Real Estate Crash thread

[wetcoaster]

That is a completely false statement, and you know it. I'll demonstrate that below.



The bank is allowed to "create saleable assets" = CREATE MONEY. Where did those "saleable assets" come from? From whom did the bank purchase those "saleable assets"? From nowhere: they simply created them, as you said.

"The process by which banks create money is so simple that the mind is repelled." (John Kenneth Galbraith) No economist of any school -- Keynesian, monetarist, Austrian, or otherwise -- disputes the fact that fractional reserve banking creates money by issuing loans. I don't know what you're trying to prove here.



Oh, come on. You know as well as I do that the reserve requirement on checking accounts is only 10% in theory. In practice, banks are allowed to do a "nightly sweep" of your money into savings accounts, which have ZERO reserve requirements. Therefore, the effective limit on bank lending is always the capital requirement, not the reserve requirement -- and this requirement is far, far less than 10%.

If our readers want to learn about capital requirements, Tier 1 and Tier 2 capital, Basel I and II, etc., Wikipedia isn't the worst place to start:
http://en.wikipedia.org/wiki/Capital_requirement



That's a breathtaking bit of Newspeak and you know it. What happens when those "assets" the bank creates aren't worth what the bank says they're worth? Answer: the depositors lose their money -- or, with FDIC-insured deposits, the government, i.e. the taxpayers, i.e. all of us, lose our money.

Seriously: you're a smart guy and you know better. Are you one of those "Real Bills" fruitcakes? I can't think of any other reason you would be going against a fundamentally obvious truth that every single economist accepts, including the ones that can't agree on anything else.

I'm less (or un) familiar with the situation in the United States, but in Canada, while a bank must maintain a minute fractional reserve, the total amount of money banks create (while theoretically unlimited) is actually limited by the overnight lending rate - basically that money created is actually borrowed from the Bank of Canada, which can jack up interest rates to reduce the amount of money out there. This is used as one of the prime inflationary control tools.

I'm unsure about corollaries with the Fed Reserve in the US.

[liv2ski]

http://www.msnbc.msn.com/id/35832152...ashington_post

WASHINGTON - The housing market is facing swelling ranks of homeowners who are seriously delinquent but have yet to lose their homes, and this is threatening a new wave of foreclosures that could hit just as the real estate market has begun to stabilize.

About 5 million to 7 million properties are potentially eligible for foreclosure but have not yet been repossessed and put up for sale. Some economists project it could take nearly three years before all these homes have been put on the market and purchased by new owners.

And the number of pending foreclosures could grow much bigger over the coming year as more distressed borrowers become delinquent and then, if they can't obtain mortgage relief, wade through the foreclosure process, which often takes more than a year to complete.

"We are anticipating a foreclosure glut that is likely to come up in next 16 to 18 months. We are trying to stay ahead of this," said Sanjiv Das, chief executive of CitiMortgage. These types of programs are "protecting house prices and consumer sentiment from going down further," he said.

The impact of the coming foreclosure wave will vary by region. The Washington area has a "shadow inventory" of about 67,000 properties that could go into foreclosure this year, an 11-month supply at the current sales rates, according to research by John Burns Real Estate Consulting in Irvine, Calif. That is slightly higher than the national average but far less than the hardest-hit communities, such as Orlando and Miami, where there is two-year backlog.

And the backlog will hang over some communities for years. By the end of 2012, 39 percent to 50 percent of home purchases in Phoenix will still be foreclosed properties, J.P. Morgan Chase has estimated. In Los Angeles, they'll account for 28 percent of home sales.

[ass-to-mouth]

http://www.msnbc.msn.com/id/35832152...ashington_post

Principal forgiveness. These people who haven't payed their mortgages in months or even years are going to skate by. It's easier then foreclosing.

