Real Estate Blog

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

Where is the last place on earth you’d expect to need a bailout . . . due to a real–estate bubble bursting . . . and banks failing . . . and stock markets crashing . . . that has derivatives counterparty losses? Its the Gulf countries (GCC) in the Middle East and, in particular Kuwait. **ya coulda knocked me over with a feather**

Bloomberg reports that Abdullah Hajeri led a march on the Emir’s palace in Kuwait last week, demanding that the oil-rich nation’s ruler stop stocks from plunging. Adnan Mohammed Saleh said he wants more government protection from the global financial crisis.  Every day the market is crashing,” said Saleh, a 42-year- old trader, staring dumbfounded at the Dubai Stock Exchange’s ticker. **the government is responsible for stock market prices . . . where did we hear that one before?**

Things a little better at the pump lately? Well, one man’s gain is another man’s cliff dive. The region’s rulers are under pressure as crude prices have fallen 50% from a record $147.27 in July. Stock indexes in Dubai and Saudi Arabia have fallen a similar amount. **you mean they didn’t save those windfall profits for a rainy day? Oh, that’s right, it doesn’t rain there**

Bernanke-Style Bailout

Last week Kuwait became the third Gulf state to prop up its banks. Its central bank created a $19 billion facility to help banks make loans. Saudi Arabia, the world’s largest oil exporter, put $2.7 billion into a government-run bank in Riyadh to provide no-fee loans to low-income citizens.

And a Bank Run

The bank bailout came after losses on currency derivatives at Gulf Bank KSC, Kuwait’s second-largest lender by assets. This resulted in a surge in customer withdrawals from the bank. In response, the UAE announced a FDIC-style guarantee of deposits of all local lenders and large foreign banks. **moral hazard anyone?**

More Derivatives Losses

Citibank’s Middle East economist Mushtaq Khan explains that Gulf Bank took a bet that the euro would continue to strengthen against the dollar. When the dollar unexpectedly and rapidly rose against the euro, the bank faced a problem with its counterparty commitments that ultimately required central bank intervention. ** this is the sort of thing should be swept under the rug; that’s what we do**

More Evidence that Decoupling is a Myth

All capital markets in the Gulf Cooperation Council (GCC), which includes Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the United Arab Emirates, have declined and interest rates have increased since Lehman Brothers bankruptcy on Sept. 15.

Of the Gulf States, Dubai likely will be hardest hit by a global economic slowdown. Dubai has borrowed heavily to finance its transformation from a Persian Gulf trading post to a financial and tourist hub. Foreign investors are gone and there has been a sharp decline in tourism, both of which this land-of-the-most-expensive-hotel-rooms-in-the-world relies on.

According to Moody’s, government-controlled companies owe at least $47 billion, more than Dubai’s GNP. They will continue to accumulate debt faster than the economy grows.  **as the economy grows? . . . what if it doesn’t grow?**

Real Estate Bust?

Dubai property prices will likely remain unchanged through 2010 after quadrupling in the past five years”, Colliers CRE Plc said. According to Nouriel Roubini, “There is a liquidity and credit crunch and now oil prices have fallen to $70 from $140. I see the risk of a real-estate bust throughout the Gulf, but specifically in Dubai. There’s a huge amount of excess capacity being built.”

The Middle East’s biggest publicly-traded real-estate developer Dubai-based Emaar Properties PJSC is down more than 26% just since Sept. 15. Investors have lost confidence in Emaar’s ability to finance projects by borrowing through local and international banks.

Will Dubai turn into an Inland Empire-style ghost town? We’ll see.

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It’s Official: The Crisis is Worldwide

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

Is the US on the verge of a currency devaluation? This idea is one of the most disturbing predictions I’ve read recently. I found it at the fine blog, Jesse’s Café Americain. I just wish it didn’t seem so reasonable.

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Once the deleveraging of the markets subsides, the dollar and Treasuries will drop, perhaps with some momentum, as the rest of the world realizes that the US has no choice but to default. This can be resolved in several ways, including continued subsidies from foreign sources in the form of virtual debt forgiveness, devaluation of the dollar, raising of taxes, and higher interest rates on debt. The problem now is that the US has breached the point where it can service its debt out of real cash flows, and turning this around will require a severe devaluation of the US dollar. …  Devaluation and selective default are the only foreseeable systemic alternatives.

