Real Estate Blog

On Monday, all of the financial world turned its ears to announcement that the United States is indeed in a recession, confirmed by the National Bureau of Economic Research. Of course, most of us who have followed the state of the economy already knew this, and are likely shaking their fists at the powers that be and the Kool-Aid drinkers, collectively crying “Told you so!”

The recession, as many of you are already aware of, began as a result of declining home values, and many analysts have stated that the economy will continue to deflate until the housing markets show signs of recovery.

There have already been some positive news bubbling up in the housing market. Mortgage applications increased by a record amount last week, spurred by the Federal Reserve’s announcement that it would purchase mortgage-backed securities, and would be open to making further cuts in prime interest rates.

Additionally, sales in some of the country’s most depressed regions have been recovering, including California and Florida. These regions happen to be the wealthiest of wealthy, so as always in real estate, location is everything. Last month in California’s Orange County region (where yours truly spent some of his college years, yes that OC) sales rose 66% year-over-year. That figure is an astonishing jump, something that should have the market cheering.

Now, the Treasury is mulling a plan that will push mortgage interest-rates down to 4.5% with some help from Fannie and Freddie, after last week announcing that they would be purchasing mortgage-backed securities in an effort to restore liquidity. It’s hard not to be suspicious of plans to artificially inflate a sagging market, especially when it is beginning to show signs of recovery on its own. Artificially low interest rates are what contributed to the boom and bust in the first place. Touting them as a solution seems astoundingly short-sighted, especially when our nation’s spending limits could be cut by nearly $2 trillion, via lines of credit that banks will be reducing or eliminating in order to shore up their balance sheets. Analysts are saying that this could potentially cause housing prices in some areas to drop by another 20%. By that line of thought, banks would essentially be corroding their own balance sheets. Is that what million-dollar executive salary structures are for? To restrict liquidity to consumers when the Fed and Treasury are trying their hardest to restore that liquidity?

One thing is for sure: anyone who has waited until now to buy a home in this decade should be feeling fairly good about themselves.

Share This

Here is the original:
Signs of Recovery, Signs of Stupidity

On Monday, all of the financial world turned its ears to announcement that the United States is indeed in a recession, confirmed by the National Bureau of Economic Research. Of course, most of us who have followed the state of the economy already knew this, and are likely shaking their fists at the powers that be and the Kool-Aid drinkers, collectively crying “Told you so!”

The recession, as many of you are already aware of, began as a result of declining home values, and many analysts have stated that the economy will continue to deflate until the housing markets show signs of recovery.

There have already been some positive news bubbling up in the housing market. Mortgage applications increased by a record amount last week, spurred by the Federal Reserve’s announcement that it would purchase mortgage-backed securities, and would be open to making further cuts in prime interest rates.

Additionally, sales in some of the country’s most depressed regions have been recovering, including California and Florida. These regions happen to be the wealthiest of wealthy, so as always in real estate, location is everything. Last month in California’s Orange County region (where yours truly spent some of his college years, yes that OC) sales rose 66% year-over-year. That figure is an astonishing jump, something that should have the market cheering.

Now, the Treasury is mulling a plan that will push mortgage interest-rates down to 4.5% with some help from Fannie and Freddie, after last week announcing that they would be purchasing mortgage-backed securities in an effort to restore liquidity. It’s hard not to be suspicious of plans to artificially inflate a sagging market, especially when it is beginning to show signs of recovery on its own. Artificially low interest rates are what contributed to the boom and bust in the first place. Touting them as a solution seems astoundingly short-sighted, especially when our nation’s spending limits could be cut by nearly $2 trillion, via lines of credit that banks will be reducing or eliminating in order to shore up their balance sheets. Analysts are saying that this could potentially cause housing prices in some areas to drop by another 20%. By that line of thought, banks would essentially be corroding their own balance sheets. Is that what million-dollar executive salary structures are for? To restrict liquidity to consumers when the Fed and Treasury are trying their hardest to restore that liquidity?

One thing is for sure: anyone who has waited until now to buy a home in this decade should be feeling fairly good about themselves.

Share This

More here:
Signs of Recovery, Signs of Stupidity

A guest post from Constantine von Hoffman, veteran business journalist and author of the blog CollateralDamage.biz, a satirical look at marketing and business.

Latest news has it that the Treasury Dept. is thinking really hard about maybe using some of the $700 billion from the Troubled Assets Relief Program (TARP)to do something about home foreclosures.

