Security releases. Busy night in Blogville.
Technorati Tags: blogging, real estate, real estate marketing
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by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Michael Cook did an excellent job explaining the two noteworthy debacles of last week. American Home Mortgage went belly up and Bear Stearns may be downgraded to a negative rating. Thursday afternoon, Angelo Mozilo of Countrywide Financial, did his best Nero impression by muttering two words to analysts; “Don’t Worry“.
Mr. Mozilo may be parroting Bobby Mc Ferrin but the rest of the lenders aren’t. Non-conforming lenders readjusted to what they now call “risk-adjustment” pricing. Basically, at Wall Street’s direction, the large lenders added about a 1% fee to the stated income and no income documentation loan programs. Loans that conform to FNMA or FHLMC guidelines, with verified income and assets, remain at their original pricing. There still are 100% financing programs available to those with good credit and the ability to make the payments.
Have borrowers who choose not to disclose income documentation become personae non gratae overnight? Not really. We have always known that light documentation borrowers, who can not demonstrate an ability to repay the loans, have been a higher risk. There has always been a price adjustment for that risk. Large down payments (20-30%) used to be the norm for those programs. It wasn’t until after our country was attacked, in September of 2001, that Wall Street started reaching for yield. The easy money policy and anemic stock market of that post-attack economy left the investment bankers STARVED for business; they found that business in high risk home borrowers.
This brings us to the Mortgage Tax Act of 2007. The way out of this mess is to originate more product. That sounds counterintuitive, doesn’t it? Well, if lenders can originate more loans, they can spread the risk across more assets. The risky loans (stated and no doc) now have a higher risk adjustment. That risk-classified pricing model is not unlike the insurance industry’s move to segregate tobacco users from non-tobacco users. Smokers are charged a higher insurance premium than non-smokers because their life expectancy is lower. That’s what the lenders Read more
Mind if I tell a story?
My dad earned his living as a sales rep. He sold high end paint and wallpaper tools in a tri-state territory. There were years when he would be out the door by 5:00 a.m. on Monday and we would see him about 3:00 p.m. Friday afternoon. He worked hard, but he is very smart and driven.
When we were a little older, he would on occasion, take one of us kids to a trade show with him during the summer. I can’t speak for my brothers, but I always enjoyed the chance to get away, the chance to see something new, and the chance to spend some one-on-one time with Dad. He was a great story teller and he would tell me all kinds of things: About his life, his parents (they died by the time I was three), how to track deer, how to fish, how to change a transmission, how to dump a boyfriend either gently or not-so-gently whichever the situation called for. You know, the really important life skills that every girl should know.
We would go to these big hotels or convention centers in a big city. Dad would unload his display, I would help him set it up, then it was “see ya at five”. Off I’d wander. To me, back then, a trade show was a cool thing. I would wander up and down the aisles, mouth open, eyes wide, looking at stuff. All this stuff! Who knew there was so much stuff to be had? Bright and shiny stuff, weird stuff, funny stuff, just stuff. I’d go back to Dad’s booth and report about the stuff I saw. Now here’s the fun part, Dad would give me the back story of that company and why their stuff was crap, or the company was full of crooks, on a rare ocassion a particular company was worthy of praise. I learned that everything is not as it would appear on the surface, and there is usually more to a story than what you are seeing.
So I grew up in the sales world. Read more
One of my secret vices, Leonard Cohen:
Technorati Tags: blogging, real estate, real estate marketing
Buyers and sellers should be aware of a general economic slow down in all markets. Everyone will feel the effect of the leverage finance and subprime markets. Since I have been writing about the subprime markets for quite some time, I will focus briefly on the effects of the decline in the leverage finance market.
Leverage finance typically covers loans banks and other financial institutions lend to corporations or large private buyers. Companies like Blackstone use the leverage finance market to buyout companies and REITs. Over the past few years there has been a significant up-tick in Mergers & Acquisitions, leading to strong economic growth. As finance markets close (or shrink significantly) businesses will be less able to get large loans at favorable rates. As buyouts and mergers shrink, expect a dip in the equity markets. Looking at the Dow over the past week bears this out.
Very few people beyond the financial community pay attention to the leverage finance markets. These markets significantly impact the large commercial real estate market. When financing tightens at the top, the price effects trickle down. This could mean a significant negative impact on the commercial real estate market is coming.
All of this will create a drag on the economy, which will serve to slow down most, if not all, real estate markets. Unfortunately this could force even more defaults, putting many real estate markets in quite a tailspin. Buyers with excellent credit that can afford to wait six months to a year to buy will have their pick in most minor markets and increased negotiating leverage in major markets.