[mock vomit]

Let me guess. You're young, too young to remember a time of doing a simple 15-30 year with money down at a local bank was normal. That was a time when millions and millions of families built suburbia after WW2, using that finance model. And, you work in the financial industry, because you actually think that the world revolves around securitization and the other shell games your industry has invented over the last thirty years, and, even though it has done NOTHING good for the average schmuck in the end, it has enriched all the middlemen and 3 card monte players with billions of dollars playing their scams. Dovetails nicely with the scare tactics I still hear, that, if we weren't raped a few years ago to support the corrupt banks and politicians who serve them, there would have been another "depression". They actually argue, even to this day, that they "saved" us from total ruin. We need them, they tell us. Fucking Orwellian.

Benny... perhaps you don't recognize the "new me"???

-I think you might be a year or two older than me?

-I've been a dirt pimp for 26 years now, I'd not usually call that "the financial industry"... but hey, you can call it whatever you want. But certainly NOT involved in inventing any loan processes.

-Regards secondary mortgage market and the "last thirty years" part... try 72 years actually.

...During the Great Depression, as borrowers defaulted on mortgages en masse and banks found themselves strapped for cash, President Franklin D. Roosevelt and Congress created Fannie Mae in 1938 in order to buy mortgages from lenders, freeing up capital that could go to other borrowers...

-It's quite clear you are confusing the 70+ year traditional secondary mortgage market and the not directly related and risky practices of Wall Street investment bankers securitization from the last 10 years or so. Not the same animal. Not even close. You may also be mixing up some of the purposes/functions of the secondary market, and the private mortgage insurance market?

-And on this "You're young, too young to remember a time of doing a simple 15-30 year with money down at a local bank was normal. That was a time when millions and millions of families built suburbia after WW2, using that finance model." Ummm... Benny, you do realize the Post WWII boom was actually fueled by ZERO DOWN VA loans and the secondary market, right?

-On the lambasting of the fat cat Wall Street execs who made paper profits and took millions and millions in bonus money for themselves... we certainly agree.

[Benny Profane]

Well, yeah, uh, you're right, and, I even forgot about my father's first mortgage (whoops, I mean his ONLY mortgage) that was 3.5%/30, and, yeah, I'll bet he didn't have to pony up much to start.

But, back to your original thought. You imply that all of that support is necessary for comfortable housing, and, I suppose, "ownership". But, that's become a snake eating itself and just rotted all the way through on so many levels that we'll be living with the remains for a decade or two. Maybe people should go back to, gasp, apartment living, which, of course, can be had on a scale of luxury levels, but, still, much more kind to the earth. Much much less energy use, and, important social interaction. NYC, SF, Portland, Boston are hardly representative of fuedal times, but they were around before suburbia.. Actually, if you want to see something that resembles that time, stop on the side of I-70 and stare up at Beaver Creek. Now, that's modern day feudalism.

[cramer]

Well, yeah, uh, you're right, and, I even forgot about my gather's first mortgage (whoops, I mean his ONLY mortgage) that was 3.5%/30, and, yeah, I'll bet he didn't have to pony up much to start.

But, back to your original thought. You imply that all of that support is necessary for comfortable housing, and, I suppose, "ownership". But, that's become a snake eating itself and just rotted all the way through on so many levels that we'll be living with the remains for a decade or two. Maybe people should go back to, gasp, apartment living, which, of course, can be had on a scale of luxury levels, but, still, much more kind to the earth. Much much less energy use, and, important social interaction. NYC, SF, Portland, Boston are hardly representative of fuedal times, but they were around before suburbia.. Actually, if you want to see something that resembles that time, stop on the side of I-70 and stare up at Beaver Creek. Now, that's modern day feudalism.

you guys have me thinking 10 times about why i shouldnt have bought a house last year. Thanks for raining on my parade.

[cramer]

@ the shodow inventory peeps, dont you think the banks learned their lesson? insted of flooding the market with 1000+ homes in a town, dont you think they'll release them systematically this time. Throw 200 out there, let them get bough up, etc?

