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And I Thought You Were My Friend...


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2007 Oct 11, 5:08pm   23,544 views  227 comments

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I thought you were my friend...

I noticed that every housing-related article in my rss-feeds today has a negative headline. Negative reports on housing sales, housing starts, home-builders, mortgages, and housing prices. If they aren't predicting further drops, then they are blaming slow retail sales on housing and mortgage problems. In more and more articles, the REIC are being fingered as accomplices to fraud.

Boston Globe: "The US housing bust is like a leaking ship."
Bloomberg: "Retail Sales Slowed as Housing Fell"
Valley Tribune: "Realtor faces trial in alleged scam"
NBC: "Officials Say Mortgage Fraud Is Growing Problem"
AP: "Bear Stearns Predicts Ripple Effect of Real Estate Decline"
Bakersfield Californian: "Realtor Offices Raided By FBI"
Los Angeles Times: "Home prices expected to drop"
:
:
and so on.

When they actually quote from a shill - either a realtor, or a NAR-dummy, or a home-builder - it is invariably with a counterpoint from a more credible source.

Has the MSM has finally clambered on to the bandwagon and left the REIC to fend for itself?

Should Patrick start reporting on articles that are still bullish on housing? Those are becoming harder to find!

SP

#housing

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12   skibum   2007 Oct 12, 3:16am  

Boys, the SSOTW's have been coming along at a steady clip for well over a year now. It's nothing new. What I've noticed is that without fail they all somehow fail to find a true "victim", meaning there's always a catch where one could argue the FB either got what they deserved or should never have been given a loan in the first place.

Case in point, eburbed's link - since when should a single income housecleaner be given a home loan? Or the WSJ article from earlier this week about the "United States of Subprime":

Kristine McMahon has a six-figure income as a mortgage broker and lives in a four-bedroom home in East Hampton, N.Y., valued at more than $2.7 million. Yet Ms. McMahon, who works for Manhattan Mortgage, chose a subprime loan for herself when she refinanced last year to turn some of her home equity into cash. Ms. McMahon says that at the time of the refinancing, a conventional lender would not allow her to take out as much cash during the refinancing as her subprime lender, New Century Financial Corp., which is now operating under bankruptcy-court protection. Ms. McMahon chose a subprime loan that carried a fixed-rate of 6.45% for the first two years before turning into an adjustable rate. She plans to sell the house before the higher adjustable rates kick in.

So exactly how much MEW did this be-atch take out? Should we bail her out if her plan doesn't go as expected???

13   Duke   2007 Oct 12, 3:43am  

From William Poole (Fed president of St Louis)
"There is no new lesson here: Sound mortgage underwriting should always be based on analysis of the borrower’s capacity to repay and not on the assumption that a bad loan can be recovered through foreclosure without loss because of rising property values."

Our topic thread a few days ago was a lender bashing realtors, what we need is a thread where realtors, Wall Street, appraisers, etc all weigh in on the lenders.

Unfortunately, when banks fail, the tax payers pay. And as a tax payer I want to recover as much as possible from those who profited by the poor lending standards.

14   Steveoh   2007 Oct 12, 3:47am  

skibum,

So right. (Calming down.... Serenity now....)

It just gets my goat when these stories:
- put entitlement where there is none
- exonerate the many architects of this debacle
- spin half truths into something that makes no sense to a discerning audience

The problem is that if a lie is told enough, it can become truth to many. Then policy changes…

15   DinOR   2007 Oct 12, 3:49am  

skibum,

Why do you hate Amerika? Why can't someone that fills out forms and makes a few follow up calls live in a 2.7 mil. home?

Pffftt.

Oh and she had her "exit strategy" scripted before she even signed doc's! This is "self dealing" at it's finest. Remember, she probably got paid a commission (or drastically reduced her fees) above and beyond what any of her "clients" would have had access to!

16   DinOR   2007 Oct 12, 3:57am  

I'm sorry, that 'should' read:

"she probably got paid a HEFTY commission"

Which she... in turn used as qualifying income (before it was actually paid)... to qualify for the loan (she otherwise would not have gotten) on a 2.7 mil. investment w/nothing down, that... appreciated @ 30% a year... that lived in the house that Kristine built!

Please tell me I'm not the only person that sees something wrong w/ this?

17   Bruce   2007 Oct 12, 4:03am  

Pffftt is right.

There is no poster child. You can almost spot the precise point where each journalist realizes they have a zero on their hands, and not a victim.

