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Comments Off on [Special Report] RBI Pending Home Sales Index – January 2011 [Baltimore Metro]

Ok, so I have long said that sales lead housing prices, but what about rents?

The rental market leads the sales market. Its pretty logical since rents respond more quickly to employment trends than the sales market and employment is the key to economic recovery.

In an interesting CNN/Money/Fortune piece, which focuses on Deutsche Bank reports (which I can’t find yet)

…steady or even falling rents have pulled down housing prices, to the point where in many markets it costs about the same amount to own as to lease. That’s a golden mean that America hasn’t seen in almost a decade. The DB research also offers convincing evidence that the wrenching adjustment in housing prices is finished for much of the nation, with a bit more pain to come in selected areas.

They address the rent v. buy ratio which was:

• 1999 – rents were 87% of ownership costs
• mid-2006 – rents were 60% of ownership costs
• 3Q 2009 – rents were 83% of ownership costs

In 2009, apartment rents dropped 2.3%, and the fall continues. And enormous adjustments are needed in still-exorbitant markets such as New York and Baltimore. Thankfully, the improving economy and decline in the rate of job losses means that rents should soon stabilize and could even start increasing by the end of 2010.

Frankly, a national decline in rents of 2.3% seems to understate the weakness of the rental market since the vacancy rate hit its highest level in 30 years at the end of 2009.

In New York City, the vacancy rate improved by 0.1 percentage point for the second straight quarter, but around 60% of rental buildings dropped their rents in the fourth quarter from the previous quarter. Effective rents — which include concessions such as one month of free rent — fell 5.6% in New York last year, the worst since Reis began tracking the data in 1990.

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American Casino movie trailer from Leslie and Andrew Cockburn on Vimeo.

I was listening to the C-SPAN Q&A podcast which was an interview with producers Leslie and Andrew Cockburn on their new independent film called American Casino which chronicles the breakdown of subprime lending via Wall Street. The starting point is subprime mortgage lending in poor neighborhoods of Baltimore.

The foil is Phill Gramm, Chairman of the Senator Finance Committee who in a masterstroke of politcal management, on December 15, 2000 at 7pm, appended a 260 page financial de-regulation bill to an 11,000 page appropriations bill just before the holidays, and because it was in the 11th hour, it was likely few read it and Clinton signed it. The bill exempted the financial instruments used in the credit boom from federal and state regulations – free of any supervision.

Gramm is now Vice Chairman of UBS.

This topic is nothing we haven’t heard before but its focus on Gramm is an interesting angle. I listened to the entire C-SPAN interview and while I enjoyed it, the story feels a bit tardy (although certainly very important because the pain is still playing out).

This systemic breakdown will continue to facsinate many for generations to come – hopefully serve as case study fodder at MBA programs as well.

The film credit pronouces:

“AMERICAN CASINO IS A POWERFUL AND SHOCKING LOOK AT THE SUBPRIME LENDING SCANDAL. IF YOU WANT TO UNDERSTAND HOW THE US FINANCIAL SYSTEM FAILED AND HOW MORTGAGE COMPANIES RIPPED OFF THE POOR, SEE THIS FILM.”

-Joseph Stiglitz, Nobel prize-winning economist

A few days after I heard the podcast, a federal judge threw out the lawsuit by the city of Baltimore against Well Fargo:

ruling that the city could not prove that the bank’s lending practices had resulted in broad damage to poor neighborhoods.

Perhaps a case of bad timing for the film makers? But but still a compelling story.

ASIDE: Speaking of film making (sort of) check out my friend Andrea Powell‘s home improvement series for Lowe’s.

Tags: Sub-Prime

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In the past week, I took out my sea kayak (SS. Miller Samuel) and boat (dubbed “Mom Said”) for the first time this season and have started wondering if it has influenced my perception of the credit crunch. Are we already underwater? Zillow and Shiller thinks so.

Last week, the WSJ ran a fun story on page 1 by Michael Corkery called For Mortgages Underwater, Help Swims In.