[LeeLau]

Hilarious read! I love the sheep mentality that led to all of this. KILL KILL KILL all investment bankers KILLLLLLLLLLLLLLLLLLL

http://www.npr.org/templates/story/s...ryId=124491608

"we find a beautiful, totally toxic asset at ... $36,000. Back in the bubble, somebody paid $2.7 million for this thing"

Even better - http://www.npr.org/blogs/money/2010/...ske.html?ps=rs

This toxic POS was originally rated A3 by moodys, A- by S&P so your pension fund could hold a piece of this dung!

[Benny Profane]

A well researched essay about the origins of this from the government side.

http://theaffordablemortgagedepressi...ce=patrick.net

[mock vomit]

...But, back to your original thought. You imply that all of that support is necessary for comfortable housing, and, I suppose, "ownership". But, that's become a snake eating itself and just rotted all the way through on so many levels that we'll be living with the remains for a decade or two. Maybe people should go back to, gasp, apartment living, which, of course, can be had on a scale of luxury levels, but, still, much more kind to the earth...

I'll take a sec and more fully expand on my "feudalism" remark a bit... To reduce my thought to it's simplest concepts, imagine the rest of the financial part of our current systems more or less the same, but just removing the secondary mortgage market part. So... what would be different?

First, the banks would swiftly run out of their depositors capital to lend for new home mortgages so any new loan activity would stop dead... and using supply and demand, the interest rates they'd be able to charge for new mortgages would move up rapidly and stay up.

Next, with many fewer individual residential home and condo buyers and again using the same supply and demand concept, the values of residential property would drop to some much lower level. And without an increase in mortgage availability for new loans, appreciation might be very limited.

Then, since the big pools of money (pension funds etc) that have been the typical current secondary mortgage market buyers would still exist, and because they would still need to "invest" that money somehow... it's logical to assume that the now missing part of the individual residential buyers would be replaced by large corporate real estate ownership interests.

So... drawn out; The vast majority of Americans would be tenants, renting from large corporate ownership interests. They'd have little individual bargaining power over the big corporate owners, and almost no option to become homeowners, so rental terms could be one sided. As you know, the vast majority of Americans "net worth" are in equity in their private residences, under this new America all that "net worth" would now instead belong to large corporations. Hudge portions of the middle class might reach retirement with little net worth... meaning either they never get to retire, or the government would have to step in and provide them food and shelter spiking the size/cost of our government from even current levels.

In addition, those who were lucky enough to own... would be spending a much larger portion of their incomes on the higher interest rate paid to their lenders... again wealth transfer from the individual citizen to the corporate side. You think corporations have too much say in our politics now, wait till they owned most of the real estate. Overall, I see a "non-secondary mortgage market" America as big corporations ruling the land... both literally and figuratively... and the citizens renting from them. Thereby my "feudal system" comment.

I won't dispute that you might find some "green" upside to an America made of primarily rental units... but remember that other factors (cost of gas via low gas tax, big subsidies of road construction, etc) exist for our current "suburban sprawl". I haven't researched it, but would guess that much of Europe HAS ALSO had a secondary mortgage market during this same time period, but isn't as similarly sprawled as us?!?! Meaning, it's hard to put all the blame on that sprawl on just a secondary mortgage market, no?

[Benny Profane]

You know, I was thinking the past few days how to find out how people made money during the depression, or, at least, kept their money from disappearing. It wasn't the end of the world, as we know, as many survived and prospered during that time. I say that because, if one believes in the very real possibility that we are spiraling down into a liquidity starved deflation, then I want to know where the safe havens are for my money so I can ride it out, and even make 4-5% a year. Sure there are the famous stories of the rich destroyed, or empires built on unlawful activities, like the Kennedys taking off, but i'd like to read something about how the majority of people who didn't go poor survived that time.
You see, if we all knew that, we'd be able to confront our immediate future in a more direct and smoother way. If that's coming around the corner. Although, if you look at present day figures of both lending and borrowing (it's a two way street - a lot of people, from consumers to business, simply don't want to borrow money and want to de-leverage), and you realize that the money supply is shrinking, no matter what the Fed does to try to inflate the economy. That's why I think your argument is flawed....

