There’s always something to howl about.

Month: September 2008 (page 2 of 7)

Ever See Or Hear Of A Tornado Touching Down On An Entire Continent?

Yesterday as I was waiting in my satellite office for the ‘other Brown’ to show up for a planning session, I laid my book down, taking advantage of the rare opportunity to sit quietly and think, sans any communications devices invented after 1951. I pondered more deeply what a previous morning conversation had reenforced for me.

Since my firm deals with builders and lenders in several states, I’m often privileged to hear what local market experts have to say. Much of the time it falls under the heading of, ‘What the hell?!’, but sometimes you find builders/lenders who’ve really drilled down into their corner of the real estate world. They ignore everything but empirically documented facts. Then with careful, objective analysis, they search for any opportunities hiding behind all the LameStream media’s ongoing fertilizer convention.

The phone call.

One of the builders I especially like and trust, had just hung up with a local lender he both trusted and respected. I’ll cut to the chase here. The lender knows what my firm’s been doing in his state. (For the time being, the lender, builder, and state must remain anonymous, by their request.) We’ve been tearin’ it up. They wanna go off the grid so to speak, setting aside a few boatloads of capital to lend to our clients, (not exclusively) without the constraints of Fannie and Freddie.

The builder? He’s no small fish, but his net worth doesn’t require three commas yet. 🙂 His product has been sellin’ itself during this correction. It still is. His biggest problem today? He can’t find enough land — or when he does, a bigger fish plays hardball and shoves him out the door. Most recently he walked away after being under contract. Now that’s hardball.

Also, this builder told me the recent builder surveys in the region as a whole, showed their confidence as an industry had risen almost 20%. Go figure. The lender is willing to revert to classic Old School lending by opting out of the secondary market and keeping these loans. What a concept. This will enable them to loan on a virtually Read more

Project Bloodhound: Online Reputation Management: “It’s in the Google”

Incubating, according to Merriam-Webster Online Dictionary:
Etymology: Latin incubatus, past participle of incubare, from in- + cubare to lie
transitive verb
1 a: to sit on (eggs) so as to hatch by the warmth of the body b: to maintain (as an embryo or a chemically active system) under conditions favorable for hatching, development, or reaction
2: to cause or aid the development of intransitive verb

One of the sessions I went to at Blog World was “Taking Smart Risks with Your Online Personality”, with Alex Hillman and Jake McKee. Being on the Bloodhound Blog I figured it would come in handy, right?

The session went well, solidified some things I knew and clarified a few things I had an inkling about. I didn’t have any epiphanies during the session, but one phrase wormed it’s way into the deeper crevices of my brain and began to incubate: “It’s in the Google”.

Hillman, if I remember correctly, was quoting his father’s insights into the far reaches and lasting legacy of everything we do online. Everything we do online is “in the Google”. Everything. For better or worse, it’s all out there for someone to find. That’s obvious, you say. Perhaps, but “it’s in the Google” has been incubating in the warm gray matter ever since, and late last night I Googled myself. And then I Yahoo’d myself (no comments from the Peanut Gallery). And then, while I was sleeping, “it’s in the Google” bumped into Kelley Koehler’s advice to “Win the small battles. Go niche”, and then it shook hands with an unfortunate situation for a dear friend who is unable to comment on this blog because Akismet eats everything he writes, and when I woke up, those thoughts had joined forces.

What’s in the Google for me? Stuff, stuff, and more stuff- some good, some bad, some ugly. I’d like to do away with the bad and ugly, or at least bury it, but what if I made the good even better? I noticed that there are quite a few comments that are coughed up from the Google, and I’d like to do a better job of managing those. Read more

“Buy when there’s blood in the streets”

I wrote $975,000 in new contracts today. No way they’ll all be accepted, but they’re strong offers backed by a lot of cash. If we don’t get these properties, we’ll go for others. Amazingly, the quality of lender-owned properties seems to be going up even as the prices go down. The lord alone knows what will happen in Washington and Manhattan, but it’s a good time — for now, at least — to be a Realtor in Phoenix.

