropriate in this effort to salvage the housing market. Think of covered wagons, which can be circled in times of crisis. With banks reluctant to lend their own money for mortgages, and the private securitization market quiescent if not dead, the cost of mortgage loans has been rising even as housing prices fall, making a bad situation worse. At best, a covered bond market would provide a cheaper source of financing for banks while reassuring investors that their money is safe.

Essentially investors would buy into a pool of mortgages that would be kept on the balance sheet of the bank that made the loans. These would be high-quality loans, and at the first sign of trouble in the underlying mortgages, those mortgages would be replaced in the mortgage pool. Thus, investors would be assured of repayment unless the underlying mortgages suffered major losses and the issuing bank failed. That might make investors burned by existing mortgage securities more willing to return to the market.

At best, a covered bond market would provide a cheaper source of financing for banks while reassuring investors that their money will be safe. It is highly unusual for the government to take such a major role in getting a market established, but Treasury officials said their action was needed to get more money into housing loans.

Paulson may not be a good public speaker, but he brought something tangible to the table.

And credit for his move is covered. (ok, sorry)

View original here:
[Covered Wagons] Roof + Covered = A New Bond Market

I have been knocking around the concept of whether the GSEs should be become government agencies. It’s a strange predicament for the taxpayer, because of the implied guaranty that was bestowed on the GSEs by the federal government (strangely, to make President Johnson’s Vietnam War budget look more palatable).

That long debated guaranty was made tangible this past week with the housing bill that just passed both sides of Congress. The federal government, since the late 1960s, finally showed the public that the GSEs are too big to fail.

There was an ongoing concern that the GSEs were getting too big…

The dilemma for me is the fact that the taxpayers bailed out the GSEs. It could cost nothing, or as much as much as several 100 billion dollars, depending on how the economy and the housing market holds up.

This liability to the taxpayer is a significant financial benefit to the shareholders of GSE stock, perhaps bolstering their share price above where it may have fallen. Take on liability without future reward.

Of course it is also of significant benefit to the taxpayer to keep a key component of the housing market afloat, a lynchpin of our economy.

A short essay by Alice Rivlin of the Brookings Institution, covers this territory in:
Do We Want Fannie Mae Public or Private?.

My cynical laissez-faire side says that government could not have managed this situation any better than the private sector did and vice versa. Look at how HUD has played a nominal role in solving this problem. Private sector innovation with actual, real, engaging, competent, regulatory oversight.

Not just government oversight…

Indivuduals need to reconsider placing themselves in harm’s way, financially.

Last week’s Op-Ed article by David Brook’s The Culture of Debt suggests that:

People don’t change when they see the light. They change when they feel the heat.

That Op-Ed piece inspired an hilarious response from a reader (hilarious to me, anyway):

Mr. Brooks does not mention one important reason societies develop good habits or bad ones: Our leaders can have transformative impact.

Franklin D. Roosevelt calmed us down. John F. Kennedy got us to volunteer. Ronald Reagan made us less dependent on government. George W. Bush could have asked us to sacrifice. He didn’t. His post-9/11 advice was to go shopping. Obviously, too many of us did just that.

Read the original post:
[Culture Of Debt] Should We Keep Our Fannie Private? Or Go Shopping?

Last week I was attending the Inman Real Estate Connect in San Francisco and was contacted by Fox to discuss the latest RealtyTrac foreclosure numbers just released that day and the conversation spilled over into other related topics such as the Housing bill.

The segment was to air live at 7am EST time, 4am in San Francisco, and I had to get their by 3:30am, meaning I got up at 2:45am. Well, sleep is overrated anyway.

Alexis Glick was the host - she’s sharp and thinks at 100mph. Always a pleasure. Here’s her blog post on the segment. She seemed pretty excited about the foreclosure features on Hotpads.com.

After the segment, I teased my colleague at RealtyTrac, thanking them for giving me content and for giving me a reason to wake up at 2:45am.

What’s particularly interesting about the foreclosure numbers is that 16 of the 20 major metro areas tracked were located in California and Florida. I think that the average consumer thinks half of all sales in their locale are foreclosures which is simply not true, however, it is a serious concern. I keep harping on the lack of activity in the MBS markets and lack of liquidity out there.

