All the King's horses ...

That's colorful and pretty! What is it?

That is a tableau of marketing trinkets that lenders used to give out. All of those lenders are now out of business.

They're all gone. I'm still here. The last man standing.

Does that speak to my stamina, or that I'm not able to get out of a burning building? Time will tell...


But, I'm still here!

Many of you know of my fondness for everything involving airlines. A term that has long been used by those who investigate airline tragedies is "event cascade," describing the collection of errors and flaws that produce the dramatic results - broken airliners, empty seats sitting under a stormy sky, and a picture of a plastic baby doll. Sometimes, I've wondered if every airliner has a plastic baby doll on board just "in case." You can't count on the passengers to always have one, but there it is.

Fortunately, we've been in a long period of safe airline travel. What has been drawing our attention of late, aside from the bright and meaningless carnival rides that is our election campaigns, is a pair of economic stories - gas prices and housing prices. Both seem to be headed in opposing directions, and there are a lot of rumors floating around to point out who's to "blame."

In the housing business, it's the evil, greedy "mortgage brokers." In the gasoline business, it's the evil, greedy "Big Oil companies."

When an airliner crashes, there are mistakes upon oversights, upon misjudgments, upon bad communications, upon ill fitted parts, upon weather.. without any one of these elements, the airliner may have made it home safely. In either the gasoline prices or the housing crisis, the situation is analogous - perhaps had it not been for one thing, we wouldn't be here. But, there have been a huge combination of things that brought us to where we are.

On the business of gasoline price, here is a terrific article in Salon magazine that explains away the many rumors of greedy oil giants, stupid environmentalists, peak oil and Chinese oil consumption to show WHY the price of gas is where it is. It's straight forward and rational, and worth a read.


On the business of the housing crisis, several more articles providing further perspective into just how complex this all has been, and how wildly different forces have combined to bring a housing bubble to burst in our country, but also in many other countries around the world.

First, how a huge increase in money supply developed world wide, and how it "pushed" the relaxation of credit standards that resulted in the housing bubble. Excerpted from a new book in Newsweek, this article blows away a US perspective on where money is "grown." This money pushed the credit markets around, much as an overloaded trailer pushes the car that's towing it.

Next, a discussionof the credit market fundamentals that produced our situation, and how dealing with it as we've been dealing with it is not the answer. Points to note here, there are many similarities with the Great Depression of 1929-1938, and how the response of the Fed and the Feds is both inadequate and consistent with how the banking crisis of 1933 was exacerbated by nearly identical moves back then. Not for the faint of heart, this article took me a lot of stopping and starting to make sure I was comprehending what I was reading.

This article discusses how the structure of the banking system was changed after the 1933 banking crisis and then changed back during the 1990s. While the article has a definite slant, it has a clear and concise description of the political changes. Read even more about the Gramm-Leach-Bliley Act here.

More as it happens - just found another article on Gramm-Leach-Bliley, which is even more pointed than the first.

News regarding why our area shouldn't be a buyer's market

We've been battered and fried in national news about how awful things are in the real estate marketplace.

Fact: Houston home sales are lower than 2007, but still higher than 2005 and 2006 - which were both terrific sales years.

Fact: Foreclosures are up, but haven't hurt our values across the board

Fact: Houston's job growth is as strong as it could be - we're actually being held back by a lack of skilled labor.

Right now, we have sellers who are deeply committed to their properties, and cannot afford to sell at a substantial loss. We have buyers who are making offers that are 10% and more lower than the asking price on some properties, figuring that everyone is a distressed seller.

For instance, the patio homes in which I live have several units offered. The offering prices are very, very reasonable, but there isn't a sale. If the prices were reasonable in 2007, and the local economy hasn't declined, why should we think that the 2008 price, everything else being constant, is too high?

When you're counseling clients, whether buyers OR sellers, show them the recent sales information before committing to an offer. There is still enough activity that your client's lowball offers won't even be presented, and they will lose out on any opportunity to buy what they really want.

Use the information I've linked you to in order to show people that what they're seeing on CNN from Las Vegas and Florida isn't what's happening here.

Why your neighbor's foreclosure is bad for you

It's impossible to stay away from the news that foreclosures are up, and way up.

If one listens to any broadcast news, if one reads any print or Internet news or websites, if one just drives around, the word FORECLOSURE looms large.