I’m not enough of an economist to fully evaluate this argument. However, the WSJ and others have seen fit to link to the post so unfortunately I don’t think it’s totally crazy.

You could even make the argument that we are already in a devaluation of sorts. At lease one source says a devaluation can occur when a country deliberately prints money to cover a persistent budget deficit without borrowing. How about to create a persistent budget deficit?

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Is devaluation the only road out?

The markets continued their gut wrenching swings today before finally falling down into the red following a huge rally yesterday in which the Dow gained hundreds of points. For it’s part, the Fed came out today and took some drastic measures of it’s own. It cut a short-term interest rate by a half-percentage point, while at the same time issuing a rather doom and gloom outlook for the economy in the near future. This doesn’t seem all that surprising, given that unemployment remains high, consumer confidence remains low, and the ongoing tightness of the credit markets despite hundreds of billions of dollars being pumped into the system.

The cut itself put the federal funds rate at one percent, which matches the lowest level for the overnight bank lending rate…ever. Of course it wasn’t all that long ago that the Fed took a similar action, the last time being June 2003 and 2004. If the market sentiment for today is any indication, we can take the rate cut’s impact as “meh.”

(more…)

I posted this almost exactly a year ago. At that point people were calling for the bottom of this thing to be summer of ‘08. Well another year, and it’s still unfortunately apropos. I have a feeling it will be good for at least one more year. You?

Thanks as always to the great readers of this site that make it what it is. Thanks for reading, thanks for commenting, thanks for all of your email. It means a lot.

– Morgan

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Happy Halloween, Again.

This is a sponsored review for Cody Sperber’ s Do-It-Yourself Loan Modification Kit from ForeclosureCounseling.com.  If you’re interested in having a review of your product or service written here on Blown Mortgage click here for more information or email me directly.

Cody Sperber’s DIY Loan Modification eBook is a solid primer for anyone who is looking to brave the loan modification world themselves.  If you’re a homeowner who finds themselves behind on payments, facing a foreclosure or has suddenly had your interest rate skyrocket this ebook can give you a great footing to help you spend your time and energy wisely upon embarking on what can be a harrowing experience.

While the ebook acts partially as an advertisement for the paid professional services offered at ForeclosureCounseling.com, Sperber packs the ebook with actionable information that makes the investment worthwhile.

My favorite parts of the book are:

• The loan modification proposal package forms and documents
• The included expense and income worksheets
• The tips for dealing with the loan modification process and loss mitigation department employees
• The information on where to start and what to ask for.

There are lots of loan modification folks out there these days.  Frankly it seems like many of them just moved from sub prime lending to loan modification; but this ebook shows that Cody and the folks at ForeclosureCounseling.com know what they are talking about.  While some books just gloss over the things you need to do Cody’s DIY Loan Modication ebook gives you smart insight on things to ask for and where you have room to wiggle and where you don’t.

When you’re trying to do a loan modification yourself the one thing you don’t have is time to figure out how to do it on your own.  When your home is facing foreclosure is not the time to learn things “on the job.”  You need to make sure that the effort you put in is directed at reaching your ultimate goal - saving your home - and with Cody’s DIY Loan Modification ebook you’re well on your way.

Wasted energy, frustration and burn out are all symptoms of trying to get your own loan modification.  For a few bucks you can elimate the wasted energy part of the equation and learn how to deal with the frustration and dead ends that often pop-up during the process.

While I’m paid to write this review I’m never obligated to give glowing ones.  This product will definitely help you find greater success than you would have without it, which is why I’m happy to recommend Cody Sperber’s DIY Loan Modification ebook to anyone considering going it alone with a loan modification.

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Sponsored Post: DIY Loan Modification Kit

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

Under water is the industry term for homes with negative equity – where more is owed on them than they are worth. You know the cliché about the iceberg and only seeing the tip of it because the rest is … well you know where. Well, the cliché is sadly still true when it comes to the mortgage crisis. The US economy is likely to be further swamped by a wave of “under water” mortgages (how’s that for a mixed metaphor?).
This condition currently effects nearly one sixth of U.S. homeowners and is very probably going to result in more foreclosures and bankruptcies.

