Posted by Jonathan J. Miller -Friday, February 3, 2012, 10:44 AM 1 Comment
Had a lot of fun with Tom Keene, Bloomberg’s editor-at-large, radio and TV anchor on his must watch show Midday Surveillance yesterday. Always flattering to be asked to guest co-host for the hour and a challenge to keep up with his fast paced wit. I’ve always felt that Bloomberg news, now with new emphasis on TV is business news the way it should be delivered – longer interviews and neutral presentations.
The show’s theme was housing and I felt compelled to give him more reasons to hand-wring about his upcoming apartment rent increase. Was fun to do.
The hour was divided into 4 segments, the last three with guests:
Posted by Jonathan J. Miller -Monday, January 23, 2012, 8:55 AM Comments Off
Ok, at least it’s it’s Year of the Dragon, not the Year of the Rat but the Chinese New Year does bring to mind some other associations with housing in the post-credit crunch world.
Here are names I have associated with each year since the fall of Lehman and the impact on housing.
2008 (Rat) – Year of the return to reality. Appropriately named, the year notes the final punctuation mark on the credit boom unraveling and the fact that the entire world lost it’s mind.
2009 (Ox) – Year of the first time buyer. The first year after the September 2008 fall of Lehman Brothers that marked the beginning of a new credit environment as well as a new housing market. Mortgage rates fell to the floor and the Federal government introduced the first time homebuyer tax credit – later expanded to existing homeowners. For appraisers it was the “Year of the Appraisal Management Company” as the Cuomo/Fannie Mae agreement effectively prevented the residential appraisal industry from becoming a reliable and impartial benchmark provider.
2010 (Tiger) – Year of the short sale. Preceding the incoming flood of foreclosures, the banking industry understood that it was a lot cheaper to effect a short sale rather than go to foreclosure. Unfortunately they had no idea how to manage the process and many fell into foreclosure. Here’s some free advice to banks looking to cut losses on foreclosure activity: actually pick up the phone.
2011 (Rabbit) – Year of the foreign buyer/trophy property sale. The DC politically charged debt ceiling debate leading to the S&P downgrade of US debt and economic debt problems in Europe drove many foreign buyers to the US housing market as a safe haven. A byproduct of this trend was a surge in the sale of unique high end properties in the US. Think Candy Spelling and Sanford Weill. I had originally dubbed 2011 as “Year of the foreclosure” but the “robo-signing” scandal in late 2010 tempered servicer/lender plans of releasing foreclosures into the market until they were more confident they could prove ownership and the right to actually foreclosure (what a time we’re living in).
2012 (Dragon) – Year of the foreclosure/election year do-nothingness. Servicers/lenders will begin to ramp up the foreclosure process again as more time has passed for them to get their ducks in a row. I am doubtful there was enough time to do much of anything considering the millions of potential transactions but it’s likely to start this year and heavier than usual volume should last for at least 3 years. This is a good thing because we need to clear the market before claiming a housing recovery. We will likely see a surge in election year political promises as an attempt to help troubled homeowners such as a more streamlined shortsale process, an improved loan modification process and an expanded refinance policy, but judging from all feeble attempts so far and the stalemate in DC on economic policy and their stunning lack of understanding about what ail’s housing, we’ll probably get the status quo instead.
The next Chinese New Year will be named Year of the Snake. Uh, I’ve never liked snakes.
Posted by Jonathan J. Miller -Tuesday, January 17, 2012, 3:08 PM 6 Comments
My senior staff appraiser shared the following nightmare story – about a friend of his who is going through a mortgage refinance with one of the big US national banks regarding a house in Long Island, NY. Rather not say the bank name but a stagecoach comes to mind.
An appraisal was ordered through a big appraisal management company – Rels. Their appraiser used a condemned house with a big hole in the side of it – visible from the street – as a comparable sale presented in the report
Attached are the photos of the condemned house used by the appraiser in my friends appraisal…They are still fighting to have a new appraisal done. I will be honest the house was not this bad (when it was sold) as most of the siding has been removed. However, it was bought by a developer/LLC (not a person) and the condemned sign was on the door had the appraiser gotten out of the car. The hole in the side I believe was there as you can see that is the side with some siding still remaining.
