This is the kind of news that mortgage industry people are looking for to signal a loosening in the liquidity crisis.  I am not reading too much into this as it’s a small amount relative to what’s currently at stake.  Good borrowers are going to get loans.  Anyone who you wouldn’t want to personally loan your money to probably isn’t going to get a loan.  Those are the kinds of standards being put in place now, if it is your money, would you lend to them? Indymac Bancorp in Pasadena said that last Friday it traded $240 million of AAA bonds backed by jumbo fixed-rate home loans and $350 million of AAA bonds backed by jumbo adjustable-rate loans — the first bonds it’s traded in 36 days.    

The market for jumbo loans, which are prime loans greater than $417,000 in most states, has been rocked by a lack of investor confidence in all home loans except those with some kind of government guarantee.

Here’s more from Indymac’s blog:

While the trade prices on these sales are still outside historical ranges, they do reflect an improvement over several “fire sale” trades made by others in recent weeks. We are encouraged by these sales as they represent the first small sign that the ice is beginning to melt, and some modest liquidity is beginning to return to the private-label mortgage market. It appears as though, given the current historically wide spreads, significant tightening of underwriting standards by lenders, and the updated rating agency models requiring stronger subordination levels, investors are beginning to recognize that private mortgage-backed bonds may offer strong risk-adjusted returns. This further supports our decision last week to re-enter the prime jumbo mortgage market after a brief hiatus.

Inside the Countrywide Lending Spree
By GRETCHEN MORGENSON
Published: August 26, 2007 New York Times
ON its way to becoming the nation’s largest mortgage lender, the Countrywide Financial Corporation encouraged its sales force to court customers over the telephone with a seductive pitch that seldom varied. “I want to be sure you are getting the best loan possible,” the sales representatives would say.

Angelo R. Mozilo, chief executive of the Countrywide Financial Corporation, remains undaunted as the mortgage market has cooled.
But providing “the best loan possible” to customers wasn’t always the bank’s main goal, say some former employees. Instead, potential borrowers were often led to high-cost and sometimes unfavorable loans that resulted in richer commissions for Countrywide’s smooth-talking sales force, outsize fees to company affiliates providing services on the loans, and a roaring stock price that made Countrywide executives among the highest paid in America.

Countrywide’s entire operation, from its computer system to its incentive pay structure and financing arrangements, is intended to wring maximum profits out of the mortgage lending boom no matter what it costs borrowers, (more…)

Fed Has to See States on the Brink From Housing

By Jim Cramer
RealMoney.com Columnist
8/23/2007 2:51 PM EDT

Can we do without Florida, Arizona, California, Nevada and Michigan? Does it matter if we lose them? Do we care if the builders who dominate in those areas go under? Do we care if the homeowners who have home equity loans on top of regular loans who bought homes from 2005 become squatters?

These are the questions that you have to ask when you consider the Fed’s next move. You have to ask them because of the giant resets. We are in month one of a two-year cycle of resets that should drive 7 million homeowners out of their homes if the Fed doesn’t cut.

How do I get those projections? The spring selling season of 2005 is when our problems really began. That’s when 50% of the buyers started taking these mortgages that are so deadly, the ones with the teasers that often were soon after accompanied by home equity loans. These people bought homes in the spring and closed in June and their loans are resetting now, at astronomical rates.

You have to ask these harsh questions because the most recent filings of the major homebuilders show a dramatic decline in cash and a continuation of the building of new homes that is just killing us. You must ask these questions because the states I have mentioned could be crippled by these defaults.

These are the reasons that the Fed must ease. The Fed can pretend that it won’t matter. And I am not averse to every homebuilder going under; they were reckless lenders. But I can’t help think that the employment claims and the retail sales and the basic economy will be hurt badly by this domino chain that has just begun.

When I hear talking head after talking head say the fundamentals are sound in the country, they are saying that none of this stuff matters or that it won’t happen at all. I can’t buy that. I read too many 10-k’s and follow too many real estate situations for me to think that it won’t matter.

