Property Grunt

Wednesday, August 29, 2007

Up and down

Like Lindsay Lohan's social life, the stock market is experiencing volatility on an epic scale, much to the joy to all the day traders of the world. The Fed will jump in when things go FUBAR. But it appears their definition of FUBAR might be a little different than ours.

And it appears all of this subprime contagion is starting to collapse the deflector shields known as the Manhattan market. Where it goes from here, who knows.

My recommendation is this. Get your beach towels, break out the beer and Jack Daniels and take it easy this labor day weekend. Relax, kick back. Don't worry you won't miss anything. The chaos will still be here when you return.

Monday, August 27, 2007


Police searching for slasher in NYC Suspect for 3 Asian women attack
Eyewitness News
(New York - WABC, August 25, 2007) - Police in Manhattan are searching for a slasher, a man who walks up to women on the street and cuts them. Now investigators have a key piece of evidence, a sketch of the suspect.

Eyewitness News reporter NJ Burkett is following this story.
Watch your back. This is the advice to Asian women in New York City from the NYPD Saturday -- three women, three attacks, and one crazed man with a knife.

"It's frightening," an Asian woman said.

Women we spoke with had no idea but over the past six weeks a stalker has been walking the streets of Manhattan targeting Asian women at random - slashing them across the right forearm in broad daylight.

The latest attack was on the afternoon of August 17th. The other two were on July 16th, in the morning and afternoon.

The first attack was in mid July on 32nd Street in midtown and then the same day in Chinatown. The latest, a week ago, was just barely two blocks away.

The victims were not seriously hurt but the motive is entirely unknown.

The police released a composite sketch of the suspect. He is described by the victims as an African-American man 25 to 30 years old, thin, and 5 8" to 5 11". He wears a light gray sweat shirt with the numbers 09 on the back.

"I'm going to be careful walking the streets," said other Asian woman. "I'm not going to change my routine just for a guy like this."

The victims all range in age from their early 30s to their mid 40s. Police say two of the women were taken to hospitals in stable condition, while the other had only a minor cut.

Police have no idea what this guy is capable of and when he might strike again.

This really pisses me off on two levels. First of all slashing random women on the street is not normal behavior. Besides the fact it is evil and twisted, this piece of human refuse is putting innocent people in harm's way and needs to be stopped.

To the Asian women and women in general, watch your backs and travel in packs. If you see some weird a**hole looking at you strange or you get that weird feeling about that guy following you, call the cops, find a safe place and if you are able to keep yourself safe you might do what this woman did to this perv.

I have no doubt that the police are working overtime to get this douchebag off the streets. But they can only do so much. I hope by posting this description of this sicko that someone will recognize him or better yet prevent someone getting attacked. So let's keep an eye out.

On a real estate level this is the type of s**t that brings back the bad old days of the 70's and 80's when New York City was under siege and it felt like every night was a scene from Death Wish.

As I have pointed out in a previous entry, if people do not feel safe, they are not going to stick around. This results in lower property values. In this market, we can't afford that. I know this sounds quite shallow, but unfortunately one of the best ways to bring people to action is to connect it to their own financial well being.

So remember folks, catch the nutcase and you will be able to better protect your equity.

Saturday, August 25, 2007

"because there is nobody else in town."

Don't look at me. I need money too.

I received this email from Big Picture. A reader sent in some anecdotal evidence that this whole subprime was a bad idea even from the mortgage lender's perspective. It is f**ked up but not surprising.

The New York Times has a brilliant article on Countrywide lending and their role in the subprime contagion. It is not only a great article on how Countrywide operated its operations but it is also gives an in depth perspective of how the mortgage industry work and how it turns a profit. Everyone who is thinking of getting a mortgage should read this article. After the article is my analysis.

August 26, 2007
Inside the Countrywide Lending Spree
ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.

But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, according to interviews with former employees and brokers who worked in different units of the company and internal documents they provided. One document, for instance, shows that until last September the computer system in the company’s subprime unit excluded borrowers’ cash reserves, which had the effect of steering them away from lower-cost loans to those that were more expensive to homeowners and more profitable to Countrywide.