While lawmakers in Washington struggle to solve the nation’s foreclosure crisis, officials here are using a small fish to clean up some of the mess.

The Gambusia affinis is commonly known as the “mosquito fish” because of its healthy appetite for the larvae of the irritating and disease-spreading insects. Lately, the fish is being pressed into service in California, Arizona, Florida and other areas struggling with a soaring number of foreclosures.

The mosquito fish is well suited for a prolonged housing slump. Hardy creatures with big appetites, they can survive in oxygen-depleted swimming pools for many months, eating up to 500 larvae a day and giving birth to 60 fry a month. That can save environmental crews from having to repeatedly spray pesticides in the pools while the houses grind through the foreclosure process.

Of course, Fannie Mae wants to keep those houses occupied so fish don’t factor into the credit crunch. In James Hagerty’s article Fannie to Aid Underwater Loans:

Fannie Mae is preparing to introduce by midyear a program of refinancing mortgages for people who owe more than the current value of their homes, a situation known as being “underwater.”

The plan is the latest twist in efforts to contain the surge in foreclosures on homes in much of the U.S. It differs from a bill approved by the House on Thursday that would authorize the Federal Housing Administration to insure loans for distressed borrowers only after the lender has written down the principal — something many lenders are reluctant to do. Fannie’s refinance plan would result in new loans of equivalent size, leaving the borrower underwater but giving him or her a lower monthly payment or at least a fixed rate.

Of course, there can’t be a discussion about liquidity without the mention of beer and wine.

Judy Weil, editor at Seeking Alpha, posts a funny: Maybe Beer Will Help Stimulate House Sales.

A group of real estate agents is hosting a free condominium and beer-tasting tour.

I can only imagine the liabilities the Oregon agents were subject to without thinking. Of course, wine generates the same result. It also makes me wonder about Baltimore.

To help you steer through this complicated morass, the following video will show you others that lost their cool.

Tags: Fannie Mae, Zillow

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Back in the day, WaMu was one of the fasted growing mortgage originators and was affectionately known as the lender of last resort to mortgage brokers. Their appropriate “Power of Yes” advertising campaign was particularly accurate.

Implode-O-Meter reports that:

Washington Mutual will announce later today they are backing out of Wholesale entirely, and Retail is retreating to the bank footprint. Expect an email blast to Brokers later today.

Word is “They will leave the retail division in Jacksonville & Downers Grove” and all wholesale deals must close by June 30th.

It appears there may have been some conditions attached to that $5 billion.

Last week they reportedly allayed investor concerns that they were receiving a cash infusion of $5B.

I believe there are only a handful of national lenders left that are providing wholesale mortgage products in significant quantity. With this trend unfolding, combined with Fannie Mae’s upcoming ban on appraisal ordering by mortgage brokers, the high fees and unfavorable rates of jumbo conforming mortgages, a return to more core lending practices, proposed mortgage broker legislation, it’s not a good time to be a mortgage broker.

The mortgage bankers association expects the industry to contract in the current regulatory environment. There are many good mortgage brokers out there, but the profession needs weeding out, not unlike appraisers and real estate agents.

There is no love lost between WaMu and me because of the poor way it treated its long-time residential appraisers in 2006.

My question is: how will WaMu make money now? I had assumed wholesale mortgage origination was a big part of their business and their growth was fueled by mortgage origination. Their servicing business must be very lucrative.

UPDATE: Consolidation effort to eliminate 3,000 jobs
UPDATE 2: WaMu: Only for the Bravest of Investors

Tags: Jumbo Mortgage, Conforming Mortgage, Fannie Mae, Freddie Mac

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Foreclosure counseling is becoming a growing industry in the post-housing boom world.

Well, the federal government was the last to the party, but now seems to be trying a full court press to show compassion to those who are in danger of losing their homes.

On a visit to a New Jersey counseling agency Friday, Mr. Bush stood with homeowners who have benefited from the administration’s programs, including its Hope Now referral service. “We will help responsible homeowners weather a difficult period. And in so doing, we will strengthen the dream of homeownership.