All else feels like “cart before the horse.” Until financing is more readily available I find it hard to see much of an end to this mess in the near future.

Here’s the clip

Here is the original:
[In The Media] Fox Business Network Money For Breakfast 7-25-08

I thought I wouldn’t make it there:

Here’s a glass is half empty whining, seeking empathy recap:

• Drove to JFK, pouring so hard traffic would periodically come to a stop on the expressway
• JetBlue flight was packed, with warm air blowing like a convection oven at about the halfway mark
• Two kids, about 3 and 4 years old, screaming, fighting and crying for 6 hours directly behind me, parents oblivious or helpless
• Two people next to me became fast friends, speaking so loud for 6 hours straight, I couldn’t tune them out with my iPod. I now know their mortgages, financials, plans to divorce, how they met their spouses in intimate detail
• My tv screen went black halfway into the flight
• Room wasn’t ready for 2 hours at the hotel
• Apple store across the street ran out of iPhones 20 minutes before I got there, and were surprisingly rude

Here’s a glass is half full, glad to be here in San Francisco summary:

• But I made it, alive
• 65 degrees, sunny (perfect)
• Met a ton of old friends, long time online friends finally in person
• Brad Inman can still put on a show
• Chief Economist at BofA main session gave great, forthright overview
• Listened to Craig Newmark - quirky and endearing, “Constitution gets used again after the election” discussion (plus, as an added bonus, Craigslist discussion)
• Hung out with Dustin Luther, saw his terrific presentation at the main conference
• Winced at hyperinflation talk (1000%, 20 years, without factoring in corrective market forces) but otherwise loved the bull vs bear discussion, and at the end decided I didn’t need to jump off the Golden Gate
• Couldn’t twitter during the conference, no ATT reception on the main conference and didn’t realize how simple the wireless password was. duh!
• Went to the Trulia BBQ - on the trolley and spoke at length with the Marker Man who had to turn sideways to fit - best (only) meatballs I have ever had in SF
• Had dinner with some of the smartest econ bloggers out there - UrbanDigs, Naked Capitalism, Calculated Risk and their better halfs
• Realized it was about 2:30 am EST and had to end the evening without going to the Curbed party (I know, serious wimp)

Going to cook some more today.

Read more from the original source:
Inman SF, A Convection Oven Of Information

You gotta love Jon Stewart of the Daily Show. He is making news more accessible to young people (my kids and, of course, me) by delivering it as entertainment. He’s had some interesting guests on the show to cover the housing market. The housing market situation is so ridiculous, it is a natural fit on this kind of show.

John Stewart: People would come in and say “I don”t have good credit, or a job, and my car has been repossessed and I’d like a house, what do you think?

Lender: Ok

Last night I saw the interview with Richard Bitner who is humping his book, Confessions of a Subprime Lender. I was in a BN a few weeks ago and almost picked it up. I had read the interesting review in Daniel McGuinn’s Newsweek Resident Expert column in the spring but was already OD’ed from subprime talk.

But after hearing the interview last night, and the fact that he speaks with such clarity, I would imagine it’s a fun read. He was a wholesale lender, providing mortgage money to mortgage brokers…and guess what?…underwriting standards eroded.

Looks like another reason to delay reading War & Peace.

See the clip [it starts at 15:00]

Read the original:
[This Just In] There IS Meaningful Housing News On Comedy Central

I think most of us love Google or the idea that we can pretty much query anything at anytime. Two days ago Ray over at Money Blue Book told me this blog, Matrix, was no longer indexed on Google.

Huh?

I reached out to friends like Chris Miles and Dustin Luther to figured out what to do - it’s never happened before and since I didn’t change anything on the site recently, I didn’t know where to start. We ended up poking around and found advertisements for viagra embedded in my sidebar (WordPress). I’d been hacked!

I went to this page My site’s no longer included in the search results. What happened?

…not much help!

I went to my Google Webmaster Tools page and sent a reconsideration letter (allow 4-6 weeks for changes).

Its the “Guilty Until Proven Innocent” law of the Internet - after all, it is only a series of tubes.

See the rest here:
[Big Bang Theory Meets Black Hole] Google De-Indexes Matrix