I think people who read these little trainwrecks are getting it. I certainly hope so.

18   DinOR   2007 Oct 12, 4:10am  

I mean... why go to the trouble of doing some sort of 'Ponzi scheme' when you can do all this yourself without running the risk of engaging in what might be "misconstrued" as "criminal activity"?

After all, her girlfriend at New Century was her processor? What did Kristine have to fear? Crissakes, she's so sure of her position she's openly talking to the paper!

(If I pulled a little stunt like that I wouldn't be talking at all...) :(

19   Steveoh   2007 Oct 12, 4:20am  

DinOR,

It's blaring. ...and probably pretty common.

Is this a realistic scenario? Realtor represents self as buyer in transaction, charges full commission, 110% / 0 down financing on overpriced property, calls it owner occupied but never moved in, relisted it minutes before driving to the closing meeting or kept the property a pocket listing, represented self as sellers agent, phantom bidding, etc...

It's like a dance really. Until it stops with a lack of buyers. Then the alligator tears are drummed up. In fact, if I were one of these people, I would right the news story myself and mail it in.

20   Steveoh   2007 Oct 12, 4:22am  

right >>write

21   HelloKitty   2007 Oct 12, 4:35am  

IMO the true demand for 1.5 mill+ homes is much much lower than the amount of homes that were built, and in every location.

I'm truly shocked how many 2m homes there are for sale now. They are all vacant too. Lots small time builders jumped in the game to built a huge home and cash in. Also lots of realtors/brokers bought them, heloced them, then put on market. The problem is even if prices come down 50% 1m isnt really affordable at all for 'working people' and I doubt there are very many truly wealthy buying in todays market.

The show is a little boring I must say, watching the same homes sit vacant for sale for 2 years is getting old. When the bank takes it back thats the fun part to see.

22   e   2007 Oct 12, 4:37am  

Of course Countrywide has no business putting a single mother of 9 who is a housecleaner into a home. I hope Countrywide loses their shirt.

Actually it turns out she wasn't always single:

http://www.smdailyjournal.com/article_preview.php?id=81097

In 2004, South San Francisco resident Esthela Baldovinos paid just $2,300 a month for her house.

Today, the payments ballooned to $7,500 and will reach $8,200 in November. Baldovinos entered into an adjustable rate mortgage not realizing how high the costs could get. Now she and many like her are asking local entities to pass foreclosure moratoriums. The South San Francisco City Council is considering such a voluntary measure, but the resolution is non-binding.

“I am delinquent on my mortgage because I was given an adjustable rate mortgage. I started out paying 6.5 percent. Now my interest rate is over 12 percent and I can’t afford the payments,” Baldovinos said.

Combined Baldovinos and her husband bring in $6,500 monthly — $1,000 less than the current mortgage payment. The parents of nine children with seven still living at home means the mortgage isn’t the only bill stacking up. Power was turned off last week with more than $1,000 owed to Pacific Gas and Electric. On top of it all, Baldovinos’ husband left from the pressure.

23   DinOR   2007 Oct 12, 4:40am  

Steveoh,

There ARE allowable limits to which I can charge myself (and family members) stock commissions. I never have and likely never will. It IS however legal to a 'degree' within the guidance of securities law.

But certainly not enough to make it worthwhile to... turn around and buy 2.7 mil. stock positions with... and turn, churn and burn into ever greater profits solely from leverage and commissions paid to self?!

You'd think with THAT much leverage on the line there would be at least "some" regulatory guidance? Hmm, guess not. According to "The Investment Act of 1934 Blah bity blah even if I use ongoing fees as security against a business loan, clients need to be informed in WRITING! w/ your regulatory board's approval being a requirement.

Is that so much to ask?

24   DinOR   2007 Oct 12, 4:43am  

"that's the fun part"

HK.. your twisted, but... MY KIND of twisted!

25   skibum   2007 Oct 12, 5:12am  

Well, it's official. Google single-handedly is what saved the Silly Valley economy over the past few years:

http://www.mercurynews.com/ci_7156326?nclick_check=1

Even this fluff piece admits the rate of money pumped into the local economy has been waning. We need the next Google asap, or else the economy will tank!!!

26   Peter P   2007 Oct 12, 5:14am  

The problem is even if prices come down 50% 1m isnt really affordable at all for ‘working people’ and I doubt there are very many truly wealthy buying in todays market.

