Feb 04
Fannie Mae and Freddie Mac: That went well

Image by qthrul via Flickr

There have been many predicts surrounding the housing market. Some say the worst is over and we are recovering now. Others say the worst is yet to come.  The truth is it all depends on how involved the Fed wants to be. Take a look at this article and you will see what I mean.

Is Residential Real Estate a Ticking Time Bomb?

I know we all believe the housing bubble has already popped and all things real estate are over. One might think this post should be from 2006 from the title. But it’s not, this post is from 2010 and below are the reasons for the question.

First is the latest SIGTARP report saying the Government has become the mortgage market with U.S. taxpayers shouldering the risk. From the SIGTARP report we have a 100% government mortgage market at this point.

SIGTARP reports 100% of Ginnie Mae MBS are backed by FHA/VA/USDA, 100%. The current financial support for Fannie Mae and Freddie Mac is $1.4 trillion dollars. Look at the actual risk exposure of the above table of government backed GSEs, their MBS exposure, their funds and relationships. There is not enough taxpayers or bail outs in the world if those MBSes implode. I have to wonder if every single person in the U.S. was just given a home for free, if it would not be cheaper. Seriously.

Fannie and Freddie now have an unlimited bailout and it is estimated they have lost $400 billion dollars. The plan is to purchase $1.25 trillion mortgage backed securities from these two GSEs until the end of March.

The number of homeowners who are strategically walking away from their mortgages is up to 10% this year. We also have the percentage of home ownership to the general population back to slightly below the year 2000 levels. Recall the overall population is increasing about 2.3 million each year.

Note we might have $448 billion in GSE losses, $48 billion more than estimated just last month.

New Home Sales for December 2009 were 7.6% below November. Bear in mind there is an $8000 tax credit for first time home buyers plus a $6500 dollar tax credit for existing home buyers. These expire at the end of April 2010. The first tax credit expired at the end of November 2009. We also have actual rates low with no end in sight at least in signaling of the Fed rate.

Foreclosures for next year estimates vary, but seem to solidify at 3 million. 2009 foreclosures were estimated at 2.8 million.    –more

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Feb 01

Hey It´s a Realtor in her PlazaWhen the housing market started to fall, many real estate agents started looking for creative ways to sell homes.  Some of them legal and some of them were not legal.  Many agents unknowingly committed fraud and other crimes because they listened to peers and “investors” that had new creative methods of making money with real estate.

The trend in California is reflected across the nation.  Some of those who lost their license were guilty, and other were innocent.  You see, in order for a real estate agent to be investigated there must be a complaint.

The local Realtor boards are more concerned with image than with truth.  If a public citizen files a complaint about a real estate agent, there will almost always be some sort of disciplinary action.  It could be a $100 fine if there wasn’t anything done wrong, or the person’s license could be revoked if they did something wrong.

I know this because I was a real estate agent for many years.  I never had a complaint filed against me, but I have known people who have.  The person filing a complaint is right and rather than risk damaging the image of a Realtor, the agent must pay.

I am not saying that they are not guilty. Because I was a real estate agent I was able to get to know many other real estate agents. Some of them are good honest people, while many others are slimy scorpions that will stab you in the back while smiling to your face.

Many of those scorpions were top producers which always amazed me.

Foreclosure Scams Trigger Record License Revocations in California

California is cracking down on licensed brokers involved in alleged foreclosure modification scams.

To date, the California Department of Real Estate reports over 775 licensees had their license revoked or simply surrendered their licenses while facing accusations.

The downturn in the real estate market is a big reason disciplinary actions are up.

“With so many people struggling to stay in their homes, foreclosure rescue and loan modification scams have risen dramatically,” DRE Commissioner Jeff Davi says.

“And what is even more unsettling, a majority of offenders involved in loan modification scams are not even licensed, which limits a consumer’s ability to obtain restitution or verify the legitimacy of a business.”

Over the past two fiscal years, the DRE averaged 446 license revocations and 59 license surrenders.

In 2009, license revocations jumped over 50%, to 672, while license surrenders jumped nearly 80% to 105. The 122 cases that resulted in license suspensions in 2009 remained relatively unchanged from the 125 license suspensions averaged in the past two fiscal years.

In 2009, the DRE initiated over 2,000 investigations involving loan modification complaints, which represents 25% of all cases set-up.

The DRE issued over 180 Desist and Refrain orders to nearly 348 different respondents performing loan modification services, ordering them to stop or change their business practices.

Of the 348 Desist and Refrain order respondents, approximately 60% were not licensed and ordered to cease licensed activity – which included offering loan modification services.

In addition, nearly 100 real estate licensees have been accused of violating the real estate law in connection with loan modification complaints. Many of the completed cases have been referred to law enforcement agencies for criminal prosecution.

In order to help inform consumers to stay away from the bad actors, the DRE posts on its website all the recipients of Desist and Refrain orders and Accusations in loan modification complaints along with a copy of the order.    –more

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Jan 15

Spelling Manor, Holmby HillsThis is quite surprising to read.  The Internet is the “new” marketing machine and real estate is a cutthroat business. You would think that agents would use the Internet more rather than less.  More and more people are turning to the Internet to find a home rather than those free real estate magazines.  Even the magazines are putting all ads online.  It will be interesting to see what the outcome is of the move away from the Internet.

No Surprise: Real Estate Ads Shrink From the Web. Big Surprise: Real Estate Ads Are Still Growing

Not surprising: The battered real estate industry will spend less money on Web ads this year.

Quite surprising: The battered real estate industry will spend more money on ads in general this year.

