Property Grunt

Saturday, January 31, 2009

Cutting their losses: Enter Financial Precrime

No. That's not Tom Cruise. Its AMEX.

It is just not enough for banks and financial institutions to look at the credit reports of customers now it has gotten to the point of statistical precognition.

American Express Kept a (Very) Watchful Eye on Charges

You probably know that credit card companies have been scrutinizing every charge on your account in recent years, searching for purchases that thieves may have made. Turns out, though, that some of the companies have been suspicious of your own spending, too.

In recent months, American Express has gone far beyond simply checking your credit score and making sure you pay on time. The company has been looking at home prices in your area, the type of mortgage lender you’re using and whether small-business card customers work in an industry under siege. It has also been looking at how you spend your money, searching for patterns or similarities to other customers who have trouble paying their bills.

In some instances, if it didn’t like what it was seeing, the company has cut customer credit lines. It laid out this logic in letters that infuriated many of the cardholders who received them. “Other customers who have used their card at establishments where you recently shopped,” one of those letters said, “have a poor repayment history with American Express.”

Remember the movie Minority Report? Well this Amex’s version of Precrime. They are looking at everything from credit reports, shopping habits, any data that produces a number and they are putting into these matrices in order to determine who is a future risk.
People, this is seriously f**ked up. What it means even you do everything right within your finances, you could still be penalized just because of where you shop.

The question, then, is how much of the data they can use before spooking their customers. Kevin D. Johnson, a 29-year-old Atlanta resident who runs a marketing and communications firm, received a letter from American Express last October saying that his credit limit was being lowered. One reason was that other customers who had used their cards at places where he had shopped were late in paying their bills.

The company couldn’t — or wouldn’t — tell him which charges had met with its disapproval. Frustrated, he told his story to the local newspaper and on “Good Morning America.” He also began documenting his experience on, where he posted the names of all the merchants he patronized, in the hope that other American Express customers would cross-check his list with theirs and solve the mystery.

Want to know where this guy shopped? out.

I have no idea why Walmart is considered a bad place because everyone shops at there and Amazon is an e-commerce instituiton. As for Mcdonald’s I guess people working on Wall Street should avoid going there for lunch.

It isn't just AMEX getting into the Dead Zone.

Banks Foreclose on Builders With Perfect Records

TEMPE, Ariz. — Dave Brown, one of this city’s best-known home builders, had kept his head above water through the housing downturn, not missing a single interest payment on his loans.

So he was confounded a few months back when JPMorgan Chase, spooked by the decline in his company’s revenue, suddenly demanded millions of dollars in additional collateral to continue carrying loans on his projects.

By October, unable to come up with the money, Brown Family Communities decided to shut its doors after 33 years in the business.

“They treated me like a deadbeat who missed his car payment,” said an embittered Mr. Brown, 76. “They wanted their money now.”

After riding high on one of the greatest housing booms in American history, the nation’s home builders today face a devastating reversal of fortune.
Although the housing crisis is nearly two years old, many banks had refrained from cracking down on small home builders.

They are starting to do so, and a wide swath of the industry could be forced out of business in the next few years. The trouble is concentrated especially in the Sun Belt, the scene of so much overbuilding.

Not only have new-home sales stagnated, but builders confront a rising wave of foreclosed properties coming to market at prices below the cost of building a new home. To move houses, they have to mark them down to less than the cost of construction.

The convergence of these problems is bringing many small and medium-size builders — who account for about 70 percent of new-home construction in the United States — to their knees.

“The reality is, we’re seeing conditions in home construction and home finance that are the worst since the Depression,” said Steve Fritts, associate director of risk management policy at the Federal Deposit Insurance Corporation, the government agency that insures bank deposits.

Life has been difficult for large publicly traded home-building companies as well, where stock prices have collapsed and construction sharply cut back. Yet for now, many of the public companies can meet their obligations.

“They’re better capitalized and they have cash on hand,” said Ivy Zelman, a housing analyst. “They’re in a much better position than the private builders.”
No hard count exists of precisely how many builders have gone out of business since the downturn began. According to an estimate by the National Association of Home Builders, at least 20,000 builders — about a fifth of the total nationwide — have closed up shop in the last two years.

With the industry still owing hundreds of billions of dollars in loans made at the market peak, many more face insolvency in the coming months and years. “Probably north of 50 percent will fail,” Ms. Zelman said.

The risk analysis groups of these banks are working overtime and have determined that these private estate developers are in a high risk demographic, even if they are making their payments on time, banks want to get out their money ASAP. All major banks have real estate appraiser groups that do an intense scope of work of the real estate markets. From they gather the odds are not in their favor of these particular developers. So rather than wait for the keys to be turned in, they are cutting to the chase.

“The behavior of the banks is unprecedented,” said Mick Pattinson, a home builder from Carlsbad, Calif. who has organized a national coalition of builders to draw attention to what they regard as unreasonable treatment. “Yes, there was overleveraging in the industry. But the aftermath doesn’t need to have been as brutal as it has been.”