Oh, and if I hear one more rich person come on-air and say that these buyers all made the wrong choices, I am going the throw a brick at the TV. If there is a more innocent group than these people I can’t think of it:

1. Alan Greenspan pushed these mortgages as a great way to buy a house.
2. The mortgage companies didn’t help as they let a lot of loans out that they shouldn’t have because the investment banks would buy anything.
3. Many people bought homes because it was the way the American dream has played out: it’s been a great way to build equity and to get a tax break.
4. I hear ads constantly for home equity loans, they sound incredibly enticing and I can’t blame anyone who took them.
5. The Fed raised rates 17 straight times for heaven’s sake so even if your house stayed the same price it would be a problem anyway.

These are the people we can’t help? Meanwhile, the homebuilders keep debasing the value of these homes with more building?

Now, understand that this is a relative issue. We set up Fannie MaeFNM - commentary - Cramer’s Take - Rating to help this situation, but the government has decided that’s not right anymore. We just subsidized the farmers who are rich as Croesus for no reason at all. We build everything in Iraq and a few months later the stuff seems to get blown up or torn down. - - - to help this situation, but the government has decided that’s not right anymore. We just subsidized the farmers who are rich as Croesus . We build everything in Iraq and a few months later the stuff seems to get blown up or torn down.Excuse me for caring about not-so-wealthy Americans.

Are things better than they were a week ago, before the Fed cut of the discount rate? No, not at all. We continue to deteriorate. Do I think that things will be better by year-end? Yes, if the Fed cuts and cuts but without it, things will really get ugly and we will lose all of those states. Lose them in a way that I think is unforgivable and just plain stupid because it doesn’t have to happen.

Random musings: I am not a big Bill Gross fan, but I think he is right about the need to get the Federal Housing Administration and Fannie Mae and the Federal Home Loan Banks moving, and about the need for a Resolution Trust — as he puts it in his September client letter, “an RMC — Reconstruction Mortgage Corporation” — for homeowners. He’s being a real statesman.

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Here’s where I go to watch the continued implosion of the mortgage market.  There are many articles and explanations of what’s happening.  If you have specific questions about your loan situation and I am sure that many of you do, give me a call and I’ll help you get settled.

 
Thanks Mrs. Reed for this photo.

I just closed a home for a spectacular deal. The home was as we say in the industry, “real estate owned.” A better name might be bank owned, because the property was owned by a large bank which had acquired the property in a foreclosure.

What really made me think about this transaction was a call from a local appraiser who was looking for comparable properties in the neighborhood and said, “Why did this sell for so cheep!” This call coupled with my knowledge of the current liquidity crisis made me think. Are banks so worried that they are giving properties away for bargain basement prices or was the property just marketed poorly at a bad time in the market?

The property in question is located on Skyline Boulevard in the Oakland hills. It was sold just a year ago for $1,900,000. The lore behind the property is that both of the owners who bought the home in March of 2006 passed away shortly after acquiring the home and the property was soon foreclosed by the bank. At the time of the foreclosure there was $1,700,000 left on the mortgage. Soon after the foreclosure the bank who now owned the home sold it to another larger bank for $1,600,000. My best guess is that they took this $100,000 loss to get the home off of their books quickly. The property was then placed on the market July 17, 2007 priced at $1,574,900. We saw the property 4 days after it hit the market and wrote an offer. My client just closed on the home for $1,520,900. That is a $399,100 difference from the properties sales price of $1,920,000 on March 1, 2006. The banks took an accumulative loss of $179,100 on the deal.
So, why would the banks take such a large loss on a 2 acre 4,000 square foot premier property with Bay to Bay views that was in great condition? Why would they agree to this loss so quickly, just 4 days after placing the home on the market? The most interesting thing is the bank received a full price offer on the property, just days after we got it into contract. So, what made the bank so restless?