It's very easy to assume that, when one has a steady job and pays one's own bills, this foreclosure crisis won't affect one's personal world. It's very easy, in that situation, to assume that those losing their homes to foreclosure are financially irresponsible, are too stupid to have properly read the contracts, or too greedy and bought way over their heads.

In reality, it will affect your world. I'm going to explain the foreclosure process, and why it will get far worse before it starts to get better, and how the increase in foreclosed properties affects everyone at the consumer level.

Pre-foreclosure

It all starts with missing a single house payment. "Missing" a payment means that you've not made the payment, and the new one is now due. Now, you owe two house payments.

So many reasons can presage the first payment going delinquent: medical bills, family holidays, car repairs, a brief job loss or change in job which delays payroll for two weeks, a DUI and the bail, attorney's fees and court costs that go with it. As a practical matter, the large body of people in this country are two paychecks away from financial meltdown. When your largest monthly obligation is your home, it's the one that feels like it will provide the greatest benefit by letting it go delinquent - meaning, that you have the most money to spread around by not making the house payment.

No one makes that decision thinking that they won't be able to recover. Everyone thinks they can pull it together soon enough.

Of course, once someone is behind a payment, the next one comes running up in no time at all. Now, they're two payments behind. They still think that they can catch up.

Then, they're three payments behind.

The foreclosure process

Here in Texas, we have non-judicial foreclosure, which means that a lender doesn't have to bring a lawsuit to foreclose, except for home equity loans. In many other states, a lender has to bring a lawsuit to foreclose and has to prove to a judge that there has been a default and that all of the rules have been followed.

In Texas, though, a lender has only to issue a notice of default and acceleration, and publicly post notice of their intent to foreclose on the first Tuesday of a given month, not fewer than twenty days from the date of posting.

Banking law and accounting rules motivate lenders to begin this activity after 90 days of non-payment. Usually, much more time passes before the foreclosure activity starts; of course, by failing to pursue default or workout, the lender can unwittingly create a situation where there is no easy solution other than foreclosure.

After the foreclosure sale

Once the foreclosure has occurred, the former owner becomes a squatter. In most states where the court has ordered the foreclosure auction, the Sheriff is sent out to evict the former homeowner. In Texas, and most other non-judicial states, a contractor is sent out by the winning foreclosure bidder (9 times out of 10 being the former lender) to request that the former owner vacate peacefully. If they don't, then they are evicted - a process that takes only about two weeks.

The lender, having foregone collection of payments, probably having paid property taxes for the former owner, having paid attorney's fees and court costs, now runs the post-foreclosure playbook.

The house, now sitting vacant, is offered for sale as is, meaning that any deferred maintenance or repairs are undone, and the house is offered at near a top market price and as a foreclosure. Yard work is minimal, and aside from sticking a sign in the yard, there is essentially no marketing done.

After a few months of unacceptable offers, the price is dropped to below market or the bottom of the market. This produces a sale, and sets the bar for neighborhood value at a new low.

Why this affects you

So, you're good in your home, the payments are current, your job is secure, everything's fine - why does this affect you? The common opinion held by someone in this position is that those who are suffering in the foreclosure mess are personally to blame, and that resources should not be deployed to help those people.

Here are the reasons why it does matter to you if your neighbors start losing their homes:

* Most people keep their homes only for five to seven years
* Divorce, job change, transfer or illness are the top motivating factors to sell
* Divorce, job change, transfer and illness are nearly always unplanned
* Most lenders now won't loan in a neighborhood with more than 10% foreclosures
* Vacant, un-kept homes begin to affect neighborhood values
* These value changes create an environment where only cash buyers can buy
* Most buyers of foreclosed homes hold them for investment
* Investment owners rarely, if ever, update or improve a property
* Renters (those who occupy investment homes) NEVER update or improve property
* You could find yourself unable to sell at any price

A little history lesson

Twenty-five years ago, the price of oil was lower than the cost to extract it from the earth - which, given today's prices, seems impossible. Houston experienced an "oil crash," and thousands were laid off. We had a foreclosure crisis here, and whole sections of the city became investment property.

Those neighborhoods have only just come back to an inflation adjusted sales price that matches what they sold for newly twenty-five years ago. After twenty-five years of deferred maintenance and upkeep, most of those homes will NEVER be owner occupied again.