Also, "truly wealthy" people will not buy $2M homes. Perhaps they will buy $1M pads for their college-bound kids in Palo Alto though.

27   SP   2007 Oct 12, 5:17am  

Bruce Says:
I think Financial Times and Bloomberg have been pretty good on the subject for some time now.

True. And curious coincidence, they don't really get a lot of ad-dollars from the REIC. :-)

SP

28   Peter P   2007 Oct 12, 5:21am  

Well, it’s official. Google single-handedly is what saved the Silly Valley economy over the past few years:

Thanks to Google, we have better restaurants on Castro.

29   skibum   2007 Oct 12, 5:23am  

Thanks to Google, we have better restaurants on Castro.

I disagree re: Castro St. There are more restaurants with the wannabe hip interiors serving bland food. There are fewer of the older "real" ethnic restaurants serving really good food. They've either closed or gone to pot.

30   Peter P   2007 Oct 12, 5:26am  

There are more restaurants with the wannabe hip interiors serving bland food.

Those restaurants aren't that bad. I love bland food anyway.

There are fewer of the older “real” ethnic restaurants serving really good food. They’ve either closed or gone to pot.

I guess they could have gone for a higher price point. The market has changed. One must adapt or else. ;)

31   Peter P   2007 Oct 12, 5:29am  

San Mateo downtown has better food overall than Mountain View.

32   SP   2007 Oct 12, 5:41am  

skibum said:
So exactly how much MEW did this be-atch take out? Should we bail her out if her plan doesn’t go as expected???

I am willing to bail her out to exactly the extent that she would have shared her gains with me, if her plan HAD gone as she expected.

SP

33   SP   2007 Oct 12, 5:52am  

# Peter P Says:
Thanks to Google, we have better restaurants on Castro.

Are you serious?

Those new, trendy, hipster-infested restaurants are the best ones to avoid, in general.

SP

34   Peter P   2007 Oct 12, 6:11am  

Those new, trendy, hipster-infested restaurants are the best ones to avoid, in general.

Why?

Usually, good restaurants are those with pricing power. Hipsters allow a market with such restaurants.

35   skibum   2007 Oct 12, 6:22am  

Usually, good restaurants are those with pricing power. Hipsters allow a market with such restaurants.

False logic. Pricing power doesn't guarantee good food nor a good dining experience. If the owners just wanted a trendy place, less attention would be paid to the chef, menu, wine list and ingredients, and more to the ambience, etc. Such is the case with these wannabe restaurants. You can charge all you want, but if the food sucks, it's still a crappy restaurant. The opposite example is/was Manka's in Inverness. Great food, not so trendy.

Besides, "hipsters" are usually out for the scene, not the food. Once a restaurant becomes "trendy," it's often not worth going there anymore, IMO. Sorta like the Yogi Berra (paraphrased), "No one goes there anymore because it's too crowded."

Besides besides, the day Castro Street (Mtn View) is truly trendy is the day hell freezes over. It's nothing but a dressed up drab suburban downtown. TAP Plastics and that aquarium are what I think of, not trendy eateries.

36   Peter P   2007 Oct 12, 6:47am  

False logic. Pricing power doesn’t guarantee good food nor a good dining experience.

Please explain how a good restaurant can be sustainable without pricing power.

Pricing power doesn’t guarantee good food, but the lack of pricing power guarantees bad food or bad business.

If the owners just wanted a trendy place, less attention would be paid to the chef, menu, wine list and ingredients, and more to the ambience, etc.

Why can't we have them all? This is why it is important for the food market NOT to be price-sensitive.

Once a restaurant becomes “trendy,” it’s often not worth going there anymore, IMO.

True. If it is trendy for the wrong type of people (e.g. engineers)...

37   Duke   2007 Oct 12, 6:56am  

Peter P,

Ahem. Engineers? Lucy, you have some splainen' to do.

38   Peter P   2007 Oct 12, 6:57am  

Ahem. Engineers? Lucy, you have some splainen’ to do.

I have no respects for engineers, because I am one of them.

39   EBGuy   2007 Oct 12, 7:00am  

The opposite example is/was Manka’s in Inverness. Great food, not so trendy.
Talk about pricing power. Admittedly, I now regret not immersing myself in the Mankas experience, given that it is no longer possible... but really, that place was beyond my "choke point" ( the price range at which food sticks in the throat because it's cost is beyond comprehension ). Admittedly I am somewhat of a cheapskate -- I can do $100+ on a meal for two (including tip), but it had better be good. After that, forget it. Well, at least I got to wander around the lobby, absorb the ambience, and sit on the front porch before the great fire.
And since we are on this track, has anyone noticed that every B&B owner under the sun thinks this is a great time to "retire from the business". I know the one we stayed at in Inverness was up for sale at one point last year (not sure if it sold).

