[Interview PART I] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

Posted by Jonathan Miller -Wednesday, October 5, 2011, 12:15 PM
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PART I OF II

I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break.  I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is.

It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday.

This podcast was too big so I cut it into 2 parts.  The next will be up tomorrow.

Enjoy!

View the original article here

[Interview PART II] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

Posted by Jonathan Miller -Thursday, October 6, 2011, 8:21 AM
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PART II OF II

(Listen to Part 1)

I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break.  I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is.

It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday.

This podcast was too big so I cut it into 2 parts.  The first part was presented yesterday.

Enjoy!

View the original article here

[Interview] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

Posted by Jonathan Miller -Friday, January 21, 2011, 11:23 AM
1 Comment

I sat down with my good friend Barry Ritholtz, CEO/Director of Equity Research of Fusion IQ, Author of Bailout Nation and the engine behind The Big Picture Blog.

Barry is the only person I know who is described as providing “trenchant economic commentary” -(Norris/NYT) in fact, I’ve never even used “trenchant” in a sentence before now.  Barry makes his 3rd visit to The Housing Helix podcast and he does not disappoint his fans for the depth of his insight.

This is an R-rated (“R” for “Ritholtz”) podcast – children, young adults, rating agencies and commercial bankers beware.

View the original article here

[House Lock] Does Negative Equity Cause Unemployment?

Posted by Jonathan J. Miller -Wednesday, February 8, 2012, 2:41 PM
1 Comment

This research paper from the Boston Fed addresses the issue of “House Lock” – the idea that people who have negative equity on their homes are trapped and can not migrate to where the jobs are.

…These observations have raised concerns that the prolonged weakness in the U.S. housing market is keeping unemployment high by preventing homeowners who have negative equity from relocating to other states with better job markets. Having a negative equity position in their homes is likely to further deter homeowners from selling in an already weak housing market. Other options, such as engaging in a short sale or strategically defaulting on the loan, can be costly in terms of lost value or a damaged credit record. And in all likelihood, the number of underwater households is likely to persist as house prices continue to fall in many areas due to continually high levels of unemployment and foreclosure.

The report concludes that there is NOT a strong correlation between people stuck in their homes and the high unemployment rate.

home owners are already less transient than renters and account for only 20% of state-to-state migration. negative equity reduces the probably of migration but does not impact unemployment rates.

Still it seems to me that Fed has become much more focused on housing as the way to fix the economy as of late. Of course, this is not official Fed policy speaking in this paper, but with what feels like an increase in housing related research (or I am super sensitive to this as of late), maybe it represents the “Id” of the Fed mindset. You can see it in the last sentence of the paper:

Instead, increased efforts to alleviate the housing sector’s drag on the economy— such as helping more homeowners to refinance or stemming the tide of foreclosures—may be more effective at stimulating aggregate demand and reducing the high rate of joblessness during the recovery.

Are American Homeowners Locked into Their Houses? The Impact of Housing Market Conditions on State-to-State Migration [Federal Reserve Bank of Boston]

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Private Equity Readying a Run on Foreclosures

As the Obama administration and federal regulators work on a program to sell government-owned foreclosures in bulk to investors, those investors aren’t wasting any time stockpiling cash and buying foreclosed properties at auction and from the major banks.

Oakland, California-based Waypoint Real Estate Group, a major acquirer of so-called “REO to Rental” (Real Estate Owned) just announced a partnership with a private equity firm, Menlo Park, California-based GI Partners, to buy foreclosed properties.

GI Partners has approximately $6 billion of capital under management, according to its website. 

“Our approach to buying distressed single-family houses, renovating them, and leasing to residents who are committed to a path to future home ownership is a viable solution to our nation’s housing crisis,” said Colin Wiel, managing director and co-founder of Waypoint in a press release. “Our partnership with GI Partners ensures we can take the next step in our company’s evolution.”

GI is taking an increasingly popular bet on distressed real estate, closing on a $400 million fund with Waypoint, which has plans to purchase $1 billion in distressed real estate assets over the next two years, according to its release. Waypoint already owns nearly 900 single family rental homes in California.

This deal is clearly a sign of things to come, as millions of distressed properties will likely come to market over the next few years. As reported yesterday on CNBC and on this Realty Check page, the conservator of Fannie Mae and Freddie Mac is working with the Obama administration on a plan to sell not just the quarter of a million foreclosed properties already owned by the GSE’s, but hundreds of thousands more in the pipeline heading to foreclosure.

Waypoint is likely positioning itself to be a player in a government bulk REO program. When the Federal Housing Finance Agency (FHFA) last August put out a request for information regarding what to do with all the foreclosed properties on the GSEs’ books, Waypoint filed a response. Those responses are so far not public.

Other private equity firms, such as Greenwich, Connecticut-based Carrington Mortgage Services, are working on deals with major banks to buy foreclosures in bulk. Carrington says it is planning to invest nearly $1 billion in foreclosed single-family homes and turn them into rental housing.