On Friday, August 3rd American Home Mortgage officially closed its doors. That same week Standard & Poor’s cut its outlook on Bear Stearns from stable to negative amid fears of firm wide exposure to subprime lending and the leverage finance market. If all that were not bad enough, the leveraged financed market has essentially shut down. The questions on everyone’s mind are: What is next, how will this affect the housing market, and will loans be available in the near future?
To start on a positive note, yes, there will be plenty of loans available in the near future. Unfortunately these loans will only be available to borrowers with good to excellent credit, who have a reasonable down payment (5-10%). Mortgage lenders and banks have gone beyond scared to downright petrified because they can only see the tip of the iceberg. For the readers out there who are not familiar with icebergs, typically everything above the surface (what one could see) represents 10% of the total mass of the iceberg.
Continuing with that analogy, most analysts expect this situation to get significantly worse before it gets better. While Bear Stearns and American Home Mortgage have been the latest news whipping boy, the market has quietly downgraded many (if not all) banks and mortgage lenders. Furthermore, banks know exactly what they are holding, whether they admit it or not. To soften the final blow, expect them to raise rates, charge higher fees, and tighten their approval process. Even though many financial institutions are being very hush-hush about how much of the bag they are holding, they are diligently working to limit any future exposure.
For a borrower that means anything outside of plain vanilla conforming loans will be very hard to come by. But we here at Bloodhound would be remiss if we only gave readers the gloom and doom story. Despite all of this, here are some suggestions that might help ease some of the burden for those currently looking for financing.
Get a GREAT Mortgage Broker
While this could be my Bloodhound tag line, this is the time where it will pay dividends. Many lenders Read more
Number 1, the top of the A-list, just like that. Now that’s a demonstration of the power of Technorati tagging!
Technorati Tags: blogging, real estate, real estate marketing
This is me from my column in the Arizona Republic (permanent link):
Why didn’t your house sell? Price, preparation, presentation — and availability
So your house didn’t sell. Now what?
Six months ago — or was it a year ago? — the world was young and ripe for the picking. You listed your home for sale, confident that you’d have a buyer in no time. Full price and then some. Why not? The neighbors got it. Sure, that was two years ago, but you have better carpets and new countertops.
So you talked to three Realtors and hired the one who said he could get your price. His marketing plan was long on networking and short on practical details, but — what the heck? — houses sell themselves, don’t they?
You read an article a while back about staging, but you don’t need that. You’ve got great furniture. And even though your Rotweiller is hardly ever a problem, it seemed prudent to make the listing by-appointment-only.
This is the way it is: In most neighborhoods in the Valley right now, there are at least five homes for sale that might work for each buyer in the marketplace. The only homes that will sell are the ones that are priced, prepared, and presented right and are available for buyers to see.
Why did your listing expire? You missed the market in one or more of those criteria. If you priced your home above the market, you sabotaged your sale from the outset. Prices are declining in most areas, so even if you made successive price reductions, you were probably still always above market value.
If the house wasn’t repaired and staged to perfection, buyers bought the homes that were. If it wasn’t available to be shown, there is no possibility it could have sold. And, alas, if you fell for happy babble about your Realtor’s vast network of relationships, then all you were missing was a marketing plan.
What now? If you need to sell now, relist at the market price — with a Realtor who has a real marketing plan and detailed instructions for you. If you can afford to Read more
This is Joseph Conrad’s preface to The Nigger of the “Narcissus”:
A work that aspires, however humbly, to the condition of art should carry its justification in every line. And art itself may be defined as a single-minded attempt to render the highest kind of justice to the visible universe, by bringing to light the truth, manifold and one, underlying its every aspect. It is an attempt to find in its forms, in its colours, in its light, in its shadows, in the aspects of matter and in the facts of life, what of each is fundamental, what is enduring and essential — their one illuminating and convincing quality — the very truth of their existence. The artist, then, like the thinker or the scientist, seeks the truth and makes his appeal. Impressed by the aspect of the world the thinker plunges into ideas, the scientist into facts — whence, presently, emerging they make their appeal to those qualities of our being that fit us best for the hazardous enterprise of living. They speak authoritatively to our common-sense, to our intelligence, to our desire of peace or to our desire of unrest; not seldom to our prejudices, sometimes to our fears, often to our egoism — but always to our credulity. And their words are heard with reverence, for their concern is with weighty matters: with the cultivation of our minds and the proper care of our bodies; with the attainment of our ambitions; with the perfection of the means and the glorification of our precious aims.
It is otherwise with the artist.