I think there is an accumulative effect of 2 different things going on that are making some real estate owned properties a good bargain. One answer is that the mortgage liquidity crunch has scared banks into making rash spur of the moment decisions. Banks do not want homes on their books, especially in a market where they are being highly scrutinized by Wall Street investors. Second, banks are not good at selling property. It is not their business and often banks structure their foreclosure departments in a way that negatively affects the sale of their homes. Basically, they are not good sellers, because they are susceptible to market changes, regulation and their lack of proximity and neighborhood knowledge makes them poor assessors of property values.

In other words banks are structured to deal with money not real property. Thus their selling philosophy has not been refined and is often not powerful. Each bank will handle their foreclosures differently and not all real estate owned homes are good deals… But, I now have proof that some lenders will let homes go for true bargains.

From the front lines of working directly with Realtors® and with mortgage clients, I see there is a need to move to a new commonsense that fits the new situation.  Our old commonsense doesn’t work in a new situation; in fact, it can be counterproductive to being successful.  So we need to adjust our actions to the new situation so we can compete more effectively.  By “we”, I mean home buyers, Realtors® and finance providers.

The old commonsense was that mortgages were a commodity to be priced off of a rate sheet and a borrower could call around and get quoted a rate and they could be sure that it would be available.  As a strategy, for most people, I think this was flawed and we are now seeing much of the result of that in the foreclosure stories that are now abundant.  That’s a different story to be written at a different time.

The old commonsense was that the home seller had all the power and the buyer had to give in to most demands that the seller had. The old commonsense was that a Realtor® didn’t have to be too concerned about who the mortgage provider was.  Yes, there was concern about the on line lender being able to perform but generally any other pre-approval was accepted without much concern for who it was or who the underlying lender was.

Now, let’s look at the new situation and how our commonsense needs to adjust. Mortgages are at this moment not a commodity to be priced off of a rate sheet and delivered with 100% certainty by any company that has Home Loan in their name.  The new commonsense is that the mortgage needs to be sourced from a large brand bank.  Trust is now, once again, important.  It always was but people tend to forget that when the money was flowing so freely.

Use a mortgage bank that can source several different large banks so your buyer has back up protection.  The Realtor® and the home buyer need to know who the end lender is and if it isn’t a household name, then don’t trust it.  By household, I mean Bank of America or Wells Fargo.  Countrywide is still probably okay so I’d make sure that the pre-approval is at least with two of those three.

The home buyer has gained power in this market.  They can use it by asking for credits to help pay closing costs and to buy down the rate.  There are buyers who have been knocked out of buying because the programs are not available for them anymore or the qualifying terms have changed or the rates are now out of reach for what they can afford.

The Realtor® now needs to get more involved understanding the source of the funding.  If they don’t, they may get surprised when their deal falls through because a lower tier bank is unable to fund the loan.  By getting involved, I mean, ask who the lender is that has approved the loan.  Ask to see the approval from the lender.  If your buyer goes directly to Bank of America, have them also go talk to Wells Fargo.  With my company, we can lock with each of them to protect the client so they only need to apply once.

Also, know that everything is going to take more time and the lender can choose to institute new policies without notice.  One of these we have seen is to do a pre-funding audit to give the loan a last look before releasing funds.  This can add 3-5 days to your funding as the lender sends it through the bureaucracy to get signatures.  I’m not talking about just the little banks doing this; expect the large banks to do these actions as well.

Mark and I have been working closely to develop strategies for buyers in this new market situation so they can be successful in getting the house and in having an exceptional rate so they do not need to hope for a refinance later.  Let us know if you want to review the strategies and the numbers.  Perhaps we’ll post some of our thinking at a later time. 

I generally leave the real estate and cool house stuff for Mark to write about but with the mortgage market imploding at the moment, all I have to talk about is the subprime mess, foreclosures, bankruptcies, loan companies closing and I’m tired of this downer news so I wanted to post something cool. 