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You know, I was wondering….

All of the talking heads and all of the politicians keep talking about how we aren’t just giving $700 Billion to Wall Street, we’re investing in mortgage backed securities that we’ll eventually be able to resell and earn a good portion of that $700 Billion back, heck we might even make a profit on it.

Let me lay out a couple of things that I know:

  1. Chairman Bernanke said that the $700 Billion number was determined in that they feel they need to buy 5% of the mortgages that are “out there.”
  2. They are going to buy the mortgages that no one is able to sell today because the price that they would have to sell them at would require that the seller immediately goes into bankruptcy.
  3. At this point (9:45 PM EST on Thursday), it appears that there is a very good chance that the amount that the Treasury will be paying for these assets is above “what they are worth.”  (It’s hard to know what they are really worth, but it sounds like the price the government will pay is way more than what they could get on the market right now).

Now let me attempt to make a conclusion from this:

  1. The Treasury is going to buy 5% of the mortgage market and I think that it’s a safe assumption they aren’t going to get the highest quality portion of the market.
  2. According to the Federal Reserve’s own report, (just taking that snapshot in time) delinquency ratios for residential mortgages at commercial banks were running approximately 4.2%.
  3. That means that there is a very good chance that the portion of the mortgage backed securities market that the Treasury is going to buy is the “garbage” that’s currently part of the delinquency ratios.
  4. So, if the 4.2% delinquent portion becomes 84% of the the pipeline that the Treasury buys and 80% of that portion becomes essentially worthless, that means that we’d, as tax payers, take on approximately $470,400,000,000 in additional debt that won’t be “paid off” any time soon by the sale of assets.

I’d love it if I was missing something here, but I have a feeling that Read more

Break Up The Banks

Wanna have some fun?  I have an idea about how to “save” the banking industry.  Through mergers and acquisitions, the banking cartel grew to become infallible.  Dave Shafer pins the tipping point of this crisis to the repeal of The Glass-Steagall Act of 1933.  I’m not so certain he’s incorrect.

The intention of The Glass-Steagall Act of 1933 was to avoid this:

Commercial banks were accused of being too speculative in the pre-Depression era, not only because they were investing their assets but also because they were buying new issues for resale to the public. Thus, banks became greedy, taking on huge risks in the hope of even bigger rewards. Banking itself became sloppy and objectives became blurred. Unsound loans were issued to companies in which the bank had invested, and clients would be encouraged to invest in those same stocks

Do the 1920’s sound like this decade? As Dave Shafer points out,  the Gramm-Leach-Bliley Act of 1999 ENCOURAGED  the financial behemoths  explaining  “economies of scale” as the primary reason for the repeal of Glass-Steagall.  While financial institutions with strong technology infrastructures can reduce the cost of banking processing functions, the GLB act of 1999 discouraged what Greg Swann calls “flinty banking practices” and encouraged rampant speculation, this time in risky home loans rather than new stock issues.

We were so interested in free online banking that we fed the growing gorilla until he bloated to 1600 pounds. Today, we’re shocked that he busted out of the cage and is chewing up the zookeepers and zoo patrons.

Let me try an analogy for those less interested in economic history .  You once had neighborhood grocery stores.  Certainly, economies of scale favor the supermarket approach.  Distribution costs drop which lower retail food prices.  As those supermarkets vertically integrate, they branch out into ownership of trucking companies, slaughterhouses and farms.  Prices keep dropping and everybody is happy. A chicken in every pot becomes two and all praise is given to the phrase “economies of scale”

Then, a company like Starbucks comes around and the demand for coffee, on a retail level, skyrockets.  Supermarket companies, now owning the commodities Read more

Project Bloodhound: Viva Las Vegas pays out in Black Pearls

Blog World and companion conference, REBlog World, have ended. Kudos to Todd Carpenter and Jason Berman for putting REBlog World together, very nice to meet both of you. I completely agree with Eric Blackwell that the relationships matter. I agree with Inman Connect and NAR Convention goers that what happens in the halls is very important. I maintain my aversion to the vendor exhibits, bringing home zero sch-wag except for a crap pen from the hotel, the Palms, which has the Web 2.0 cluelessness to charge $2.00/page for printing. For that reason alone, I won’t be staying there again thanksverymuch, although the bathroom in our room was quite spectacular, and the bed was comfy enough to sleep in. No cockroaches, yet. Note to Palms staff- the room was a bit grungy under the window, and you shouldn’t neglect to clean the sides of the chairs. Ick.