In addition, those who were lucky enough to own... would be spending a much larger portion of their incomes on the higher interest rate paid to their lenders...

You make the common mistake here that I read and hear all the time. You equate a "homeowner" to the same person who is in debt to a mortgage holder (i.e., bank, usually, although, who knows these days with your wacky secondary market maze). They are not the same at all. But, that's the illusion that the financial industry and a society (parents, friends, real estate sales people, the massive and all pervasive banking industry, and, most of all, wives) that has benefitted from this ponzi scheme has convinced you to believe that, once you sign your life away to debt servitude to what we know now is a corrupt enterprise, you are now an "owner", a member of the club, an ........... adult. It's a sham, and game that has probably been over for the house for 3 or 4 years, as they've left with their winnings, but, there's still some fools sitting at the table and thinking they can double down and everything will be back to ......... normal.

The vast majority of Americans would be tenants, renting from large corporate ownership interests. They'd have little individual bargaining power over the big corporate owners, and almost no option to become homeowners, so rental terms could be one sided.

Twisted logic, and, quite paranoid. Have you lived in an urban center with a large apartment market? Are all of the rental apartments in NYC owned by three or four "corporate" giants, and do they control pricing in a monopolistic manner? Nope. Yeah, yeah, rent control may skew that argument, of course, but, take that out of the equation, and you'd still have a market with hundreds of thousands of landlords competing with each other for tenants. And, yes, there would be many homeowners out there, who actually "owned" their homes, because they paid cash, and didn't bother with the "secondary" markets, because, gulp, they saved. (The apartment co-op market in NYC is very much what I'm talking about here, and that includes not only Park Ave. snobs but Co-Op city in the Bronx) Homes would be priced accordingly, because the market would now reward the saver, and just not any schmuck with a heartbeat and bad breath who walks into a bank. That's why shithouses in California with gangbangers living next door with three pit bulls go for 300 - 400 thou. My future would eliminate that absurdity. And, trust me, the world won't end. We'll live.

[LeeLau]

More hilarious LEH accounting shit .. note that LEH commons still trade on the pinks and that pikers actually still hype it up

http://www.businessinsider.com/ratig...siness+Insider)

[skier666]

http://www.sfgate.com/cgi-bin/articl...MNO21CEDUK.DTL

Short sales and the forgiven debt may be taxable in your state. FYI for the Real Estate Thread Kr3W:

"It was a shock to me to discover that California tax rules (for foreclosures and short sales) did not conform to what the federal government has done," said state Sen. Lois Wolk, D-Davis, who sponsored the legislation. "These people have suffered enough. To consider the decline in the value of their loans as income, that's unacceptable."

I guess there's really no consequences for making bad decisions.....what's next? No decline in credit score?

[cramer]

http://www.sfgate.com/cgi-bin/articl...MNO21CEDUK.DTL

Short sales and the forgiven debt may be taxable in your state. FYI for the Real Estate Thread Kr3W:



I guess there's really no consequences for making bad decisions.....what's next? No decline in credit score?

ya, i had no idea that california's law had expired in 2008. My brother in law must have got a nice suprise in the mail. He short sold a 440K house for like 180K. He's probably looking at 20K or so they may come after him on. I dont think his short sale went through until 2009. Sucks to be him.

[mock vomit]

...and you'd still have a market with hundreds of thousands of landlords competing with each other for tenants...

But Benny, without a secondary market and with the resultant "loan crunch", I don't think there would be "thousands of land lords", that's exactly my point. Of course, since it isn't going to happen... who cares which thought is closer to correct.

And again, you still seem to believe the "secondary mortgage market" equates to this recent jiggy Investment Bank crap... remember all that "sane" homeowner mortgaging in big periods beginning before WWII with rules like 20% or more down ACTUALLY WAS BASED ON THE SECONDARY MARKET RULES!!! Fannie or Freddie didn't really buy lower downpayment loans, well unless and until the government (FHA/VA) or private mortgage insurance market began to insure that first 20% anyway...