The condemned house appears to have sold well under market value because a developer bought it to renovate and flip at market levels. No commentary or awareness of this was evident in the report. This condemned house is in the same neighborhood but the borrowers property happened to be updated and in good condition. Interestingly, I’m told the condemned sale was the outlier of the other sales presented in report that pulled the value well below the other “non-condemned” sales.
The slogan on the Rels web site is: Quality appraisals — and rapid turn times.
However I see the terms “quality” and “rapid” as mutually exclusive. “Quality” is more aligned with “timely” and “rapid” is more aligned with “fast and furious without review”.
The borrowers are peeved because although they can get a mortgage, the suspect report is in their file and they are worried it will haunt them later with a home equity application or something they haven’t thought of – after all – they paid for it. In fairness to Rels, it doesn’t sound like they are in the loop and the bank just wants to close the loan. The bank is making comments along the lines of “the appraisal won’t stay with your file, so just close” which seems to stray from my understanding of file documentation for lending.
Housing doesn’t recover until appraiser amateurism is eliminated from the lending process. Amazingly, large institutions still seem more interested in efficiency and a built-in “low” bias than getting valuation services that provide reliable results in order to make informed decisions to generate business with.
Posted by Jonathan J. Miller -Tuesday, November 29, 2011, 7:00 AM Comments Off
Last summer I wrote an article for the now defunct Live Valuation Magazine. I attempted to explain to both appraisers and non-appraisers why our appraisal industry is so screwed up.
It was the cover story for one of the last issues – nearly a think tank of new ideas, the loss to the industry was a real setback.
In light of this change and the importance of the message to the industry, I have allowed Appraisal Buzz to republish it. Hope you enjoy it.
Neutral Valuation: Allowing appraisers to provide the service they were built for
As a real estate appraiser for the past 25 years, I’ve always viewed my role as a provider of a neutral valuation benchmark for clients to become empowered to make more informed decisions. Of course this is a fantasy-based, in-a-perfect-world depiction rather than an actual practice. In mortgage lending, residential real estate appraisers are not able to provide an independent market value without some sort of reprisal if the results do not match the client’s needs.
Since the credit crunch began with the Lehman Brothers bankruptcy that roiled the world economy in September 2008, our profession has actually strayed farther from being any sort of neutral valuation benchmark….[read more]
Like in the original publication, the comments on Appraisal Buzz reflect the fact that the article really touched a nerve.
Neutral Valuation: Allowing appraisers to provide the service they were built for [Appraisal Buzz]
Posted by Jonathan J. Miller -Friday, November 11, 2011, 5:28 PM 1 Comment
A few years ago I read a fantastic book called The Secret Life of Lobsters. I had picked it up at Barnes & Noble since I had already been making feeble attempts to fish for lobster for a number of years.
I wrote a post on “Lobster Prices And Subprime Lending” back on July 5, 2009, the day after our family’s annual July 4th lobster bake. The 2009 post links out to the book and a great radio interview with Mr. Corson. The book is very well written.
I’ve been talking about this issue more and more in public forums because it shows how this credit crisis touched virtually everything and everyone, especially as I usually observe 5-6 lobster-related items on the menu of nearly every restaurant I have been to for the past 2 years.
Lobster has become the Coke syrup of the restaurant business. The cost is so low but the value perception is so high that many new items containing lobster are entering the menus of many modestly priced venues.
Confession: I threw back my first lobster (the one in the photo) and I never became a very good fisherman.
Next time you go out to dinner, be sure to count the number of lobster menu items – you’ll be surprised at how many there are.
The S&P Case Shiller Index was a released just as I came on the show, as well as what is driving the Brooklyn housing market, why is NYC fairing well, what ails the national housing landscape, will it have further to fall, what are the problems with relying on CSI, foreign buyers and whether Tom is looking at a kick up in his rent next year. Always fun.
I can’t decide why this was submitted to Wapo since it offers no solutions to stabilize the housing market. Should be renamed “here are some of the problems with the housing market.”
Some feel he’s made our credit problems worse by derailing Obama’s economic strategy. Here and here is a two part podcast with Barry Ritholtz that contains some very choice words for Dr. Summers.
When I first read Summer’s piece I was reminded of Steve Martin’s line on SNL (way back in 1978) where he offers some sage advice on “how to have a million dollars and never pay taxes”:
“First, get a million dollars, then…”
The observations he makes are not new and not insightful beyond basic conventional wisdom. I continue to be amazed at how disconnected the very smart DC econoliteri are from what ails housing.