Back to the conference. It was mostly geared toward starting a blog, but I did learn a thing or two, or three. Let me share some random notes.

If you are not paying attention to what the Housechick is doing, you are missing out on one of the sharpest minds in the RE.net. Her Vegas presentation on Pay Per Click marketing was, by all accounts, one of the best sessions of the entire weekend. Watch this space and learn how brilliant and unique marketing can create a kickass online presence. Some take aways that you can put to use whether or not you care to PPC “Win the small battles. Go niche.” Kelley’s focus for her ads is not for broad search terms like “Tucson real estate”, but in very well defined terms like “average sales price for homes in Tucson”, or even more narrow- down to neighborhoods. Then she writes posts to answer that question. She likes to focus on verbs “Buy a home in Tucson”, “Search for a Tucson home”. She’s using concise terms, with a clear benefit, and action words to create her ads. I think using those parameters as a basis for a post and post titles, is a wise idea. Write to Read more

Federal Bailouts, World Crisis… What About Little Ol’ Me?

Lots of talking heads.  Lots of outrage.  Even a little fear.  Keeping up with economic developments lately is taxing and I mean taxing in its most negative “IRS and April 15th” connotation.  Last night Brian Brady and I were interviewing Matt Padilla for Bloodhound Radio.  It was a great discussion and got me to thinking about what is (or rather should be) important.  I mean, the whole thing can be overwhelming: how did we get here, who’s to blame, what are the macro ramifications of this massive federal bail-out… makes one feel small and even a little lonely in the midst of this big economic world gone ’round the bend.

So I stopped on the way home for a big shot of wheat grass (substitute whatever manly libation you prefer here), calmed down and eventually found myself a little less interested in what it all means and a little more interested in what it all means to the real estate agent on the street.  In other words: What is the next step?

Last week I suggested that Wall Street’s Meltdown may actually help the housing industry.  Consumer debt will dry up in the credit crunch and this bail-out will not have much impact in that arena.  The financial industry is going to come out limping and take some time to lick its wounds.  Consumer debt has always been a risk and will end up on the back burner for a while, but the need for profits is always there; where will it come from?  Where is the supply of money going to be greatest?  Thanks to Uncle Sam it is going to be mortgage money that flows freely.  But flowing freely is not the same as distributed evenly and this is where the real potential lies for homeowners as well as real estate agents.

By the end of the year conforming loan limits are going to drop.  Here in San Diego they should end up around $625,000.  Under that limit there is going to be a large supply of federally backed (and encouraged) cheap money.  Over that limit, however, it is going to be Read more

Roderick T. Long: “The vast regulatory apparatus that emerged in the late 19th and early 20th centuries was thus specifically campaigned for by the business community.”

From The Art of the Possible:

There’s a popular historical legend that goes like this: Once upon a time (for this is how stories of this kind should begin), back in the 19th century, the United States economy was almost completely unregulated and laissez-faire. But then there arose a movement to subject business to regulatory restraint in the interests of workers and consumers, a movement that culminated in the presidencies of Wilson and the two Roosevelts.

This story comes in both left-wing and right-wing versions, depending on whether the government is seen as heroically rescuing the poor and weak from the rapacious clutches of unrestrained corporate power, or as unfairly imposing burdensome socialistic fetters on peaceful and productive enterprise. But both versions agree on the central narrative: a century of laissez-faire, followed by a flurry of anti-business legislation.