The irony in his actions is that the White House and republicans are trying to stop the Foreclosure Prevention Act being pushed by democrats.

Giving out a wrong number…twice

President Bush gave the wrong number for the administration’s “Hope Now Hotline” as 800-995-Hope (it’s 888) for foreclosure counseling back in December 2007.

On Friday, the president gave the wrong number again at his press conference in New Jersey. He gave it as 88-995-HOPE (it’s 888).

Who says there is no disconnect between the housing market and the federal government?

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One of the things I have found particularly aggravating during the past two years has been all the coverage on foreclosure stats. I don’t think consumers (or the media) have much perspective on the stats being produced, mainly by RealtyTrac and their competitor Foreclosure.com It’s been a groundbreaking effort on their part to collect this data but here’s a sample representing my issue with all this. I actually posted about the foreclosure data perspective problem back in September2006 (I just re-read it and it is relatively coherent) but the communication problem remains.

We see huge percentage increases every single month and yet the typical reader doesn’t really know what these stats mean in the context of all mortgages outstanding other than…it’s getting worse. I don’t think I am alone in getting the feeling that 87.4% of all houses are under foreclosure (left-handed people only, while it’s 92.3% if you include right-handed people).

Here are some examples…

From the New York Times

Statistics on foreclosure are snapshots of a moving phenomenon, and data from the state labor department show 174 foreclosures in Belair-Edison last year, while the Community Law Center, a nonprofit public service group, counted 181; both figures are well below the more than 275 foreclosures in 2001 and in 2002.

From Forbes

In February, Florida trailed only Nevada and California in the percentage of homes in foreclosure. RealtyTrac Inc. said 32,447 homes were in foreclosure statewide in February, up more than 69 percent from February of last year and up more than 7 percent from January.

Back in October 2007, the OTS released the first Monthly Market Monitor (creatively called MMM). It referred to the mortgage problem as the “Mortgage Malaise” (2 M’s if you were wondering) The most recent issue was released on wednesday referring to the mortgage markets in “disarray”. The MMM charts are really useful because they show the pace of foreclosures in an historical context and the amount of foreclosures relative to the amount of mortgages outstanding. The info on these charts are what we need to see more of.

Here’s a housing summary from the March 2008 report:

The slump in the housing market has not only impacted residential construction, but lending and loan performance have deteriorated in concert. Non‐conforming loan originations fell 49 percent in the fourth quarter, as the secondary market for bonds backed by the collateral is still shuttered. According to data collected by Inside Mortgage Finance, approximately $84.5 billion of non‐conforming loans were originated in the quarter ending in December 2007, comprising just 19.9 percent of total loan production. This is the lowest volume of originations ever, and is a far cry from the peak origination period of 2005, when the total reached $1.58 trillion, or 50.4 percent of all production.6 By loan type, jumbo production fell 47 percent in the fourth quarter, plummeting to $44 billion, or less than 10% of all originations. The downturn in Alt‐A and subprime loan production persist, with fourth quarter volume at $27 billion and $13.5 billion, respectively.

In contrast to non‐conforming product, FHA/VA loan production rose steadily in 2007, from a low of $19.0 billion in the first quarter to $31.0 billion at the end of the year. Activity in government‐insured lending was twice that of subprime.

Even Treasury Secretary Paulson is giving us better perspective of foreclosure stats in his speech to the US Chamber of Commerce on Wednesday:

Home foreclosures are also a significant issue today. Foreclosures are painful and costly to homeowners and, neighborhoods. They also prolong the housing correction by adding to the inventory of unsold homes. Before quickly reviewing our initiatives to prevent avoidable foreclosures, let me observe that some current headlines make it difficult to put foreclosure rates in perspective. So let me try to do so.

First, 92 percent of all homeowners with mortgages pay that mortgage every month right on time. Roughly 2 percent of mortgages are in foreclosure. Even from 2001 to 2005, a time of solid U.S. economic growth and high home price appreciation, foreclosure starts averaged more than 650,000 per year.