So, it really does matter

If your neighborhood starts a cascade of foreclosures, your value could be stripped away from you, never to return. The real estate bubble will take fifteen years to recover from in terms of any rapidly appreciating real estate values. The idea of a property gaining in value due to market conditions is likely over for most neighborhoods and most parts of the country. Only in those few neighborhoods where foreclosures aren't rampant, and where demand exceeds supply will one see an increase in value. Even here in Houston, we have a buyer mindset that it's a buyer's market and that prices are too high - when they're not too high at all.

I hear Realtors now reciting the mantra that it's a buyer's market. It only is if we say it is. Effective and different marketing will get properties sold, coupled with appropriate pricing.

The "assistance" so far offered by the government amounts only to tax breaks for large corporations. None of the "assistance" helps most homeowners facing foreclosure, because they're voluntary on the part of the lenders.

By adjusting the tax code to make it more beneficial for a lender to work with a borrower, even with one that has already gone through foreclosure, this crisis could be stopped dead in its tracks. However, that is remote and unlikely, as only the Realtors have the lobbying muscle to make such a demand.

And Realtors aren't generally willing to look to their future marketplace and make choices - they, like most people, deal strictly in the present day and hope that tomorrow will be better.

Transfer fees, HOA management and property values

This is a letter I used to reply to a friend's question about her HOA's practices:

Thanks for your inquiry about HOA management practices, standards in the community and how that affects HOA members. I'm glad to share a cohesive viewpoint with you; it is rare that opportunity presents itself.

HOA fees relating to real estate transactions are a common and expected part of the process. HOAs come either large (self-managed) or small (third party management,) and the issues seem to track with HOA organizations whether they are self-managed or not.

Most HOA fees are set out in the deed restrictions, and there are general standards.

In general, about $50 is routine for a transfer certificate - an administrative fee to modify the HOA's records that someone different has taken title to the property.

Also, in general, around $75 to $125 is routine for an HOA certificate on the FNMA form, as we experienced with your recent refinance transaction. This data is kept up to date by the HOA or its management company as a matter of course; if your community isn't FNMA/FHA approved, no one can get financed in your community. Plainly spoken, the HOA must keep this information up to date, every time it's request, it's on the FNMA/FHA approved form, and the fee that is charged for providing this commonly collected and updated information is preposterous. However, everyone does it, and it is expected.

An HOA can dramatically affect the viability of a community with its management style and fee structure. By taking an unreasonable time to complete a transfer or certificate request, an HOA manager can actually block a sale or refinance from being completed. By charging an unreasonable fee, an HOA manager can create a negative impression in the minds of local realtors, who will then consciously or unconsciously steer clients away from properties offered in a given community. There are some communities I've encountered in my fifteen years in the business, where a given title company or realtor won't do business with a property offered in that community so as to avoid the difficulty and delay presented by the HOA management.

Specifically in response to your question about the performance and response of your HOA's management company with respect to your recent refinance transaction, I have several opinions:

First, the time it took your HOA manager to complete their first reply to the request for an HOA condo certificate was unreasonable. Unreasonable speaks to the delay in your transaction - it took seven days from the initial request to the first request for fee payment by your HOA manager. Following fee payment, it took another five days to deliver the completed HOA certificate - more than two calendar weeks from the initial request.

When a condo certificate is requested, the loan is ready to go into underwriting. Loans in underwriting that linger tend to fall apart. Loans submitted with everything packaged and ready pop out of the system in hours, ready for the next step.

In my mind, a responsible HOA manager, focusing on what's best for the HOA's clients - the community owners - would prepare a blanket condo certificate and make it generally available on the community's website, replacing it only when the annual cycle came up, or when the data was significantly changed. That certificate could be offered without charge.

HOA insurance was referred out to the community's insurance agent, who was quick, responsive and effective. The turnaround for the HOA FNMA certificate should have taken no more time than did the agent's response time with the insurance certificate - those transactions are the REASON that the HOA manager is in place.

An HOA that is run effectively, with uniform enforcement of regulations, a clean and neat presentation of the community, a courteous, swift and reasonable response for routine transactions, can benefit homeowners in the community by supporting value appreciation. Specifically, an HOA that is well run and customer friendly will create an atmosphere that promotes Realtor preference and promotes members of the community telling their friends and co-workers that their community is a desirable place to live. The community in which I live enjoys such a reputation, and nearly forty years after its creation, inventory in this community is in good balance, sales occur quickly, and people are pleased with their experience.