Every part of this story is false. To begin with, there never was anything remotely like a period of laissez-faire in American history (at least not if “laissez-faire” means “let the market operate freely” as opposed to “let the rich and powerful help themselves to other people’s property”). The regulatory state was deeply involved from the start, particularly in the banking and currency industries and in the assignment of property titles to land. (Even such land as was not stolen from the natives was seldom appropriated in accordance with any sort of Lockean homesteading principle; instead, vast tracts of unimproved land were simply declared property by barbed wire or legislative fiat.)

The early republic’s two major political factions – to oversimplify a bit, call them the Jeffersonians (as represented by the Democrats) and the Hamiltonians (as represented successively by the Federalists, Whigs, and Republicans) – disagreed primarily about which forms of governmental interference to emphasise. To be sure, both sides paid lip service (and sometimes more than lip service) to the “Principles of ’76,” i.e., the libertarian ideals enshrined in the Declaration of Independence; but each side quickly deviated from those principles when doing so served its economic interest. The Hamiltonians, whose chief base of support was in the urban financial centers of the northeast, called for Read more

Newt Gingrich: Kill the Paulson Plan. Hard.

US News:

A few quotes and Gingrichian observations:

1) He called it a “stupid plan” that looks like it had been designed by autocrat Vladimir Putin. He also said it will be a “nightmare” to implement and full of corruption.

2) He said the Paulson Plan would be a “dead loser” on Election Day that will “break against anyone who votes for it.” It will hurt even worse with the 2010 election once Americans see what a drag it is on the economy when implemented.

3) He recently chatted with economic historian Alan Meltzer who advocated doing nothing rather than implanting the Paulson Plan. Meltzer apparently joked to Gingrich that this was about the third time he had seen Wall Street scream “the apocalypse was nigh” only to have the economy keep right on chugging along.

4) Gingrich thinks that if the Paulson Plan isn’t passed by this weekend, it is dead and the White House better have a Plan B, economic-growth package ready. Right now, he still thinks it has an 80 percent chance of passage, partly because of Paulson’s apocalyptic tone that if a bill isn’t passed, “the whole world will end on Tuesday.”

5) He advises McCain to play the maverick and come out against the Paulson Plan. Then it will be the Obama-Bush plan.

Much more here.

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Funny, ha ha

I grab myself by the ear and drag my own sorry ass to the ‘place’ where I’m supposed to be writing something significant on a daily basis–a small, shady library room in the front of our 1890s Victorian house in Chicago. I look around and consider my resources: Mission style writing desk and leather straight back chair; Laptop, printer, copier; A collection of books by the greatest writers who have ever lived (and died); Google, Dictionary.com, iPhone; Sleeping dog, indifferent cat, supportive third wife; Eight years of The New Yorker stacked on every available dusty surface; Picture window; Bucolic setting; Liberal arts degree from a Pennsylvania state college.

Lamps, photographs, framed art. Unlimited coffee less than 20 feet away…

Viscerally speaking, I have only one excuse–nothing is funny to me these days. I’m just not feeling it. I stare at the New Yorker Cartoon Caption Contest every week and no juice. Nada. Zilcho. I hate Seinfeld anymore. Larry David, too. What a schmuck.

“Have you written anything today?” she asks from the other room. The television room across the hall where fallen stars dance and more desperate housewives than mine (I would hope) plot their own nefarious outcomes.

“Yes. The electric bill,” I say. “I wrote a check for the electric bill.” Ha ha funny.

“What about the mortgage?” On a different subject now. Diversion from the creative to the financial. Not very funny. (What she really means is ‘have you sold any real estate lately?’)

Good question. What about the mortgage? We’re being triple escrowed by our lender because the Cook County Tax Assessor’s office incorrectly recorded our deed while in a land far, far away called Reality, the whole banking industry is in a wind sheared tailspin. I look at the Due Notice.

