"An Analysis of Real Estate and Economic Trends"
www.charlestonmarketreport.com
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November 13 , 2007
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Happy Veterans Day!
I read that 25% of all homeless are Veterans. Why doesn't our government take care of these Vets???
Hello everyone. We truly live in interesting times. I appreciate all the kind comments I have been receiving from many local subscribers who know me and really like The Charleston Market Report. I do not relish reporting all this bad news each month and wish I had better news to deliver since I am a postive guy. Unfortunately, "What is is." Somebody has to report the truth and reality out there so it might as well be me. Many people in our industry will not do this because they are afraid of someone getting mad about what they say and they will lose business. I have already been through that scenario so I frankly do not care what other people think. I have a strong desire to clear away the Smoke and Mirrors of Real Estate and Wall Street so you can protect and build wealth for you and your family.
BTW, the Q3-2007 has finally been posted on the website if you want to take a look. Just go to www.charlestonmarketreport.com or go to http://www.charlestonmarketreport.com/#Housing%20Cartoons to see some new cartoons.
You will also notice some advertising I have placed above on the left side. I wanted to let everyone know that I do Custom Consulting and Market Monitoring for real estate. I have never really advertised this consulting service in the past. I have done a number of feasbility studies and private appraisals (NO BANK APPRAISALS) for clients over the past year. You may ask what makes my consulting different than what other professionals provide. Then answer is trend analysis. 99.9% of the appraisers and consultants do not use Trend Analysis in their reports. In my opinion this is critical information in any real estate analysis report that most of you are not getting. I have a unique background in real estate, finance, appraisals, the stock market and technical analysis that provides data and analysis you will not get anywhere else. This service can be done in most real estate markets around the country. Call or email me for more info if you are interested.
Now I know many of you are forwarding this newsletter to
clients or friends. If you have a website and want to link to The
Charleston Market Report be my guest. I have heard from many real
estate agents that the info in this report helps their relationship with their
clients because it puts them on the same page with the cuurent events and
market conditions in
The best way to get this newsletter is to simpy subscribe. I keep all emails confidential and usually only send out 1 email per month.
The Cartoon
I think the cartoon above sums up the current scenario perfectly in real estate and Wall Street. Now I know we have some former "Players" who read this report. Remember in college or your "player" years when you got really drunk and had a blast dancing all night in the bars? Then you suddenly find yourself on the dance floor with a young lady who you think is hot and you have a great time all night. Now, ladies this scenario could go either way ok. Then one thing leads to another and you go home together and you wake up the next morning wondering what happened last night, your head is pounding and you wonder who the hell is sleeping next to you. Then when you take a look that person does not look as hot as you thought when you were drunk and you just want to get out of his or her place as fast as you can. Well, this is how Wall Street feels about securitizing loans right now. They wish they had never gotten in bed with Ms. Mortgage as the writedowns mount each day and clobber their stock prices. Just ask Stan O'Neil from Merrill Lynch or Chuck Prince from Citigroup. They lost their jobs courtesy of Ms. Mortgage.
The party was great while it lasted but the hangover really hurts. There is truly not enough Advil in the world to go around for all the Wall Street firms and Banks who banked so much of their money on the inflated housing market. Sorry fellas because this hangover is going to last a while and Ms. Mortgage just looks uglier and uglier each day. I will say there is going to be one heck of a financial rally in the near future as this sector bottoms out. There will be some fantastic companies on sale via the NYSE.
The Appraisal Industry and Lendron
Last week New York Attorney General Andrew Cuomo sent a shock wave throughout the lending and appraisal industry when he found a "pattern of collusion" between Washington Mutual and the appraisal unit of First American Corp called eAppraiseIT. Cuomo also subpoenaed Fannie Maie and Freddie Mac to conduct a review of all WaMu appraisals and loans they purchased. I will tell you that Cuomo would not have subpoenaed any of these large coroprations without a smoking gun. Washington Mutual is the third-largest provider of loans to Freddie Mac, selling $24.7 billion in 2007, Cuomo said. It ranks 14th at Fannie Mae, with $7.8 billion of loans this year. Click here for the Bloomberg article.
Below is the chart of WaMu imploding:
What is also interesting about WaMu is that last summer they fired their inhouse appraisers and vendors to shift all of their work to the Appraisal Management Company, AMC, eAppraiseIT. I personally know the owner, Jonathan Miller, of one of the appraisal firms in Manhattan called Miller Samuel who lost business to this WaMu decision. Miller Samuel is one of the top appraisal firms in the country. Why would WaMu eliminate what appeared to be a good risk management strategy of appraising properties via in-house and outside appraisers? My only answer is GREED and STUPIDITY, which many finance companies have done such a great job of demonstrating recently with past business decisions related to mortgages and housing. Maybe WaMu was losing to many loans because their appraisers were doing their jobs and not inflating reports and actually cutting deals on overpriced purchases and refis.