40   Duke   2007 Oct 12, 7:05am  

B&B people are pretty shrewd about the value of the property and how much hard work is involved. They are selling today at price $X so they can buy their own place back in 3 years at $X-alot.

41   skibum   2007 Oct 12, 7:23am  

Pricing power doesn’t guarantee good food, but the lack of pricing power guarantees bad food or bad business.

You're arguement completely discounts the notion of good street food, "hole in the wall" excellent food experiences ala Calvin Trillin. Some of the best food can be found at places like this, not only at the French Laundry or Manresa.

42   skibum   2007 Oct 12, 7:23am  

EBGuy,
Yes, that place is outrageously priced, but IMO worth it.

43   Peter P   2007 Oct 12, 7:44am  

skibum, pricing power does not equate high price.

44   Peter P   2007 Oct 12, 7:44am  

BTW, I don't like Manresa.

45   Peter P   2007 Oct 12, 7:46am  

Some “hole in the wall” restaurants are pricey. (e.g. Sawa Sushi)

46   skibum   2007 Oct 12, 7:47am  

pricing power does not equate high price.

Sure, but most often it does.

I haven't been to Manresa in a year or so - have they gotten worse, or did you never like them that much? We've been thinking about going back soon...

47   Peter P   2007 Oct 12, 7:52am  

Sure, but most often it does.

Not really. It is more about the ability to increase prices.

Many restaurants lack the ability to raise prices just to keep pace with inflation. Some can't even survive without offering deep discounts.

It is sad. Food is difficult business. Real estate WAS much easier. ;)

I haven’t been to Manresa in a year or so - have they gotten worse, or did you never like them that much? We’ve been thinking about going back soon…

I was there about 1.5 years ago. It was okay, but I was not too impressed. I will give it another try.

48   skibum   2007 Oct 12, 8:04am  

Peter P,

Funny that we're on this topic. A recent WSJ piece looked at this very subject in NYC:

http://online.wsj.com/article/SB119198373154954370.html

As a result, there has been a high rate of inflation at these best-in-class venues. Since 9/11, the average meal cost at the restaurants on our 20 Most Expensive list has jumped to $143.06 from $84.85 -- 11.6% a year. The arrival of super expensive restaurants like Masa ($485) and Per Se ($301) contributed to this sea change, but even without these newcomers, inflation at top-of-the-line places is roughly 5%.

Among all New York restaurants, however, the average cost of a meal has risen only three cents since last year's survey -- to $39.46 from $39.43, a barely perceptible 0.1% This is thanks to a slew of inexpensive newcomers that keep the cost average steady. New York might be the most expensive city in America for dining out, but for average meal cost it's far behind Paris ($71.51), Tokyo ($73.11) and London ($78.57).

So, fancy restaurants in New York are getting more and more expensive, while cheap restaurants are still cheap. Meanwhile, it's very expensive to eat in Paris, London and Tokyo. Based on personal experience, I'd say the Bay Area (SF proper in particular) fits the bill with NYC - top restaurants are getting more expensive, while good cheap food is still pretty easy to come by.

49   Peter P   2007 Oct 12, 8:17am  

Based on personal experience, I’d say the Bay Area (SF proper in particular) fits the bill with NYC - top restaurants are getting more expensive, while good cheap food is still pretty easy to come by.

In the-restaurant-that-we-can't-talk-about, you can still get a decent 7-course dinner for $97.

I don't recall Tokyo being too expensive. I hear London is super expensive though.

50   Peter P   2007 Oct 12, 8:21am  

But don't you at least agree that a good restaurant should not be afraid to raise prices just to maintain a profit margin?

Food in SF proper is generally reasonably priced. Even The Dining Room has 4-course dinner under $100 (still? haven't been in a while).

NY is really quite pricey. I remember paying $60 for 5 pieces of thumb-sized sushi.

51   e   2007 Oct 12, 8:21am  

>>In the-restaurant-that-we-can’t-talk-about, you can still get a decent 7-course dinner for $97.

Oh come on. Drop me a line - let me know. I won't blog about it! burbed@burbed.com :)

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