Now, with the entire mortgage business on tenterhooks and industry practices under scrutiny by securities regulators and banking industry overseers, Countrywide’s money machine is sputtering. So far this year, fearful investors have cut its stock in half. About two weeks ago, the company was forced to draw down its entire $11.5 billion credit line from a consortium of banks because it could no longer sell or borrow against home loans it has made. And last week, Bank of America invested $2 billion for a 16 percent stake in Countrywide, a move that came amid speculation that Countrywide’s survival was in question and that it had become a takeover target — notions that Countrywide publicly disputed.

Homeowners, meanwhile, drawn in by Countrywide sales scripts assuring “the best loan possible,” are behind on their mortgages in record numbers. As of June 30, almost one in four subprime loans that Countrywide services was delinquent, up from 15 percent in the same period last year, according to company filings. Almost 10 percent were delinquent by 90 days or more, compared with last year’s rate of 5.35 percent.

Many of these loans had interest rates that recently reset from low teaser levels to double digits; others carry prohibitive prepayment penalties that have made refinancing impossibly expensive, even before this month’s upheaval in the mortgage markets.

To be sure, Countrywide was not the only lender that sold questionable loans with enormous fees during the housing bubble. And as real estate prices soared, borrowers themselves proved all too eager to participate, even if it meant paying high costs or signing up for a loan with an interest rate that would jump in coming years.

But few companies benefited more from the mortgage mania than Countrywide, among the most aggressive home lenders in the nation. As such, the company is Exhibit A for the lax and, until recently, highly lucrative lending that has turned a once-hot business ice cold and has touched off a housing crisis of historic proportions.

“In terms of being unresponsive to what was happening, to sticking it out the longest, and continuing to justify the garbage they were selling, Countrywide was the worst lender,” said Ira Rheingold, executive director of the National Association of Consumer Advocates. “And anytime states tried to pass responsible lending laws, Countrywide was fighting it tooth and nail.”

Started as Countrywide Credit Industries in New York 38 years ago by Angelo R. Mozilo, a butcher’s son from the Bronx, and David Loeb, a founder of a mortgage banking firm in New York, who died in 2003, the company has become a $500 billion home loan machine with 62,000 employees, 900 offices and assets of $200 billion. Countrywide’s stock price was up 561 percent over the 10 years ended last December.

Mr. Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.

As the subprime mortgage debacle began to unfold this year, Mr. Mozilo’s selling accelerated. Filings show that he made $129 million from stock sales during the last 12 months, or almost one-third of the entire amount he has reaped over the last 23 years. He still holds 1.4 million shares in Countrywide, a 0.24 percent stake that is worth $29.4 million.

“Mr. Mozilo has stated publicly that his current plan recognizes his personal need to diversify some of his assets as he approaches retirement,” said Rick Simon, a Countrywide spokesman. “His personal wealth remains heavily weighted in Countrywide shares, and he is, by far, the leading individual shareholder in the company.”

Mr. Simon said that Mr. Mozilo and other top Countrywide executives were not available for interviews. The spokesman declined to answer a list of questions, saying that he and his staff were too busy.

A former sales representative and several brokers interviewed for this article were granted anonymity because they feared retribution from Countrywide.

AMONG Countrywide’s operations are a bank, overseen by the Office of Thrift Supervision; a broker-dealer that trades United States government securities and sells mortgage-backed securities; a mortgage servicing arm; a real estate closing services company; an insurance company; and three special-purpose vehicles that issue short-term commercial paper backed by Countrywide mortgages.

Last year, Countrywide had revenue of $11.4 billion and pretax income of $4.3 billion. Mortgage banking contributed mightily in 2006, generating $2.06 billion before taxes. In the last 12 months, Countrywide financed almost $500 billion in loans, or around $41 billion a month. It financed 177,000 to 240,000 loans a month during the last 12 months.

Countrywide lends to both prime borrowers — those with sterling credit — and so-called subprime, or riskier, borrowers. Among the $470 billion in loans that Countrywide made last year, 45 percent were conventional nonconforming loans, those that are too big to be sold to government-sponsored enterprises like Fannie Mae or Freddie Mac. Home equity lines of credit given to prime borrowers accounted for 10.2 percent of the total, while subprime loans were 8.7 percent.