Part of the problem in the real estate industry is that mortgage brokers usually work on a commission with their loans and the appraiser gets paid a fee. The mortgage broker probably averages around 1.5-2% per amount their client is borrowing and the appraiser normally gets paid $350 per appraisal. Obviously, the mortgage broker, who carries NO liability for originating inflated loans through their company, wants to push loans through the system so they get PAID. The appraiser who makes the least amount of anyone in this transaction can kill these deals if the data supports it. Their is enormous pressure placed on appraisers by some mortgage brokers to "hit the number" so they can originate the loan and then sell it off to the secondary market (Wall Street) which will bundle various loans together in Mortgage Back Securities (MBS) and sell them to an investors. Many appraisers will not go along with this pressure because the liability and reputation risks are so high. Unfortunately, in any business their are always those bad apples that can be bought and pressured to do anything for some extra cash and business. What is amazing about this case is that the appraisers are hired by the banks/lenders to protect them from themselves. The last thing a bank or lender wants to do is have to repurchase inflated appraisals that show them forcing what are supposed to be independent appraisers into inflating home values. If WaMu loses this case and is forced to repurchase these loans they are DONE, TOAST and will become BANKRUPT.
Now according to Tanta from Calculated Risk in the great article WaMu and The Rep War:
"Fannie Mae is saying that WaMu will take back any
loans with dubious appraisals this "independent examiner" digs up.
WaMu is saying that it will "rigorously" avoid doing so.
WaMu is also saying, in effect, that it signed a contract with eAppraiseIT that
puts all liability for inflated appraisals on eAppraiseIT.
Fannie Mae is saying, in effect, that it signed a contract with WaMu that puts
all liability for inflated appraisals on WaMu.
This is very interesting precisely because it isn't going to be about inflated
appraisals. It's going to be about how far anyone can get away with two
practices that are the lynch-pins of the mortgage industry: outsourcing
regulatory liability to a third party bag-holder and doing business on a
representation and warranty basis without pre-sale due diligence."
In response to questions about whether he will charge other
companies, the attorney general said his investigation is continuing.
"The appraisal process is a systemic weakness, in our opinion, in the
housing industry," Cuomo said. "This is a case we believe is symbolic
of an industrywide problem, a long-term problem."
OUCH!!
Cuomo said a nine-month investigation uncovered numerous e-mails from senior
executives at the companies showing that eAppraiseIT intentionally broke the
law to win future business with Washington Mutual.
First American said the e-mails were taken out of context or mischaracterized.
"We get pressured every single day to inflate our
values," said Dan Tosh, principal at Tosh & Associates, an appraisal
firm in Brentwood. "We get people telling us we'll never work again, or
they won't pay us because we won't play ball."
"This makes things such as Enron and WorldCom look small by
comparison," said Ted Faravelli, executive director of the California
Association of Real Estate Appraisers and principal at San Jose's T.E.
Faravelli & Associates, an appraisal firm. "It was an epidemic."
In a nationwide survey released early this year, 90 percent of 1,200 appraisers
said they had felt "uncomfortable pressure" to adjust property
values. Mortgage brokers were named as the most common culprits, followed by
real estate agents, consumers, lenders and appraisal management companies. The
increase in pressure was dramatic compared with that found in a similar survey
in 2003, when 55 percent of appraisers reported feeling pressured.
The real kicker with this lawsuit is that the way appraisals are currently done may have to revamped. I do not have all the answers as to what the best way for the appraisal business to work. I think the way WaMu originally was managing risk via in-house and outside appraisers such as Miller Samuel was a much better model than using an AMC exclusively. I believe AMCs are not any good for any of the bank and lenders. The AMCs do a poor job of getting the most qualified appraisers the work and instead reduce the fees where often the less qualified appraiser gets the work. There is no doubt this case will have a major impact on the appraisal and lending industry and we need to monitor it closely. If these types of cases spread to other states then this whole Lendron scenario may get even uglier. Stay tuned!
Souces:
Calculated Risk - WaMu and The Rep War
Mish's Global Economic Trend Analysis
WaMu Collapses Under Appraisal Probe- http://globaleconomicanalysis.blogspot.com/2007/11/wamu-collapses-under-appraisal-probe.html
Tanta on WaMu vs. Cuomo - http://globaleconomicanalysis.blogspot.com/2007/11/tanta-on-wamu-vs-cuomo.html
Charleston Real Estate Snapshot
I have circled in red what I like to look at in this snapshot of Charleston residential real estate. Clearly the worst segment of the market is on the SFR high end (>$600k) right now. Sales are way down from a year ago and monthly inventory has tripled. This is worse than the high end condo market! Obviously, the inability to get qualified and a good rate on a Jumbo loan is part of the blame. I just can not understand why so many investors continue to put out spec homes in this price range. These are not cheap mortgages while your home sits on the market waiting and waiting and waiting to sell.
Tri-County
Single FamilyResidential
Less than $600,000
Tri-County
Single Family Residential
Greater than $600,000
Tri-County
Condo/Townhomes
Less than $600,000
Tri-County
Condos/Townhomes
Greater than $600,000
Souce: CTAR MLS
Best Regards,
brad
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