An HOA management that is populated with people who believe that it is their job to be indifferent to execution of their primary function, and who focus instead on aggressive and subjective enforcement of HOA regulations create the opposite - a community in which members are disconnected, in which they are not proud and do not speak highly of, and which Realtors and the surrounding community begin to avoid. This is the Gladys Kravitz management style, in which the HOA structure is used to harass and punish neighbors for perceived or subjective infractions, and which subtly and negatively affects the community's value.

In the case of your HOA, owners there are in a refinance market where there is opportunity for homeowners to reap the substantial benefits of reducing both rate and term, saving them tens of thousands in interest payments and developing equity far more quickly. By dragging out the certificate process, and by charging each homeowner $175 for transfer and certificate "costs," the HOA management inhibits this transaction cycle. In fact, the HOA board should promote such a refinance transaction cycle, as a community that is populated by homeowners with more substantial equity has a much greater probability of thriving in a declining market. Foreclosures in the community are reduced or eliminated, and homeowners have far more flexibility to sell or take equity to manage their financial situation.

The HOA could, in fact, promote a refinance cycle by offering residents a copy of the certificate for free (since you've just paid for yours, it's already been done. The certificate would only need to be changed if there was an ownership change, or a change in the financial condition of the HOA) so, for the next forty-five days or so, the HOA could promote increased equity and viability of the community without cost to itself.

Someone in your community with a 7% fixed rate could save about $1500 a year or, could refinance to a fifteen year term, and keep their payment about the same, but increase equity at more than 100% faster than the thirty year rate would allow.

Never before has there been a cohesive, big picture sense that Realtors, HOAs, mortgage lenders and homeowners can actually manage the viability of their communities by simple, reasonable cooperation and a focus on that big picture. I can't say that it will happen now, but there is an opening for that conversation I've never before experienced.

I hope that this answer has helped you as you prepare for your board meeting Monday night.

Thank you again for inviting my thoughts on this issue.

Don't you just love the smell of regulatory napalm in the morning?

Read this terrific article about the developing re-regulatory "storm" in Salon magazine online.

Shopping in the Bargain Basement

Reposted from Hullabaloo

Fasten Your Seat Belts

by digby

Tomorrow should be an interesting day on Wall Street. JP Morgan just bought Bear Sterns for less than the price of the office building it's housed in and then the Fed cut interest rates another quarter of a point to try to cushion the blow.


The Fed approved the financing arrangement announced by JPMorgan Chase & Co. and Bear Stearns Cos. JPMorgan separately agreed to buy Bear Stearns for about $2 a share.

Fed Chairman Ben S. Bernanke is stepping up efforts to keep strains in financial markets from spiraling into a full-blown meltdown. Last week the central bank agreed to emergency loans to a non-bank, Bear Stearns, for the first time since the 1960s. Fed officials also announced a program to swap $200 billion in Treasuries for debt including mortgage-backed securities.

The Fed lowered the discount rate to 3.25 percent from 3.5 percent, narrowing the spread with the federal funds rate to a quarter point from a half point. From tomorrow, primary dealers will be able to borrow at the rate under a new lending facility, to be in place for at least six months, the Fed said.

The actions are ``designed to bolster market liquidity and promote orderly market functioning,'' the Fed said. ``Liquid, well-functioning markets are essential for the promotion of economic growth.''

Investors expect the Fed to lower its benchmark rate by as much as a full percentage point, to 2 percent, when policy makers meet March 18. That would exceed the 0.75-point emergency reduction on Jan. 22, which is the largest cut since the overnight interbank lending rate became the main tool of monetary policy about two decades ago.


Paul Krugman wrote on Friday, before these actions of today:




I’m more concerned that despite the extraordinary scale of Mr. Bernanke’s action — to my knowledge, no advanced-country’s central bank has ever exposed itself to this much market risk — the Fed still won’t manage to get a grip on the economy...

I’m sure that Mr. Bernanke and his colleagues are frantically considering other actions that they can take, but there’s only so much the Fed — whose resources are limited, and whose mandate doesn’t extend to rescuing the whole financial system — can do when faced with what looks increasingly like one of history’s great financial crises.

The next steps will be up to the politicians.

I used to think that the major issues facing the next president would be how to get out of Iraq and what to do about health care. At this point, however, I suspect that the biggest problem for the next administration will be figuring out which parts of the financial system to bail out, how to pay the cleanup bills and how to explain what it’s doing to an angry public.


Like I said. Buckle up.