Regulatory filings show that, as of last year, 45 percent of Countrywide’s loans carried adjustable rates — the kind of loans that are set to reprice this fall and later, and which are causing so much anxiety among borrowers and investors alike. Countrywide has a huge presence in California: 46 percent of the loans it holds on its books were made there, and 28 percent of the loans it services are there. Countrywide packages most of its loans into securities pools that it sells to investors.

Another big business for Countrywide is loan servicing, the collection of monthly principal and interest payments from borrowers and the disbursement of them to investors. Countrywide serviced 8.2 million loans as of the end of the year; in June the portfolio totaled $1.4 trillion. In addition to the enormous profits this business generates — $660 million in 2006, or 25 percent of its overall earnings — customers of the Countrywide servicing unit are a huge source of leads for its mortgage sales staff, say former employees.

In a mid-March interview on CNBC, Mr. Mozilo said Countrywide was poised to benefit from the spreading crisis in the mortgage lending industry. “This will be great for Countrywide,” he said, “because at the end of the day, all of the irrational competitors will be gone.”

But Countrywide documents show that it, too, was a lax lender. For example, it wasn’t until March 16 that Countrywide eliminated so-called piggyback loans from its product list, loans that permitted borrowers to buy a house without putting down any of their own money. And Countrywide waited until Feb. 23 to stop peddling another risky product, loans that were worth more than 95 percent of a home’s appraised value and required no documentation of a borrower’s income.

As recently as July 27, Countrywide’s product list showed that it would lend $500,000 to a borrower rated C-minus, the second-riskiest grade. As long as the loan represented no more than 70 percent of the underlying property’s value, Countrywide would lend to a borrower even if the person had a credit score as low as 500. (The top score is 850.)

The company would lend even if the borrower had been 90 days late on a current mortgage payment twice in the last 12 months, if the borrower had filed for personal bankruptcy protection, or if the borrower had faced foreclosure or default notices on his or her property.

Such loans were made, former employees say, because they were so lucrative — to Countrywide. The company harvested a steady stream of fees or payments on such loans and busily repackaged them as securities to sell to investors. As long as housing prices kept rising, everyone — borrowers, lenders and investors — appeared to be winners.

One former employee provided documents indicating Countrywide’s minimum profit margins on subprime loans of different sizes. These ranged from 5 percent on small loans of $100,000 to $200,000 to 3 percent on loans of $350,000 to $500,000. But on subprime loans that imposed heavy burdens on borrowers, like high prepayment penalties that persisted for three years, Countrywide’s margins could reach 15 percent of the loan, the former employee said.

Regulatory filings show how much more profitable subprime loans are for Countrywide than higher-quality prime loans. Last year, for example, the profit margins Countrywide generated on subprime loans that it sold to investors were 1.84 percent, versus 1.07 percent on prime loans. A year earlier, when the subprime machine was really cranking, sales of these mortgages produced profits of 2 percent, versus 0.82 percent from prime mortgages. And in 2004, subprime loans produced gains of 3.64 percent, versus 0.93 percent for prime loans.

One reason these loans were so lucrative for Countrywide is that investors who bought securities backed by the mortgages were willing to pay more for loans with prepayment penalties and those whose interest rates were going to reset at higher levels. Investors ponied up because pools of subprime loans were likely to generate a larger cash flow than prime loans that carried lower fixed rates.

As a result, former employees said, the company’s commission structure rewarded sales representatives for making risky, high-cost loans. For example, according to another mortgage sales representative affiliated with Countrywide, adding a three-year prepayment penalty to a loan would generate an extra 1 percent of the loan’s value in a commission. While mortgage brokers’ commissions would vary on loans that reset after a short period with a low teaser rate, the higher the rate at reset, the greater the commission earned, these people said.

Persuading someone to add a home equity line of credit to a loan carried extra commissions of 0.25 percent, according to a former sales representative.

“The whole commission structure in both prime and subprime was designed to reward salespeople for pushing whatever programs Countrywide made the most money on in the secondary market,” the former sales representative said.

CONSIDER an example provided by a former mortgage broker. Say that a borrower was persuaded to take on a $1 million adjustable-rate loan that required the person to pay only a tiny fraction of the real interest rate and no principal during the first year — a loan known in the trade as a pay option adjustable-rate mortgage. If the loan carried a three-year prepayment penalty requiring the borrower to pay six months’ worth of interest at the much higher reset rate of 3 percentage points over the prevailing market rate, Countrywide would pay the broker a $30,000 commission.