“First, banks need to lend, then…”
First, and perhaps most fundamentally, credit standards for those seeking to buy homes are too high and too rigorous.
Second, as President Obama stressed in rolling out his jobs plan, there is no reason that those who are current on their GSE-guaranteed mortgages should not be able to take advantage of lower rates.
Third, stabilizing the housing market will require doing something about the large and growing inventory of foreclosed properties.
Fourth, there is the issue of preventing foreclosures, the initial focus of housing policy efforts. The right way forward is far from clear.
Here are my observations to these 4 points:
First – Banks have to be incentivized to lend and ease underwriting standards. The problem with Washington establishment is they have been begging and pleading for banks to lend since the crunch began. THIS WILL NOT WORK. Banks don’t want to, primarily because of the low rate policy held by the Fed. No real spread and tough to equalize the risk between borrowing from the Fed for free and a higher risk proposition with Joe and Mary Homebuyer.
Second – Yep. Low rates don’t do anyone any good if you can’t get a mortgage. That’s what is happening now. It’s all credit access, baby.
Third – Five years of elevated REO activity coming. Its not going away and housing won’t recover until it clears the market. Our government resources can’t stop this. They aren’t large enough.
Fourth – Uh, yes its a complex problem.
NOTICE TO THE WASHINGTON ECONOMIC POLICY ELITE
Create economic incentives to lenders and problems slowly go away. Housing won’t recover without credit repair. Incentivize lenders to lend. Asking doesn’t work. Focus on the banks and they will in turn help the consumer. Don’t bypass the banks and go directly to the consumer since that’s not a sustainable fix.
Late into the Depression, 10% down lending returned to the market with government incentives and helped housing recover more quickly. You don’t starve a recession and feed a boom. Washington’s still got it exactly backwards.
Eliminating certain risk-based fees for borrowers who refinance into shorter-term mortgages and lowering fees for other borrowers;
Removing the current 125 percent LTV ceiling for fixed-rate mortgages backed by Fannie Mae and Freddie Mac;
* Waiving certain representations and warranties that lenders commit to in making loans owned or guaranteed by Fannie Mae and Freddie Mac;
Eliminating the need for a new property appraisal where there is a reliable AVM (automated valuation model) estimate provided by the Enterprises; and
Extending the end date for HARP until Dec. 31, 2013 for loans originally sold to the Enterprises on or before May 31, 2009.
HARP (Home Affordable Refinance Program) was created in 2009 to help borrowers take advantage of low mortgage rates even if they had no equity in their homes. It was not effective so the restrictions have been expanded.
Of course this provides no help to borrowers with jumbo (non-conformining mortgages) in high cost housing markets who have have the same issue. I find it wildly unfair that there continues to be a bias to high cost housing markets effectively keeping a large number of middle class borrowers out of this program.
One of the big problems with HARP as initially set up was that the lenders were resistant to participating because of “buyback risk” if original underwriting was flawed (it could be argued that nearly ALL underwriting was flawed during the boom).
Posted by Jonathan J. Miller -Monday, September 12, 2011, 6:00 AM Comments Off
I’ve always viewed the rental market as a leading indicator for the purchase market since rentals are more reactive to changes in the economy than sales are. Rental demand is generally strong across the US right now.
Does this mean higher demand for sales is close behind? No.
The increase in rental demand is not because the economy is improving, it’s because credit is so restrictive right now and getting tighter.
The angle to the rental market story is that people who are unable to sell their home are considering renting them out until the sales market improves. What’s unique in this cycle is that higher quality homes are now on the market for rent causing people on the fence between purchase and rent to consider renting since the available product is of a higher quality.
A friend of mine just sold his big house in our town and decided to rent for a year and look for a smaller home. When he was looking for homes to rent, the market was very tight…just what homeowners want to hear.
A few weeks ago the reporter for this segment, Jeanne Yurman, called me when I was hunkered down in my town library when we lost power at home the day after Irene. Being a good reporter, she “outed” me for using the hurricane as an excuse to work from home since, as it turns out, she lives in my hometown and was perfectly able to go to work in Manhattan. LOL. We had a good laugh about that. On Friday she interviewed me for this segment a few blocks from my house.
I’m not quite ready to use the word “haunted” in my housing language, but I had a nice chat with Brian Sullivan and Mandy Drury of CNBC TV’s ‘Street Signs’ – 30 Rock is always quick walk from my office... Read More