Neel Kashkari, who has to administer the Troubled Assets Relief Program, told Senators, “We continue to aggressively examine strategies to mitigate foreclosures and maximize loan modifications.” It is well worth noting that Kashkari offered no actual details as to what this might mean.

This doesn’t seem to indicate any change in Henry Paulson’s willingness to consider an FDIC plan to help homeowners. “Under the FDIC proposal, the government would seek to encourage lenders to modify loans by offering to share the cost of any defaults. The FDIC has said its proposal could prevent about 1.5 million foreclosures.” Paulson has said that use of TARP money for this would be a misuse of the funds. This is odd given his willingness to spend the money on just about anything except homeowners.

On the bright side: He’s only got 47 more days on the job.

Fortunately FDIC chair Sheila Bair is in her post through 2011. She does seem to be the only major player in all this concerned with only helping homeowners. And she wants to know how we will get out of all this, too. On Tuesday Bair said that if the government doesn’t devise a way out of its massive financial rescue plan it runs the risk of  becoming a crutch for banks and other institutions over the long term.

“We really need to think through the exit strategy because (government guarantees) could become a crutch,” she said. Weaker financial institutions “need to be allowed to fail,” Bair added.

Bair certainly does seem to be leaning towards some sort of plan built around the Bank of North Dakota model. What’s that, you ask?

Maybe it’s time to try something new. Maybe it’s time for state governments–with federal help–to start some new banks with clean balance sheets that can begin lending on the day they open their doors. There is precedent for this.

There is the Bank of North Dakota. The BND was established by the state of North Dakota, which owns it, in 1919. The reason for its existence is that the farmers and small businessmen of the state were confounded by the same impossibility to secure loans back then that has frozen the nation in place in 2008. The banks were not lending, so the state started a bank which did lend and does to this day. It is making student loans and other kinds of loans that are unavailable elsewhere. The bank is the depository institution for the State of North Dakota’s funds and it also accepts deposits from ordinary people and businesses. Since it is a socialistic institution, not intended to make a profit, it does not have a motive to misbehave, as our private enterprise banks have done.

Any state can start its own bank using the funds it has deposited in private banks. That comes to many billions, and withdrawing so much money at one time could be all that is needed to send any number of banks into death throes. So the switchover would have to be carried out gradually with the federal government, which is so free and easy with its cash, supplying the startup money. (Nepotism alert: author of the above is Nick von Hoffman, my father.)

The BND is a non-profit with very limited services and is not FDIC insured, so it isn’t really a competitor to the commercial banks. It is worth noting that the BND has never in 90 years lost money.

In the spirit of bipartisanship — and common sense — why didn’t Bair get a Cabinet post?

Share This

Treasury thinks about maybe spreading TARP to foreclosures

The Securities and Exchange Commission (SEC) is getting tough on credit rating agencies. A series of measures announced on Wednesday, December 3, would impose additional requirements on the credit reporting agencies in an effort to increase transparency and accountability. Consumers, investors and lenders may even end up getting more meaningful ratings.

These comprehensive rules touch every aspect of the credit rating process - from conflicts of interest, to publication of ratings methodologies to disclosure of ratings track records,” explains SEC Chariman Christopher Cox.

The proposed rules are the result of an extensive examination of the three major credit ratings agencies recently concluded by the SEC. The examination, which lasted 10 months, revealed significant weaknesses in ratings practices.

“One of the significant weaknesses in the credit rating process has been that while the credit rating agencies often relied on other to verify the quality of assets underlying structured products - and thus their ratings were vulnerable to reliance on incorrect information - there was frequently inadequate explanation of the limitations of the ratings of these products,” Chairman Cox said. “Just as significantly, conflicts of interest ingrained into the business models of credit rating agencies were amplified as structured products were specifically designed to achieve high ratings for certain tranches and as credit rating agencies sought to gain business and market share by assisting in this process.”

This is the second set of reforms proposed by the SEC since June 2007 when Congress granted the Commision the authority to Register and oversee credit rating agencies. The Credit Rating Reform Act ended nearly a century of self-policing by the credit rating agencies who act as financial gatekeepers determining who can borrow funds and at what cost (interest rate). Some would also say that credit ratings have become a means of assessing a person’s or an organization’s trustworthiness and moral character.

Credit scoring cannot help but provide a moral context for making credit decisions. To be creditworthy is to be trusworthy,” says credit evaluation and financial identity researcher Josh Lauer, assistant professor of communication at the University of New Hampshire. “At a fundamental level, credit evaluation is an effort to determine whether a given person can be trusted.”