“Too many digits,” I say, really wanting to run it through the shredder. “I’ll do that tomorrow before I work on my book. We have until the 15th.” Like something magical is going to happen between now and the ides of procrastination. An economic recovery package perhaps. Not even Ha ha. Barely LOL.

“How is the book coming?” she asks. Read more

Wall Street bailout plan to include more than bad mortgage debt: Feds to absorb unpaid bar bets, inadvertently laundered postage stamps, unredeemed soda cans and insufficient tooth-fairy disbursements

Totally absurd? Think twice:

In the dark of night over the weekend when most people were snoozing, the Treasury dramatically expanded its bailout plan to include buying student loans, car loans, credit card debt and any other “troubled” assets held by banks.

The changes, which were included in draft language that also opened the bailout program to foreign banks with extensive loan operations in the United States, potentially added tens of billions of dollars to the cost of the program.

Although it was a major addition to what was already the nation’s largest-ever bailout, it did not become part of the debate between Democrats and the Treasury over details of the program. A Monday counterproposal by Senate Banking Committee Chairman Christopher J. Dodd included such consumer loans as well as mortgages, just as the Treasury’s draft did Saturday night.

“The costs of the bailout will be significantly higher than originally considered or acknowledged,” said Joshua Rosner, managing director of Graham Fisher & Co., who charged that the Treasury and Federal Reserve have not been “forthright” about the ultimate cost to the public. The plan gives Treasury the discretion to buy the non-mortgage loans and securities in consultation with the Fed.

Conservatives cited the move as a sign that the massive plan to take over bad mortgage debt already is opening the door to further government bailouts.

“Such a large takeover by the government will surely be accompanied by adverse, unintended consequences,” said Pat Toomey, president of the Club for Growth, a conservative advocacy group. “Already, other companies and industries are lining up at government’s door asking for their own bailout.”

In my column for this week’s Republic, I argue that buyers should not even consider bidding on short sales: Too much hassle to catch a falling knife. In the same respect, in this climate, I can’t see any reason for sellers to participate in the short sale process — except, arguably, to extend the amount of time they remain in the home without making any payments.

Capitalism rewards thrift, zeal, planning, self-reliance. Socialism in all its many flavors rewards theft — so long as there is anything left to Read more

Bloodhound Blog Radio Interviews Matt Padilla, author of Chain of Blame

We interviewed Matt Padilla, author of Chain of Blame- How Wall Street Caused the Mortgage and Credit Crisis.  This book, released in May, 2008, details a history of non-prime lending, the S&L crisis, securitization of mortgages, and what went wrong.

Download and Listen to the 45 minute interview here

An excerpt from the book, by co-author Paul Muolo:

He had made this argument before subprime lending began to boom in 2003. He believed it down to his toes — that Wall Street (despite his contempt for it) would keep the housing market honest because the Street controlled the mortgage bond business, where most of the money for home lending came. It was in the Street’s best interests. I wasn’t so sure. I became even less sure when the losses (the nice word being write-downs ) at banks and Wall Street firms topped $300 billion in the spring of 2008. To me and my co – author, Mathew Padilla, something had gone awry. A million or so people had lost their homes to foreclosure. Two or three million would follow in their path by the end of the decade. It wasn’t just housing and mortgages that were ailing. It seemed as though the nation was getting hit from all different directions: rising energy and commodities prices, falling home values, banks pulling credit lines of all sorts including commercial and student loans. The mortgage virus had spread, infecting the entire body. It was as though the U.S. economy, which had burned so brightly during the Bush years, was a mirage. Angelo had been wrong. The capital markets — Wall Street — had failed us. This is the story of how it happened.

Matt is also a business and finance columnist at the Orange County Register, in Southern California and hosts Mortgage Insider Blog.

Download and Listen to the 45 minute interview here

The Vanderwell Proposal – “Project Rebuild Banking”

Since Secretary Paulson put his proposal in three pages, I’m going to lay out my proposal in less space than that.   Here goes:

Point #1 – The Treasury is hereby authorized to spend up to $700 Billion to stabilize the banking and financial services sector in such manner as it sees fit.   There will be two main priorities in their decision making:  a) To increase the flow of credit in the banking and mortgage markets so that the healthy of the economy is improved, not hindered and b) To increase the likelihood that eventually the taxpayer will receive a profit rather than incur a loss.