Some experts defend the banks, saying they are starting to do what is necessary to come to grips with the turmoil in real estate. For months, they have been under pressure from federal bank regulators and their own shareholders to curtail lending to a faltering industry.

“The lenders are not operating irrationally or unfairly, generally speaking,” Mr. Fritts said. “They have to protect themselves.”

It is not just real estate developers, it is also the mortgage industry.

Costs and Tighter Rules Thwart Refinancings

That was the case when the government, through its Troubled Asset Relief Program, started pumping money into banks with the goal of shoring up their balance sheets and spurring lending. And it appears to be happening again as the Federal Reserve buys up mortgage securities. The Fed is pushing down interest rates, but that has not been enough to bring the housing market back to life.

While rates are falling, borrowers face higher costs every step of the way, from rising fees for mortgage insurance to added costs that drive up the mortgage rate. At the same time, lenders have become more cautious about whom they will lend to, as more people lose their jobs, watch their incomes decline and fall behind on their bills.

One of the biggest stumbling blocks for many people is their plunging property values, which have erased all or most of the equity in their homes. Others cannot meet the increasingly stringent credit requirements, which either disqualify them or increase their costs.

“Refinancing is a very difficult proposition right now,” said Mike Stoffer, president of Stoffer Mortgage in North Canton, Ohio. “The loss of equity and tighter credit standards are making it difficult for a lot of people to refinance.”

Recently I spoke to an appraiser about the business and he said that although he was really busy dealing with refis, banks are tightening the vise around everyone's balls because of the chicanery of the past.

He told me one story about a massive case of mortgage fraud that involved a loan officer where a bunch of homes got mortgages. One problem. These homes were just shells. So it should not be a big surprise why lenders acting as if it is 1984.

The borrowers have also changed.

Major banks and mortgage brokers agree that the number of qualified borrowers has dropped significantly. By some brokers’ estimates, only 30 percent of applicants in certain markets are actually closing on their refinancing applications. In contrast, in the first half of last year, about 60 percent of applications were approved, according to the Mortgage Bankers Association.

And only a select few borrowers with pristine credit can secure the most attractive rates: for the week that ended Jan. 15, rates on a 30-year fixed mortgage sank to 5.12 percent, the 11th consecutive weekly drop and the lowest rate since the big mortgage financer Freddie Mac began tracking them in 1971.

Earlier in this decade, during the real estate boom, many borrowers purchased their homes with little or no money down, meaning that even a small drop in value could wipe out any home equity. Even homeowners who initially put down 20 percent or more have seen the value of their stake fall. As a result, many homeowners need to come up with a pile of money, essentially a new down payment, to raise their equity to at least 20 percent. Otherwise they have to buy private mortgage insurance.

Alternatively, consumers could just buy the mortgage insurance. But getting the insurance is no longer simple. Private mortgage insurers, which incurred large losses when the housing market collapsed, have become much more selective. They also are charging more for their service. Even if a borrower does qualify for insurance, the increased costs often wipe out any savings from refinancing, mortgage brokers said.

There are a copious amount of borrowers with f**ked up credit scores. It has gotten to the point that people won’t be able to get a cellphone contract unless they put up a kidney for collateral.

I have also heard some really harsh chatter regarding the insurance industry. Since Katrina the insurance industry has been in free fall.

And with this economic crisis, insurers are reviewing their clients and compiling a cut list of who to get rid of. Because of the lack of liquidity and the frozen credit markets, there are is no cash in the kitty to cover anyone files a claim.

Here’s my take on what you can do.

Limit the usage of your credit card particularly to places that are listed on this list. Which ones are the “bad places? Some? All? I have no clue.

Budget and use cash wherever you can. Since cash can't be tracked, it will be harder for someone to create a risk analysis profile of your spending habits. It will also force you to become more frugal.

If you see some major league bulls**t on credit card, call them out. You are still the customer and if you have a grievance, let them know. You have nothing to lose.

Make every effort to driver carefully, in fact I would go as far as reviewing the New York State Driver’s manual.

And become the safest driver you can be. Cities and towns are in dire need of cash so they are going to be looking at the authorities to lay out the tickets on any moving violations. This is bad because it means more money to pay tickets and higher insurance or worse no insurance.

If you have someone in your household who has an established record of reckless driving take the keys away from them. If they do not like it, tell them to get their own car and insurance.

Teenagers with freshly minted licenses should be put on a very, very tight leash. If they bitch and moan, explain to them that by laying down these restrictions it will lower the changes of getting tickets or accidents.

For those of you looking for refis and are getting hit by unnecessary fees, keep plugging away. Especially if there is no justification for those fees.

The old adage of an ounce of prevention is worth a pound of cure no longer applies. Everyone is scared and so emotionally hijacked that they are not just looking for monsters under the bed, they are looking for the kitchen, bathroom and living room.