"My mortgage broker wasn't accepting zero down," says Alfonso Rey, 32, who in February bought a one-bedroom, one-bath condo in San Francisco — one of the nation's most-expensive markets — for an eye-popping $714,000.
Rey and his wife had been outbid on 16 properties until they offered $62,000 more than the asking price for the condo — and wrote to the owners, pleading with them to accept their offer so they wouldn't have to move out of the city.
To scrounge up a 5% down payment, Rey and his wife sold their cars and cashed out the entire $36,000 Rey had socked away in his 401(k). To keep their monthly payments low, they took out a loan that lets them pay only the interest for the first five years. They're taking a calculated risk, though, that the value of their condo will rise. With their interest-only loan, Rey and his wife will owe the same principal balance in five years. And their mortgage will reset, possibly to a higher interest rate.
Rey says his parents and friends told him he was crazy to use his retirement savings to buy a home. But Rey, who is halfway through an MBA program at the University of San Francisco, says he feared that if he didn't buy now, he would never be able to afford a home, because he expects real estate prices in San Francisco to continue rising.
Let's look at the numbers. Giving Alfonso very favorable assumptions, let's assume that some silly lender gave him a very generous 6% interest-only loan. That's $3400 per month. Then condo fees and insurance: easily $400 per month in San Francisco. Then property taxes: $750 per month. All in, at least $4550 per month for a 1-bedroom condo. Now let's credit him $1100 for the deductibility of his interest. He probably won't be able to deduct his property taxes because of AMT. So net of income tax deductions, he's paying at least $3450 per month for one bedroom. And we haven't even talked about utilities yet.
Now Alfonso could rent a nice one-bedroom apartment for around $1500 per month (near USF even!). Renting that apartment and saving the $1950 difference each month at a conservative 3.5% after-tax return, Alfonso would save $127,482. Plus his 401(k) would continue to grow, instead of being zeroed out (and whacked with big taxes and penalties), and he'd still have a car.
To just break even on his condo over the next five years, he'll need it to appreciate 18% from today's all-time record prices -- all-time in terms of price-to-rent ratios, price-to-income ratios, and any other measure you can think of.
I forget: when tech stocks hit all-time high valuations in 2000, did they go up another 18% over the next five years?
Maybe they don't teach finance in the University of San Francisco MBA program.
Addendum: Just for the sake of argument, let's say the San Francisco market does appreciate 20% over the next five years, making it the greatest and longest real estate boom in the history of the developed world. Alfonso is a winner, right? WRONG!!! Now he's 37 years old, sharing a 1-bedroom condo with his wife. Think they might need a little more space? Maybe want to start a family or have a garden? Maybe get a job offer in another city? Want to sell the place? WHAMMO!!! That's 6% -- $50,000 -- to the realtor. Oops. Alfonso would have been better off banking $127,000 and using it as a substantial down payment on something that's not so cramped.
As baseball fans heatedly debate the merits of Barry Bonds’ inevitable ascendance to career home run king, a different controversy surfaced yesterday when the asterisk, the star-like typographical symbol expected by many to appear alongside Bonds’ place in the record books to denote the slugger’s steroid use, announced that it wanted “no part” of Bonds’ record. In the shocking announcement, a visibly testy asterisk said the association with the slugger’s tarnished image would sully its “storied reputation” and perhaps impact its ability to find meaningful work in the future.
“I usually try to stay out of controversy, but Barry Bonds is a pompous, narcissistic fool,” said the asterisk. “I’m drawing the line. It’s time some other punctuation marks start to carry some of this dirty water. In fact, I’ll call out the question mark. Why don’t we put the very symbol of uncertainty, doubt and improbability alongside Mr. Bonds’ skid mark in the record book? WHY IS IT ALWAYS THE ASTERISK?”
Seagulls over the Crissy Field Marsh
... and an egret looking for some chow.
... an the tail end of the San Francisco Marathon coming through the Presidio at about mile 10.
American Friends Service Committee is taking the money-focused message to a dozen U.S. cities in a series of seven-foot (more-than-one-meter) banners.
American Home Mortgage Investment Corp. announced today that its Board of Directors has decided to delay payment of its quarterly cash dividend on the company's common stock and anticipates delaying payment of its quarterly cash dividends on its Series A Cumulative Redeemable Preferred Stock and Series B Cumulative Redeemable Preferred Stock in order to preserve liquidity until it obtains a better understanding of the impact that current market conditions in the mortgage industry and the broader credit market will have on the Company's balance sheet and overall liquidity.
Companies often suspend or reduce dividends when times are tough. But to declare a dividend one month, and then not be able to pay it the next month? These guys got blindsided by a shockingly rapid collapse in their business.
No, he doesn't have a gay sex video of Tom Cruise. Just some wedding pictures.
Today was interesting. Everything was down, from stocks to the ABX to gold. The energy sector was brutalized -- down 4%, with leader ExxonMobil down even more on a bad earnings and production repor. The only safe haven was Treasuries. It had the feel of forced selling. I think there are some more big hedge funds imploding, but the news may take a while to come out. I'm staying the course, still short CFC but otherwise long gold and foreign and domestic stocks, and still dollar-cost averaging into all of them. Where else are you going to put your money? Bonds? Ridiculous. Cash? Maybe, but if this thing gets as ugly as people fear, Bernanke is gonna turn on the printing presses.
The media and public officials still fawn over Greenspan, regarding him as a genius and the greatest Fed chairman of all time.
Whiskey and Gunpowder pours some reality on the party. Read the whole thing.
This happened to relatives of mine, when the accounts in question still had their current, accurate mailing address on file. It's going to be a bureaucratic nightmare to get their money back from the kleptomaniac State of California.
Escheat is a feudal concept that arose from the despotism of the Dark Ages. It stemmed from the principle that property rights depend upon the sufferance of the sovereign, and when a person dies or disappears without heirs, his property reverts to the feudal lord.
California revived this medieval doctrine in 1959 and began seizing personal assets on the smarmy pretext that after a few years of account or safe-deposit box inactivity, property is obviously "lost," and the state needs to "protect" it by selling it off and depositing the proceeds into the general fund.
Today in California, no one's property is safe. When a family sets aside an investment for college or retirement, it may be in for a nasty surprise just three years later. After a lifetime running a small shop, Benny and Sally Fong could have retired on their shares of Warren Buffett's holding company, Berkshire Hathaway, that had grown in value to more than $1 million. But when they tried to redeem their nest egg, they discovered the state Controller's Office had sold the shares – for just $171,000.
When a widow returns to her bank safe deposit box after several years to retrieve her precious heirlooms, she is likely to discover that the controller has already looted it, shredded her family photos and auctioned off anything of monetary value. That's exactly what happened to Carla Ruff, whose great-grandmother's jewelry (appraised at more than $80,000) was taken straight out of her safe deposit box by the controller and sold on eBay for $1,700. Critical financial documents she desperately needed to prepare her dying husband's estate had been shredded.
Don't expect the "protector" of your "lost" property to be glad to see you when you try to redeem what's left. Anne Smith (not her real name) has been trying to reclaim checks the state intercepted from her mother's estate in 2001. After she spent years meticulously documenting her rightful ownership, two months ago the Controller's Office told her she wouldn't get her money back until the company turned over its complete database so the controller could search for additional property to take.
Particularly for claims over $5,000, the controller's office is notorious for stonewalling. When Ronald Repass tried to recover stocks taken from his father's estate – despite notifying the controller beforehand that the stocks weren't abandoned – he was warned that it would take 12 to 18 months to process his claim, and any inquiries would restart the clock. When he finally called after two years of waiting, he was told his claim had been "misplaced."
Controller John Chiang maintains that he's shocked, just-shocked, that his office has been behaving in such a manner, and he wants to do everything he can to set things right, except, apparently, if it reduces the state's revenue. In March, Chiang vigorously opposed legislation to lengthen the escheat period – how long the state must wait before grabbing assets – and to require at least three notices to owners before their property is taken. He is currently sponsoring legislation that would allow him to comb through confidential tax records in search of additional property to seize.
You can search for confiscated accounts here.
California residents are advised to use non-California addresses for their bank and brokerage accounts. And for God's sakes, never use a safe deposit box for anything important in California.
The conference call was everything we've been predicting. Listen to it here, and download the slide show here.
In many ways, the company was open and honest, especially about how horrible the business is. They were not, however, honest about their failure to foresee the obvious. "Nobody saw this coming" was a recurring theme. Oh, really? Nobody said that if you make cash-back, inflated-appraisal, no-doc loans to unemployed 24-year-olds, it's a bad idea?
Key quote: "a very small percent [of foreclosures], so far, is explained by rate resets." So we've got another big shoe to drop!
More at HousingPanic (read the comments, too, for a more thorough summary than I gave) and Denninger.
With the Australian Dollar possibly to follow shortly. That's what reckless U.S. fiscal and Fed policy will do.
One of their recurring characters, Islamic Rage Boy, is based on a real Islamic rage boy, who's not too happy about it:
With his clenched fists, wild eyes and gnashing teeth he has become the face of Muslim fury, protesting against the enemies of Islam.
Shakeel Ahmad Bhat has been on the frontline of political activism in Srinagar, India, for more than a decade. His constant presence, captured by photographers and beamed across the world, has caught the imagination of rightwing bloggers who have dubbed him Islamic Rage Boy and turned him into an internet phenomenon.
Typing his nickname into a search engine yields more than 75,000 results. He has inspired a cartoon character and merchandise.
A representative sample of Islamic Rage Boy photoshops is here.
NEW YORK (Reuters) - Countrywide Financial Corp, the largest U.S. mortgage lender, on Tuesday reported a 33 percent decline in second-quarter profit and slashed its full-year earnings forecast, citing a difficult housing market.
Shares of Countrywide fell 8.7 percent in pre-market electronic trading.
"Softening home prices continued to affect many areas of the country and delinquencies and defaults continued to rise across all mortgage product categories," Chief Executive Angelo Mozilo said in a statement. "Due to these adverse conditions, the company incurred increased credit-related costs in the quarter, primarily related to its investments in prime home equity loans."
Mozilo added that for the second half of the year, "we expect difficult housing and mortgage market conditions to persist."
Here's what Hovnanian had to say to his fellow builders - in public no less!Ipso facto. Res ipsa loquitur. Carpe scrotum."Raise prices," he said. "Buyers aren't buying because they think you're going to lower prices again. There's interest but there's fear. Raise prices 3-4 percent. And quit giving discounts.''
Here's elements of Price Fixing from the DOJ:
Price fixing is an agreement among competitors to raise, fix, or otherwise maintain the price at which their goods or services are sold. It is not necessary that the competitors agree to charge exactly the same price, or that every competitor in a given industry join the conspiracy. Price fixing can take many forms, and any agreement that restricts price competition violates the law.
If you agree, contact the Justice Department at firstname.lastname@example.org.
This local news video has the latest.
UPDATE 7/22: It gets better! Rent-to-owners got scammed.
The dollar, gold, and energy all think we're going to inflate our way out of this mortgage mess. Bonds don't agree. Three against one. Bonds lose.
Retail Value - 'Lampert Premium' = Sears's Stock?
At its current price, Sears carries a significant premium to the value of its underlying retail business, [analysts] say. Sears trades at about 18 times projected per-share earnings for the next 12 months, richer than rivals J.C. Penney Co., which has a price/earnings ratio of almost 14, and Wal-Mart Stores Inc.'s multiple of about 15, according to Thomson Financial.
I'm still short the stock. And hope to be for a long time.
A 180 foot image of Homer Simpson has been painted into the hillside, next to the famous fertility symbol - the Cerne Abbas giant - in Dorset. Pagans are not happy with the new addition to the hillside, and plan some 'rain magic' to get it washed away.
No, we aren't freezing redemptions. Actually, we don't have to impose restrictions on redemptions, because there's no money to be redeemed! Talk to our lawyers.
If you think this is limited to a couple of Bear Stearns funds, think again. The Bear funds were in "high-grade" securities. Imagine how CalPERS and Texas Teachers are doing with their bottom-of-the-barrel "toxic waste." Hint: not well.
Investors in two troubled Bear Stearns Cos. hedge funds that made big bets on subprime mortgages have been practically wiped out, the Wall Street firm said yesterday, in more evidence of the turmoil in this corner of the bond market.
Bear said one of its funds was worth nothing and another worth less than a 10th of its value from a few months ago after its subprime trades went bad, according to a letter Bear circulated and to people briefed by the firm. The Wall Street investment bank -- known for its bond-trading savvy -- has had to put up $1.6 billion in rescue financing.
This news may have come a little too soon for my liking. Countrywide, which makes a living selling this loans that no one wants to buy any more, was down a buck after hours. If it goes down too much by Friday, the profits from the option spread will disappear.
Meanwhile, the ABX continues to go straight down, far below even last week's shocking levels. Something is happening, but you don't know what it is, do you, Mr. Jones?
It was a hot and sunny weekend at Hendy Woods State Park in the Anderson Valley north of San Francisco.
It's a nice place to camp. There are big redwoods, a small river (pretty dry this year), and hiking and biking trails. There are several good wineries nearby, and Boonville is home to the Anderson Valley Brewing Company of Boont Amber fame.
Britain's World War II prime minister Winston Churchill has been cut from a list of key historical figures recommended for teaching in English secondary schools, a government agency said Thursday.
The radical overhaul of the school curriculum for 11- to 14-year-olds is designed to bring secondary education up to date and allow teachers more flexibility in the subjects they teach, the government said.
More flexibility to teach socialism and tolerance for terrorists, I'm sure.
Teachers' unions are the same all over the world.
Yeah, it's juvenile. But McCain is a dangerous, hotheaded, arrogant, anti-free-speech zealot. Even the most childish potshots are contributions toward the noble cause of sending him to the ash heap of history.
Hey, at least I’m not placing collect calls from “gay sweaters” to his campaign headquarters at (703) 418-2008.
US stocks +1.5%
Emerging markets +2.2%
Gold miners +1.5%
We're gonna be rich, I tell ya!
For a more bearish view, take a look at Karl Denninger's daily Market Ticker. It's good.
Oh, and not just any cranky old man. John McCain.
In the final days of his imploding candidacy, John McCain has taken a page out of Richard Nixon's play book, finding increasingly bizarre explanations for his political failures. Strangest of all: He reportedly feels his handlers forced him to wear "gay sweaters."
According to one insider, the knit-picking was the crescendo of a tirade by the Arizona senator, in which he blistered aides about the minutiae of the campaign. While many septuagenarians live in a perpetual state of sweater weather, McCain reportedly declared his frustration with being told to don the perceived homosexual outerwear in order to look younger and more approachable.
"He wasn't happy being dictated to. The sweaters were part of that," the source says.
HT: Ace at PoliPundit.
But not everyone. Bob Allen is still with him. But Allen is depressed like the rest of the remaining campaigners, so he needs a little relief:
An official with the John McCain presidential campaign was arrested for allegedly soliciting oral sex from a policeman in Florida yesterday.
Bob Allen, a member of the Florida House of Representatives, is one of six Florida co-chairs for the Arizona Republican senator's 2008 White House bid.
According to news accounts, local police in Titusville, Fla., arrested Allen Wednesday afternoon after he allegedly offered to exchange $20 for oral sex with the plainclothes officer.
As the market for risky home loans was beginning to implode in February, Bear Stearns Cos. analyst Gyan Sinha hosted a conference call for 900 investors, telling them they had little to worry about. Unfortunately, there was a lot to worry about.
Two weeks after his prediction, a closely watched part of the ABX, a popular index that tracks securities made up of subprime, or risky, home loans, would hit a new low. Yesterday, amid warnings from rating companies Standard & Poor's and Moody's that hundreds of bonds backed by mortgage loans may be downgraded soon, that same portion of the index hit its worst level ever.
For years, Mr. Sinha, 43 years old, has been one of the most respected mortgage analysts on Wall Street, garnering top rankings from investor trade magazines, and has been renowned for a string of savvy calls. But in the wake of two embarrassing mortgage-related hedge-fund meltdowns at Bear, Mr. Sinha, the firm's top analyst covering asset-backed securities, is getting a bit of a beating.
"It's time to buy the index," he told clients on the Feb. 12 call, according to a participant. Based on Bear's models, "the market has overreacted," the participant says Mr. Sinha added, to events like the early-February announcements from British bank HSBC Holdings PLC and mortgage lender New Century Financial Corp. that losses from risky-mortgage defaults were mounting.
Even then, some found the assessment over the top. "When you read the research [Bear] put out, you can think of one of two things," says independent housing economist Thomas Lawler, who poked fun at Mr. Sinha's bullish view in his own market commentary on Feb. 13. "One is, they weren't getting it as fast as others, or two, they were really trying to talk the market back up. I don't know which."
The National Association for the Advancement of Colored People (NAACP) on Wednesday filed a class action lawsuit against 14 subprime mortgage, lenders alleging they engaged in institutionalized, systematic racism.First George Bush, now Countrywide? Say it ain't so!
Lenders named in the lawsuit, filed in a Los Angeles federal court, include Ameriquest, Wells Fargo & Co, Fremont General Corp, Countrywide Financial Corp, Citigroup Inc and HSBC Holdings Plc, Washington Mutual Inc. and others.
The lawsuit cited data from the National Community Reinvestment Coalition showing that lenders on average made high-cost subprime loans to higher-qualified blacks 54 percent of the time, compared to 23 percent of the time for whites, even when the white applicants were less qualified.
It also included research from the Center for Responsible Living [sic; Lending?]. "These statistical disparities are not mere happenstance, but instead result from a systematic and predatory targeting of American-Americans," the court document said.
Some responsibility obviously lies with the consumer to be educated and shop around for the best loan. But if black applicants are getting the same treatment at multiple lenders, it's a problem.
But there's a better way to punish racist lenders than an NAACP suit: default. Hand the keys back to them and walk away from your underwater house.
Notice the scale on the left is two points lower than yesterday's post. Simply amazing.
CFC, meanwhile, actually finished up after trading lower during the day. This latest ABX crash happened too late to affect the soon-to-be-announced Q2 earnings, but it doesn't bode well for CFC longer term. A huge portion of CFC's earnings is gain-on-sale of mortgages to Wall Street. The plummeting ABX indicates that Wall Street's appetite for this stuff is drying up. The loans that CFC holds in its portfolio are obviously turning to merde as well.
The ideal situation for our CFC option spread would be for CFC to hold at 35 through next Friday, then have some really bad news in the earnings release the following week. I wouldn't be surprised, though, if this REO speedwagon gathers steam and punches below 35 too soon.
Robert Rodriquez, chief executive officer of First Pacific Advisors, was even more blunt. "We haven't seen much of a problem in the subprime area [but only] because the pricing is a fraud; the ratings are bullshit," said the two-time recipient of Morningstar's Fund Manager of the Year.
"I don't buy these prices, but as long as someone can provide capital to keep the finger in the dike, the charade will go on."
Rodriguez concurs with Gundlach that rising subprime mortgage delinquencies are a problem not just for hedge funds but also for major banks and other financial institutions.
"It is estimated that U.S. banks have invested 10% of their assets in collateralized debt obligations," he said. "And 40% of the CDOs are in subprime mortgages. I'm trying to get details on the components and I can't get any. This is setting up the next catastrophe."
It's bizarre enough, with a convicted murderer laughing as he killed his wife on his birthday. Then there's his name: Jesus Jihad. Who has a name like Jesus Jihad? A Mexican with Arabian ancestry?
There's a man with a chart over there
Telling me I got to beware
I think it's time we stop, children, what's that sound
Everybody look what's going down
What's going down is asset-backeds, from AAA through junk. Scary how fast they are dropping.
This is probably the reason. And it doesn't bode well for speculators -- individual housing speculators or hedge fund mortgage speculators.
Not looking too good for CalPERS or Texas Teachers, either.
(Los Angeles, California) For the first time the leading candidates for the presidency will hold a televised debate devoted solely to LGBT issues.
The one-hour event will be held on August 9 and broadcast on gay network LOGO at 9:00 pm ET (6:00 pm ET) and through live streaming video at LOGOonline.com.
Hillary Clinton, Barack Obama and John Edwards have confirmed they will participate. Several other Democratic candidates also may join the debate.
In China, they execute bureaucrats whose corruption or gross incompetence gets people killed.
In America, George Bush gives them the Medal of Freedom.
I saw Stephen Stills
at the Palace of Fine Arts,
just a half mile from the Varones family compound, tonight.
Stills was great, but the minimalist backup band left something to be desired. When you're used to the great harmony on CSN songs, it doesn't quite do it to have either a solo acoustic Stills or a half-hearted harmony attempt by a twentysomething keyboard player.
Stills still has great voice and great guitar solos. I'd love to see a CSN reunion or Stills with some great backup singers.
Stick with stocks, both foreign and domestic. Sure, there's recession risk. But they still look a hell of a lot better than bonds, cash, real estate, or leveraged subprime mortgage-backeds.
A 70-year-old US woman has been left bruised and bloody after an unexpected clash with police who came to caution her for not watering her lawn. Trouble flared when Utah pensioner Betty Perry, 70, refused to give her name after being upbraided because her garden breached local regulations.I know some of you people don't like your neighbors letting their lawns go, but where I come from, a man's home is his castle. You don't like it, go live in Orange County suburban hell with fascist HOA rules.
She says the officer hit her with handcuffs, cutting her nose, although police insist she slipped and fell
It's paid off:
Shares of Alnylam Pharmaceuticals were on fire Monday, rocketing more than 50% on news that the biotech group had signed a collaboration deal with Swiss drugmaker Roche potentially worth more than $1 billion.
Cambridge, Mass.-based Alnylam shares were up 52% at $22.97 in late morning trading.
Last month I noted the collapse of Brookstreet Securities, a mortgage speculation firm. Today I see this from the Florida Sun-Sentinel on the real victims:
Dozens of South Florida senior citizens have lost millions of dollars of their savings because their brokers bet wrong on risky mortgage-backed securities after promising them a stable investment. ...
"We've had people in their 80s in here in tears," [investors' attorney Darren] Blum said. "These people are devastated."
The seniors invested in securities called collateralized mortgage obligations, or CMOs. Some independent brokers working in Brookstreet offices pitched the CMOs to wealthy seniors at dinner seminars and condominium meetings.
"They presented these as very safe, like a bond, paying 7 to 8 percent," Blum said. The CMOs the brokers invested in, however, were complex and highly speculative, he said. Investors also received inaccurate brokerage statements that overstated how much they had in their accounts, Blum said.
The key quote:
When you pool BBB tranches into a CDO and now turn 80% plus into AAA at the touch of an algorithm, based on faulty assumptions, someone somewhere should have raised an eyebrow.
Jordan's Petra? What is that?
Brazil's Jesus statue? Are you kidding?
No Angkor Wat?
Nominations for the Statue of Liberty and the Sydney Opera House?
No natural wonders like Iguazu Falls, Yosemite, or Ngorongoro Crater?
"He has nice hair," the stylist said of Edwards in an interview. "I try to make the man handsome, strong, more mature and these are the things, as an expert, that's what we do."
And let's not forget the 2004 video that defines the man:
More details are beginning to emerge, and it looks like massive, wide-ranging mortgage fraud:
Californian research has uncovered a pattern of property turnover among Crisp & Cole associates, steep price increases and 100 percent financing by subprime lenders in many of the properties now defaulting.
For example, a southwest property on Via Bonita Drive initially sold for $342,000 in October 2005. Five months later, after some deed shuffling with a business associate of Crisp & Cole, a Crisp family member bought the home with 100 percent financing for $549,000. The new price showed an increase of $207,000, or more than 60 percent, in less than six months.
It was too easy, and too obvious. Crooked buyers + crooked appraisers + stupid and greedy lenders = real estate orgy. Well, the Viagra's run out and the screwed lenders are crying foul.
In an e-mail to true believers:
You've probably seen the news this morning: President Bush let Cheney aide Scooter Libby, the one man who was convicted for the lies around the Iraq war, go free. Paris Hilton served more jail time than he will.
Bush and Cheney think their administration is above the law. That's un-American, and this July 4th it's time for Congress to re-assert its constitutional authority and stop the administration's obstruction of justice.
Congress can start by demanding answers from the Bush administration about the Iraq war and their illegal spying program, and not backing down until they get them. Cheney won't testify? Subpoena him. He won't come? Hold him in contempt of Congress and send over the police. And if that doesn't work, impeach the guy. We just can't let President Bush and his administration dismantle our Constitution.
If you don't want the nation to "move on," you can sign the petition here.
Police officers hold down one of the badly-burned men outside the Glasgow arrivals hall moments after he had set himself alight