When borrowers tried to reduce their mortgage debt, Countrywide cashed in: prepayment penalties generated significant revenue for the company — $268 million last year, up from $212 million in 2005. When borrowers had difficulty making payments, Countrywide cashed in again: late charges produced even more in 2006 — some $285 million.

The company’s incentive system also encouraged brokers and sales representatives to move borrowers into the subprime category, even if their financial position meant that they belonged higher up the loan spectrum. Brokers who peddled subprime loans received commissions of 0.50 percent of the loan’s value, versus 0.20 percent on loans one step up the quality ladder, known as Alternate-A, former brokers said. For years, a software system in Countrywide’s subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrower’s cash reserves, a former employee said.

A borrower who has more assets poses less risk to a lender, and will typically get a better rate on a loan as a result. But, this sales representative said, Countrywide’s software prevented the input of cash reserves so borrowers would have to be pitched on pricier loans. It was not until last September that the company changed this practice, as part of what was called in an internal memo the “Do the Right Thing” campaign.

According to the former sales representative, Countrywide’s big subprime unit also avoided offering borrowers Federal Housing Administration loans, which are backed by the United States government and are less risky. But these loans, well suited to low-income or first-time home buyers, do not generate the high fees that Countrywide encouraged its sales force to pursue.

A few weeks ago, the former sales representative priced a $275,000 loan with a 30-year term and a fixed rate for a borrower putting down 10 percent, with fully documented income, and a credit score of 620. While a F.H.A. loan on the same terms would have carried a 7 percent rate and 0.125 percentage points, Countrywide’s subprime loan for the same borrower carried a rate of 9.875 percent and three additional percentage points.

The monthly payment on the F.H.A. loan would have been $1,829, while Countrywide’s subprime loan generated a $2,387 monthly payment. That amounts to a difference of $558 a month, or $6,696 a year — no small sum for a low-income homeowner.

“F.H.A. loans are the best source of financing for low-income borrowers,” the former sales representative said. So Countrywide’s subprime lending program “is not living up to the promise of providing the best loan programs to its clients,” he said.

Mr. Simon of Countrywide said that Federal Housing Administration loans were becoming a bigger part of the company’s business.

“While they are very useful to some borrowers, F.H.A./V.A. mortgages are extremely difficult to originate in markets with above-average home prices, because the maximum loan amount is so low,” he said. “Countrywide believes F.H.A./V.A. loans are an increasingly important part of its product menu, particularly for the homeownership hopes of low- to moderate-income and minority borrowers we have concentrated on reaching and serving.”

WORKDAYS at Countrywide’s mortgage lending units centered on an intense telemarketing effort, former employees said. It involved chasing down sales leads and hewing to carefully prepared scripts during telephone calls with prospects.

One marketing manual used in Countrywide’s subprime unit during 2005, for example, walks sales representatives through the steps of a successful call. “Step 3, Borrower Information, is where the Account Executive gets on the Oasis of Rapport,” the manual states. “The Oasis of Rapport is the time spent with the client building rapport and gathering information. At this point in the sales cycle, rates, points, and fees are not discussed. The immediate objective is for the Account Executive to get to know the client and look for points of common interest. Use first names with clients as it facilitates a friendly, helpful tone.”

If clients proved to be uninterested, the script provided ways for sales representatives to be more persuasive. Account executives encountering prospective customers who said their mortgage had been paid off, for instance, were advised to ask about a home equity loan. “Don’t you want the equity in your home to work for you?” the script said. “You can use your equity for your advantage and pay bills or get cash out. How does that sound?”

Other documents from the subprime unit also show that Countrywide was willing to underwrite loans that left little disposable income for borrowers’ food, clothing and other living expenses. A different manual states that loans could be written for borrowers even if, in a family of four, they had just $1,000 in disposable income after paying their mortgage bill. A loan to a single borrower could be made even if the person had just $550 left each month to live on, the manual said.

Independent brokers who have worked with Countrywide also say the company does not provide records of their compensation to the Internal Revenue Service on a Form 1099, as the law requires. These brokers say that all other home lenders they have worked with submitted 1099s disclosing income earned from their associations.