Confronted by the same enigmatical spectacle the artist descends within himself, and in that lonely region of stress and strife, if he be deserving and fortunate, he finds the terms of his appeal. His appeal is made to our less obvious capacities: to that part of our nature which, because of the warlike conditions of existence, is necessarily kept out of sight within the more resisting and hard qualities — like the vulnerable body within the steel armour. His appeal is less loud, more profound, less distinct, more stirring — and Read more
Yesterday I shared the formula for the perfect Blog post. I acquired this wisdom at the Inman conference, and now it is time to test my new skills as I attempt to target the Scripps Ranch home buyer (and risk killing this bit once and for all). Note to feed reader clients: You may not get the photos, which is a big part of the schtick.
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HOW TO FIND A SCRIPPS RANCH REAL ESTATE AGENT FOR BUYING A SCRIPPS RANCH HOME KRIS BERG KRIS BERG KRIS BERG
If you are planning to relocate to Scripps Ranch from somewhere far from Scripps Ranch, you will probably fly to Scripps Ranch. When you arrive in Scripps Ranch, boy, will your arms be tired!
Many Scripps Ranch real estate agents, like myself, live in Scripps Ranch. Many unnamed others have won awards and recognition for their service to consumers wanting to buy homes in Scripps Ranch. Certainly, you have many choices when selecting a real estate agent, and you will likely want to align yourself with someone ranking above the 85% percentile, or one standard deviation above the mean, on your typical Bell Curve, but this Normal Curve is anything but normal in that the population is diverse, thereby resulting in a flatter graph.
You will be 172.9% more likely to find the perfect Scripps Ranch home, when compared to the 30-day Gross Domestic Product rolling average and taking into account the annualized per capita income of Celtic women, than other consumers if your agent is a Scripps Ranch neighborhood specialist. 
If you have children, you are probably concerned with Scripps Ranch schools in Scripps Ranch. Hypothetically speaking, your agent might have two daughters currently attending Scripps Ranch High School and would therefore be the perfect Scripps Ranch Realtor to help you buy a home (in Scripps Ranch). This illustrative “type” of agent would also be infinitely (a figure of speech as, technically, it is not possible to divide a number by zero) more likely to speak to local sports opportunities, such as Volleyball Camps, and even Exchange Programs to, say, Cairo. That is, if you find Read more
I can go home happy now. In just one short morning spent in the Palace Hotel Gold Room, I learned how to write the Perfect Blog. No one person has the answer, of course, but by aggregating the wisdom shared by the collective mind of the blogging greats who spoke to us this week, I have the fail safe recipe for blogging infamy and success. I won’t name names, but following are the essential ingredients according to the blogging Who’s Who:
- Blogs should be short. Readers are Scanners (they are busy, busy people), and five paragraphs in size is the ABSOLUTE MAX. Otherwise, you will… What was I saying? Oh, yeah. You’ll lose your… What do you call them? Readers. Do I smell pot roast?
- Avoid being self-congratulatory. No particularly reason given, but we can take the leap that nobody likes a braggart. As one who has never been recognized nor been the recipient of a prestiguous honor, ever, I totally agree.
- Focus on the consumers, not on the agents. The consumers should never see healthy discourse among agents. Where’s the fun in that? Much better to have a site where you receive, oh, zero comments on a lengthy (five paragraph MAX) position statement on the value of hiring a top-producing neighborhood specialist. If people enjoyed voyeurism and lurking, they would frequent porn sites.
- Make sure your title and your content are Keyword Rich. Whether you aspire to dominate San Diego real estate or the picnic catering industry in Maricopa County, you should pick words that work toward that end. An expert who does this stuff for a living said (and I am not making this up) that, within 6 months, my blog should be getting 2,000 unique visitors a day. After 15 months, I am just 1974 shy of that number. (Self derogatory comment alert! 5 Bonus Points awarded for achieving #2 above).
- Use tons and gobs and bizillions of pictures. See #1 above (Technorati Tag: Attention Deficit Disorder).
- Use Technorati Tags. See #3 above. The consumers are all searching on Technorati for the best real estate agent in (name your city). The guy who lives Read more
I don’t know what in the hell is going on now. I just watched the video of Glenn Kelman speaking at the Inman Event and found myself liking Glenn Kelman. I know, I just wrote that. He was funny, remarkably candid and made a lot of good points. Have I changed any views I have regarding Redfin? No, and I really doubt that every time Greg Swann writes about him it is “good for business”, as he claimed. But setting aside any thoughts I have about the Redfin business model, I doubt I will ever view Glenn, the person, the same way again. In the past, I have tended to demonize him when talking about him or what he has done – and I really don’t like ad hominem attacks.