A client told me about this site today and recommended that I take a look. It’s a cool modular housing design and the tour is actually an amazing piece of work.  I’ve never seen a house tour quite like this one, it is beautiful and entertaining.

Anyway, check it out and let me know what you think.

http://www.livinghomes.net/tour.html

Countrywide Falls; Merrill Cites Bankruptcy Prospect (Update1)

By Elizabeth Hester
A Countrywide branch office Aug. 15 (Bloomberg) — Countrywide Financial Corp., the biggest U.S. mortgage lender, fell for the fifth consecutive day on the New York Stock Exchange after Merrill Lynch & Co. raised the possibility of bankruptcy.

“Effective insolvency'’ would result should creditors force Countrywide to sell assets at depressed prices or investors lose confidence in its ability to raise cash, Kenneth Bruce, a Merrill analyst in San Francisco, said in a research note today.

Shareholders shouldn’t “understate the importance of liquidity,'’ Bruce wrote. “If liquidations occur in a weak market, then it is possible for CFC to go bankrupt,'’ said Bruce, who downgraded Countrywide to “sell'’ from “buy.'’ The company trades under the ticker CFC.

(more…)

Looks like San Francisco’s new Trans Bay Transit Terminal (affectionately dubbed the Tranny Shack by Curbed SF) is getting a lot of attention in the media. Just driving from one appointment to another yesterday I caught a log segment on NPR radio that discussed and debated the merits of the proposed designs. Take a look at some of these designs in the YouTube video above.

The designs are interesting and you can see that the architectural firms involved in the pitch are spending some serious money to help decision makers visualize their concepts. One thing is clear, that SF will be replacing the current San Francisco Tranny Shack with some kind of stunning architectural building.

There is interesting commentary surrounding the discussion of the different designs at: SocketSite, Curbed SF, Soompi Forums and SF Gate.

You can vote and see the results of the publics favorite designs on Sky Scraper Pages.

By Jim Cramer
RealMoney.com Columnist
8/13/2007 6:02 AM EDT
Click here for more stories by Jim Cramer
  
It’s time to look at what will happen now that the Fed has staked out a position that bails out neither the hedge funds, nor the mortgage companies, nor the 7 million homeowners I believe borrowed money between 2005 and 2006 that they can’t repay to take down houses that are worth less than they paid for them.

In other words, what’s Ben Bernanke’s plan? And why could it actually work and leave us, a year from now, a much stronger, better country? Or to put it succinctly, what happens if Bernanke’s right, and what could go awry if he is wrong?

Just for the record, I’m betting that the cost of Bernanke’s plan and the possible effects of it on the real economy and on real people are too great, and I have staked out the position that he’s going to hurt the country with it. But I have to admit that after the hurt we could end up being in a decent place.

In this multiple-part series, though, I am going to take Bernanke’s side and show you how his smart but conceivably heartless plan makes sense — might even be brilliant — if it works according to plan.

First, let’s set the stage of what Bernanke’s aiming at destroying even if the Federal Reserve, under Alan Greenspan, actively aided the speculative process.

Ever since Alan Greenspan lowered rates dramatically to get the economy moving again after 9/11, it made sense to buy a home with limited financing. Home prices had moved up steadily pretty much since the 1930s in this country and they have been a terrific way for Americans to build equity.

Both the Bush administration and the Federal Reserve actively promoted home ownership, but, for the sake of this series, let’s take their actions off the table. They simply did what had always worked: making homes more affordable. Unfortunately, they made home too affordable, so affordable that it made sense to buy more than one, or, in many cases, nine or 10. The homebuilders cooperated by buying as much land as they could and building homes for a couple of hundred thousand dollars and selling them for more and more each year, a truly great scenario for their gross margins. It’s why homes became growth stocks instead of cyclical stocks.