One broker who worked with Countrywide for seven years said she never got a 1099.

“When I got ready to do my first year’s taxes I had received 1099s from everybody but Countrywide,” she said. “I called my rep and he said, ‘We’re too big. There’s too many. We don’t do it.’ ”

A different broker supplied an e-mail message from a Countrywide official stating that it was not company practice to submit 1099s. It is unclear why Countrywide apparently chooses not to provide the documents. Countrywide boasts that it is the No. 1 lender to minorities, providing those borrowers with their piece of the American homeownership dream. But it has run into problems with state regulators in New York, who contended that the company overcharged such borrowers for loans. Last December, Countrywide struck an agreement with Eliot Spitzer, then the state attorney general, to compensate black and Latino borrowers to whom it had improperly given high-cost loans in 2004. Under the agreement, Countrywide, which cooperated with the attorney general, agreed to improve its fair-lending monitoring activities and set up a $3 million consumer education program.

But few borrowers of any sort, even the most creditworthy, appear to escape Countrywide’s fee machine. When borrowers close on their loans, they pay fees for flood and tax certifications, appraisals, document preparation, even charges associated with e-mailing documents or using FedEx to send or receive paperwork, according to Countrywide documents. It’s a big business: During the last 12 months, Countrywide did 3.5 million flood certifications, conducted 10.8 million credit checks and 1.3 million appraisals, its filings show. Many of the fees go to its loan closing services subsidiary, LandSafe Inc.

According to dozens of loan documents, LandSafe routinely charges tax service fees of $60, far above what other lenders charge, for information about any outstanding tax obligations of the borrowers. Credit checks can cost $36 at LandSafe, double what others levy. Some Countrywide loans even included fees of $100 to e-mail documents or $45 to ship them overnight. LandSafe also charges borrowers $26 for flood certifications, for which other companies typically charge $12 to $14, according to sales representatives and brokers familiar with the fees.

LAST April, Countrywide customers in Los Angeles filed suit against the company in California state court, contending that it overcharged borrowers by collecting unearned fees in relation to tax service fees and flood certification charges. These markups were not disclosed to borrowers, the lawsuit said.

Appraisals are another profit center for Countrywide, brokers said, because it often requires more than one appraisal on properties, especially if borrowers initially choose not to use the company’s own internal firm. Appraisal fees at Countrywide totaled $137 million in 2006, up from $110 million in the previous year. Credit report fees were $74 million last year, down slightly from 2005.

All of those fees may soon be part of what Countrywide comes to consider the good old days. The mortgage market has cooled, and so have the company’s fortunes. Mr. Mozilo remains undaunted, however.

In an interview with CNBC on Thursday, he conceded that Countrywide’s balance sheet had to be strengthened. “But at the end of the day we could be doing very substantial volumes for high-quality loans,” he said, “because there is nobody else in town.”

As I have said before, its f**ked up but not surprising. As the saying goes, "When you get your place at the trough, drink as much as you can." Countrywide didn't just drink from the trough, they f**king main lined it.

I just watched a great movie called Blood, Guts, Bullets and Octane

Here's the plot.

Blood, Guts, Bullets, and Octane is a 1998 independent action comedy film (with elements of dark humor) written and directed by Joe Carnahan. The film stars Joe Carnahan and Dan Leis as two salesman of a failing used car dealership who are paid $250,000 to allow a 1963 Pontiac LeMans convertible onto the dealership lot for two days.

Throughout the whole film, the two used car salesman are constantly pushing the envelope, looking at angles to exploit which results in a bloody and deadly conclusion. Now guns, blood and plastic explosives is not something associated with the mortgage industry but sales is sales whether it is used cars, real estate or mortgages. It is all about push, push, push. Move your product or move out.

Countrywide set up their system in order to exploit the market to their advantage. The evidence from this article was that they restrained their people to only make deals that made the most profit for the company.

For years, a software system in Countrywide’s subprime unit that sales representatives used to calculate the loan type that a borrower qualified for did not allow the input of a borrower’s cash reserves, a former employee said.

A borrower who has more assets poses less risk to a lender, and will typically get a better rate on a loan as a result. But, this sales representative said, Countrywide’s software prevented the input of cash reserves so borrowers would have to be pitched on pricier loans.