Last year there were about 1.5 million foreclosures started and estimates are that foreclosure starts might be as high as 2 million in 2008. These foreclosures are highly concentrated – subprime mortgages account for 50 percent of foreclosure starts, even though they are only 13 percent of all mortgages outstanding. Adjustable rate subprime mortgages account for only 6 percent of all mortgages but 40 percent of the foreclosures. So we are right to focus many of our policies on subprime borrowers.

There are approximately 7 million outstanding subprime mortgage loans. Available data suggests that 10 percent of subprime borrowers were investors or speculators. This figure is likely higher, as some investors misrepresented themselves to take advantage of a cheaper rate, and others speculated on a primary residence, expecting prices to continue going up.

And if you can’t keep track of foreclosures because it’s too confusing, try something simple like converting your phone number into words.

Tags: Jumbo Mortgage, Conforming Mortgage, FHA, Forbes, Sub-Prime

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At least Larry Yun, Chief Economist for NAR, isn’t using the word “Temporary” in his monthly pronouncement that included the idea that subprime isn’t really that big of a deal.

This month’s series of helpful advice for all of us to savor:

“There’s too much focus on the national figures,” Yun said. “National figures can dampen consumer confidence.”

• NAR posts national housing stats on a series of metrics every month.

“The subprime mess is a Wall Street mess,” Yun said. “They made a huge gamble, and they lost. Subprime is a past event that’s unrelated to homebuying.“

• Subprime and the credit crunch that followed has become such a large issue today that the president announced a plan for economic relief and the Fed chairman hinted at sharp rate cuts, primarily because of housing weakness.

“Denver is one of the markets to watch,” Yun said. “Austin (Texas) already has seen a boom. Denver will be among the next markets to see a boom.”

• Since this was a speech he gave in Denver, I can’t help but think its a fill in the blank speech. “_______________________ is one of the markets to watch”

But seriously, this misinformation to consumers has got to stop. I can’t believe this advice hard core spin is being sanctioned by the trade group. Again, missing a golden opportunity to connect with consumers.

Tags: Lawrence Yun, Sub-Prime

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This series was born out of the growing number of news stories covering past mortgage lending practices and suggests no one is to blame or, ehem, everyone is to blame. Suggested solutions are few and far between. For the record, I blame society. Ok, not really, but there’s still plenty of blame left to to go around (and solutions). Here’s another example…

With a weakening economy, cities are beginning to go after lenders because of shrinking tax revenues and rising costs associated with foreclosures. Here are a few examples:

Cleveland
The City of Cleveland is suing 21 major banks and mortgage companies for the damage left behind after subprime mortgage debacle. Ohio has been particularly aggressive in going after mortgage related professionals who were “morally flexible” in making money during the recent housing boom. Left in its wake is the re-emergence of urban blight, as a thousands of homes have gone into foreclosure and have been abandoned. Rising crime, lost tax revenue, demolition costs, etc.

Baltimore
But lets not forget about the City of Baltimore, who is suing Wells Fargo for poor lending practices:

The recent surge in homeowner defaults nationwide, generated by lax lending practices during the real estate boom, has officials bracing for a range of problems that often accompany foreclosures. Some municipalities, including Cleveland and Buffalo, are trying to make lenders responsible for abandoned properties to ward off crimes like arson, drug use and prostitution.

But the civil suit that officials in Baltimore are filing in United States District Court may presage another type of litigation against lenders by municipalities facing shortfalls in their budgets.

Buffalo
Rust belt cities, to add to their economic weakness, now have to deal with urban blight. It looks a like a lot of lawsuits are on the horizon.

the forefront of a pioneering effort to deal with a vexing problem: The surging number of vacant and abandoned homes resulting from the mortgage market meltdown. The vacancies occur when lenders bring foreclosure suits against delinquent borrowers. Mere notice that such an action might be filed often sends residents packing. In Buffalo and other Rust Belt cities, the problem has been particularly acute, because in many cases banks are abandoning the houses, too, after determining that their value is so low that it’s not worth laying claim to them.

Here’s a few comic strips for some temporary foreclosure relief via MSNBC

Tags: Sub-Prime

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