According to Chairman Cox, ten credit rating agencies have registered with the SEC since the Act passed in 2007. This represents an increase of 43 percent in the number of nationally recognized statistical rating organizations. Despite the increase in competition, three firms - Fitch Ratings, Standard & Poor’s and Moody’s - continue to dominate the 45 billion-a-year credit rating industry, according to the Associated Press (AP).

The public has 45 days from the date the proposed amendments are published in the Federal Register to submit comments to the SEC. The AP reports that some critics are already sayign the proposed rules do not go far enough while spokespersons for the three major credit rating agencies have already expressed their support for the measures.

A Fact Sheet containing additional details on the proposed rules can be found on the SEC website at www.sec.gov.

Share This

Original post:
Making Credit Rating Agencies Credible

A great graph by EconomPicData shows just how much of the cash dolled out by Hank Paulson will actually remain in the system.  The bottom line?  From the $125 billion handed out to-date to the largest 9 banking institutions a mere $17 billion will go towards recapitalizing the system.  The rest?  Yup - bonuses and compensation.

My head just exploded.

From EconomPicData via Alternet:

It turns out that the nine banks about to be getting a total equity capital injection of $125 billion, courtesy of Phase I of The Bailout Plan, had reserved $108 billion during the first nine months of 2008 in order to pay for compensation and bonuses.

Share This

View post:

I wrote a year ago about the site, Mortgage Lender Implode-O-Meter, being sued by a mortgage company for damages allegedly tied to the company’s listing on the site’s imploded lender list.  The claims were fanciful, with the lender claiming that their bank accounts had been drained by institutional warehouse lenders and other sorts of malarky that made the suit look exactly as it was: an attempt to simply shut-up the good folks at Implode by a brute force legal battle where they figured to have the upper-hand in capital to silence the critics.

The good news for all of us?  The community around Implode donated to the tune of $50,000 and the site and it’s owners had good legal representation that settled the case out of court.  The critics lost - they could not silence the new newsmakers and their reportage simply because it made them look bad.

But the battle was far from over, as more bloggers have been sued for critical remarks and coverage of the seedy underbelly that was the mortgage industry.  Companies have been sending threatening letters, making menacing phone calls, and dragging these individuals to court at an alarming rate to silence them and protect their company name.

The folks at Implode have soldiered on and in the meantime have become the de facto number 1 news source about the mortgage industry.  And because of this they remain under attack.

In October Implode was sued again for an expose that uncovered a  scheme that used FHA downpayment assistance, affiliation with Indian Reservations and some creative financing to provide a seller-funded downpayment grant program that seemed to run outside the law - at least according to Forbes and other sources.  I’m not an expert on the matter but the article itself seemed well-researched and documented to me and you can judge for yourself at: What the SFDPA Administrators Don’t Want You To Know: Part 1, The Penobscot Indian Tribe Down Payment Grant Program

Once again the owners of the company under the spotlight reacted with threats and eventual legal action against Implode.  You can read about the full suit here.

This is sending us all who write and comment on the industry down the dangerous path of simply being bludgeoned to silence by those that would rather bury the bodies and move on, without dealing with the consequences of the greed and malfeasance that permeated the industry over the last decade.  It cannot be tolerated or appeased and all of those who responsibly seek to uncover the truths of the past must be protected and supported against those who wish to silence them.

I urge you to support Implode and the people there who have become the preeminent information source on the industry meltdown in their goal to uncover and bright to light the ridiculous systems and schemes that were set up to generate millions of dollars during the boom from unsuspecting (or suspecting) participants.  Please give whatever you can.  Free speach is our most basic right, and ensuring that the industry is reformed is the only way to keep another housing-fueled meltdown from bringing this country to its knees again.

Share This

Credit:
Bloggers Under Attack - Part 2

Possession, they say, is nine-tenths of the law. Unfortunately, when the remaining tenth is a mortgage, both homeowners and renters can find themselves evicted as part of the foreclosure process.

Results of an email survey of community and state homeless coalitions conducted by the National Coalition for the Homeless indicate that nearly 61 percent of respondents were already seeing an increase in homelessness before April 2008 when the report was published. More than 37 percent of those responding stated people were able to rent which researchers believe was an indication that they were former homeowners who had lost their homes through foreclosure. The number of foreclosures has continued to increase since the survey was taken so the number of people who are homeless as a result of foreclosure is also probably grown.

Although the housing market has also slowed, not all of the homes vacated because of foreclosure are remaining empty. Across the country foreclosed and abandoned properties are being occupied by squatters. Most squatting is random and unorganized. People seek temporary shelter then move on. Recently, however, some organized attempts to move homeless people into vacant properties for extended residency are being made.