Reuters reports “about 12 million U.S. homeowners owe more than their homes are worth, compared with 6.6 million at the end of last year and slightly more than 3 million at the close of 2006.” Because so many people bought homes with little or nothing down when housing prices spiked, a huge number of people are now facing this situation. Nearly one in three homes purchased since 2003 have negative equity. The number is even more terrifying for those who bought after that, nearing 50% for people who purchased homes in 2006.

The argument used to be that buying was better than renting because you are building equity. A lot of people may do the math on their homes and realize that bankruptcy makes more financial sense than paying into something they will never see a return on. No one likes to declare bankruptcy and admit this kind of defeat, so it will not be an easy or happy decision for any of these folks. However, it may be the only choice they have.

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A guest post from Constantine von Hoffman, a veteran business journalist who writes the blog CollateralDamage.biz, a humorous look at marketing, business and his dog.

The Fed has announced it will now buy commercial paper from money market mutual funds and endorsed the idea of another economic stimulus package. Far be it from me to turn up my nose at free money. I could use a handout … I mean stimulus check as much if not more than most of Wall Street. But I am disturbed that these efforts continue are in keeping with previous Bush Administration policy to never have a clue how something – like a war or a however many bailouts there will be – will be paid for.

I am nostalgic for the days when conservatives would mock liberals for wanting to solve problems by throwing money at them. That was back when there money to throw and we could count on the GOP to ask questions like, “Where’s the money for that?” (Occasionally a renegade Democrat would also ask this question. Sadly, Bill Proxmire has shuffled off this mortal coil just and no one has risen to take his place – on either side of the aisle. Proxmire, was Democratic senator from Wisconsin most famous for initiating the Golden Fleece Awards which identified wasteful government spending. During his last two election campaigns in ’76 and ’82 he refused to take any contributions – spending less than $200 on each. His campaigns consisted mostly of standing at the entrance to a state or county fair or a sporting event and saying, “Hi, I’m Bill Proxmire.” But I digress…)

I have absolutely no idea whether or not buying this commercial paper or giving checks to you and me will actually do any good in slowing or stopping the progress from recession to depression. They may. We are in uncharted waters with the economy. What I do know is that nothing whatsoever has been proposed that will pay for any of this. Nor is there yet any talk of how we as a nation are going to rebuild our capital by encouraging saving.

I was watching a collection of Disney cartoons from World War II recently. The thing that struck me the most about them was the emphasis on how we should all do our part. That took the form of everything from donating bacon grease and metal to buying war bonds to help pay for the war. Wow. What a concept. Buy a bond to help pay for something and earn a guaranteed return. I wish we had something that cutting edge now.

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Bernanke’s law: When in doubt, throw debt

When both Citigroup and Merrill Lynch both came out with staggering losses recently, I don’t think many people were all that surprised. With the credit crisis in full swing across just about every part of the economy, the financial sector has been the hardest hit. Even after the fall of giants like Bear Stearns and Lehman Brothers, the rest of the guys left standing are still bleeding.

The difference now, of course, is that investors and analysts alike have come to expect these types of losses for the near future. But while Citigroup managed a smaller quarterly loss than was expected, Merrill missed the mark and delivered a wider loss than most analysts anticipated. The question that remains in the mind of many investors, is why?

Citigroup has had an undoubtedly dangerous year. Faced with increasing losses from collateralized debt obligations and mortgage backed securities, they brought in former hedge fund manager Vikram Pandit to help turn the company around. His job was to cut down Citigroup’s bloated operations, trim the fat, get rid of poisoned assets that were threatening to choke off the firm’s capacity to operate once and for all. Many investors and analysts weren’t convinced that Citigroup would survive at all, and the numbers showed it. In the past four quarters alone, the company has lost more than $20 billion. This most recent quarterly loss of $2.8 billion was also fueled by credit and mortgage related write downs, and was also caused by a deteriorating domestic economy.

Consumers are increasingly unable to pay their mortgage obligations, with credit card l loans in default rising 45% in the third quarter from where they were just a year ago. This forced Citi’s consumer banking and credit card businesses to swing to a steep loss this quarter as it was forced to bulk up it’s credit loss reserves. Losses related to this area are expected to increase well into 2009, according to Gary Crittenden, Citi’s chief financial officer. Definitely not good news for investors.

(more…)

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The problem remains

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized

Once we have moved past this current economic crisis, Fannie and Freddie must be fully privatized.

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Fannie & Freddie Should Be Fully Privatized