Real Estate Blog

From Slate, via The Big Picture.  Pretty good, but I’d put the firemen in a big shadow of China…

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The housing bail out

Interesting piece in the New York Times about the downfall of IndyMac Bank and the history that led to its demise.  The title, The Downfall of a California Dreamer, paves the way for this look back; but unfortunately it’s romanticized version of events led by a chairman with a dream comes up much too short in it’s analysis of the greed and malfeasance that led to the bank’s demise.

Let’s get the facts straight.  IndyMac died for two main reasons: bad loans and greed.  There is nothing romantic about that, there is no awe or spectacle in greed.  There is no reverence to be found in corporate glutony.

Michael Perry and IndyMac perished because they didn’t follow sound underwriting and risk management policies and it saddled them with a bunch of bad loans.  The Senator Schumer run was only the icing on the cake.  IndyMac’s fate was sealed well before that.

IndyMac had long been known as an asylum that was run by the inmates.  There are classic stories of sales managers bullying underwriters, of exceptions being made at the end of the month and all manner of bad business going down in the never-ending chase for more revenue.  These of course are unsubstantiated and heresey, but when you hear them enough…

I remember talking to friends who used to send all of their loans to IndyMac.  They would get max value on a “pushed” appraisal, an exception on a credit score under 620 and a maximum rebate on their pay option ARM loans that yielded them tens of thousands of dollars per transaction.

These are what did in IndyMac in - not a letter from a Senator.

From the New York Times:

Mr. Perry, whom friends and co-workers described as a hands-on manager who sometimes personally weighed in on mortgage applications, pushed the boundaries of his trade. But apparently not even Mr. Perry, who spent much of his career at IndyMac and its predecessor companies, saw the trouble until it was too late. He was predicting as recently as February that the bank would not only weather the downturn in the housing market but that it would even turn a profit this year.

Through a spokesman, Mr. Perry declined to comment for this article on the advice of his lawyers.

Formed in 1985 as a small division of Countrywide, IndyMac started making loans in the 1990s and became fully independent in 1997. The company nearly went under when the credit markets seized up in 1998, but Mr. Perry steered the company through that crisis by reducing its reliance on Wall Street financing. In July 2000, he acquired a savings bank to gain access to what was widely presumed to be a more stable source of financing: customers’ deposits.

“He certainly never forgot that experience,” Thomas K. Brown, chief executive of Second Curve Capital, said of IndyMac’s troubles in 1998. Mr. Brown, whose hedge fund had owned 5 percent of IndyMac late last year, described Mr. Perry as an “eternal optimist.”

Mr. Brown said Mr. Perry often referred to IndyMac’s previous hardships by saying, “We have made tough decisions in the past.”

Most of this decade was a golden era for IndyMac, whose profits grew threefold from 2001 to 2006. The company specialized in alternative-A, or alt-A, mortgages, which are made to borrowers with good credit but are not quite as conservative as the prime loans eligible to be bought by Fannie Mae and Freddie Mac, the mortgage giants.

For a long time, Mr. Perry disputed the growing belief that the problems in subprime mortgages would infect alt-A loans.

What do you think?  Share your IndyMac stories in the comments.

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Romanticizing Greed: The New York Times and Indy Mac

My posting last week was relatively light due to a hectic business travel schedule Monday-Wednesday and then the Inman Real Estate Connect Conference in San Francisco.  It was great to be participating in the conference, but the big highlight for me was meeting CR of Calculated Risk and Merlin Mann both in person.  Connect had a great setup with an opportunity called “Meet the Leaders” where you could come up and talk to the keynote panelists.  I wasn’t missing out on meeting either of those two gentlemen and I’m glad I did.

If you haven’t you should check out Calculated Risk (it’s a must read for the mortgage/economy) and Merlin Mann (his site is a must read for productivity).

In addition to those two folks I met a ton of real estate bloggers (too many to name here) but it was great to meet all those folks and talk instead of blog and comment at each other!