The homeowners did great, with the ones that put down the least doing the best. In a typical 2 and 28 loan, a teaser loan, homeowners could put down next to nothing for two years and then, if they wanted to, flip the house or refinance at the low short-term rates the Fed set.

Banks had always loaned to homebuyers and either kept the loans on their books, particularly the high loan-to-value ratio covenants made to people with good credit and a lot of money down. The ones that weren’t as good credit were put together into big baskets and sold as mortgage-backed bonds to institutions that wanted to get a better rate than Treasuries for what looked like it wouldn’t be a lot of risk at all.

The business was so good and there were so many loans to make that mortgage brokers sprung up all over the place. Unlike banks, these institutions had no deposits to loan against. Instead, they used loans from major banks to originate the mortgages and put them in baskets, too.

The boom was so great that, after awhile, the mortgage brokers and the banks grew sloppy, many times giving loans to people who should not have gotten them and asking them to put almost nothing down. Remember, the economy had gotten strong, employment was strong and houses still appreciated. Things hummed along. The mortgage bankers accessed low-cost money as the investment banks moved in aggressively to package their loans and make a ton of money selling them to everyone from insurance companies, such as AIG (AIG - commentary - Cramer’s Take - Rating), to banks, like the German and French banks we learned about this week, to hedge funds.

The latter had a particular appetite for these bonds, because they could take capital, borrow 10 times against it, buy these mortgage-backs and make the difference between the mortgage bonds and Treasuries. It was a simple, consistent trade that investors loved, particularly funds of funds, which supply the capital to most of the big hedge funds these days.

In fact, things got so out of hand that beginning in late 2004 mortgage brokers lent homeowners not only mortgages but home-equity loans on top of the mortgages. It made sense, with homes appreciating between 10% and 20% per year!

Even homebuilders got into the act in the end, seeing a quick way to sell homes and make extra money.

While new home sales grew to more than 1.5 million a year, another roughly 5.5 million buyers purchased homes from 2005 to the end of 2006. Of these, probably 50% elected to take teaser rates, and many then took home equity loans on top of that. We don’t know how many did that double-shot, but from the looks of things, it could be as high as 20%.

Some of these loans were covered by mortgage insurance. Some were small enough to be sent to Fannie Mae (FNM - commentary - Cramer’s Take - Rating) for packaging, but Fannie Mae had gotten in a lot of trouble for a few years back based on mismanagement so it wasn’t able to buy as many as it used to. Its regulator, OFHEO, had cracked down and limited its ability to borrow — the caps you hear about. Same with Freddie (FRE - commentary - Cramer’s Take - Rating). They pretty much became irrelevant to the scene.

Throughout this period the Fed sensed, correctly, that the economy was overheating — and took interest rates up 17 times to slow things down.

But the rate increases didn’t slow things down and the economy boomed, employment remained high and houses continued to sell well.

Until the fall of 2006.

Yes, everything was humming along, until the fall of 2006.

(more…)

 
A photo of Brett and Courtney’s yard after its HGTV Landscape Smart makeover.

My clients who have created the new social networking site for home owners, YellowBungalow, will also be on TV this Saturday. They were selected for a new HGTV show called Landscape Smart. It is a backyard makeover show on HGTV.

Last spring they submitted their back yard “before photos” to HGTV’s Landscape Smart show.  The production company is local and they came by and decided their back yard was indeed in need of a makeover!  The show completed their yard in a matter of days, despite a torrential rain! I have spent time in their yard, and since I sold them the house I can say that I have seen the full transformation from before to after. Thus, I can also say that their newly landscaped yard looks fantastic and is a lot of fun to spend time in.

So, tune in to HGTV August 11, 2007 9:30 AM ET/PT and see Brett and Courtney’s yard. If you have any questions as to what it was like to be on Landscape Smart, leave us a comment and they will respond to your posts. They have said that they would be happy to answer any questions about the project and the show.

Thanks mkreyness for this spider web photo.