Point #2 – Any institution that sells any “troubled” assets to the  Treasury shall sell them at a price that is established by joint decision of the Treasury, the institution, and a committee formed of 2 members of the Senate Banking Committee, the Vice President of the United States, and 2 members of the House Banking Committee and the chairman of the SEC.   The target price shall be no more than 45 cents on the dollar.   Under no situation will the purchase price be more than 50 cents on the dollar without the joint approval of the House and Senate Banking Committees, and no more than 65 cents on a dollar without approval by the full Congress.

Point #3 – Any institution that sells troubled assets to the Treasury shall immediately reduce their dividend to 20% of what it was (can be adjusted for inflation annually according to the CPI), and all officer level employees (from the CEO down 3 levels on the corporate hierarchy) will have their salary reduced to a maximum of 3 times the average salary that they pay their employees.   So if the average Bank of America employee makes $50,000 per year, the CEO’s salary will be no more than $150,000.

Point #4 – If the institution is currently servicing the debt, they will remain servicing the debt and will provide monthly reports to the Treasury on the status of the payment history, collection procedures and, if necessary, foreclosure efforts.

Point #5 – If a bank, like Read more

What happened? “Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally”

Things fall apart: Kevin Hassett at Bloomberg.com is getting death threats over this news analysis:

The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story.

Why did Bear Stearns fail, and how does that relate to AIG? It all seems so complex.

But really, it isn’t. Enough cards on this table have been turned over that the story is now clear. The economic history books will describe this episode in simple and understandable terms: Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally.

Fannie and Freddie did this by becoming a key enabler of the mortgage crisis. They fueled Wall Street’s efforts to securitize subprime loans by becoming the primary customer of all AAA-rated subprime-mortgage pools. In addition, they held an enormous portfolio of mortgages themselves.

In the times that Fannie and Freddie couldn’t make the market, they became the market. Over the years, it added up to an enormous obligation. As of last June, Fannie alone owned or guaranteed more than $388 billion in high-risk mortgage investments. Their large presence created an environment within which even mortgage-backed securities assembled by others could find a ready home.

The problem was that the trillions of dollars in play were only low-risk investments if real estate prices continued to rise. Once they began to fall, the entire house of cards came down with them.

Take away Fannie and Freddie, or regulate them more wisely, and it’s hard to imagine how these highly liquid markets would ever have emerged. This whole mess would never have happened.

Read the whole thing.

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Where Do You Draw the Line?

Two questions for my colleagues in real estate!

#1: How much information about yourself do you share with prospective clients? I have to ask only because Redfin has lately been working with clients who want us to publish detailed statistics on each agent, and have wondered how far we should go. Today, we publish each transaction and, if the client has responded to our survey,  the agent’s rating on that transaction.

But especially in our bulletin boards — why doesn’t Bloodhound have online discussions (it could be a great consumer resource)? — folks ask detailed questions about our business model. They want to make sure our agents aren’t too busy, our houses sell for a good price, our files are locked, our clients are happy, our lawyers are idle, our — dozens of questions! The questions have been pretty good so we have tried to answer them all, but I wonder sometimes if we’re setting a precedent that will be hard to keep up.

As the general counsel at my last job used to say in answer to almost any question (Am I going to get fired? or where’s the bathroom?): “Answering that question now would obligate me to answer it in the future…” So, when someone unknown to you starts asking plenty of good questions, where do you draw the line?

#2: how do you protect the safety of an agent visiting a prospective client in a home the client wants to sell? We had our annual company meeting Friday, and this was one question we had to defer until we could consult others. Safety has always been a concern in real estate, but since prospective clients only communicate with us online before asking for an in-home consultation, it seems like the usual precautions may not be enough.

Any help would be much appreciated!