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Inman Connect - Awesome

I’ve been reading a lot of articles on the Web these days with different groups blaming each other for the collapse of the housing market.  It’s annoying.  The housing collapse and credit crunch are too big and too wide-reaching for it just to be the fault of one group.  There was greed at all levels of what I’m terming the Pyramid of Greed.

From home owners maxing out their cash-out refis to real estate agents encouraging buyers to “stretch” to mortgage brokers manipulating W2’s the greed went up and up and up right to the office of the President.

So from now on, for those on this pyramid, please refrain from absolving yourself of any culpability in this mess.  If you’re on this pyramid you played a part.

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Pyramid of Greed

Here’s a fun little graph I made (not to scale) of IndyMac’s stock price over the past 18 months.  I used a cool little tool called “Crappy Graphs” that is super fun.  Hat tip to the Phoenix Real Estate Guy for pointing it out to me.

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A Brief History of IndyMac Stock

I’m off in Huntington Beach with my family for the long weekend.  I hope you all get to take a breather from the seemingly endless beat of dour news to enjoy this great country we live in and celebrate our friends and loved ones.  See you Monday.

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Happy 4th!

I’m off in Huntington Beach with my family for the long weekend.  I hope you all get to take a breather from the seemingly endless beat of dour news to enjoy this great country we live in and celebrate our friends and loved ones.  See you Monday.

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Happy 4th!

I’m off in Atlanta for a few days on business so posting will be light.  Enjoy Housing Wire and Calculated Risk in the meantime.

Cheers,
Morgan

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Off for a few days

Hat tip to Barry over at the Big Picture for finding this gem from across the pond.  Here is the City, a UK-based finance blog, took all of the credit losses for each major player in the mortgage market and mapped the dollar losses taken by each institutions to the number of wholesale employees they have.  The result is an astonishing contextual look at the amount of money lost by each firm.

Here’s how it works:

Mizuho Financial Group - $5.5bn in writedowns / credit losses, 2,000 wholesale banking employees, $2,750,000 per employee.

Here’s the graph of the losses/employees as reported by Here is the City:

Here are the top 5 losses/employee lenders:

1. Mizuho Financial Group - $5.5bn in writedowns / credit losses, 2,000 wholesale banking employees, $2,750,000 per employee.

2. Wachovia - $7bn, 3,900, $1,794,872 per employee

3. UBS - $37bn, 22,000, $1,681,818 per employee

4. Citi - $40.9bn, 30,000, $1,363,333 per employee

5. Bank of America - $14.8bn, 20,000, $740,000 per employee

As one commenter on the Big Picture said so well:

I hereby offer my services to any of the top 3 money losers for only $1 million per year. I promise to not come to work, to not do anything, to just cash the checks you send me.
I will be a huge upgrade from your current staff.

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Credit Losses by Employee

Thanks to reader Bill for this great little Friday fun.  If you’re in the industry, check out the new program guidelines matrix (PDF) and have a laugh on us this Friday.

– Morgan

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New Program Guidelines - Friday HAHA

He may be “Vindicated” but Jose Canseco is letting his Encino, California mansion go in to foreclosure as the housing market has tanked. He doesn’t see any point in making the payments any more. The $7.7 million house makes for some expensive jingle mail. What happens when the wealthy start walking away? When does preserving your credit score not matter? Where is that line? When is that decision made? Will it become easier for people as we get in to this mess? Will this generation be defined by subprime, bad credit and the shirking of all financial responsibility?

Housing Wire has the amusing/scary tale via the AP:

Canseco told the syndicated TV show “Inside Edition” that he walked away from his $2.5 million, 7,300-square foot home in suburban Encino because it didn’t make sense to continue making payments …

“What about other families that we’re hearing on TV, that they’re saying, `We have nowhere else to go,’” he said. “I mean, that is amazing. I’ve got books (he’s put out two expose-type books on drug use in baseball), we’re now trying to produce the movie to both.

“Like I said, my situation was a little more different than most. I decided to just let it (the house) go, but in most cases and most families, they have nowhere else to go.”

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Canseco heads to foreclosure