In California, SignOnSanDiego.com reports that individuals claiming to be part of a religious order called the Sovereign Solomon Brothers Archbishop Corporation Sole are filing flase grant deeds on foreclosed properties. They aren’t stopping there, either. They a moving tenants into the properties. some of the tenants may have been made homeless by foreclosure themselves. It is unclear whether the tenants knew their occupation of the property is based on questionable legal grounds. Since the recorder’s office is not responsible for verifying the authenticity of the documents being filed, it is often not until a property is resold and a new owner tries to move in that the situation is recognized. By then, determining who the rightful owner of the property is and who has the right to occupy it can take weeks or longer. At least one person has been arrested and charges with filing false documents in connection with this scheme.

A group of homeless activists calling themselves Take Back the Land has helped six families move into foreclosed properties in Miami, FL, according to the Associated Press (AP). This group also helps the families with used furniture, cleaning supplies and even landscape maintenence. No charges have been filed against either the group or the squatters. The City says it is the responsibility of the prpoerty owner, in this case the mortgage lender, to remove squatters or to file complaints that would allow law enforcement to take action.

It is not only recently vacated property that is being occupied or the homeless who are moving in. An “old house that was not properly locked up” became the hiding place for a fugitive in Vermont, WCAX.com reports. This situation demonstrates the dangers of squatting, both for the squatters and the community. In addition, vacant properties can pose health and fire hazards, as well as attracting criminal elements.

There are no quick fixes for the mortgage crisis, vacant properties or homelessness. The National coalition for the Homeless recommends requiring lenders nationwide to file foreclosure deeds within 30 days of the foreclosure sale in order to help identify the reighful owners and tenants of foreclosed properties. They also advocate protecting any existing agreements with tenants or renters and allowing their leases to survive the foreclosure process rather than automatically evicting them when the ownership fo the property is transferred to the mortage company or bank. Of course, the best solution is to help homeowner avoid foreclosure and prevent homelessness, not just during the current crisis but over the long term.

Share This

The rest is here:
Squatters and Foreclosure: Who Lives Here?

A guest post from Constantine von Hoffman, veteran business journalist and author of the blog CollateralDamage.biz, a humorous look at marketing and business.

News reports about yesterday’s 679 point drop in the Dow all blamed a study stating what was self-evident: We are in a recession and have been in one for the past year.

“The stock market suffered one of its worst days since the start of the financial crisis Monday as investors responded to a string of bad economy news by fleeing to the sidelines. Among the day’s events: confirmation that the U.S. has been in a recession since December 2007. ”

The problem with that explanation is that it doesn’t seem to make any sense.

Aren’t markets supposed to factor in widely available information and thus be “rational”?  To believe that explanation means accepting the idea that investors (and thus markets) are totally clueless about the actual state of the economy. Did anyone really think we were not in a recession?

When looking at the reason given for the market slide let us for a moment put aside the always plausible argument that many reporters are idiots and publish the first explanation they can understand. (Please note that I say this as one of the guilty.)

Actually, what has happened is that the idea of a rational market has become warped by general usage*. The idea of rational or “self-correcting” markets has suffered from bumper-sticker syndrome. Somehow this became: The markets know best. While journalists are certainly complicit in the spread of this interpretation, it is rooted in conservative ideology and has been used to further the argument that government economic regulation is bad.

For economists, the word rational is only applied to markets when joined with the word expectations. It was coined by economist John F. Muth to describe the many economic situations in which the outcome depends partly on what people expect to happen.

In the case of yesterday’s market plunge,  the markets were rational in that they lived up to everyone’s expectations. For some reason people briefly saw the announcement of a new Treasury Secretary as a reason for hope and thus the dead cat went up. This idea didn’t sit right with a lot of people – myself included – so investors used this report as a reason to move the markets back in line with their expectations. (Wait, did I just say the press may have gotten one right? Sort of. You know what they say about broken clocks, though.)

In case you haven’t had enough bad news ponder what people’s current expectations mean to the housing market.

*Sort of like evolution. The bumper-sticker version of evolution is: Survival of the fittest. In many people’s minds this has come to mean, “those who survive are the best.” In this usage, “best” has a moral connotation and implies that other species are inferior. In fact, evolution actually means: Species survive who can best fit into a particular ecological niche that allows them to prosper. (But try getting that on a bumper sticker.) Actually, the “fittest” animal on the planet today is ithe cockroach. There are at least 4,000 species of roach, fitting into more niches than you spray a can of Raid at. Feel free to declare them the best if you’d like.