[coreshot-tourettes]

Everyone knows that the Fed in the last year has become the entire secondary mortgage market, right? That no financial institutions touched any MBS whatsoever in the last year and that the Fed bought virtually 100% of the issue in 2009 and is singlehandedly supporting the mortgage markets and RRE prices by proxy?

Everyone knows all this, right?

Guess what happens to RE prices when the Fed backs out? What is "NO BID" for $100, Alex?

[liv2ski]

Without the secondary mortgage market, our real estate market would look a lot more like feudal Europe, than the US you see today. That is all...

Did you see the update below? I have read the Fed will stop buying the MBS issuance in the next few months.

Everyone knows that the Fed in the last year has become the entire secondary mortgage market, right? That no financial institutions touched any MBS whatsoever in the last year and that the Fed bought virtually 100% of the issue in 2009 and is singlehandedly supporting the mortgage markets and RRE prices by proxy?

Everyone knows all this, right?

Guess what happens to RE prices when the Fed backs out? What is "NO BID" for $100, Alex?

Yep, and they will be backing out to bring my 2012, the Fed and my paranoia thread to full fruition and complete the ensuing financial Armageddon.

[liv2ski]

The news just keeps getting more entertaining:

http://www.latimes.com/business/la-f...,2297178.story
"The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He's convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they'd be better off financially by dumping their homes.

But real estate veterans said old taboos were eroding fast. Jon Maddux, a former real estate investor who in 2007 founded You Walk Away, a for-profit company that guides homeowners through the process of default, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That's changed as more homeowners have concluded that the housing market isn't going to rebound quickly and they'd be better off cutting their losses.

"Now, it's more of a business decision -- it's people who could afford their house but it's an inconvenience," Maddux said.

He and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules.

Case in point: Maguire Properties Inc., one of the largest commercial landlords in California, walked away from seven prime office buildings in Los Angeles and Orange counties last year, defaulting on loans worth more than $1 billion."

[mcsquared]

The news just keeps getting more entertaining:

http://www.latimes.com/business/la-f...,2297178.story
"The biggest surprise is that so many underwater homeowners continue to pay, said White, the Arizona law professor. He's convinced that personal shame, as well as moral suasion by the government and financial institutions, has kept many homeowners from walking away, even when they'd be better off financially by dumping their homes.

But real estate veterans said old taboos were eroding fast. Jon Maddux, a former real estate investor who in 2007 founded You Walk Away, a for-profit company that guides homeowners through the process of default, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That's changed as more homeowners have concluded that the housing market isn't going to rebound quickly and they'd be better off cutting their losses.

"Now, it's more of a business decision -- it's people who could afford their house but it's an inconvenience," Maddux said.

He and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules.

Case in point: Maguire Properties Inc., one of the largest commercial landlords in California, walked away from seven prime office buildings in Los Angeles and Orange counties last year, defaulting on loans worth more than $1 billion."

Capitulation by a thousand cuts.

The world is slanted to destroy and take advantage of the middle class. I like how his "for profit group" is helping people walk away. Thats funny. Walking away from your house sounds like a great idea until years from now you are renting and at the mercy of inflation.

[Toadman]

The news just keeps getting more entertaining:

http://www.latimes.com/business/la-f...,2297178.story

But real estate veterans said old taboos were eroding fast. Jon Maddux, a former real estate investor who in 2007 founded You Walk Away, a for-profit company that guides homeowners through the process of default, said his earliest customers struggled with emotional ties to their homes as well as remorse about reneging on an obligation. That's changed as more homeowners have concluded that the housing market isn't going to rebound quickly and they'd be better off cutting their losses.

"Now, it's more of a business decision -- it's people who could afford their house but it's an inconvenience," Maddux said.

He and other experts said average Americans are fed up with hearing how they're supposed to honor their debts while businesses operate by another set of rules.

