Q1 2008 U.S. Foreclosure Stats

Q1 2008 U.S. Foreclosure Stats

FORECLOSURE ACTIVITY INCREASES 23 PERCENT IN FIRST QUARTER

ACCORDING TO REALTYTRAC® U.S. FORECLOSURE MARKET REPORT

Foreclosure Activity Up 112 Percent From Q1 2007

California and Florida Cities Account for 13 of Top 20 Metro Areas


IRVINE, Calif. – April 29, 2008 – RealtyTrac® (www.realtytrac.com), the leading online marketplace for foreclosure properties, today released its Q1 2008 U.S. Foreclosure Market Report™, which shows foreclosure filings — default notices, auction sale notices and bank repossessions — were reported on 649,917 properties during the first quarter, a 23 percent increase from the previous quarter and a 112 percent increase from the first quarter of 2007. The report also shows that one in every 194 U.S. households received a foreclosure filing during the quarter.

RealtyTrac publishes the largest and most comprehensive national database of foreclosure and bank-owned properties, with over 1 million properties from nearly 2,500 counties across the country, and is the foreclosure data provider to MSN Real Estate, Yahoo! Real Estate and The Wall Street Journal’s Real Estate Journal.

“Foreclosure activity in the first quarter increased on a year-over-year basis in 46 out of the 50 states and in 90 of the nation’s 100 largest metro areas, demonstrating that most regions of the country are seeing more foreclosures,” said James J. Saccacio, chief executive officer of RealtyTrac. “In some areas there are also some unusual, non-market factors impacting the foreclosure numbers. For example, the city of Philadelphia in late March issued a temporary moratorium on all foreclosure auctions for April, and the city has since adopted a program that will delay foreclosure proceedings on owner-occupied properties until the owners have met face-to-face with lenders to attempt a loan workout plan that would prevent foreclosure.

“While we’re hopeful that programs like those in Philadelphia will have a positive long-term impact, they could be simply deferring another flood of foreclosures,” Saccacio continued. “And that could extend the length of time it takes the market to recover from this downward cycle, in which we’ve already seen seven consecutive quarters of increasing foreclosure activity.”

Nevada, California, Arizona post top state foreclosure rates

One in every 54 Nevada households received a foreclosure filing during the first quarter, the highest foreclosure rate among the states and 3.6 times the national average. Foreclosure filings were reported on 19,595 Nevada properties during the quarter, up 3 percent from the previous quarter and up 137 percent from the first quarter of 2007.

Foreclosure filings were reported on 169,831 California properties during the first quarter, the highest total among the states and a rate of one in every 78 households — the nation’s second highest foreclosure rate. Foreclosure activity in California increased 32 percent from the previous quarter and was up nearly 213 percent from the first quarter of 2007.

Arizona documented the nation’s third highest state foreclosure rate, with one in every 95 households receiving a foreclosure filing during the quarter. Foreclosure filings were reported on 27,404 Arizona properties during the quarter, up 45 percent from the previous quarter and up nearly 245 percent from the first quarter of 2007.

Foreclosure filings were reported on 87,893 Florida properties during the first quarter, the second highest state total and giving Florida the nation’s fourth highest foreclosure rate — one in every 97 households received a foreclosure filing during the quarter. Foreclosure activity in the state was up 17 percent from the previous quarter and up 178 percent from the first quarter of 2007.

Colorado foreclosure activity increased 33 percent from the previous quarter and 78 percent from the first quarter of 2007, and the state’s foreclosure rate ranked No. 5 among the states. Foreclosure filings were reported on 18,996 Colorado properties during the quarter, a rate of one in every 110 households.

Other states with foreclosure rates among the top 10 were Georgia, Michigan, Ohio, Massachusetts and Connecticut.

Top 20 metro areas include Las Vegas, Detroit, Miami, Atlanta, Los Angeles

The Q1 2008 U.S. Foreclosure Market Report also ranks the nation’s 100 largest metropolitan areas by foreclosure rate. California and Florida metro areas accounted for 13 of the top 20 metro foreclosure rates, with the California cities of Stockton and Riverside-San Bernardino taking the No. 1 and No. 2 spots.

One in every 30 Stockton households received a foreclosure filing during the quarter — 6.6 times the national average — and one in every 38 Riverside-San Bernardino households received a foreclosure filing during the quarter — more than five times the national average. Other California metro areas in the top 20 included Bakersfield at No. 4, Sacramento at No. 5, San Diego at No. 9, Oakland at No. 10, Fresno at No. 12, Los Angeles at No. 17 and Orange County at No. 19.

Las Vegas documented the third highest metro foreclosure rate, with one in every 44 households receiving a foreclosure filing during the quarter. The metro area’s foreclosure activity increased 1 percent from the previous quarter and 134 percent from the first quarter of 2007.

Detroit foreclosure activity in the first quarter decreased 22 percent from the previous quarter and was down almost 4 percent from the first quarter of 2007, but the metro area’s foreclosure rate still ranked No. 6, with one in every 68 households receiving a foreclosure filing during the quarter. Phoenix foreclosure activity increased 46 percent from the previous quarter and 294 percent from the first quarter of 2007, and the metro area’s foreclosure rate ranked No. 7, with one in every 70 households receiving a foreclosure filing during the quarter.

The highest ranked Florida metro area was Fort Lauderdale, which ranked No. 8 with one in every 73 households receiving a foreclosure filing during the quarter. Other Florida metro areas in the top 20 included Orlando at No. 13, Miami at No. 14 and Sarasota-Bradenton-Venice at No. 15. The foreclosure rate in Tampa-St. Petersburg-Clearwater ranked No. 21.

Other metro areas with foreclosure rates among the top 20 included Denver at No. 11, Atlanta at No. 16, Cleveland at No. 18 and Memphis, Tenn., at No. 20.

Report methodology

The RealtyTrac Monthly U.S. Foreclosure Market Report provides a count of the total number of properties with at least one foreclosure filing reported during the quarter — broken out by type of filing at the state and national level. Data is also available at the individual county level. RealtyTrac’s report incorporates documents filed in all three phases of foreclosure: Default — Notice of Default (NOD) and Lis Pendens (LIS); Auction — Notice of Trustee Sale and Notice of Foreclosure Sale (NTS and NFS); and Real Estate Owned, or REO properties (that have been foreclosed on and repurchased by a bank). If more than one foreclosure document is filed against a property during the quarter only the most recent filing is counted in the report. The report also checks if the same type of document was filed against a property in a previous quarter. If so, and if that previous filing occurred within the estimated foreclosure timeframe for the state the property is in, the report does not count the property in the current month.






Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.

The Charleston Market Report - March 2008

Accurate Predictions Ahead of Wall Street

"I think it's a lending bubble. Lending is out of control. The way some people finance their homes is crazy."
Brad Rundbaken.
Post and Courier
September 14, 2006

For the country, "We are not so much a housing bubble as a lending bubble," he said. "Many lenders are involved in high-risk financing scenarios with borrowers when they push high-risk loans and do not expect loan defaults when the market turns ugly," he said. "My main worry for the local real estate market here is the possibility of nationwide recession, which could drag down the U.S. real estate market even further."
Brad Rundbaken
Post and Courier
September 16, 2006

"As far as the economy goes I feel the national economy is going to get worse before it gets better. There are a couple of major problems out there that are looming and if kernels in a bag of popcorn represent risk then we are starting to see some kernels pop."
Brad Rundbaken
Q4 2006 Commentary- The Charleston Market Report
January 23, 2007

"I know many of you are feeling good because of the stock market reaction after the cut. This euphoria in the market will not last forever with some of the existing problems related to leverage and easy credit. The 50 bp rate cut will now put even more pressure on the US Dollar to the downside. In order for The Fed to ditch the inflation argument/fight and drop rates they must be analyzing some worrisome data on the economy and a potential recession. So now inflation is contained? BS!!!"
Brad Rundbaken
Trendocracy: The Bernanke Dollar Put and Interest Rate Call
September 21, 2007


Written on 3/15/08

March 2008

Hola! I hope everyone is having a good month. Regarding the quotes above. I think I should get to brag a little bit. I took a bunch of crap for these quotes back in the day. I have been more accurate than many of the talking heads on CNBC. Maybe one day I will get to go to NY and hang out it with the CNBC babes Erin Burnett and Trish Regan. :)

Well there are certainly not any dull moments in the current real estate and financial sectors right now. Some truly amazing collapses are occuring at this very moment. I am going to try and cover the highlights of the past month in the newsletter and give you mine and some others perspective.

Please remember this newsletter can sometimes be a little edgy and sarcastic. During these tough times I think it is important to laugh and try not to take life to serious, although that is difficult for many. This is my writing style. If I offend a company you work for or with please do not take it personally. Besides if you work for a large institution they really do not care about you anyway. All the "top dogs" care about it is the stock price and their compensation. There is no loyalty, gold watches and pensions left in corporate America anymore. Look out for yourself and your family first. Have a backup plan ready in case you get canned. Many companies are sharpening their scissors right now and some of you may get cut. The minute you get a pink slip and no longer receive a paycheck how loyal are you going to be anyway?? Just food for thought.

We sure do live in a crazy world awash in hypocricy. Amazing what happened to Elliot "I am a Steamroller" Spitzer. I have an old saying that "What comes around goes around." He was hated on Wall St. with many enemies and it is obvious somebody took him down. Trust me, it was not a coincidence he got busted. He intentionally ruined many people's reputation who did not deserve it.



The Fed
I want to talk a bit about what the Fed and Ben "Bunyon" Bernanke are up to these days. The action of The Fed is very important to all of us. Whether you work in the financial or real estate industry or not the monetary policy has a major impact on our wallets and pocket books. For whatever reason our government shifted from a strong dollar policy during the Clinton years to a weak dollar policy during the Bush years. I am personally for a strong dollar policy and you should be as well. The weak dollar policy, which is exacerbated by The Fed cutting rates so aggressively, is causing the following problems
* Inflation, which is an invisibile tax on the lower and middle class.
* Higher oil prices and higher commodity prices.
* Falling Dollar....U.S. cash is becoming Trash
* All institutions are looking for a handout, which results in a bailout at taxpayers expense.



I would like to see the Fed stop cutting rates but I doubt that will happen. The recent actions of the Fed is clear that they are doing everything possilble to save their banker buddies. I would like to see the free market work out the problems which is wishful thinking. The Fed seems very focused on doing everything possible to bail out the banks. They are behind the curve and are merely creating other problems in the economy with their current policy. The bond traders are not buying their cure for the economy, which hurts the housing market even more.

I would like to see the Fed abolished, banned, shutdown! They are destroying the economy.
Some key points from Jim Rogers, one of the brightest minds on Wall Street:
* In the 1970s, the Fed printed money to avert a recession, boosting inflation and then forcing interest rates to more than 20 percent to keep a lid on price rises.
* “No country in the world has ever succeeded by debasing its currency,” he said. “That’s what this man is trying to do. He’s trying to debase the currency as a way to revive America. It has never worked in the long term or the medium term.”
* Investment Banks should be allowed to fail.
* “If you bail out every investment bank that gets in trouble, that’s not capitalism, that’s socialism for the rich”
* A recession may be a good way to clean up the economy, while trying to prevent one may cost more and actually worsen the recession.
Let's take a look down Memory Lane and let me remind you what these Academics have been up to recently.



**A 75 to 100 bp cut is expected at the Monday, March 18th meeting of minds at the Fed.

The Fed Funds Rate was cut down by "Bunyon" Bernanke by 225 bps from 5.25% to 3% in eight months! Let's not forget The Fed introduced the "Term Auction Facility" or TAF in December 2007 which allows for the periodic auction of funds to depository institutions in exchange for a wide variety of collateral. These auctions started at $20 billion and now are up to $100 billion. Then the Fed created the TSLF or Terms Securities Lending Facility which will allow major Wall St. firms and banks that trade directly with the Fed to conduct up to $200 billion in new transactions. This is what was just recently used for the Bear Sterns Meltdown.

My question is how many Printing Presses do they have in D.C. to keep bailing out these banks for crying out loud! Just let them fail! Why do the banks get special treatment for being so RECKLESS???? Somebody please tell me. How about it BofA, Wachovia, etc. What do you have to say about all of these writedowns and bailouts? Do you want me, the readers of The CMR and the rest of the taxpayers in this country to bail your asses out for having poor risk management?



Lending Bubble? I Thought it was Contained.
Folks, the scary part of this entire "Lending Bubble" is that we are only maybe halfway through it if we are lucky. Why you may ask? Because the de-leveraging process is a slow and very painful process. Here is the current tally of the worldwide bank blowup I created this chart from the Bank Implode Meter website. As of last week the total was $190 billion, with a B! The writedown mess will go over a Trillion dollars after all these institutions come clean and tell the truth what is actually on their books. It will take time since many of these companies are very good at hiding the truth and cooking the books.



So many of you are probably asking yourself, "What is the solution to this mess." The best solution I have seen was published by Caroline Baum of Bloomberg. Here is an excerpt of what she calls The Jon Galt Plan:
Galt, the hero of Ayn Rand's magnum opus "Atlas Shrugged," stops the world by going on strike. He and the "men of the mind" literally withdraw from the world after watching their wealth confiscated by the looters (the government).
Toward the end of Rand's 1,000-plus page novel(or polemic), the economy is in shambles. Desperate, the looters kidnap Galt and prod him to "tell us what to do."

Galt refuses, or rather tells them "to get out of the way."

Brilliant! Government is NOT the solution it is the problem. Isn't that normally the case, unless you are a Socialist??? Is this really a Democracy? Sometimes I wonder.

Think Outside of The Box! (NO PUN INTENDED)



I have an idea for all of the developers out there looking for an idea to provide some affordable housing in Charleston and other inflated areas. These new "high rise townhometrailers" will allow you to truly maximize the land and squeeze plenty of cash flow out of the deal. Once the sprawl and growth catches up to your development then you can just clear this "New Highrise" away and build something which will best fit the Highest and Best Use of the property. Not a bad idea huh? Not sure how this would play out from the zoning angle. How about it Mt P?? We could put these on Shem Creek Park or put it where the Doggy Park is supposed to go near the future Waterfront Park near The Ravenel Bridge. I am kidding of course. :)

National Real Estate



I took the following commentary from John Mauldin's recent newsletter:
Let's look at a chart courtesy of John Burns Real Estate Consulting. This shows that part of the bubble in housing was in the number of transactions that occurred during the bubble years. In 2005 alone, there were 48% more housing transactions that occurred than should have been expected based on historical average sales per household. In large part this was caused by "investors," many of dubious financial strength, buying homes and condos on readily available credit with no real lending standards and no way to pay the loans if they were not able to sell them at a higher price.

As a result, there are now 3.5 million excess homes that need to be filled by qualified homeowners. Over time, due to growth in the population, the demand will eventually catch up, but that will be a process of several years. Housing prices will have to fall by another 15-20% or so to get to a place where homes become affordable to the marginal buyer. And that assumes rates can stay low.

Annual new and existing home sales are currently running at about 5.5 million. John Burns expect that will fall to about 4 million before we see the bottom of the market. Notice, in the above chart, the drop in sales after the increase in housing sales above the trend projection in the 70's. We have a long way to go to correct the recent bubble, and Burns's research suggests that we will get there sooner rather than later.
But this means that home values will drop another 15% or more. Homeowners are going to see $5-6 trillion in home equity vanish in the next year.

** The important aspect of the chart above is to look at how the total sales moved away from the average trendline. This really picked up steam around 2002 thanks to creative financing pushed by the banks and lenders. The top of the market clearly was late 2005-early 2006. What is even more interesting is that this graph is just about to break the historical average sales line in pink. How far will it go? Clearly we have not seen the bottom of the housing market yet but we are well on our way to getting to the bottom in 1-3 years if the late 70s and early 80s are any indication.



Appraisal Industry
“In my opinion, 70% to 80% of appraisals that were done during the housing boom are probably not worth the paper they’re written on because the appraisers…were rewarded with more volume,” said Jonathan J. Miller, a New York appraiser and longtime critic of industry practices. He estimates that home values are overvalued nationwide by at least 10% because of inflated appraisals.

Kenneth Harney wrote a good article about the proposed changes coming in the appraisal industry. This all being driven by Attorney General Cuomo from NY, Fannie Mae and Freddie Mac. I like the proposed changes because the mortgage brokers association hates them and The Appraisal Institute likes them. That tells me their are some good control mechanisms in the proposal.

I actually wrote an article a long time ago (October 2006) about how the Appraisal Management Companies work called, "Would You Like Fries with that Appraisal." Read it and it will give you a good idea of what BS these Thrid Party Management Companies really are. The big banks that use them do nothing but take a third of the appraisal fee to line there own pockets because the bank owns the TPMCs. Coumo's proposal should put a stop to this...we hope.

Banks Collapsing
Need a job? The FDIC is hiring in anticipation of bank failures.
Article



Once the de-leveraging process begins it spreads like a bad form of cancer. Nothing can stop it....not even the best drugs in the world. So the Fed's medicine is a Printing Press....dollars.....liquidity for the banks. It is only delaying the cure which is let the market cleanse itself of the crap. I guesss the analogy would be "Let nature take its course." Unfortunately, a great deal of money is lost in this scenario but the market can not go up forever. The following quote came from The Washington Post.

"The real problem began in late February, as several of Wall Street's biggest investment banks prepared to close their books for the quarter and realized they were looking not only at big declines in profit from issuance of new stocks and bonds and fees from mergers and acquisitions, but also another round of write-offs in the value of their holdings. In response, the banks began to hunker down, instructing their trading desks to raise margin requirements for hedge funds and other customers, requiring them, in effect, to post more collateral on their heavy borrowings.
Thus began a chain reaction in which hedge funds began selling what they could -- largely mortgage-backed securities guaranteed by Fannie Mae, Freddie Mac and Ginnie Mae -- to raise the cash to meet their new margin calls. That wave of forced selling drove down the price of those bonds, which prompted more margin calls and more forced selling. By the end of last week, the interest rate spread on those securities -- the difference between their yield and that of risk-free U.S. Treasury bonds -- had jumped four, five, even 10 times the normal rate."

Source: Steven Pearlstein - The Washington Post

Commercial Real Estate
The graph below shows the national path of office rents. While the CBRE/Torto Wheaton Research forecast for 2008 shows growth that is relatively flat, that does not necessarily suggest, for a typical office property, flat income as well. The reason is that tenants are typically shifting from leases signed four, five, or even ten years ago. As the graph illustrates, this means that today a portion of an office building is seeing a 15% increase in income on five-year leases, as a lease that was signed for less than $26 now garners more than $29. Even if rents were to remain flat throughout 2008, a year from now, any portion of the building that saw a rent roll would see a 26% increase on leases from five years ago. The change comes not from rents increasing, but from the timing of the cycle; rents bottomed out five years ago, September.

Furthermore, the acceleration of income growth next year (as shown in the graph) raises the probability that 2009 will bring value increases. The fact that none of these incentives exist in the residential market is leading some to walk away from loans, adding to that market's distress.

It should also not be lost that, while rents are uncertain, a 15% decline within a year would be a very extreme event. That current vacancies are low to average in the vast majority of markets makes such a decline nearly impossible. This is to say that the roll-up in rents is a near certainty, even if marginal rent growth is not. So, in the immortal words of Jim Morrison, "Let it roll".
Source: Jon Southard, Principal, Director of Forecasting - Torto Wheaton Research



Oil
On January 18, 2008 in the Q4 edition of The Charleston Market Report I made the prediction when a barrel of oil was trading for $90.57 that it would hit $125 per barrel sometime during 2008. Unfortunately, we are 2/3s of the way to that price since I made that statement because it closed at $108.80 on March 11, 2008. The price will probably rise some more as we get closer to the summer and let's not forget hurrican season. The price of oil like every other commodity is based on supply and demand. The OPEC Cartel is cutting production in order to increase the price because of the falling dollar (Oil is priced in dollars on the international market). Also, there is a supply problem of PEAK oil in certain areas around the world. Add in the fact that India and China are trading in their Rickshaws for cars and we have a genuine supply problem. So I would encourage you to live within your means if you can not afford $4 to $5 per gallon for gas. I think they pay more than that in Europe...why should we be any different?

The graph below reminds me of the 70s. All we need is a President like Carter. Oh, I forgot we have George W.



The Stock Market
It is clear we are witnessing a stock market where you have to play individual stocks and sectors to be successful. The generic Mutual Fund is not going to hold up well in this market. What we may be witnessing over time is the bottoming out of the stock market. The NYSE Bullish Percent, which is a measurement of the overall risk of equities in the stock market, reversed to Os on March 10, 2008 . The pressure from institutions like Bear Sterns collapsing and recessionary problems will put more downside pressure on the market. Think of it as a great opportunity to buy some great companies on sale soon, but remember this is a process and will take time. Patience is a virtue. Do not get caught up in the doom and gloom scenario the media tries to put out there. Get with a Financial Advisor who understands risk management and you will be able to manage the downside and make nice returns. If you want to learn on your own I suggest you start learning Point & Figure technical analysis from Dorsey Wright & Associates. It would be a great investment of your time if interested.





It is very ironic that Baar Stearns grabbed the headlines on Friday and is on the verge of collapse. This would be the equivalent of IBM going down the tubes. Bear Stearns has always had a solid reputation on Wall Street. Bear Stearns really got the lending debacle in the headlines when their hedge fund collapsed a couple of months ago. My question is why would you put the word "Bear" in the name of a major Wall Street firm? That is just not right.



Now lets discuss this anatomy of a collapse. When you look at the Point & Figure chart of Bear Stearns it is clear this stock has been bleeding badly for a while. If you are long this company you should re-evaluate your stock picking techniques because it is truly a falling knife. If you used technical analysis you would have been out of this stock in November 2007 when the relative strength turned negative and it broke the trend line. I would have been out sooner than that based on what was going on in the mortgage lending world. You would have gotten out of BSC around $100 per share. If you held on for a miracle in a sector and company with obvious lending and leverage exposure you simply got pummled. This is why I measure trends in real estate and stocks. It simply helps me manage risk and make better financial decisions. Would you rather sell BSC at $100 or own it at $30 or lower?? Not a very hard question but you would be surprised how many people are still stuck holding this company because they are only assessing risk from a fundamental perspective. They may want to lock down the windows at the Bear Stearns building on Monday. It will not be pretty.

Anatomy of a Collapse: Bear Stearns


Charleston Market

Quote of the Month
Doug Holmes said the biggest issue affecting inventory levels is overpriced properties, and he partly blames the industry for that. He also said the market's natural correction is being hampered by sellers who are only testing the market and are asking too much.
"If Realtors and sellers continue to overlist properties, it's going to take us longer to get out of this," Holmes said. "We can choose how long it's going to take."
Souce: P&C "Number of Homes for sale Dips"
Mr. Holmes, you must read The CMR. Great quote!




Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.

The Charleston Market Report - February 2008

The Charleston Market Report
February 2008

This newsletter was originally sent to CMR subscribers on February 15, 2008. If you would like to become a subscriber please go to www.charlestonmarketreport.com.

Our Fearless Fed Chairman Ben "Bunyon" Bernanke
Only a few more trees and we will have a Fed Funds Rate of 0%.



Hillary has finally found her calling....LOL!



Were You Aware?
A major subprime broker has just written a book called Greed, Fraud & Ignorance: A Subprime Insider's Look at the Mortgage Collapse. Bitner reports that up to 80% of all subprime loan applications were rejected by honest subprime mortgage brokers. This stunning statistic suggests the frenzy which overtook the nation as people who were clearly below-average credit risks stormed the housing market, trying to get in and get rich just like everybody else.

Bitner describes how Wall Street's securitization of mortgages fragmented what was once an integrated process. The granting of a mortgage used to be--and still is, in smaller local banks--an integrated process within the bank. The loan officer verifies employment and income of the borrower, hires a trusted local appraiser, confirms the loan meets all underwriting requirements, confirms the down payment wasn't borrowed, etc.

As Bitner writes:

In addition to creating a renewable source of capital, mortgage securitization helped fragment the industry. An entire process originally performed by one entity was divided into separate components. This fragmentation gave each player a claim of plausible deniability.

Back in the early 90s, private investors were the only buyers of subprime debt. Obviously, if you sold a poor-risk loan to an investor who was subsequently burned, that was your last sale to that investor. Word would get around and your business would dry up and blow away. But once Wall Street got into the act, according to Bitner the demand for mortgages to securitize was insatiable.

Bitner concludes with some suggestions on fixing the mess. The entire inherently conflicting models of payment for the rating agencies, appraisers, brokers, lenders, and Wall Street all have to be radically changed. The model will simply blow up again unless appraisers are paid for the accuracy of their appraisals, not by those with a vested interest in the highest appraisal. Ditto for the ratings agencies and everyone down the line. As long as everyone only gets paid by foisting off high-risk debt onto the next chump, the system is destined to fail, and can never regain the trust of global investors.

Sounds to me like the entire mortgage process model needs to be rebuilt. Should be interesting to see how it unfolds.
Source: http://www.oftwominds.com/blog.html

The Bank Implode-O-Meter
The peeps that started Mortgage Implode-O-Meter have now started a website for the banks. This shoud be interesting.
Note: The Mortgage Implode-O-Meter did not start until after I had told all of Charleston in the Post & Courier we were in a Lending Bubble back in Sept. 2006.
If you want to check it out click here.
I am telling you a big bank is gonna fall. Not sure who it will be but I have some ideas.

Droppin the Ball
The mainstream media as usual was late to reporting the problems in mortgages and housing in 2005-06.

A Harris Interactive survey for Zillow.com in December found that 36% of homeowners thought their homes had increased in value over the past year, vs. 23% who thought they had decreased. That willful optimism translates directly into the record overhang of unsold existing homes: more than 4 million.

I do not know of any mainstream publications who got it right back when very few of us had the "gahoonies" to try and warn everyone about the risks out there in housing/mortgage land.

In fact the front cover of the magazines could actually have been used as contrarian indicators on most of the housing/mortgage stocks. If you could only go back in Time....no pun intended.





It has happened before out West but how soon the media Sheeple forget.


Predicting Mortgage Rates
I received a cool article last week that was written by Barry Habib, who contributes to CNBC on mortgage stuff. If you are in the mortgage biz and need to learn to time rates check it out.

The gist of the article is that mortgage yields mirror the direction of the NASDAQ Composite. The reason is simple....SUPPLY and DEMAND. This is because money managers and mutual fund companies typically keep funds in either stocks or bonds with very little in cash. If stocks are in favor, money is pulled from bonds, causing bond prices to drop and interest rates to rise. When stocks are being sold off, the money is then parked into bonds, which improves bond prices and causes interest rates to decline.

Based on what I see with the postion of the NASDAQ it looks like rates will be climbing in the near future.

Below is the 10 Yr Yield.


The Stock Market
On 1/20/08 in the Q4 2007 CMR Report I mentioned the following prediction:

"The stock market is oversold and there will soon be a nice rally in what appears to be the beginning of a bear market. This rally may be spurred by the Fed dropping rates 75-100 bps. Got cash?"

I had no idea the Fed would have an emergency 50bp rate cut the day after MLK Day and the day after the international markets got clobbered. This turned out to be a pretty good call considering the DOW closed at 12,099 on 1/18/08 and then closed at 12,552 on 2/13/08.

Why was this such an easy call in the midst of such bearish people and news regarding the economy and the stock market. Technical analysis is the answer my friends. It is what I use on real estate and securities and it has not failed me in the past 9 years since I have been using it. Why should I listen to a bunch of suits on CNBC with hidden agendas for my analysis when I have Supply and Demand. S&D has no hidden agenda and merely just tells you the truth and helps you reduce the risk. What else would you ask for unless you had a crystal ball?? If anyone has one of those please let me know.

Let me give you a little taste of what is going on in the market without getting to complicated. I am going to give you two views of the market by looking at the NYSE (New York Stock Exchange) when it was at its most recent top and bottom so you can see how technical analysis works by looking at sectors. All stocks are categorized within certain sectors on the NYSE. BTW, the DOW Jones only has 30 stocks so why is everyone always so concerned about what the DOW did today???? This is an argument for another day.

Market and sector forces together typically cause 80% of the price movement in a stock. That means the company fundamentals usually account for less than 20% of a stock’s price movement. This is the reason a company’s stock price sometimes seems to move independently of the fundamentals!
Source: “The Latent Statistical Structure of Securities Price Changes” Benjamin F. King

The most recent "top" for the S&P 500 (from a risk standpoint) was 4/26/07 and the S& P 500 closed at 1494.25
The most recent "bottom" for the S&P 500 (from a risk standpoint) was 1/22/08 and the S&P 500 closed at 1310.50
This represents a difference of 12% from these two dates.

Based on these dates lets take a look at a Sector Bell Curve.
When the sectors are grouped to the right the market would be considered "overbought."
When the sectors are grouped to the left the market would be considered "oversold."



If you are qualified the best way to invest in this market right now is through the use of Options. When properly used they provide the best risk management strategies.

If you are an investor in the stock market this info is not meant to be investment advice!!! Read the disclaimer below! If you would like to learn more about how to use this type of info email me and I can direct you to a financial advisor that uses this type of risk management analysis in their practice.

Last Lecture
What if you were a college professor who was dying and had the opportunity to give one last lecture to your students? What would you say? This is a very inspirational video that you have to watch. It has some very important life lessons in the lecture. If you know someone who is a "Bitchaholic" (which is someone who does nothing but complains all the time and has no joy in life) please forward the video link to them.
Video

Charleston Market
Comments.....SOSDD. Same Ole S*#t Different Day. We have got to get these inventory numbers down. Clearly the upper end of the market is hurting because of a lack of liquidity in the JUMBO Loans for many borrowers. This is where we will see the biggest price drops in the coming months.











Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.

The Charleston Market Report - 4th Quater 2007

The Charleston Market ReportCommentary - Q4 2007

This newsletter was originally sent to subscribers of The Charleston Market Report on January 20, 2008. If you would like to become a subscriber please go to the website and sign up.

Happy New Year everybody! 2008 calls for a new look so I hope you like the new header. A very sophisticated look huh? The old header had the rusty old Cooper River Bridge in it. It had to go! I have also reduced the Residential and Condo/Townhome Market Matrixes. I feel that when I report the stats of some areas there are just not enough transactions or there are other reasons these areas can be misinterpreted. If you need to zero in on a certain area then I recommend you call me or your real estate agent for a market analysis or get an appraisal in order to get an accurate estimate of the area and/or neighborhood you are interested in.

I would also like to welcome the first international subscriber from Germany. Yes, The CMR has gone international. The CMR sometimes gets hits from all over the world but I have never had a subscriber from another country. Welcome to The CMR Michael! Thank the lord Al Gore invented the internet or this would have never been possible.

I hope everyone ate lots of Hoppin John and Collard Greens because 2008 is going to be a tough one for the economy and real estate biz. This is a rather long report because there is so much going on right now.

There is a bunch of info to discuss so lets jump right into it. I am tired of all the misinformation being thrown around regarding the economy and housing. The most dissapointing aspect of this downturn has been watching certain "shiester" real estate agents, mortgage brokers, appraisers, attorneys and politicians lining their pockets at the public's expense. Now that the financial "poo poo" is really hitting the fan it is time for reality to set in for many. If your job requires you to lie for a living in order to make a commission/fee please go find another gig. If you are in the real estate industry or looking to buy or sell please use this info with your clients or for yourself. I want the market to get back to normal. Unfortunately, the past few years in real estate was an anomoly. Most real estate professionals, no matter how many years experience they have under their belts have not dealt with a real estate market like this one. It is unchartered territory for everyone. You will gain more clients and respect by speaking the truth right now.

I have talked a great deal in the past about running this website/newsletter. The reason I often repeat myself is because The CMR gets so many new subscribers each month. I started this website when I was an appraiser to help me see the trends in the local and national market. That was my job as an appraiser right? Well, some banks, real estate agents and lenders did not want the truth to come out or they were ignorant to the dark clouds building on the horizon with regards to a real estate slowdown and lending bubble. I took a bunch of heat here locally for being a "canary in a coalmine" regarding the problems with the mortgages and a real estate slowdown. The problem was very few saw it coming and if they did they were not warning anyone about the trouble ahead. Once this website went live and some quotes from me were printed in the P&C (Post and Courier) newspaper I lost my job and my reputation was attacked. The critics have now been silenced because unfortunately what I was saying in 2006 has now come true. This entire real estate mortgage debacle is actually worse than I ever imagined. It is all documented in the quarterly and monthly reports I have put out over the past year and a half. I do not relish being right about gloomy news but I do feel vindicated. Where oh where are all those critics now?????

Probably the most wonderful aspect of starting The Charleston Market Report is the new relationships I have built. We live in a relationship universe. I belive the more relationships we establish the more conscious we become. Although I do not know many of you who subscribe or read this report I hope it helps you gain more knowledge and a different perspective from what you hear in the main stream media or whatever source you get your info from. I believe the law of reciprocity is very powerful. You would not believe some of the emails I get. Some peoples lives are really being damaged and/or ruined by some individuals in this business. I have had the pleasure of saving many people thousands of dollars by giving them a source to do their own due diligence. OK, enought of the spiritual crap.

Before I get into the bad news I ask everyone to keep fighting through these tough times no matter what you do. Some of us simply have to adjust our lifestyles or learn how to budget our money better. No matter how rich or poor you are we can always improve and either earn more or if you are filthy rich give more to charity. Many Americans simply own to much crap in my opinion. When you die and go to heaven (hopefully) you can not take all this stuff with you. So clean out your garage and closets and take a trip to the Salvation Army or Goodwill and make some donations. I am sure we can all do it.

Motivation
There are no limits to what you can imagine. And what you
create in your imagination sets the stage for what you will
create in your life.

Your imagination can take you to any place and any time you
choose. In your imagination, you can construct and explore
whatever set of circumstances you wish to experience.

Imagination can help you prepare to do things you've never
done. It can also help you improve and perfect the tasks
with which you're already familiar.

Pay close and careful attention to the realities of your
life. And then fully explore the possibilities present in
those realities by sifting them through the wondrous power
of your imagination.

When it seems that you've run out of options, imagine for
yourself some new ones. If you let it, your imagination can
pull you toward the truth you need to know.

The reality of your life is rich indeed. And imagination
greatly expands your access to that richness.

I mentioned earlier I used to be an appraiser. I did not do it very long (Almost 2 years) but it taught me a great deal about real estate and how powerful the law of supply and demand is in real estate in addition to pricing securities, commodities, etc. Before I started appraising I was already an expert in technical analysis from my days as a financial consultant in the stock market. Yes, I was insane to go from the stock market to the appraisal business! I doubt you will find many who have a diverse background in real estate and securities like me. If you do then I guess we are equally insane. The appraisal biz is a tough industry to be in especially on the residential side right now. The problem I would have had as an appraiser if I had continued is the existance of this website. My no BS points would have made it REAL difficult to get clients. I can hear the mortgage guy screaming at me right now. "Come on Rundbaken hit the number, I gotta close this loan!" In Sept. 2006 I was going to start putting my market indicators in my appraisal reports showing the negative trends I was witnessing in the local real estate market. It never happened because the firm I was working for was pressured by the banking and mortgage lenders to fire me for the "lending bubble" quote the P&C printed in the newspaper. It all worked out best for everyone involved but I want to start by talking about appraisals in the Charleston market right now.

Appraisals in Charleston
If you look at the Market Matrix and my Momentum Charts you will notice declining prices are beginning to take hold in all 3 counties for SFR homes in the Charleston market. Declining trends have been in existance since Sept. 2005 but declining prices have not showed up when you cruch the numbers of all the transactions and average them out monthly or quarterly. I have said in the past that price changes in real estate occur in very slow motion compared to the stock market. This real estate price decline trend did not show up in the average numbers I crunch until last quarter.

Many realtors, the media and real estate organizations continuously use median home prices in their reports. Folks that number can be VERY misleading because all the median number is the middle number out of a group. So if the home sales are tilted towards higher priced homes then the median number will be higher. Remember also that all closing costs paid by the seller, the mercedez benz they throw in with the house, builder discounts, the free cruise to the Bahamas, free upgrades, etc. can not be factored into the average or median home prices. On an appraisal report if a seller pays $5k in closing costs an adjustment must be made against the sales price to reflect it in the comp that was used. The appraiser often does not know about this unless they call the real estate agent or it mentioned in the MLS notes. Therefore, lazy appraisers never report these adjustments because they simply do not call the agent who made the sale.

William Harrison, a Charleston-based consultant and real estate lecturer at the University of South Carolina's Moore School of Business said it best last week in the paper. He said the meltdown in the subprime loan business has forced all lenders to tighten their underwriting standards. As a result, would-be borrowers with less-than-perfect credit, as well as first-time home buyers, have found it harder to qualify for a mortgage.

"Those people get taken out of the market, so the houses that are still selling are now disproportionately weighted toward the more expensive homes," Harrison said.
"In 2007, we only sold Buicks," he added, "but in 2006 we sold Chevrolets and Buicks. When we take the Chevrolets out of the market, it looks like the prices are rising."

Actually Mr. Harrison what is occuring now is both the Chevrolets and Buicks are starting to drop in price in certain areas.

Below is the Q3 2007 HousingAlerts.com chart of Charleston. This graph is calculated using government data and it shows a depreciating real estate market in Charleston. If you are interested in a subscription to HousingAlerts.com please go to the link on the top left portion of this newsletter/website for more info.



I believe we are going to see anywhere from 10%-30% declines from current housing prices as the market adjusts here locally. In my opinion, this is a necessary correction that needs to take place to get the real estate market here back to normal.

What is a Normal Housing Market? Read this report.

Unfortunately, it will take years to unwind excess inventory and for the credit markets to get back to normal. The "irrational exuberance" that took hold here over the past couple of years will make it rough on many sellers who purchased a home in the past 1-3 years with little money down or who have pulled equity out of their property. Now that we are officially in a declining price real estate market let me show you what Wachovia is having appraisers place in future reports and how it relates to Charleston. If you are an appraiser, underwriter, investor, real estate agent or banker I recommend you read this very carefully.

Wachovia Mortgage, FSB's Appraisal Department has issued an Important Information on Market Analysis Requirementsmemo to all of their Wachovia Independent Contractors (WIC's). Download wachovia_mortgage_market_analysis_requirements.pdf

Here are a few excerpts from their memo:

Now, more than ever, with all the press about the “mortgage crisis” and declining markets throughout much of the nation, market analysis has achieved a new level of visibility. In fact, as you may know, Fannie Mae announced an amendment to their selling guide on December 5, 2007 regarding declining markets. Fannie, Freddie, (VA) and other secondary market purchasers are using the state of the market to help establish loan level acceptability.

We believe that property values, demand/supply models, and marketing time are all related. Therefore, when discussing a market, we want you to analyze the market based on sales, listings, pending sales, withdrawn, expired listings, etc.

The tables below are examples of how Wachovia Staff Appraisers must report market statistics on their appraisals. We recommend that you adapt these for your use or provide similar, clearly stated, and easily understandable statistics for the appraisals you complete for Wachovia. This will save you and us time in not having to contact you to discuss your reporting of the markets.

The first table (below) provides the median value for your NEIGHBORHOOD.



This data provides the basis for determining whether your market is “Increasing”, “Stable”, or “Declining” and reporting the “One-Unit Housing Trends” on the appraisal report. Based on the median sales prices in the table above we can see clearly that the market trend is “Declining” and have market support for our conclusion.



The next 3 tables below provide data for competitive properties in your MARKET AREA (properties that the buyer might consider when shopping for the Subject Property).



Evaluating the first of three tables (above) we can see that the “Absorption Rate” (number of sales divided by the number of months) has been declining steadily – an indicator of a declining market or one that may soon be declining; this provides you support for marking the “One-Unit-Housing Trends” as “Over Supply”. The Inventory remains the same for each column because that is the CURRENT number of listings and pending sales on the market. We can see that the “Month Supply” has climbed rapidly and clearly indicates an over supply as reported on the appraisal.



The next table (above) shows the declining median sales prices for competitive properties in our Subject’s market (3 Months, 6 Months, and 12 Months values).



And, the last of these tables (above) shows that during the past 180 days the median percent reduction from list price has declined additional support for a declining market and while the 3 month median DOM was 37 days, the current pending sales (51 days) and active listings (55 days) indicates a softening market.

Based on our analysis we must conclude that:

1. the “Property Values” are “Declining”,
2. the “Demand/Supply” is “Over Supply”, and
3. the “Marketing Time” is “3-6 months”.



At first glance many appraisers may be concerned that reporting the median sales prices data we request is going to be time consuming, but all we are asking is that you provide a more detail summary all the research you have been doing already to determine the current market.

Most MLS provide summary statistics for your Comp Search or MTA search. If necessary you could run several searches for market analysis, reporting the median value's for each of the previous 12 months to determine a trend in values.

Source: Appraisal.com
Wachovia Mortgage Issues "Market Analysis" Requirements by Brian Davis

I think this is a very smart move on Wachovia's part and it is probably a result of their current $2.7 billion dollar write down and high residential mortgage risk in the market. Better late than never to start getting accurate appraisals Wachovia! Kudos to you.
* The appraiser is hired to protect the bank from lending money on bad investments so it would make sense for the appraiser to start reporting trends in the local market in their reports.
* The appraiser is supposed to give an impartial independent estimate of value on the property.
* They are not supposed to facilitate the loan according to a lender/underwriter instructions just so it gets closed.

Reporting market trends gives the appraiser some CYA (Cover Yo Ass) info in their reports based on their estimated market value of the property. What I find very ironic is that what Wachovia is requiring their appraisers to do now is exactly what I have been doing in The Charleston Market Report since September 2006! I know many bankers/lenders read this report. I would recommend you follow Wachovia's lead on having the appraiser report these local trends because many of your current and future loans might be occuring in declining market areas. Why you may ask? Because me and all the other taxpayers do not want to have to bail out the entire banking system if it keeps up crappy underwriting standards on high risk loans.

I bet if you look at recent appraisals done in these areas some appraisers may not have properly checked the correct trends on the appraisal report. Are they checking "oversupply" in certain subdivisons in Daniel Island, Mt. Pleasant or on the Beaches? What about "price declines" in certain areas? Every county in the Tri-County Residential Market Matrix is showing a Sales Price decline right now so there are certainly specific neighborhoods that fall in this declining category. I expect this trend to continue as the real estate market corrects itself.

I will give appraisers permission to use the info right off this website if you want to. All you have to do is site the source. I do not give neighborhood data but the county/area data and market momentum charts are a nice macroview to give to the bank/lender IMO. I am such a nice guy!

If you want to read an excellent article about how bad appraisers helped create this mess please read the following article below.
Appraiser Exposes Toxic Debt Tie To Inflated Values

Market Risk
Mortgage Insurer Says Prices Will Fall
One of the indices that I find to be the most accurate is PMI's Risk Index, which measures the likelihood that home prices will be lower two years from now. The index measures the percent likelihood of a price decline and currently estimates that 13 of the nation's 50 largest metro areas now face a 50% or greater chance of lower prices - up from just 7 metro areas in the previous quarter. While I believe prices will decline in all of these markets and more, their ranking of the likelihood is generally very good. Here is the likelihood of a price decline.

FYI, Charleston is not included in the 50 largest metro areas but I have included the risk map below.



There is a 20-40% chance housing prices will be lower in Charleston in two years according to PMI Mortgage Insurance. I hope I am wrong! What if I am right?


Renters Market
So now that we are in an increasing inventory market with prices declining what should you do? If you are a buyer or seller make sure you get a very experienced real estate agent to help you price your home correctly if selling or negotiate the correct sales price if you are on the buyer side. I would be looking for a discount larger than 5% (Which is the Tri-County average right now) if I am a buyer's agent or buyer right now. (Hint Hint) I would not buy unless I could get 10%-30% off a reasonable list price and feel comfortable I would not lose value in the property as the market adjusts. This will be be tough to estimate so patience is not a bad idea right now either.

Let me state there are still buying opportunities here. I love anything downtown that can be renovated and is a historic property as an example. Supply is always under control with historic properties. If you understand the foreclosure market and can find preforeclosures through a bank relationship that would be a great opportunity right now also.

Now what I am about to do here is probably going to piss a bunch of people off in the real estate community. Go ahead and write your letters to the editor and me I do not care. I am merely trying to help. Providing the truth aint easy but somebody has got to do it. Since prices have not come down enough in most parts of Charleston and inventory seems to be increasing every month I hereby declare Charleston a "Renters Market" not a "Buyers Market" in certain parts of Charleston. Real Estate Community please do not be scared by this statement because this website is not read by the masses in town. Heck, most real estate agents do not even read it. The reason I make this statement is because it is true (Which I will prove) and I hope it will force agents and sellers to carefully start considering how they price homes so this market can get back to normal. Show this to sellers so that some of them get a clue about their list price. I ask everyone reading this if you would want me to sell you a $100 stock that might be worth $70-$90 down the road? Put yourself in the buyers shoes and do not try to slam a client in a depreciationg asset for a commission. I have many clients who are renting in Mt. Pleasant right now. I could have sold them a house over there but the strategy went against what I believe is currently happening and it was in their best interest to rent. By giving out this advice I did not receive any commission checks because 0 houses were sold. I guess I am the worst real estate agent in all of Charleston from a production standpoint.

So what I have done is take a few houses off the MLS that are listed For Sale and Rent at the same time. This is called a desperate seller who needs money to cover their monthly mortgage nut. What I found is major price discrepencies between what it would cost to rent the home by month vs. the PITI (Principal + Interest + Taxes + Insurance) if you were to buy using a 30 yr mortgage with a 10% or 20% down payment. I am not going to give out addresses of where these homes are located or who the agents are but unless a serious discount is negotiated they do not make sense to buy. I even use a 5% discount off list price which is the average in Charleston right now. The other important point is the T&I (Taxes and Insurance) are wild cards and are increasing in this market. I think my numbers are actually low but we will stick with them in this example. There was recently a good article in the P&C by David Slade about increasing property taxes in Charleston and if we have a bad hurricane season then insurance rates will certainly jump up.



Now, with this data why would anyone buy these homes??? I even use a 10-20% down payment! Once you factor in the the SAVE! (Which is 1 Yr) plus a future 10%-30% drop in the price of the home then you are talking about saving a bunch of cash. A subscriber made a great point to me today and said rents could go down because of the supply of rentals on the market and he is exactly right. If you had a house you can not sell would you take a couple hundred dollars less in rent or just let it sit and pay the full mortgage nut every month and wait for a miracle? I would take what I could get.

The other evidence I have regarding an overpriced home market is the price to rent ratio. This ratio is difficult to get in Charleston beause rent data is not easy to come by. The price to rent ratio in real estate is similar to a P/E Ratio (Price to earnings) ratio used to evaluate stocks. I could provide many more examples than I did above but I figure you all get the picture. The price to rental in many areas of Charleston is out of whack. It reminds of the P/E ratio of tech stocks back in 1999.



January 3, 2008; WSJ
By GREG IP

U.S. house prices "likely would have to fall considerably" to return to a normal relationship with rents, says a study by one former and two current Federal Reserve economists.

The study, which doesn't necessarily reflect the views of Fed policy makers, suggests prices would have to fall 15% over five years, assuming rents rose 4% a year. House prices would have to fall further if the adjustment took place more quickly.

The study tracks rents and home prices back to 1960 and found annual rents fluctuated at around 5% to 5.25% of home prices until 1995. At the end of that year, the average monthly rent was about $553 (or about $6,600 a year) and the average home price was about $134,000.

But starting in 1996, home prices started to grow much more rapidly than rents. By the end of 2006, they had more than doubled to an average of $282,000, while the average rent had risen 48% to $818. That drove the annual rent/price ratio down to 3.48%.

That means the rent/price ratio is about a third below its long-term average. To return to normal would require some combination of falling prices and rising rents. The paper suggests house prices would need to fall about 3% a year, if rents grew in line with their 4% average annual growth this decade.

Of course, the link between house prices and rents can remain out of whack for years.

The U.S. study is by Morris Davis, an economist at the University of Wisconsin-Madison and until 2006 a staff economist at the Fed; and Andreas Lehnert and Robert F. Martin, staff economists at the Fed.

The authors' methodology was based in part on previously published work by Fed economist Joshua Gallin. The same approach is used by many other analysts, including the Congressional Budget Office, which arrived at similar conclusions.

In an interview, Mr. Davis said lower long-term interest rates can explain only a small part of the drop in the ratio. "To justify current price levels, you need rapid growth in rents." But it's hard to imagine the scenario that would justify such rapid growth in rents, he added. Indeed, it's possible rents will grow more slowly than 4%, reflecting the overhang of unsold homes that might be rented out.

Mr. Davis said the authors postulated a five-year horizon for the rent/price ratio to return to normal by looking at previous downturns. "When a downturn begins, it will last for a while."

How do you argue with obvious data here locally and a study done by economists from the Fed. Well at least we know the local data is legit but I am not sure about the economists from The Fed. :)

Countrywide and Bank of America
After the anouncement of this proposed buyout the headline should have read:
"BofA jumps headfirst into Countrywide Mortgage Cesspool! What are they thinking?"

The value of $13 trillion in U.S. Mortgages is sinking fast. So why would BofA offer $4 billion (After they already loaned them $2 billion) to buy a company that holds a toxic wate dump of bad loans?? Why not wait until Countrywide just goes out business which is where they are headed if you follow the stock price. Trust me ladies and gents, Bof A is not that stupid. You do not become one of the largest banks in the country making deals like this.

From Minyanville.com
"We are starting to see the first steps in nationalization of the U.S. banking system. Large institutions are being "cajoled" into buying smaller ones. They could wait for bankruptcy to buy the assets, which would be smart, but they aren't as I believe the show is worth much to Washington: it is very important that equity investors be calmed by that stabilization effect."

By purchasing Countrywide, Bank of America Corp. would prevent the largest U.S. mortgage lender from filing for bankruptcy and thereby avert significant damage to the home-loan market — a mess the Federal Reserve and other agencies desperately want to avoid, analysts said, and one that poses far greater risks to the economy than mortgage industry consolidation. In other words this is a bailout.

A failure at Countrywide would put the mortgage industry and its regulators in the extremely uncomfortable position of trying to figure out who would be responsible for collecting payments on millions of home loans. It could also be a huge blow to government-sponsored mortgage finance companies Fannie Mae and Freddie Mac, which are major buyers of Countrywide's loans.

All I can tell you is this deal smells rotten. If I were a BofA stockholder I would be spitting fire right now. The reason BofA is doing this (if it actually goes through) is that they had to. There is no other explanation.

Unusual Trades Raise Eyebrows
Unusual call trading in Countrywide Financial Corp (CFC) on Thursday before news that Bank of America Corp (BAC) was in talks to buy it has some option players asking if word of a pending deal had leaked to the market.

About 304,000 calls compared with 248,000 puts traded in Countrywide, a combined volume five times its normal level, according to market research firm Trade Alert.

"It looks like somebody was informed because the call volume in Countrywide was so heavy earlier in the day ahead of news that Bank of America may be close to a deal for the mortgage giant," said Jon Najarian, co-founder of Web information site optionmonster.com in Chicago.

That included about 19,000 January contracts, allowing holders to buy Countrywide stock at $5, which traded before the stock leaped above $8 after the Wall Street Journal reported the possible takeover of the top U.S. mortgage lender.

The January $5 calls closed at $3.20 a contract, up from a range of 65 cents to $1 earlier in the day. The 19,000 $5 calls apparently bought before the news represented a paper profit of a potential $4 million at the end of the day, Najarian said.

Countrywide Financial Corp. founder Angelo Mozilo is entitled to $115 million in severance-related pay if his troubled company is acquired by Bank of America Corp. (BAC) , The Los Angeles Times, citing regulatory filings, reported Friday.

The newspaper said free rides on the company jet are also included in Mozilo's departure deal, and the company will pick up his country club bills until 2011. Keep livin large Mr. Tan Man!!!!

Neither Mozilo nor Countrywide officials returned calls for comment, The L.A. Times said.

From Herb Greenberg's MarketBlog
We’ll know it soon enough, but with the leak that Bank of America is near acquiring Countrywide, several things would appear apparent (at least while we’re playing the guessing game):
1. The Fed is behind the deal.
2. The Fed is behind the deal because the rumors yesterday of a near bankruptcy were probably true.
3. As part of the deal, the government likely agrees to guarantee BofA against Countrywide-related losses.
4. Lost in the in the noise yesterday was that Moody’s downgraded the ratings on 30 (count ‘em — THIRTY!) tranches of Countrywide’s mortgage debt by more than a few notches. They did something similar before American Home Mortgage filed for bankruptcy.
5. Investors bid the stock higher assuming a premium when it’s likely that BofA still needs to fully assess the value of the assets before the deal’s full value will be known.
6. Big question, of course, is what Countrywide investors will get.
7. Rule of thumb with bankruptcies: Stocks often double on their way to zero.
8. BofA gets a free bank and a put to the government.



Everytime I see Mozilo on TV he looks so nice and tan in his pin stripe suit. I would like to see the SEC hurry up and finish investigating him and put this guy in prison pinstripes. Just because he built Countrywide up over the years does not entitle him to steal from shareholders and walk away with millions. Now that would be the crime of the century.


Writedowns
Who will win the billion dollar writedown race? Right now Merrill and Citi are neck and neck. It should be a fantastic finish! Call Vegas and place your bets! The race may only be at the halfway point since I have seen estimates of potential writedowns exceeding more than $200 billion. Lockdown the windows on Wall Street!



Predictions for 2008
Please let it be known that I have no psychic abilities whatsoever.
* The National Bureau of Economic Research will tell us a year or so from now that we were in a recession right now. So will a bunch of other idiotic economists who are saying we are not in one now. BTW, we are in a recession.
* Oil will hit $125-$150 per barrell. Sell your Suburbans in Mt. Pleasant soccer moms!
* The local and national inventory real estate numbers will worsen and prices and rents will drop.
* Some publicly traded homebuilders will go bankrupt. Then once something breaks in a house in some of these shoddy ugly vinyl villages the homeowner will not have anyone to sue. Sorry lawyers.
* Ben Bernanke will keep dropping money from his helicopter and the country will lose faith in The Fed because they have been so far behind the curve in this economic mess.
* This will go down as the worst housing recession of all time and Greenputz, creative financing, greed, dumb lenders and borrowers and the securitzation of mortgages by Wall Street are the culprits.
* Certain areas of commercial real estate will implode.
* The National Association of Realtors will continue to be "optimistic" during the housing downturn and will keep spinning data. Lawrence Yun and David Lareah (Current and former chief economists for the NAR) will co-author a book that nobody will buy except members of the NAR. (BTW, I have a real estate license but refuse to join this organization because they put out to much bad info.)
* The stock market is oversold and there will soon be a nice rally in what appears to be the beginning of a bear market. This rally may be spurred by the Fed dropping rates 75-100 bps. Got cash?
* The sun will continue to rise and those with faith and determination will get through this bump in the financial road which is the nasty part of an economic cycle. Please do not rely on our government for common sense solutions.



Disclaimer:This is a personal web site, reflecting the opinions of its author. It is not a production of my employer, and it is unaffiliated with any NASD broker/dealer. Statements on this site do not represent the views or policies of anyone other than myself. The information on this site is provided for discussion purposes only, and are not investing recommendations. Under no circumstances does this information represent a recommendation to buy or sell securities.