Share This

More here:

I’m sad to share news that you’ve likely already heard, that Calculated Risk’s “Tanta” has passed away.  Doris Dungey (aka Tanta) was 47 and lost her battle with cancer.

Tanta was a hero of mine - she wrote with clarity, experience, wit and insight that I always admired.  I believe whole-heartedly that she was the best of the financial bloggers that have been covering this meltdown for years.

She was greatly respected and will be fondly remembered.  While I never met her, I did correspond via email with her and she was smart, sharp and warm in those exchanges.  I wish her and her family peace.  Thank you Tanta for opening the eyes of literally millions and bringing an insight that would have otherwise been lost.  You will be deeply missed.

More on Calculated Risk.

Share This

Read more:

Another guest post from MG Dungan who went from Wharton to Wall St. to real estate to Blown Mortgage.

The derivatives time bomb that Warren Buffet warned about several years ago has exploded. Here’s how it’s playing out around the world.

From the US:

The Fed:
“Federal Reserve chairman Ben Bernanke acknowledges he was wrong in believing that there would be limited fallout to financial markets from risky mortgages that soured after the housing market’s collapse.” ***Is this possible? Not his admission of having been wrong, but that he really didn’t know? I knew. Since you’re reading BlownMortgage you knew too***

”I and others were mistaken early on in saying that the subprime crisis would be contained,” Bernanke says in an article in the December 1 issue of The New Yorker magazine. The causal relationship between the housing problem and the broad financial system was very complex and difficult to predict,” he said in the piece titled ”Anatomy of a Meltdown.”

***Actually no, it wasn’t hard to predict at all. One thing has followed the other in—guess what—predictable fashion. The blogosphere has been plotting the course of the meltdown with stunning precision for a few years***

Almost as an aside, as of early this week, the Fed has now spent, guaranteed or promised about $8.5 trillion. This is up from $4.3 trillion on November 19, which was up from $3.8 trillion on October 31. And now we know that this spending is based on the judgment of someone who thought subprime could be contained.

The Auto Industry:

The WSJ reports: “Though it’s under pressure to trim costs and update its business plan to get federal bailout funds, Ford doesn’t like the idea of cutting its CEO’s salary. CEO Alan Mulally made $21 million last year; was asked in testimony last week on Capitol Hill if he’d accept a $1 salary, he replied, “I think I’m OK where I am.”

Via Bloomberg: General Motors doesn’t want the public tracking a private jet used by its executives, and has asked the Federal Aviation Administration to block it from its public service. “We availed ourselves of the option, as others do, to have the aircraft removed,” said a GM spokesman, though he didn’t say why the automaker, blasted on Capitol Hill for using private planes, took the step.

***The auto industry is a long way from sanity let alone solvency***

Caption: Car dealers stage a protest using this year’s unsold vehicles.

Banks:

There have been 73 mergers and 10 bank failures so far this year plus bailouts for Citigroup (2x), a little help from friends for JPMorgan and Bank of America, and a little something under the table for Goldman Sachs and Morgan Stanley. The FDIC has just added 54 more banks to its watch list, which now stands at 171.

Real Estate

The latest S&P/Case-Shiller Indices are out. What could I possibly add except to say that the chart will have to be redrawn since the Y axis does not go far enough into negative territory to plot next month’s decline.

Caption: If your house fell off this cliff you might be eligible for a bailout.

From Asia:

On November 26, China cut interest rates by 1.08 percentage points to 5.58%, the lowest level in 11 years and the largest one-off cut since the Asian Financial Crisis in 1997. The economy is crumbling and millions of jobs will be lost before Christmas.

It is also the fourth interest rate cut by the Chinese central bank in the last ten weeks. “China is out to save itself,” said Patrick Bennett, an analyst with Societe Generale in Hong Kong.

Caption: Christmas spirit in China: Rioting over toy factory layoffs.

In recent weeks, laid-off factory workers have rioted across central and southern China. Government officials in Beijing have warned that dissent and threats to social stability will be crushed.

