ARE THE CEOS GOING TO HAVE TO DO TIME BEFORE LENDERS CAN DEAL WITH REALITY?

By
Services for Real Estate Pros with The Auctionarium
Will CEO's have to do time before things change?
I am the owner of a small real estate auction company certified to work nationwide for any FDIC insured lenders. FDIC LogoAs one of only 321 AARE Auctioneers certified to sell real estate at auction we provide a higher level of service than 99% of real estate "professionals" in the marketplace. One in a million not one OF a millionDelivering cash for real estate is our job and we deliver 100% of the present cash market value for real estate sold at auction 100% of the time.


In the Summer of 2005 we saw that prices were sliding down and the market had peaked in the East coast resort areas and that a similar phenomenon was happening in California.

People said I was crazy when they demanded that we guarantee a minimum price at auction but we now know who was really insane, it was the people lending money to the idiots who thought that property values would never go down.

FAST FORWARD TO DECEMBER 2006 OUR FIRST SHORT SALE WITH A FREEMONT 80% - 20% VICTIM IN BALTIMORE.

My customers are the people victimized by these lenders and we had been dealing with a lady who originally wanted to sell her condo in Ocean City, MD but that was already $50k underwater by Dec 2006.

She was a small time "flipper / rehabber" a typical Mom & Pop operation with her having a real estate license and Pop doing fix up work on "flips" they had a good 2005 (didn't we all) and put a pre-construction contract in Baltimore's newest planned townhouse community a 1600 sq ft 3 & 2 tri level with a garage for only $477,000.00

December 2005 saw an accident that disabled her husband and income dropped by 75% so she tried to cancel the deal...

The developer threatened her with a suit for performance and would only let her out if refused financing.

The mortgage broker in cahoots with the developer secured an 80% - 20% loan even though the borrowed protested and sent bank statements in showing she did not have enough money for one single payment in the bank when they closed.

Deal closes not one payment made I am called in to auction the property in October 2006 and start working with the lender to prep them for the inevitable short sale.

LENDERS SHORT SALE COMMUNICATION BREAKDOWN SUCKS ACROSS THE BOARD

Any questions on that statement?

Try being a professional whose time is worth $175 to $250 per hour minimum that has to dial into a switchboard , voice-mail jail, wrong person, then the right person, verify authorization to communicate, get a low paid CSR up to speed on a 75 page file on the first phone call.

Guess what? No one can make a decision on which way to bend the paperclip onto the file, is it first loop front or back?

Back to my auction seller who prepaid $3,000 in auction entry fees for advertising, marketing, signs (that kept getting ripped down by developer marketing because they had another 155 units to sell), previews, Internet bidding the whole nine-yards.

The auction was well advertised over 20,000 internet page views 110 inquiries, 14 parties previewed the property, 6 registered bidders for a contract price of $331,500.00 (ask a realtor the last time they had that much interest in a property)
$477,000.00 February 2006 to $331,500.00 December 2006.

GREAT MOVE FREMONT!

Brand new killer type five townhouse that you can see the jumbotron at the new Ravens stadium from the back second story deck. There is nothing wrong with the property walk to Hopkins, downtown, University or a train to anywhere when you can walk to the roundhouse.

The lender contracted a BPO which came in at the mid $300's but demanded the price be revised... it was too low so the paperclip committee sent it back to be massaged higher.

THIS WAS THE SAME WEEK THE FDIC SLAPPED A CEASE AND DESIST ON 80% - 20% LOANS BY FREMONT

Thousands were laid off so no one wanted to be 'responsible' for taking a loss.

February we did another potential short sale again Fremont this was a brand new 5 bedroom 4 bath executive home on a 1.1 acre lot in a upscale private community with no POA or fees.

$535,000.00 June 2006 appraisal $485,000.00 no doc loan closed July 2006 but the buyers credit changed during the construction process and he was slammed with 9% of payments of about $3,900 per month walking into the deal.

Owner loses job they live together as a family in the house 5-weeks and make one payment, lists property with no showings or offers.

Fast forward to auction in February that was even advertised heavily on cable TV, complete digital Bidder Information Package, hundreds of inquiries, 8-registered bidders.

$315,000.00 CASH AT AUCTION against $485,000.00 loaned less than six-months earlier.

BOTH AUCTIONS REPRESENT 100% OF PRESENT CASH MARKET VALUE

Lender refuses to deal with reality and forecloses spending tens of thousands more. I drove by this property two weeks ago, no for sale signs, M & M company lockbox on back door, property had been vandalized, NEW building materials stolen and its not worth the $315,000.00 we put on the table earlier in the year at auction.

Baltimore property? I spoke with the lady who owns it a few months ago and she said "its the damnedest thing but I have not heard from them and they have not foreclosed"

SEPT 2007 2 BRAND NEW HOMES OUTSIDE JACKSON HOLE - TETON VALLEY IDAHO

We are contracted to auction two brand new homes in Victor Idaho just outside world famous Jackson Hole, WY.
jackson hole real estate auction

$25,000 marketing budget and we spent every penny and then some to promote these two beautiful homes in a private community, day spas, pga golf course, heli-pad to go helicopter skiing in the Tetons, they even have a service where you can order your groceries on-line and they will be put away on your shelves when you arrive.

The homes were sold using pre-construction "appraisals" of $1.4 to $1.6 million based on comps in another state over a mountain range 28-miles away.

About 200 new homes were sold to pre-construction "investors" for about $1 million each all people with A-1 credit good jobs and conservative investors. The deal looked like a no brainer on paper $50,000 initial cash outlay for a $500,000 return in less than 12-months.

Our seller purchased 2 of them because the profit potential was so high on paper.. but guess what?

$660,000 is 100% of CASH Market Value for a home that sold for $1 Million Pre construction based on $1.4 to $1.6 Million appraisal value.

There were two lenders this time First Horizon and New City who were both bent over by an aggressively priced marketing company working in cahoots with the mortgage brokers and appraisers. The place shows great and they sold the heck out of developer inventory using an investment pitch that just ain't flying in late 2007.

There is easily ten years worth of inventory at historic high absorption rates yet nothing is selling in the re-sale market.

UH Oh 40% LOSS OR $400,000.00 PER HOME PRICE DEPRECIATION WHEN COMPLETED

Will they take the loss today with cash in hand which is reality or take a big fat bite into that "wish sandwich" wishing for more bread.

WHO IS THE BRAIN TRUST SETTING LOSS MITIGATION POLICY?

I worked on a project for the White House with Booze Allen Hamilton on a special e-gov team to determine what the holding costs for vacant government owned properties in 2001.

2.71% PER MONTH OF THE FINAL HOLDING COST IS WHAT THE LENDERS EAT

The report HAD to be in on time and a group of leading experts determined that 2.71% per month of the final holding cost regardless of price was the average cost. (14.6 months average hold time)

The report was delivered on time by the close of business on September 10th 2001 apparently not many people had time to read it in the morning.

Add price depreciation into that equation and the holding cost to a lender for a vacant home is 4% to 6% of the FINAL SELLING PRICE PER MONTH.

What does that mean?

$20,000.00 per month is the holding cost on a home that eventually sells for $500,000.00 (wishing it was $850,000)

$10,000.00 per month is what its going to cost you to hold out for $250,000.00 while biting into that $500,000 wish sandwich.

Many re-sale & spec homes in the same community have been on the market 400 to 700 days or more without an offer or sale.

$40,000.00 is 4% of $1-million dollars so if the million dollar figure had even been the true pricepoint after 10-months the price would erode to:

$600,000.00 or the $660,000.00 Auction contract price against $1 million average pre-construction prices based on inflated appraisal at $1.4 to $1.6 million with no comparable sales or any re-sales to establish any value other than aggressive developer marketing.

The lenders were not happy with the prices for the houses in Idaho so they found an appraiser who told them what they wanted to hear... the homes are worth $1.35 million each... on paper that is because most everything listed in that price range has had a birthday on the MLS without so much as an "offer" contingent upon or subject to.

$1.35 Million each when the market for million dollar plus homes has an absorption rate in a good market of about 10 units annually yet there are 200 on the market today with nothing selling.

$1.35 Million appraised value each for houses that could not get an opening bid of $500,000.00 at another (less professional ?) auction held 9-days before ours delivered $660,000 30-close all cash no contingency buyers for the two homes directly next door.

Auction cash on the table has been right on the money in every instance regardless of what the "analysts or experts" have valued the property at. There is no truer appraisal of a property than what a ready willing and able buyer is willing to pay in an as is where is all cash quick close transaction. The owners of the property have all been willing to accept the loss and pay into the deal out of pocket whatever they are able to contribute.

LENDERS CANNOT DEAL WITH THE REALITY OF CASH ON THE TABLE FOR REAL ESTATE TODAY

So what's up with the lenders?

Is there a reason to humiliate a borrower about to lose their home by having them on hold for 15 to 45 minutes every time they call? Is there a reason they do not have any consistency in loss mitigation policy or procedures?

Why can't they deal with reality?

Does anyone have some valid suggestions on how to change these practices?NAA Logo

Auctions have been regulated for over 2000 years and this is the same old story one more time to the industry but antiquated foreclosure regulations are now tying the hands of auctioneers to deliver cash to property owners and lenders / shareholders / taxpayers. 

If there are any lenders or experts out there that don't want to post on the board e-mail me billy.burke@reauction.com or pick up the phone and dial my desk at 410-957-4786.

I just want to know what the plan is when you know you are going to take huge losses, the market is going down with no end in sight and idiots who are afraid of their own shadows are making 'life & death' decisions about peoples property based on outdated antiquated formulas.

There are now investigations by the SEC into the actions of Countrywide CEO Angelo Mozillo because of his stock trading earlier in the year http://tinyurl.com/285vs7

The CEO's are high profile targets but do they really know what is going on in the trenches? I think not they are just too far removed.

              ARE THE CEO'S GOING TO HAVE TO DO TIME BEFORE LENDERS CAN DEAL WITH REALITY?



Comments (4)

Anonymous
Anonymous

Potential buyers/investors are missing out on some select awesome "deals" on properties due to their minds processing sensational headlines into an inability to act. They will not listen to reason, only to gloom and doomsayers..... What are they waiting for? Many will not be ABLE to buy in a future market, many should buy now and yes, you are correct regarding the current homeowners who do have their homes on the market, people are not making offers on their homes and some of them could lose that home. Many homes on the market right now had LINES of people for DAYS waiting in previous years to buy them because of the extreme desiriability of the properties, now the same properties are looked upon as a WASTE of the buyers time, when in the past, those and other buyers were clamoring over that same house. 

Years ago, (1990) people had to save up 20% of the sales price as a DOWN payment, then come up with even more for closing costs to buy a home. They also paid upwards of 12% interest rate with good credit. (People with bad credit couldn't even consider to buy a home). Payments back then on a $130,000 home were about $1400 per month, 13% interest plus PMI mortgage insurance which was not tax deductible at the time....to qualify for this home you had to make $65,000 per year or more with the good credit scores. Now, you can buy a $160,000 home for 5.75% interest, the payments will be about $1280 per month.

Well, the families continue to change in size, smaller and larger, and people are staying in their current living situations and sometime they will have to adapt to their environments or MOVE into a smaller or larger home and who knows what the new situations will hold for them? Houses will be selling again and the good deals will be gone...then the people will say, we missed another opportunity?

Oct 19, 2007 08:46 AM
#1
Billy Burke
The Auctionarium - Altadena, CA
CAI - AARE

It sounds like you are a 2% Two Percenter.

98% of realtors have never experienced a bad or slow market during thier career.

86% of realtors have never lived through the typical 7 to 9 year market cycle during their adult lives.

Thanks for the reality check and its true.

TODAY IS THE BEST DAY TO BY OR SELL REAL ESTATE! 

Oct 19, 2007 09:41 AM
Paul Jerome
Seller Helps Buyer - Clearwater, FL

It looks like they're calling for Mozillo's resignation and replacement.  Daily News Los Angeles reported:

"A pension plan that owns shares of Countrywide Financial Corp. has asked the mortgage lender's board to oust Chairman and CEO Angelo Mozilo amid criticism of the company's management and a sharp decline this year in its stock price."

Oct 21, 2007 10:16 AM
Billy Burke
The Auctionarium - Altadena, CA
CAI - AARE

http://globaleconomicanalysis.blogspot.com/2007/11/wamu-collapses-under-appraisal-probe.html

 Wamu Stock prices collapse after proper is opened

New York Attorney General Andrew Cuomo said Wednesday that his office is sending subpoenas to Freddie Mac (FRE) and Fannie Mae (FNM) and is asking the companies to retain an independent examiner to review certain mortgages and appraisals as part of his probe into the mortgage industry.

In a press release, Cuomo said Freddie Mac and Fannie Mae have agreed to retain an independent examiner to conduct a total review of all Washington Mutual Inc. (WM) appraisals and mortgages they purchased.

"In order to fulfill their duty to consumers and investors, Fannie Mae and Freddie Mac must ensure that Washington Mutual's mortgages have not been corrupted by inflated appraisals," Cuomo said.

Last week, Cuomo sued First American Corp. (FAF) and its eAppraiseIT unit for allegedly colluding with Washington Mutual to use a list of preferred appraisers to artificially inflate mortgage appraisals.

Washington Mutual isn't a defendant in Cuomo's suit, which was filed in New York State Supreme Court in Manhattan.

Cuomo's office is examining potential conflicts of interest in the appraisal process as well as the securitization of mortgage loans, particularly subprime loans.

The SFGate version of the story is N.Y.'s Cuomo alleges appraiser, lender collusion upped home values

Andrew Cuomo sued a leading nationwide real estate appraisal management firm and its parent company on Thursday for allegedly colluding with the nation's largest savings and loan firm to inflate the appraised values of homes.

The lawsuit said that First American eAppraiseIT, a subsidiary of Fortune 500 company First American Corp., caved in to pressure from Washington Mutual to rely on "proven appraisers" who were willing to inflate home prices.

Washington Mutual profited from the artificially high appraisals because they allowed the company to close more home loans at greater values, the lawsuit said. First American, a provider of business information, title insurance and related services, wanted to win more business from Washington Mutual, the suit said.

Cuomo said fraudulent appraisal practices were pervasive in the industry. At a news conference announcing the lawsuit, he said lenders, mortgage brokers, real estate agents and others frequently pressured appraisers to "come in with the right number, the number that justifies the transaction" so that everyone in the chain would receive commissions.

In response to questions about whether he will charge other companies, the attorney general said his investigation is continuing.

"The appraisal process is a systemic weakness, in our opinion, in the housing industry," Cuomo said. "This is a case we believe is symbolic of an industrywide problem, a long-term problem."

Cuomo said a nine-month investigation uncovered numerous e-mails from senior executives at the companies showing that eAppraiseIT intentionally broke the law to win future business with Washington Mutual.

First American said the e-mails were taken out of context or mischaracterized.

"The independence of the appraiser is essential to maintaining the integrity of the mortgage industry," Cuomo said. "First American and eAppraiseIT violated that independence when Washington Mutual strong-armed them into a system designed to rip off homeowners and investors alike. ... By allowing Washington Mutual to hand-pick appraisers who inflated home values, First American helped set the current mortgage crisis in motion."

Bloomberg is reporting Cuomo Widens Mortgage Probe, Taps Fannie, Freddie.

Cuomo is demanding Fannie Mae and Freddie Mac, the two biggest U.S. providers of home loan financing, hand over details of loans they buy that may show appraisal values on homes were illegally inflated.

The attorney general said he uncovered a "pattern of collusion" between lenders and appraisers and said he is targeting banks beyond Seattle-based Washington Mutual.

Fannie Mae and Freddie Mac agreed to supply documents, Cuomo said, giving the attorney general access to information on some of the $11.5 trillion of mortgages they own or guarantee.

"We believe it is widespread, it is prevalent," Cuomo said today at a press conference. "In this case follow the money, the old expression, is follow the mortgage."

Washington Mutual shares tumbled after Cuomo's announcement. The stock fell $3.99, or 16 percent, to $20.24 at 2:04 p.m. Earlier, the shares dropped 19 percent, the biggest decline in 20 years.

Washington Mutual is the third largest provider of loans to Fannie Mae, selling $24.7 billion in loans in 2007 alone, Cuomo said. Washington Mutual is also the fourteenth largest provider of loans to Freddie Mac, selling $7.8 billion in loans in 2007, he said.

Where There's Smoke There's Fire

The San Francisco Chronicle is reporting California appraisers say they're pushed to inflate home prices

Ask any real estate appraiser: Being badgered to overstate home prices is a fact of life, they'll say.

"We get pressured every single day to inflate our values," said Dan Tosh, principal at Tosh & Associates, an appraisal firm in Brentwood. "We get people telling us we'll never work again, or they won't pay us because we won't play ball."

"This makes things such as Enron and WorldCom look small by comparison," said Ted Faravelli, executive director of the California Association of Real Estate Appraisers and principal at San Jose's T.E. Faravelli & Associates, an appraisal firm. "It was an epidemic."

In a nationwide survey released early this year, 90 percent of 1,200 appraisers said they had felt "uncomfortable pressure" to adjust property values. Mortgage brokers were named as the most common culprits, followed by real estate agents, consumers, lenders and appraisal management companies. The increase in pressure was dramatic compared with that found in a similar survey in 2003, when 55 percent of appraisers reported feeling pressured.

"Pressure on appraisers reaches pandemic proportions," said David Hutton, senior editor at October Research Corp., the Ohio company that conducted the study. "The New York lawsuit ... may be just the tip of the iceberg."

Regulators say it is difficult to clamp down on the practice without a smoking gun.

The case filed in New York may have a smoking gun: The attorney general's office uncovered e-mails from the appraisal firm First American eAppraiseIT that appeared to discuss pressure from lender Washington Mutual to pump up prices.

Washington Mutual Daily Chart


Nov 12, 2007 01:52 AM