I wrote in the headline that he hit a home run. It wasn’t out of the park (I got that line from Jeff Brown) but still, a home run. As I have been so willing to say what I didn’t like, I thought it only fair to also say what I did.
by Brian Brady
Commercial Real Estate Finance Expert
Structured Debt and Equity
Licensed Real Estate Broker in AL, CA, and FL
Scott asks:
How can you tell if you have a sub-prime mortgage bond in a portfolio?
Scott, I’m taking a stab at this. I haven’t sold securities in 14 years. Mortgage-backed securities, in the early 90s, were mostly Ginnie Mae pass-through certificates or Agency-issued pass-throughs and collateralized mortgage obligations (CMOs). There were a few CMOs, issued by non-agency issuers, that may have contained a non-prime loan or two to “juice the yield”. Collateralized Debt Obligations, generally devoid of whole loan mortgages, may have been infiltrated these past few years.
How about this, Scott? I can’t say IF you have a sub prime loan in your portfolio. I can say that sub prime loans won’t be collateralizing GNMA, FNMA, or FHLMC issues. If you own an instrument comprised of primarily these issues, you should be in the clear.
Michael, your more current knowledge and experience might be more precise.
It was an interesting three days in San Francisco for Real Estate Connect 2007. I’ll leave the commentary to people more funny than me.
Courtesy of Palm Burgandy, here’s my brief pictorial:
You know you’re in San Francisco when the airport tells you to only use one square.
This is the view from the podium during my panel session. 12 minutes after this photo was taken, Joe from Sellsius tumbled from the stage and sprained his left wrist.
I met an old friend for drink in Haight-Ashbury. The cab dropped me off in the wrong place. I use Palm Burgandy’s Google Maps feature to get back on track and have to walk through Sketchville Golden Gate Park. As soon as I am in the clear, I walk under a tree and a bird decides to crap on my shoulder. Look at the size of that poop. In hindsight, I think it may have been a pterodactyl.
My favorite gag of the week. Thursday morning, I walk through the exhibit hall and see Zillow’s stand. As I walk past, I look at the computer screen out front. Now, that’s comedy. Meanwhile, it’s 9:30 A.M. and I frantically looking for somebody else to laugh at this with. There’s a woman about 8 steps behind me. For as much excitement there was in my voice, there was an equal disinterest in hers. Clearly, not everyone knows who Zillow and Trulia are in Real Estate.
Thursday night, I felt like adventuring so I walked to Union Square. There, I found a city-sponsored jazz concert. The area was packed with people and a lot of them had taken to dancing. Pretty cool stuff and a nice night to be outdoors.
Am I missing something?
At the moment, I am conventioned out, one tired buckaroo. So, I am playing hookie this evening and, undoubtedly, missing out on some life-changing announcement. “Zillow has made a $40 gazillion offer to purchase the San Diego Home Blog. Is Kris Berg in the audience?” Nope.
Last night, Noah Rosenblatt and I were briefly discussing the Great Divide that is the audience at Inman. In the far corner of the ring we have the geek-inclined or, more appropriately, the brokers, agents and other industry players who are giving their all to stay relevant and to evolve: To survive. In the other, we have the challengers who are retreating to the lobby after each session to debate the day’s hottest topics, such as how to spell Truliadotcom or, for that matter, how to open their web browser.
Who was NAR CEO Dale Stinton speaking to? The answer is “c”. None of the above. Or, maybe I’m just missing something.
Unlike Greg, I was impressed with Zillow‘s Rich Barton. Call his remarks an attempt at poetry or self-serving fluff, but this guy is trying. And, I sincerely believe that he believes that not only is the fabric of our industry changing, but the fabric of our world. He is smart and cunning, and attempting to lead the revolution. And he is amassing more wealth than I could hope to accumulate in 40 lifetimes doing what I (love to) do.
Then came Dale. Forgetting that his demeanor was the incarnation of the stereotypical, bureaucratic, myopic real estate agent image that has become our industry albatross, his big light-at-the-end-of-the-tunnel, “I’m comin’, Beany-Boy!” message was that our Realtor dues would be increasing. Why?
He gave many examples of great new things that our dues would be underwriting. Since I am too lazy to go back and watch Inman TV, I will paraphrase. First, the BOARD (bow heads in reverence) has allocated funds to send Dale to “more of these kinds of events”. Great. I’m paying for Dale Stinton and me to go to Inman. Next, the BOARD (avert eyes in respect) has authorized vast amounts of our money Read more