In other words they rigged they game to their advantage and the evidence from the article suggests they didn't give a f**k. Even if people didn't have a pot to piss in after they made their mortgage payment, it didn't matter.

One reason these loans were so lucrative for Countrywide is that investors who bought securities backed by the mortgages were willing to pay more for loans with prepayment penalties and those whose interest rates were going to reset at higher levels. Investors ponied up because pools of subprime loans were likely to generate a larger cash flow than prime loans that carried lower fixed rates.

Such loans were made, former employees say, because they were so lucrative — to Countrywide. The company harvested a steady stream of fees or payments on such loans and busily repackaged them as securities to sell to investors. As long as housing prices kept rising, everyone — borrowers, lenders and investors — appeared to be winners.


Of course someone benefited from the churn and burn.

Mr. Mozilo has ridden this remarkable wave to immense riches, thanks to generous annual stock option grants. Rarely a buyer of Countrywide shares — he has not bought a share since 1987, according to Securities and Exchange Commission filings — he has been a huge seller in recent years. Since the company listed its shares on the New York Stock Exchange in 1984, he has reaped $406 million selling Countrywide stock.

At this point Mr. Mozilo is probably getting acquainted with the Cayman Islands and terms like "extradition treaty" or learning the fundamentals of Jail House Rock.

You see folks, although Mr. Mozilo although is playing Nero and proselytizing that "there is nobody else in town." The reality is far more sobering.

He is right to a certain extent. There will be nobody else in town because they will either liquidated or chopped up by other investment firms. But that is nothing compared to what the Federal Government will do to them. With all of the media coverage don't be surprised to see Senate hearings, sweeping legislation that will probably make things more complicated and popular issue during the presidential election.

The punchline of this horrible joke that this is probably just the beginning. From my limited understanding, if the commercial market starts to unravel. Then we are going to be dealing with a Galactus level event.

Wednesday, August 22, 2007

Closing the barn door

That is what you do before the horse runs away.

It appears that cracks are now showing in the armor of the New York real estate market.

The research firm Realty Trac released a report Tuesday saying foreclosures across New York State jumped 23 percent from last July.

The biggest spike in the city was in Queens, where the number of foreclosures was up a whopping 126 percent.

The Bronx saw a 54 percent increase, Brooklyn saw a 51 percent increase, and Manhattan a 12 percent increase. Only Staten Island bucked the trend; it saw a 6 percent decrease.

"Anyone who thinks New York City is going to escape the sub-prime crisis is just plain wrong,” said Senator Charles Schumer in a statement. “The foreclosure storm that has been brewing elsewhere in the country has now made its way to New York."

Apparently Chuck is so freaked out about the subprime crisis affecting New York that he is pulling the legislative big guns.

"The subprime market is the wild west of mortgage loans and its time we bring a sheriff into town," Schumer said. "The first step is making sure that borrowers are protected from these usurious lenders. It's long past time that we ensure that working people are protected from loans that promise them the world and instead give them a mountain of debt and leave them homeless."

The impending avalanche of mortgage foreclosures in upstate New York and across the nation can be directly tied to the exploding popularity of costly non-traditional mortgage products over the past decade. These non-traditional mortgage products, which include hybrid adjustable-rate mortgages with intricate interest rate terms and conditions, have been sold to middle and lower-income families in record numbers. While they offer attractive and easy lending terms, they also include excessively high interest rates that can sharply spike, leaving new homeowners struggling to meet rising mortgage payments.

I understand he is trying to do his job, unfortunately he is a day late and a dollar short. If he wanted to prevent this than he should have gotten the party started at least a year ago.

It appears my past entries on the subprime crisis foreshadowed of our new reality. If you want a refresher. Here they are.

What about Manhattan?
What about Manhattan part 2?
What about Manhattan part 3?

If you think I am getting any type of satisfaction from this, I'm not. In fact I am quite concerned about these developments.

Those of you who know me personally, which is probably none of you who read this blog, know that I am from "upstate" New York. The area I am from is a known for its high property values, taxes and a school system that could be mistaken as the setting for A Separate Peace. The only barrier of entry in this town is money and there is plenty of it to go around.