***Some things never change***

From the Middle East:

According to the UKTimesOnline, Gulf sovereign wealth funds (SWF) are now investing in their own struggling economies with several Gulf-based banks getting American-style bailouts. Local stock markets have collapsed and some sovereign wealth funds are supporting markets by buying shares of local companies. Investment in the West is being reduced, in particular in the UK and US where the SWFs have lost billions of dollars this year. *** I thought these people had a lot of money—our money, in fact—I guess not***

Caption: Fires in the UAE have spread from the oil fields to the highway: Accident on road between Abu Dhabi and Dubai

Sovereign wealth funds are among the few sources of liquid capital available in the world and many companies have sought cash injections from the Middle East. Fund managers feel they were lured into investing before the full extent of the crisis was known. One fund, the KIA, said two months ago that it had lost $270 million on a $3 billion investment in Citigroup, which was made at the beginning of 2008. Citigroup’s stock has fallen by two thirds since then, and it the bank is now being supported by the US government. *** This sounds like another wrong-headed judgment call by Bernanke. If this was the reason Citi was bailed, it would have been cheaper, way cheaper, to give KIA their money back ***

From Europe:

Things are no better in the EU countries. The Baltic Dry Index, the most reliable measure of international trade, is down significantly. Deutsche Bahn AG, the German railway company, is planning on 40% fewer cargo trains for next year, another leading indicator.

Caption: Car of local bank manager in France who does not know which end is up.

There are only four more weeks left in 2008. We’re headed into a new year, with a new President, but with a number of the same people who laid the groundwork for the world we’re living in today. What else can go wrong? We’ll see, won’t we.

Caption: The ship of state.

Share This

Here is the original:
Startling News from the Fed and Economic Wrecks from Around the World

We can now enter a new acronym into our lexicon: TALF. And what is TALF? The Federal Reserve and the Treasury announced on November 25^th that a Term Asset-backed securities Loan Facility will be created to provide liquidity for purchasers of ABS’s (Asset-Backed Securities, which include mortgage-backed securities). Asset-backed securities also include student loans and car loans, which under normal conditions are packaged and sold to investors willing to take a risk that has been evaluated by another institution.

The trouble is, no one can be certain how thorough those institutions (specifically banks) were in their risk assessment process. Banks need to package and sell these securities in order to remove potential liabilities from their balance sheets, but when it becomes virtually impossible to slog through the tranches of loans within those securities, investors can easily become gun shy. To witness the headaches that these loans are causing banks, take a look at the chart below.

So as our trusted officials continue their efforts to restore confidence in the markets, and as the demand-led recession deepens, this task seems increasingly Herculean. Paulson & Company have resorted to some extremely desperate measures to pull this one off. To fund the TALF, approximately $600-800 billion will have to be committed, which nearly equals the amount of the original bailout plan. $20 billion of that money is, in fact, coming from the bailout plan. The other remaining billions are being leveraged, a fairly astonishing fact whose implications remain unclear. One thing is for certain: if the Fed wishes to avoid an inflationary spiral, destruction of money will become a necessity once this crisis begins to abate.

It would appear that the Fed’s announcement caused a positive reaction in the mortgage markets, however, Mortgage prime rates dropped from 6.3% to 5.5%, a relatively massive decline, and a huge wave of refinancing ensued…in a matter of hours, essentially. Could that be a forward indicator? Credit Suisse Group mortgage strategist Mahesh Swaminathan thinks so, saying that he expects to see rates drop below 5% in the near term. While there are some strict requirements for homeowners hoping to refinance, this is obviously a positive for the consumer. And while these measures do little to halt the rising tide of foreclosures, it does help the demand side of the issue. And in a demand-led recession, such as the one we are in, has the Fed finally stumbled upon the right combination to stimulate the markets?

Share This

See original here:
Can the TALF Return Demand to the Markets?

People are not the only ones left homeless by foreclosure. Nearly three-quarts of all American households include a family pet, according to No Paws Left Behind and when families face tough economic times, it is often the animals who fare the worst. It is believed that as many as 4 million Americans and 1.25 million pets my lose their home in the current economic crisis.

“In an eforst to help families coping with the devastating foreclosure process, we are bringing awareness to the growing trend of abandoned pets and offering possible solutions,” said Cheryl Lang, founder of the non-profit No Paws Left Behind and president of Intergrated Mortgage Solutions. “We founded No Paws Left Behind to provide homeowners facing foreclosure with a resource for finding alternative housing for their pets during this difficult time. Through visiting our website, borrowers are provided with an array of housing options for their pets, whether a no-kill shelter or temporary foster care. No Paws Left Behind will also provide monetary assistance for pet deposits required by new landlords.”