Wait a minute: Aren’t ad dollars supposed to move from every other venue to the Web? And aren’t battered industries the ones that are supposed to move the fastest, since they’re the ones who need the Web’s efficiency?

Not in this case, says research firm Borrell Associates, which predicts that the industry’s spending on Web ads will drop 4 percent in 2010, while its overall marketing spend will increase by 2 percent.    –more

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Jan 11
PAP Pole ariel photography

Image by douggarner08 via Flickr

I have been waiting for an article like this to come out.  Before the real estate crisis appraisers would not use short sales or distressed properties in their report when they determine the value of a property.  If there was a concern about one of the properties used, the real estate agent or loan officer could call the appraiser and ask about problem property.

New laws make it an offense to mention anything about price to an appraiser.  This and the growing number of foreclosures are making appraisals lower.  A distressed home, in theory, sells for below market price and a home sold by the owner, as opposed to being sold by the bank, sells for market value.

When appraisers use distressed home sales in the appraisal of a regular home the regular home’s appraised value will be significantly lower than the market value which can often cause deals to fall through.

Personally I think the market value is the price somebody is willing to pay, not the average sold price of similar homes with slight adjustments made for the property in question.

Foreclosures weigh on home appraisals

The National Association of Realtors says nearly 25 percent of its members have reported clients losing a sale due to botched appraisals. The National Association of Home Builders, meanwhile, said low appraisals were sinking a quarter of all new home sales.

Roughly 40 percent of all home sales this year have been foreclosures or short sales, meaning that the property sold for less than the mortgage. This causes a problem for appraisers who look for recent comparable sales to set the appraisal price.

Appraisers determine the value of a property by looking at recent sales of comparable homes much the same way Realtors complete a CMA. Appraisers take an apples-to-apples approach excluding or making adjustments for certain features, such as a swimming pool or finished basement. It used to be a very infrequent thing that an appraiser did an appraisal and the value wasn’t supported, but now it is more common than not.

Part of the problem is that many real estate appraisers are now hired under new industry rules designed to limit conflicts of interest that can bias an appraisal. The new rules bar mortgage brokers from ordering appraisals themselves, forcing them to order them through a mortgage lender.

Lenders, in turn, may order appraisals through in-house staff or appraisers hired by outside firms known as appraisal-management companies. But neither may talk to the appraiser about the value of the property being appraised.

The result can mean that low-cost appraisers are hired from outside the area who don’t have the local knowledge to find homes that can be a better benchmark for their subject home.

Because of the uncertainty and large room for interpretation in appraisals it may be wise for a home seller to have an appraisal done, talk with their Realtor and adjust the list price accordingly. While the eventual lending institution undoubtedly will order its own appraisal, this will at least give you an up-to-date idea from a qualified appraiser.

Be sure to discuss this situation with your Realtor and lending institution to avoid last minute problems and postponement or worse, cancellation of the closing.   –more

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Dec 28
WASHINGTON - DECEMBER 9:  (L-R) Former Freddie...

Image by Getty Images via Daylife

Moves like this help me realize that politics is about getting reelected and making as much money as possible while in office.  I can’t see any way in reality, not fairy land, that this makes any financial sense.  Fannie Mae and Freddie Mac have an unlimited credit line now.  Their line was raised to $200 billion shortly after Obama took office and now it was raised once again to infinity.

Tax payers do not pay an unlimited amount of taxes, and while it might seem so, China doesn’t have an unlimited amount of money to buy our debt.  All this is doing is helping a few executives and stock holders make their millions before the real estate markets crashes again, but harder.

I hope this solidifies the fact that the American public must hold their respective representatives accountable for how they vote.

Treasury uncaps credit line for Fannie, Freddie

WASHINGTON (Reuters) – The Obama administration pledged on Thursday to back beleaguered mortgage finance giants Fannie Mae and Freddie Mac no matter how big their losses may be in the next three years.

It also jettisoned a demand that the two companies cut the size of their mortgage-related investment portfolios next year, allowing them to provide even more support in the near term for a housing market recovering from its worst slump in decades.

The Treasury Department said it made the changes to assure financial markets it stood firmly behind both companies and to buy more time for the two government-sponsored enterprises to whittle down their mortgage-related holdings.

The two agencies each had a Treasury credit line of $200 billion. Combined, they have so far tapped about $111 billion.    –more

Fannie/Freddie Christmas Eve Bailout Draws Rave Reviews

The classy move on the part of the White House to give Fannie and Freddie an unlimited slush fund and dump the news on Christmas Eve is drawing rave reviews as finance bloggers get back to work.

Zero Hedge:

“So. Let us summarize:

We do not expect the GSE’s to grow their portfolios at all, so we are fixing the bloated portfolio problem by easing the portfolio caps to permit a quarter trillion dollar expansion thereof.

We do not expect either of the GSEs to need more help from the Treasury, so we are responding to the underutilized $400 billion “lifeline” the GSE’s have with the Treasury ($111 of which is currently used) by expanding it to… infinity.

Oh, and though they have collectively lost nearly $200 billion, we are paying the CEOs around $6 million each.

Great work team! It’s already almost 11:00. Let’s go to lunch.”

Chris Whalen:

“The issue for Democrats and members of the American Left raised by this article in The Nation is why does Barack Obama allow this situation to continue one day longer? The continuance of Dugan at OCC and Treasury Secretary Tim Geithner at Treasury illustrates how feeble the White House remains when it comes to financial services policy.

Or maybe the problem is one of conflict. Like Larry Summer’s derivatives toxic waste dump inside Harvard’s endowment fund?

And let’s not forget Rahm Emmanuel’s proud legacy as a director of Freddie Mac.

Maybe the Obama White House just can’t go there when it comes to financial anything.”    –more

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