But unlike Manhattan, the market there is as flaccid as Rosie O'Donnell's libido. It has become the Costco of residential real estate where you can practically buy houses in bulk. And these aren't bulls**t homes, these are the multi-million dollar class homes where you entertain an Ambassador or President. In fact one of the candidates for President was considering moving there but chose another town that was nearby but just as prestigious.

If you open up my hometown's newspaper it is chocked filled with real estate ads. In fact they went as far as setting a up a real estate section that is similar to the New York Times Real Estate section. But houses are barely selling. And it is not just in my town but the surrounding areas also.

The irony though is that I do not think the local brokerages really care. They have all been bought out by the conglomerates who only desire to extend their influence in these areas. As far as they are concerned, they already made their money.

Thursday, August 16, 2007

Contagion Chatter

The Grunt has some fresh chatter from the wire concerning the credit crunch we are in and it comes straight from infantry serving in the front lines in Wall street.

Absolutely no one knows how this movie is going to end. Anyone who claims they have spoilers on the stock market should be taken with a grain of salt. It is the fact that there is scarce information on how exposed everyone is a core reason causing this volatility. And by the time the credits roll it will be too late.

Anything with the word mortgage is being jettisoned. It doesn't matter what it is attached too. M is the new scarlet letter. Of course this is probably not a big surprise. What is a big surprise is that there are certain players with the liquidity, stronger knowledge base of the market and a John Holmes sized appetite for risk who are cherry picking what is being sold.

The flight to quality is in full effect. Despite what is going on all over the world, there is a significant foreign presence, most likely induced by the weak dollar who are buying American investments. South Americans have become especially fond of the US, which is ironic considering the anti-illegal immigration sentiment that is being bandied about in this country. It could also mean that Manhattan and the rest of New York City might dodge not just a bullet but a whole salvo if enough foreign money is pumped into the real estate market.

As for the late rally that occurred, it appears to be an indication that the players are shifting their money around. In other words it is musical chairs on speed. Or as I would like to call it, passing the hand grenade. The trick is to time it so you are not the one holding it when it goes off.

Wednesday, August 15, 2007

You know things are bad when the comic book geeks get involved.

Your neighbor maybe a comic book fan.

As many of you have figured out, I am a comic book fan. One of the forums I peruse is called the Slushfactory.

On a recent thread one poster by the name of Miles Perrie announced his intention to buy a condo, of all places, in Florida

So, I was just offered a GREAT price on a 2 bedroom/2 bathroom Condo WITH a garage (and a nice little terrace)!

.....Great price and all, but with fees and taxes I'd end up paying an extra 600 dollars a month then I'm used to....

........should I do it? When I do my monthly bills, it seems I can EASILY do it, yet somehow in reality I seldom save anything each month (this is why Ferengi's got it right when it came to dating).

Then again, I just got a small but something-ish raise, AND I'm going to be teaching a college course this there is a small bit of extra cash.

I am conflicted!

....Here is the floor plan for the place I'm thinking about

This being a forum populated by angry comic book geeks who were bullied by jocks and ignored by all of the popular girls during their high school years, the response was unsurprisingly harsh. Here's a sample.

This one had words about condos.

I like that it has 2 bathrooms so that when Miles watches DS9 with a hot Brazillian chick from Boca Raton, she can go hose herself off in the guest bath while he gets some much needed shut eye undisturbed.

Other than that, I just don't see the bargain in buying a condo. I wouldn't want to fork over that kind of money just to be beholdent to a board or Condo association that is usually a bunch of a**holes with nothing better to do with their day than to sit around making life more difficult for their neighbors. I just heard a horror story from a friend in Hoboken who owns a condo. When he bought the thing he was told he didn't need flood insurance. A year later the Condo board decided he did need it after all. And since he paid fees to the condo association through direct deposit, they just started debiting $200 a week for flood insurance. He didn't realize the money was coming out of his account until they had basically taken $1000 out of his pocket without informing him. Love them condos!

This individual was more critical about the apartment itself.

better for you, Miles. that floorplan was really poorly designed. the way the balcony is tucked in between the bedroom and the little office area makes me think your view from the balcony would be rather obstructed, and looks cramped. with the extra exposed wallspace, that office and 2nd bedroom would be inefficient to heat/cool.

no windows in the living, dining, or kitchen areas makes for sucky quality of life issues.

also it looks like the only entrance/exit is through the stairs to the optional garage? what about fire safety? no back door? no stairs off the balcony?