No Paws Left Behind’s mission includes drawing attention to outdated legislation preventing the removal of pets from abandoned properties prior to the completion of the eviction process as well as educating homeowners on their options when facing foreclosure. A link on the website also allows visitors to sign a petition advocating changine the laws regarding abandoned pets at the national level. The website also includes helpful information from the American Humane Society for both homeowners and lenders. The most important piece of advice for homeowners is not to leave pets when a home is vacated or abandoned. It may be weeks or longer before a lender is legally able to enter the property and it is unlikely pets will survive that long without food or water. For lenders the most important advice is to listen for any sounds of abandoned pets whenever they visit the property and to make inquiries among neighbors as to whether or not the owners had pets and where those pets may be. If pets are suspected to have been abandoned inside the property lenders should contact local animal control officers immediately for assistance.

The problem of pets being abandoned along with houses recieved considerable attention from bloggers earlier this year when photographs of emaciated animals were widely circulated online. Since the it is likely the problem and the number of abandoned pets has only increased. Unfortunately, USA Today reports that no one keeps track of the actual number of pets left behind when homes are forclosed upon.

Animal shelters and agencies throughout the nation are doing their best to keep pace with the problem. Many organizations are suffering from shrinking budgets as well as growing demand for their services. Still, if someone you know is facing foreclosure or suspects a neighbor has abandoned a pet along with the home, there is always room in the shelter for one more. And if you are looking for organizations to make charitable donations to this holiday season don’t forget local shelters.

Share This

Read the original here:

The real estate contract is a hot topic today. In declining housing markets, it is not uncommon for a buyer to have second thoughts, rational or not. I heard of an example recently where an exasperated buyer called the broker with a solid contract to exclaim (paraphrasing): “Dammit, the co-op board approved my purchase!”

When the deal is signed, both parties are bound in good faith to see the transaction all the way through.

The implied covenant of good faith and fair dealing
between parties to a contract embraces a pledge that “neither
party shall do anything which will have the effect of destroying
or injuring the right of the other party to receive the fruits of
the contract”

In New York State, that’s now become a matter of semantics.

The New York Court of Appeals ruled today that lawyers can disapprove of a client’s real estate contract for any reason within the three-day attorney review period.

And the court ruled that it’s not bad faith, even if the lawyer simply nixes the deal because a client wanted to back out, Newsday reports.

Here’s the wording in the ruling:

We therefore hold that where a real estate
contract contains an attorney approval contingency providing that
the contract is “subject to” or “contingent upon” attorney
approval within a specified time period and no further
limitations on approval appear in the contract’s language, an
attorney for either party may timely disapprove the contract for
any reason or for no stated reason.

I always thought that the attorneys were involved to advise on legal aspects of the deal, not to provide a way to circumvent good faith intentions established at the time of signing. I think this actually places the attorneys in an awkward position.

Apparently, I have a lot to learn.

This Just In: Thanksgiving is tomorrow. Happiness will ensue.

Excerpted from:
[Under Contract] But I’m Not Buyin’ It

Fitch Ratings and Standar & Poors (S&P) Ratings services both published their methodology and assumptions for evaluating residential mortgage-backed securities (RMBS) in November. Look for both services to issue updated ratings over the next few weeks.

Fitch Ratings has revised its surveillance methodology for U.S. sub-prime RMBS to reflect increased emphasis on ResiLogic, their loan-level and loss model. Going forward, ResiLogic will be used to guide collateral loss projections by estimating the frequency of foreclosure for all mortgage pools regardless of seasoning and the loss severity of pools seasoned less than 30 months. For pools seasoned more than 30 months, Fitch believes actual loss severity trends exhibited by the pools are the best indicator of future severity trends. This loan-level analysis will be used in conjunction with Fitch’s existing break loss analysis to determine each bond’s loss coverage ratio.

The ResiLogic stressed mortgage pool loss scenarios will also be used in determining targeted loss multiples at each rating category resulting in pool-specific category thresholds as opposed to using a static set of thresholds. Other adjustments to the methodology include:

• An adjustment to the ResiLogic derived default rates for performing loans to account for the actual performance of each transaction relative to original expectations.
• The use of historical loan-level loss severities on seasoned (greater than 30 months) pools.

Fitch is reviewing its rated transactions for 2005, 2006 and 2007 and will be releasing revised ratings soon. The current revised cumulative loss expectations for these years are 12 percent, 27 percent and 31 percent respectively. The Updated Surveillance Criteria for U.S. Subprime RMBS are available online at www.fitchratings.com.

Standard & Poor’s Rating Services also recently published the methodology and assumptions fo rating U.S. RMBS backed by non-performing or re-performing mortgage loans. Given the current market conditions and the stresses on lenders, borrowers, and the real estate industry, S&P aexpects the volume of transactions backed by non-performing or re-performing collateral submitted for review to increase.