Yesterday, I was having a conversation that made me realize how truly difficult it is to find a good real estate agent. Finding someone who performs many transactions for both buyers and sellers may be tough enough. Yet, a truly valuable and powerful agent is transacting regularly, knows the ins and outs of their local markets and has the ability to surround their clients with a network of other professionals that have uncommon knowledge and can act to care for their clients concerns.

A power full agent and their team of advisors must be competent to make valuable grounded assessments, which will end up saving their clients time energy and money. A year ago this idealist philosophy may have seemed trite, but being a powerful agent that truly takes care of their clients concerns, has become necessary. With our current market changes no longer can an agent just put a sign up in a client’s yard and 2 weeks later receive multiple offers that exceed even their client’s wildest dreams. In today’s market an agent must back up their assessments, and assumptions with results. The average assessment is no longer useful, when market condition swirl making some areas hot while others are cold. In order to beat market expectations an agent must provide valued assessments that are uncommon and not always intuitive.

Agents must make sure they design buying and selling strategies that leave their clients in positive housing situations. Agents must have a mindful eye towards financial hardship, insurance risk, aesthetic concerns, and social interaction. With this understanding you can now see how difficult it can be to find someone competent to take care of your real estate concerns. Agents must practice as real estate professionals not as real estate laborers.

Thanks PBO31 for this photo

Did you know that Red Rock Island was recently for sale for? Do you know where red rock island is? Red Rock island is the 6 acre out cropping of rock that rises over 100 feet up out of the Bay on the South East side of the Richmond San Rafael bridge. It is the only privately owned island in the San Francisco Bay and it has quite a history.

Red Rock Island has been mined for Manganese. In the 1920’s it was privatley purchased. David Glickman bought the island in 1968 for $49,500. He was an attorney in San Francisco that appreciated special properties. He developed plans to cut the top 1/2 portion of the island off and sell the rock to companies that would use it to build highway roadbeds. The idea was then to develop the flat toped island into a hotel, casino and yacht harbor. The concept included getting power and water from the Richmond San Rafael bridge. The project never left the ground. If you want to learn more about the islands history there is a great accounting of the island told by the Berkeley Daily Gazette.

In June of 2007 David announced the island was for sale for $10,000,000 not including the mineral rights to the property. David, now a rare gem dealer in Thailand, had previously tried unsuccessfully to sell the island in 2001. He has had a nibble from the California Department of Fish and Game, but no offer.

There is a great pod cast of an NPR news radio show podcast with David Glickman telling his story. It is worth the listen to heart about this fantastical San Francisco Bay island story.

I came across the story as I was searching Vladi Private Islands web site. It is an interesting island listing, sales, and rental site that has had me intriguied for years. They have been selling and renting island real estate since 1975. Worth a look if you want to dream about owning your own private island!

A client of mine just introduced me to http://www.walkscore.com/. Just enter your address or the address of the property you are looking to acquire and the site will assess the walkability of the home.

As stated on their web site, “Walk Score helps people find walkable places to live. Walk Score calculates the walkability of an address by locating nearby stores, restaurants, schools, parks, etc.”

It is interesting to think about how a walk score might help to assess a properties value. If a home has a better Walk Score is it more valuable? One of the features of the site is to check out celebrity Walk Scores. I checked out Bill Gates’s house and it gets a walk score of 6 out of 100. I wonder if Bill ever walks 2.03 miles to the Lincoln Square Cinema to catch a matinee.  George Bush’s Texas Crawford ranch gets a walk score of 0 out of 100. My home got a 22 out of 100.

Maybe Walk Score has less to do with residential values and more to do with business values. I can tell you that walk-in traffic is extremely important in real estate. The walking score of my office on Solano avenue in Berkeley, California was a 78 out of 100.

Maybe the Walk Score is just a fun tool for individuals to find out what is in or close to a neighborhood. From any angle you look at it, Walking Scores sure are an interesting use of a google maps mash-up and an intriguing different way to look at your neighborhood!