Category Archives: Investing

Obama plans on tighter regulations for mortgage brokers

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From the New York Times

The Obama administration plans to move quickly to tighten the nation’s financial regulatory system. Officials say they will make wide-ranging changes, including stricter federal rules for hedge funds, credit rating agencies and mortgage brokers, and greater oversight of the complex financial instruments that contributed to the economic crisis.
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Aides said they would propose new federal standards for mortgage brokers who issued many unsuitable loans and are largely regulated by state officials. They are considering proposals to have the S.E.C. become more involved in supervising the underwriting standards of securities that are backed by mortgages.

None of this should be a surprise for regular readers of Raincityguide.  I’ve been talking about tighter rules for mortgage brokers since 2001 and here on RCG for two years.   Mortgage brokers will always argue that they are already tightly regulated. In some states, brokers have tougher regulations than consumer loan companies.  Hey, wait a minute.  Is President Obama going to let the consumer loan companies slide by without proposing tougher regulations for them as well?  The top two largest predatory lending lawsuits were against consumer loan lenders Household Finance and Ameriquest. Both companies settled out of court and “admitted no wrongdoing” even though there was lots of evidence that their sales people were meticulously trained by management on how to do wrong. 

Maybe tougher minimum sanctions and penalties are in order as well.  We must also realize that these new regulations mean nothing without enforcement.  I would rather see the states be in charge of enforcement than the federal government (well, with the exception of Florida where they have proven their supreme incompetence.) We need only to look at RESPA and the miserable job HUD has done trying to enforce this massive piece of regulation since 1975.  So if it’s going to be up to the states, then the industry should prepare for a higher cost of doing business as a mortgage broker or consumer loan lender.  This will be passed on to the consumer in the way of higher fees, rates, or both.

What do you do with a Zillow Zestimate?

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In the post below, I have shown comparisons of Sold price vs. Zillow Zestimate and Cyberhomes valution of the most recent recorded sales.  Why do we need to know this, and how do we use this information?

1) Short Sale vs. Zestimate – Was buying a short sale worth the extra hassle?

SS#1 – the Zestimate is identical to the 2008 assessed value. The Cyberhomes value is also almost exactly what the owner paid for it in March of 2006.  So neither was needed, as most buyers would look at assessed value and what the owner paid for it. This short sale is good for an “end user”, but not for an investor.  The discount of 5% under the Zillow Zestimeate and 10% under the Cyberhomes value equals the hassle, no more and no less for this buyer.  But there was a buyer before this buyer who waited around for 60 days for the bank to not approve the original offer price.  The first buyer flushed out what the bank would take.  The second buyer had the advantage of the first buyer’s hassle factor.

SS#2 – This is a good one.  The assessed value, Zillow Zestimate and the Cyberhomes values are all about the same.  This is down where current prices are about equal to 2008 assessed values in Auburn and Federal Way.  So this sold for 20% under fair market value and 30% under what the current owner paid for it. Hard to see the hassle factor, as it looks like they didn’t put this one as pending until they had bank approval, which was 10 days or so before it closed. This one is a stereotypical good Short Sale from the buyer’s standpoint and the Zestimate and Cyberhomes valuations and assessed value all confirm the discount.

Now that you know what a good and bad short sale looks like relative to a Zestimate, et al, you can see that SS#3 = not so good, SS#4 = Zillow’s way over on this one.  Assessed is $717,000 Cyberhomes is $794,000, the owner paid $803,000 for it in 2006, so not likely the Zestimate of $937,000 is correct. Compared to the Zestimate it looks like a screaming deal…but in reality it’s about the same as SS#1…OK for an end user but not for an investor.

For those who wanted to know Original Asking Price, I don’t know how it helps you to know that was $1.4 million on a property whose value is clearly just under $800,000?  Maybe I’m missing something, but asking price is never part of my valuation for  a buyer client.

Bottom line, looking at the Zestimate AND the Cyberhomes value AND what the owner paid for it and when AND the 2008 assessed value (not 2009) and the improvements or lack thereof, tells you a lot more than “the comps” these days.  Looking at comps is dangerous, as if you go back even 4-6 months, you are looking at prices that are higher than today’s current market value.  That may change into the second quarter…but the full area trend is MUCH more important right now than what the neighbors’ homes sold for back in June or July.

Zestimate vs. Sold Price

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“Tsuru” over in Seattle Bubble comments, asked me for a comparison of Zillow Zestimates vs. Closed Sale Prices in the current market.  To be sure the Zestimate isn’t picking up the recent sale, I’m using the latest 50 or so sales recorded in the mls for King County in the last few days.  42 are single family homes and 8 are condos. I’m only showing the data for the single family homes, but thought you’d like to know the breakdown of the sales for the last few days.

I think I saw David G. at Zillow and someone from Cyberhomes going at it recently, so let’s throw Cyberhomes in the mix too.  As usual, I am posting this as the results come in…so I have no idea how it is going to turn out.  Let the best “man” win 🙂

Also of particular interest are the number of sales that are Short Sales and Bank Owned or other “stressed” sales, many, and very few of those indicated so in the Public view vs. Agent fields.

Sold Price Zestimate                Cyberhomes

$262,000 SS*                 $275,000                  $292,552

$365,000                         $301,500                   $398,192

$287,000 BO*                $311,900                   no result

$530,000 CO*                $743,000                  $695,991

$140,000 BO*                $186,957                    $196,698

$210,000  SS*                 $269,500                   $274,417

$282,500                           $320.000                  $281,461

$285,000                          $276,000                   $276,134

$347,500                           $334,000                  $347,910

$480,000                          $422,500                   $483,891

$550,000 ES*                  $705,500                 $688,842

$565,000 NC                      none                              none

$652,500                              ” N/A”                       $661,320

$190,000 BO                     “no result”                 $234,017

$269,950 SS*                    $285,400                  $282,102

$279,900                           $413,000                  $272,349

$517,000 BO                     $682,500                “$0-Foreclosure”

$450,000                           $454,500                 $518,982

$176,000 BO                     $312,500                 “0-Foreclosure”

$267,999 NC                           n/a                                     n/a

$740,000 SS*                   $937,000                $794,218

$325,000 CG                     $547,000               $567,171

$420,000                           $410,000                $402,384

$451,050 CR                     $637,000                $559,188

$850,000 NC                         n/a                               n/a

$835,000                           $802,500                $811,305

$915,000                            $831,500                $875,266

$850,000 NC                          n/a                              n/a

$370,000                           $367,000               $428,766

$636,500                            $702,000              $676,200

$650,000 SS *                   $707,500              $662,000

$360,000                            $347,500              $376,152

$475,000 BO*                   $584,157               $585,199

$292,500 NC                            n/a                              n/a

$305,000 NC                           n/a                              n/a

$309,950 NC                            n/a                              n/a

$373,000                            $342,000             $352,252

$386,000 NC                               n/a                         n/a

$389,950 NC                               n/a                          n/a

$400,000                            $391,000             $392,337

$577,000   TR                   $467,500             $405,413

$416,000                            $468,500              $484,506

*disclosed in Agent Remarks or owner field, but NOT in public remarks

SS = Short Sale. CO  = Corporate Owned, CR  = Corporate Relocation, BO  = Bank Owned, ES  = Estate Sale, NC = New Construction, CG  = Completely Gutted, TR = Totally Remodeled

Geographically, most of the short sales, all except one, are South.  The first sales are in Federal Way, Auburn, then Burien, Kent, South Seattle, over Mercer Island, Eastside, Bothell, North Seattle on the Green Lake/Greenwood side, then North Seattle up through Shoreline. That is how the mls code numbers run from 100 through 715.

Today we come together…

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american-flag1Quiet tears stream down my face…

My whole life, and all that I have witnessed and experienced, flashes past as if in fast forward  in my brain…

I believe in God…I pledge myself to this Country and its people…

Words I once heard very long ago, and have never forgotten, come to the forefront…

“Keep us, O Lord, from all pettiness…and let us forget not…to be kind.”

It is a great day…truly the first day…of the rest of our lives.

Nationalization and "Bad Bank" Analysis

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Dr.Paul Krugman “Wall Street Voodoo”

“recent news reports suggest that many influential people, including Federal Reserve officials, bank regulators, and, possibly, members of the incoming Obama administration, have become devotees of a new kind of voodoo: the belief that by performing elaborate financial rituals we can keep dead banks walking.”
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“What I suspect is that policy makers — possibly without realizing it — are gearing up to attempt a bait-and-switch: a policy that looks like the cleanup of the savings and loans, but in practice amounts to making huge gifts to bank shareholders at taxpayer expense, disguised as “fair value

1st burn ban of 2009 in effect in Pierce County

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I am on an email notice list with Puget Sound Clean Air Agency and they’ve sent out a notice that the first burn ban of the year has been put into effect in Pierce County. Here is their release in its entirety:

Message from the Puget Sound Clean Air Agency

Stage 1 burn ban called for Pierce County

First Puget Sound-area burn ban of the season and first since a new state law went into effect

January 16, 2009 — Due to stagnant weather conditions and increasing air pollution levels, the Puget Sound Clean Air Agency is issuing a Stage 1 burn ban for Pierce County, effective at noon, January 16, 2009.

Air pollution levels in King, Snohomish and Kitsap counties do not warrant implementation of a Stage 1 burn ban at this time. Clean Air Agency staff are closely monitoring these conditions and will take additional actions as necessary if conditions degrade to unacceptable levels.

Stagnant weather conditions are entrenched over the Puget Sound area and are expected to persist through Monday. These conditions greatly increase the potential for air pollution to reach levels considered unhealthy for sensitive population groups, especially in Pierce County. In many areas persistent fog and mixing are providing some benefit and helping to keep pollution levels in acceptable ranges.

During a Stage 1 burn ban:

  • No burning is allowed in fireplaces or uncertified wood stoves, unless this is your only adequate source of heat. Residents should rely instead on their home’s other, cleaner source of heat (such as their furnace or electric baseboard heaters) for a few days until air quality improves, the public health risk diminishes and the ban is cancelled.
  • Natural gas, propane and pellet stoves or inserts ARE allowed.
    No visible smoke is allowed from any wood stove or fireplace, certified or not, beyond a 20-minute start-up period.
  • All outdoor burning is prohibited, even in areas where outdoor burning is not permanently banned. This includes recreational fires such as bonfires, campfires and the use of fire pits and chimineas.
  • Burning of storm and flood damage debris is also prohibited.* The Clean Air Agency encourages people to take advantage of free flood-debris disposal coordinated by their county.
  • Burn ban violations are subject to a $1,000 penalty.

This ban is in effect until further notice.

Clean Air Agency staff will continue to monitor the situation to determine when the burn ban can be lifted. You can check conditions and forecasts at www.pscleanair.org/airq/aqi.aspx .

The Washington State Department of Health recommends that people who are sensitive to air pollution limit time spent outdoors. Air pollution can trigger asthma attacks, cause difficulty breathing, and make lung and heart problems worse. Air pollution is especially harmful to children, people with heart and lung problems, and adults over age 65.

This is the first burn ban of the season and the first since a new state law went into effect lowering the air-quality trigger for calling a burn ban. The trigger level was lowered to align with the U.S. Environmental Protection Agency (EPA) health standard for fine particle pollution, which was tightened in 2006 to better protect public health. Answers to frequently asked questions about burn bans can be found at www.pscleanair.org/airq/burnban/faqs.aspx .

For additional information visit www.pscleanair.org

Fannie and Freddie to track loan performance of originator and the appraiser.

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It was announced today that beginning Jan. 1, 2010 Freddie Mac and Fannie Mae will be required to obtain loan-level identifiers for the loan originator, loan origination company, field appraiser and supervisory appraiser. The purpose of the requirement is to prevent fraud and predatory lending, to ensure mortgages owned and guaranteed by those Enterprises are originated by individuals who have complied with applicable licensing and education requirements under the S.A.F.E. Mortgage Licensing Act. In addition, they will use the data collected to identify, measure, monitor and control risks associated with originators’ and appraisers’ performance, negligence and fraud. Hat tip John Long and Gordy. 

Here is the PDF from the Federal Housing Finance Agency, Fannie and Freddie’s new regulator.

“This represents a major industry change. Requiring identifiers allows the Enterprises to identify loan originators and appraisers at the loan-level, and to monitor performance and trends of their loans,

Layoffs at Microsoft

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 Hat tip Sniglet.  From Reuters and the Wall Street Journal:

Microsoft Corp. is seriously exploring significant work force reductions that could be announced as early as next week, in a sign that the weak economy is prompting tough decisions even at one of the steadiest ships in the technology industry.  According to people familiar with its plans, the Redmond, Wash., giant is considering layoffs across its various divisions, a rare occurrence for the world’s largest software company. However, plans for the cutbacks are still in flux and Microsoft could end up finding alternative methods of reining in costs, one of these people said.

Reuters says Microsoft might announce the job cuts when it reports quarterly earnings next week.

Speaking as a Microsoft stockholder I’m pleased to hear the company talk about cutting costs. All signs point to a global recession which means corporations must control expenses.  Microsoft has been growing non-stop for years.  Many employees have never experienced any kind of staff reductions throughout their Microsoft careers.  Layoffs are a good time to get rid of underperforming employees.  Layoffs are typically political.  The employees that make their supervisor’s job a daily hell will be second on the list.  

I’d like to see Microsoft go on a diet.  Let’s ramp up employee productivity and get lean and strong. This is what companies do to survive tough times.  Long live Microsoft.

Chase pulls out of Wholesale Lending with Mortgage Brokers

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I just received this memo from Chase:

“Home lending remains an integral part of our firm’s overall financial strategy, and as such, we have a responsibility to our customers, shareholders and employees. Over the last two years, we have diligently reviewed and adjusted our home lending strategy and practices to address the unprecedented challenges of today’s market. Today, we are announcing a strategic shift that we believe will serve our business and our customers well for the long term.

Moving forward, we have decided to focus on loan originations through the Chase bank branches, our Consumer Direct business, and retail-originated loans acquired from Correspondent lenders. Our new strategic direction is supported through the recent merger with Washington Mutual, which increased our bank branch inventory nationwide and enables us to serve nearly 70 percent of the American population.

As a result of our strategic decision, we will no longer accept any new locks and registrations from or purchase any loans originated by brokers effective Friday, January 16, 2009. As a result of these decisions, we are closing our Wholesale business….”

As of this moment, Chase will continue their correspondent relationships (our company is correspondent with Chase) but mortgage brokers just received another punch to the gut.   You can also see how little notice loan originators receive in this type of climate.  

The question is, how many other banks will follow Chase’s shift away from mortgage broker relationships.