Collateral for RMBS can be real property or loans. Loans which are more than 90 days delinquent are considered non-performing if the borrower has not exhibted consistent payment behavior. Re-performing loans are loans which have been delinquent more than 90 days in the past year but are currently less than 90 days delinquent or that are 90 days delinquent but the borrower is exhibiting consistent payment behavior. When assessing the expectations regarding the timing and liquidation values of non-performing loans the following factors are taken into account:

• The accuracy of a licensed real estate broker’s opinion of the property’s value (the so-called broker price opinion or BPO value.
• State foreclosure and REO time-line variations and expenses.
• Housing market conditions.

Re-performing loans are assessed using substantially credit analysis to estimate foreclosure frequency and loss severity. The analysis of the age of credit scores, treatment of arrearages and loan seasoning adjustments differ for re-performing loans.

S&P continues to update methodologies and assumptions for the analysis of non-performing and re-performing loans based upon performance trends and updated economic projections. In addition, S&P believes unique risks must be evaluated in proposed transaction structures with regard to liquidating trusts. The methodologies are published on the S&P web site at www2.standardandpoors.com.

Share This

See the rest here:
Ratings Services Release RMBS Rules

In a recent story published on BusinessWeek’s website, the subprime mortgage industry is taken under the microscope and picked apart, bit by scandalous bit. The article, entitled “Sex, Lies, and Subprime Lending,” presents many of the familiar excesses of subprime lending (pressure from investment banks and mortgage-backed securities brokers, data manipulation by loan officers) with a new twist: that’s right, a Babylonian saga of loan officers and mortgage lenders exchanging sexual favors for subprime loans to unqualified borrowers. For what purpose? Commissions of course.

At this point, it would be virtually impossible to further demonize the world of subprime lending. It doesn’t get much worse than the predatory and sinful actions that are described by the “Sex, Lies, and Subprime Lending” article. So do these tales of excess spell an end for the subprime lending industry?

The simple answer is yes and no. Everyone now understands that the much of subprime loan origination functioned on the sort of irrational exuberance that are often induced by bubbles in economies. That bubble is burst, and the lending practices that went along with it have all but disappeared. Subprime lending, however, has been in practice for over two decades, gaining traction in the 1980s after Congress eased lending laws for first-time home buyers. For a bubble to exist, there has to some sort of substantive material to prop it up.

An article written for Slate by Daniel Gray highlights a number of virtuous institutions in the business of lending to subprime borrowers, some of whom have also been able to turn million dollar profits for the services. These include credit unions and other community-based banks, and CDFI’s (Community Development Financial Institutions), and they do share a few things in common with the Ameriquests and Countrywides who are now infamous for inflating the housing bubble. Most significantly, they intentionally look past the credit scores of applicants in determining creditworthiness. Where they differ is what they look for in applicants, which is significant.

Where the Ameriquests and Countrywides were willing to manipulate and disregard data in order to originate loans, the CDFI’s simply used a different set of criteria when evaluating applicants. These criteria included their ratio of savings to income, affordability of the house in relation to income, and their ability to manage their budgets and monthly bills.

These institutions also do not incentivize lending or bundle and re-sell loans, and thus were able to avoid the excessive risk taken on by others in the subprime industry. Tellingly, their delinquency and foreclosures statistics are much lower than the national average. For example, compared to the national rate of subprime delinquencies as cited by the Mortgage Bankers Association, which is nearly 19 percent, the National Federation of Community Development Credit Unions delinquency rate is 3.1 percent. That is an absolutely staggering difference. For Clearinghouse CDFI, a California-based institution, the difference is even greater. Less than 1 percent of their subprime loans have been foreclosed on, compared to the national average, which is over 11 percent. Clearinghouse, a for-profit company, expects to report record profits, proof that trickle-up economic

While the era of the subprime bubble may have ended, responsible subprime lending will, and should be, a part of any healthy economy. For further macroeconomic insight into the virtues of this sort of lending, I would point you to the success and benefits generated by the microfinance industry in the developing world, for which Bangladeshi economist Muhammad Yunus won the Nobel Peace Prize 2006. Responsible microfinance lending, which conceivably includes the practice of subprime lending in the developed world, is an example of trickle-up economics having a perceivable and beneficial effect on society. And correct me if I’m wrong, but isn’t that why we chase the promise of economic growth?

Share This

Read the original post: