It seems that everywhere you turn today, another real estate company is raising a “distressed debt” fund. The logic of course is simple. People are trying to reduce their illiquid investments, and property is illiquid. Why buy new property, which carries with it all sorts of unknowns (including value) when there is seasoned, mature and [...]

From Bloomberg: Freddie Mac Says Its Loss From Taylor Bean May Be 'Significant' Freddie Mac ... said the collapse of lender Taylor, Bean & Whitaker Mortgage Corp. may cause it “significant” losses. ... The Ocala, Florida-based lender accounted for about 5.2 percent of Freddie Mac’s single-family mortgage purchases last year ... Freddie Mac can force lenders to repurchase defaulted loans that weren’t of the credit quality they represented, a use of its contracts already made harder by the collapses of IndyMac Bancorp., Washington Mutual Inc. and Lehman Brothers Holdings Inc., the company said. ... Brian Faith, a spokesman for Fannie Mae, Freddie Mac’s Washington-based rival, said last week his company hasn’t done business with Taylor Bean “for some time.” From the : On August 4, 2009, we notified Taylor, Bean & Whitaker Mortgage Corp., or TBW, that we had terminated its eligibility, for cause, as a seller and servicer for us effective immediately. TBW accounted for approximately 5.2% and 2.7% of our single-family mortgage purchase volume activity for full-year 2008 and the six months ended June 30, 2009, respectively. We are in the process of determining our total exposure to TBW in the event it cannot perform its contractual obligations to us. The amount of our losses in such event could be significant.

submits: Late Friday Freddie Mac () surprised markets by reporting a profit and by not requesting additional bailout money from Treasury. Before we celebrate, however, let’s consider a few revealing footnotes from the company’s . But first, some key financial ratios. As you can see, non-performing assets are still rising quickly. (Click table to enlarge in new window)

Annual adjustment of fee-based trigger for additional mortgage loan disclosures

Mortgage rates will naturally fluctuate but should remain generally favorable because of an active secondary mortgage market.

Why do consumers prefer Toyotas or Hondas vs. Chevy's, Fords or other American cars? It would seem that most cars provide basically the same features, but year after year Toyota and Honda continue to provide reliability and value beyond that of their competitors in the eyes of buyers. While American car manufacturers have closed the gap, the public's perception has been fashioned by years of import performance that wasn't matched by American cars. Check any of the automobile rating agencies and at the top will be a long line of “imports” with high marks for quality, performance and reliability. The appraisal profession is faced with a similar "perception problem". From the client’s perspective, how reliable are real estate appraisals? Are they better off by letting an AMC (Appraisal Management Company) “handle the hassle” or could they be getting something better and more reliable? What can be done to change the market's perception of the services the professional appraiser provides? When you consider that the consumer is making perhaps the largest investment of their life with the purchase of a home, logically, they should want assurance that it is a sound investment, something a good appraisal would provide. We all know that the purchase of a home is an emotional decision and that tends to over-shadow logic. Still, you would think that with the median price of a home in the $200,000 plus range, a $300-$400 investment by the consumer would be a cheap insurance policy and in their best interest prior to taking the housing plunge. The reality is, consumers don’t know what we do, nor do they know what we could do for them as a consulting type assignment when they are about to make the investment of their lives. Likewise, appraisers often don’t comprehend the needs of their clients nor consider additional services they could provide “collectively” that would be valuable to the client. The lender is making a large financial commitment, taking on...

Professor Arthur C. Nelson, Director of the Metropolitan Research Center at the University of Utah, has kindly sent me his new paper: "The New Urbanity: The Rise of a New America" (no link). Nelson sees a dramatic shift in American cities: "[T]he period from 2010 to 2030 will see the most remarkable change in America’s built environment since the end of World War II. The changes will be driven by monumental demographic shifts coupled by important changes in housing preference. The landscape of the new American metropolis will be very different from the old one ... the end of the spatial expansion of metropolitan areas and a new era of infill and redevelopment." Nelson argues this will lead to a decline in the homeownership rate because of shifting demographics, changing preferences (more urban amenities) and changing lending standards. On demographics: The demographic profile of the United States is changing in several important ways, led by aging baby boomers and immigrants.1 The focus here is on the aging “boomers” and secondarily on broad changes in household types that will drive future housing demand. The half century after World War II was dominated by the baby boom generation, the children born between 1946 and 1964. They will turn sixty-five between 2011 and 2029. Generally, for most years since about 1950, roughly half a million people turned sixty-five annually. By the late 1990s, the parents of the boomers had turned sixty-five, so for about a decade the number of people turning sixtyfive fell to about a quarter million annually. The period from 2010 to 2030 will see an average of 1.6 million turning sixty-five annually, as illustrated in Figure 1. Click on graph for larger image in new window. This is figure 1 from Dr. Nelson's paper. This shows the number of people turning 65 by five year periods (the dates at the bottom are the end of the five year period). The share of households with children also will change. The baby boom era...

This is a common story in many areas ... the following information is from San Diego. San Diego real estate broker Edgewood121 attended a presentation this week by San Diego County Assessor / Recorder / County Clerk David Butler on NODs and foreclosures in the county. The following is a handout from the presentation: Click on document for larger image in new window. Acording to Edgewood121, Butler said that San Diego county is "expecting a wave of foreclosures in the near future and they are gearing up for it". (quoting Edgewood121 paraphrasing Butler). Butler thinks the banks are holding back, probably because of the various government programs. Edgewood121 was left with the impression that "it is [only] a matter of time before more properties become available." And that the only reason prices appear to have stabilized "is because of the artificial choking-off of inventory, thereby creating urgency and multiple-offer scenarios." Clearly the banks are hoping that the modification programs will reduce the number of foreclosures. However most mods just capitalize missed payments and fees (so the banks can pretend they are still whole), and reduce interest rates for a few years (so the homeowner can pretend they still own something of value). Extend and pretend. Really these underwater "homeowners" are more renters than owners, and many will still have negative equity when the interest rate increases again. Perhaps we should call the modification programs Single Family Public Housing .

submits: According to a report issued by the Federal Reserve, consumer credit contracted for the fifth consecutive month in June. This decline marks the longest sustained drop in available credit to consumers since 1991, and the last quarter was the weakest for consumer credit since 1980. Consumer credit shrank by $10.3 billion for the month or an annual rate of 4.92%. A survey of 33 economists by had predicted that the decline in credit would have been closer to $5 billion, but the actual results were more than twice that amount. With unemployment continuing to grow, as even the better-than-expected month of July saw nearly a quarter million job losses, households are saving more and borrowing less.