I wouldn't like this place based on the floor plan alone.

Some were more more critical of the market itself.

Interestingly, it's all over the BBC news today that there's a global financial meltdown going on right now - caused by Americans and mortgages that they aren't paying back.

Does this make this a better or a worse time to buy something? I have no idea.

It makes it a bad time to be in debt. I can't believe the FDIC is capable of containing this "meltdown" if financial institutions in the US start failing due to the skyrocketing level of foreclosures that are occuring because of variable rate subprime loans. We could be in for something along the lines of the depression...with people living in tents in parks and sh*t like that.

Other than that, it's a great time to buy!

Of course Miles had his response.

It's not a bad time to buy if you have the income and it's a stable one. The problem leading to foreclosures is all the jobs in the business world where people are offered HUGE salaries but get downsized/fired/let go after a year.

School Psychology is a relatively stable career. I say this knowing there is a good chance there will be cuts to staff next year. Let's hope those cuts are based on merit, and not seniority.

Of course this response took the cake.

Hey Miles - check out these other properties in Jacksonville that you might want to take a look at!

They are not quite as roomy, but they are cheap! Most importantly, the old adage they say in Real Estate about "Location, Location, Location" doesn't apply. You can be guaranteed that one day you will be able to re-sell!


My opinion can be summed up from this article.

The states suffering the biggest drop in sales in the second quarter, compared with the same period a year ago, were Florida, down 41.3 percent, and Nevada, down 37.5 percent. Other states with big declines were Arizona, down 23.4 percent; Tennessee, down 21.5 percent; Maryland, down 21.1 percent, and California, down 19.8 percent.

Saturday, August 11, 2007

Taking a step back.

If you are looking to me for an analysis of the current credit crisis, I suggest you go this link on Curbed. There are far more knowlegeable people than I am who can give you the run down on what is going on.

It appears things have steadied according to this article. But then again it depends on your perspective.

One of the mantras of finance is that the stock market goes up and the real estate market goes down and vice versa. But it appears that these two markets are so intertwined and it has become a whole new ball game where the imploding real estate market is harshing the stock market's mellow.

I have read commentors relishing the fact there maybe a huge round of layoffs in Wall Street and there maybe rent reductions if people break their leases and there are too many vacancies.

First of all the last thing you want is for people in Wall Street to get laid off. If that were to occur it would create a chain reaction that would have negative consequences for everyone. I will give you an example.

Let's say you are a fresh faced kid who has finished up a Masters degree. You decide you want to become a corporate trainer and mold the greenhorns coming in from business school on how to be polite corporate raiders in order to avoid lawsuits. So you email your cover letter and resumes to all of the big corporations in town. In response you get jack diddly squat.

But why did that happen in a town brimming with capitalism? Simple. None of the companies are hiring anyone to train. In fact some of them are planning a huge round of layoffs. What are they going to do? Spend money to teach employees how how to be unemployed?

Rents going down? I don't think so. First of all if a landlord has rent stabilized apartments in their portfolio, they are going to take every effort to raise rents. Because once they break $2000, they are no longer shacked by rent stabilization rules and can charge market rates. If there is a massive exodus of residential tenants, I can see landlords giving concessions like a free month of rent, but I hardly see them lowering the rent because the lower the rent, the harder it is to make the mortgage payment.

Alot of you are wondering where is that ascerbic wit? Where is the tirade? Getting soft Grunt?

There is nothing to gain for me to rehash my previous entries about how screwed we are and crazy the real estate market is. We have already hit the proverbial iceberg and at this point we have to figure out whether to abandon ship or somehow salvage what we have. Bottomline, we need a new firing solution because what is happening now is not working.

Am I scared? When the Fed and a bunch of other governments of the world begin to dump gobs of cash to stabilize the markets, I think it would be stupid not to be a little concerned.

Monday, August 06, 2007

Rolling Blackout

I have limited access to internet at this time. But I will be popping in as much as I can. But considering what is going on with the financial markets,I think I am going to need a breather before picking up the pace.