A local AM station in Portland had Maddux on air a few weeks back. He mentioned that several of his SoCal clients that he was advising had not been paying their mortgages for as long as 18 months before they turned over the keys and moved out. All sorts of legal maneuvers to drag out the process. But for a $1K fee his company would walk you through the process and keep you in the house as long as legally possible. The big thing was to not hand over the keys until you had an iron clad agreement that the holder of your mortgage would not come after you at some point in time for the debt.

[coreshot-tourettes]

Walking away from your house sounds like a great idea until years from now you are renting and at the mercy of inflation.

What inflation? Core inflation is dead flat or falling. The Fed is trying mightily to restart the inflation engine by handing out cash to investment banks who then pump the stock market, but the engine is out of oil and is seized up.

It's possible to rent a house for less than the mortgage payment+tax+maint+HOA these days. Given that we're going to take another leg down in RRE prices as Option ARMs reset and more defaults happen, I can't imagine why anyone would buy a house right now unless you were getting a sheriff's sale at 50% off current prices, and you paid in cash.

[Missing Sock]

It's possible to rent a house for less than the mortgage payment+tax+maint+HOA these days. Given that we're going to take another leg down in RRE prices as Option ARMs reset and more defaults happen, I can't imagine why anyone would buy a house right now unless you were getting a sheriff's sale at 50% off current prices, and you paid in cash.

Do you have numbers around refis in the past two years? I would imagine many people have been rather forward looking when it comes to anticipated rate adjustments. If rates stay where they are these guys might even see a downward adjustment. Have had that happen to a few friends with ARMs in the past year. Just curious.

[mcsquared]

What inflation? Core inflation is dead flat or falling. The Fed is trying mightily to restart the inflation engine by handing out cash to investment banks who then pump the stock market, but the engine is out of oil and is seized up.

It's possible to rent a house for less than the mortgage payment+tax+maint+HOA these days. Given that we're going to take another leg down in RRE prices as Option ARMs reset and more defaults happen, I can't imagine why anyone would buy a house right now unless you were getting a sheriff's sale at 50% off current prices, and you paid in cash.

*shrug* I already know that you think you got it all figured out and I am not going to even bother trying to convince you any different because I am not sure that I have everything figured out. But all I know is that when people start forming companies whose mission it is to help people walk away from their mortgages. The same people who 4 years ago would have tried to sell you that 0 down, no doc option ARM loan with a "Real estate always goes up" sales pitch. I pretty much just always invest contrary to intellectual tourists like that.

[GiBo]

*shrug* I already know that you think you got it all figured out and I am not going to even bother trying to convince you any different because I am not sure that I have everything figured out. But all I know is that when people start forming companies whose mission it is to help people walk away from their mortgages. The same people who 4 years ago would have tried to sell you that 0 down, no doc option ARM loan with a "Real estate always goes up" sales pitch. I pretty much just always invest contrary to intellectual tourists like that.

Damn, mcsquared, I agree.

I just can't get over it. I hear all of this hocus pocus bussiness speak. I hear how 2 wrongs make a right- I should walk because they walk. It's a 'bussiness decision' etc... But everytime, I come back to what my word's worth. I could give a fuck what Citi or Well's word is worth to them.

$1,000 to guide me through it, huh? You gonna be there for me in 5 years when my credit's fucked and I can only get a 17% car loan? Yo ugonna guide me through the aftermath?

"intellectual tourists". That's right.

It's the new Golden Rule. It's not do on to others as you would have them do onto you. It's not even do onto others as they have done onto you. It's do on to others as they have done to others.

Fuck that.

[coreshot-tourettes]

Do you have numbers around refis in the past two years? I would imagine many people have been rather forward looking when it comes to anticipated rate adjustments. If rates stay where they are these guys might even see a downward adjustment. Have had that happen to a few friends with ARMs in the past year. Just curious.

Refis in Option ARM space = not happening. People don't have the credit scores to make it happen, and it's hard to refi a house that has declined in price. The peak reset is still at about Aug 2011 whereas before it was in Sept-Oct 2011. The good news is that it's mostly in CA, AZ, FL, and NY where the worst of it is.