“The market is going to move down this path with or without the FHFA program. We’re seeing movement on the part of some of the larger lenders, and we’re ready to go out and buy properties,” says Carrington executive vice president, Rick Sharga.

This emerging industry of investors in distressed real estate face large management issues, as unlike multi-family apartment buildings, the investors have to deal with many properties spread over wide areas.

“One of the biggest problems investors have executing these programs is that they will underestimate the difficulties of deploying property management on a local level across the country,” says Sharga.

That’s one of the advantages Carrington has, since it already manages several thousand Fannie Mae properties across the country under the mortgage giant’s “Tenants in Place” program and its deed-for-lease properties. Carrington uses its own staff and contract employees for property management as well as a proprietary software system that lets them monitor properties from a central location.

Waypoint is also well-positioned to take advantage of this new market, having acquired 900 properties already and putting many of them up for rent. After buying the properties, Waypoint renovates them and then offers a “lease rewards” program, which they say helps to put families on a path to future home ownership and keep families connected with their communities.

“We believe Waypoint has the potential to thrive given the current market dislocation in single family housing and the sustained tenant demand for rental property,” said Rick Magnuson, executive managing director of GI Partners in the release.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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[Interview PART 1] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

PART I OF II

I’ve been on a 6 month hiatus from podcasting after 150+ interviews over the previous 2 years – had a bunch of other things going and I needed to take a little break.  I’ve been itching to return and was talking to my friend Barry the other day and he wanted to do another one (his 3rd) and here it is.

It’s “R”-rated (for Ritholtz) so wear your earphones if around sensitive-types as he covers the state of housing, a possible recession and his exciting conference next Tuesday.

This podcast was too big so I cut it into 2 parts.  The next will be up tomorrow.

Enjoy!

You can download here or listen below.

I highly recommend Barry’s “Big Picture” conference being held at the NYAC this coming Tuesday. For more info, click on the graphic below:

The Housing Helix Podcast Interview List

You can subscribe on iTunes to my podcast series. The Housing Helix Podcast will be returning to a weekly format soon.

View the original article here

How Equity Became A Household Word

Readers suggested a topic on debt and lifestyle. “Given that incomes for most quartiles has been flat in real terms over the past few decades, why have people borrowed and then spent as if their incomes were growing? We wouldn’t be in as big a mess as we are now if everybody simply lived within their means. Instead a very large proportion of the US has borrowed and lived beyond their means. Yes, there are always some people who will borrow their way to the poor house. But ISTM that ever greater levels of indebtedness have become the norm rather than the exception.”

“Is credit to easily available? Are rates too low? Is the boomer cohort at a spending, rather than saving age? Have advertisements suddenly become more effective at making people want things? All else being equal, in the face of flat real wages one would anticipate flat real spending, not greater spending funded by greater debt. There’s something else in the equation, and I’m not sure what it is.”

A reply, “I wonder if there are historical stats for loan (mortgage?) applications vs those that are granted? It’d be interesting to see if there has been an increase in applications in percentage terms. Of course that doesn’t control for people moving houses more frequently (thus more mortgages), and for increased size of mortgages due to banks being willing to lend more.”

One said, “I think people just didn’t understand the relationship between the interest rate, the length of the loan and the monthly payment. Using a very simple case, if the mortgage pusher says you can refi your mortgage, have a lower payment and get $20,000 cash, are most people going to realize that they have added 15 years to their mortgage pay off date and handed a $10,000 fee to the bank? Maybe, but maybe not.”

“And this is even before you ask if they realized that they converted their fixed rate fully amortizing loan to an adjustable rate, negative amortization loan with a 6 month teaser rate.”

Another added, “The easy availability of credit at low rates allowed people to achieve the lifestyle that the media told them they deserved. The only thing I’d add is that the above reasons produced an attitude change; that might be the something else in the equation. So many people seem to think that having a load of debt is natural without understanding the true cost of it.”

“One thing I noted was how ‘equity’ became a household word. The old system was you bought a house and enjoyed seeing the slow reduction in the mortgage balance; it was debt focused. The new system was to buy a house and brag to everyone how quickly your equity was building. It didn’t even matter if the debt was shrinking as long as your equity was going up. The switch from debt focus to equity focus was, in my mind, a brilliantly retarded move.”

One pointed out, “didn’t they used to teach basic finances in Home Economics back in the day? I did take a business ‘elective’ in high school which taught about budgeting, types and cost of insurance, investments, etc. But it was an elective.”

“Perhaps folks are simply lacking a basic education in financial matters that happened to be part of the core curriculum ‘back in the day’?”

And finally, “My guess is that the average person was more dependent on the bank to determine what they could handle than the average HBB participant might have originally thought. Combine a rah-rah atmosphere where it looks like everybody is getting rich and living the good life and have the bankers cut the brake lines and color it all with the assumption that housing always goes up and here we are.”

The Virginian Pilot. “Nearly one in four homes with a mortgage in Hampton Roads - 24 percent - is worth less than what is owed on the loan, according to CoreLogic. The firm’s quarterly report said 22,967 more mortgages in the region will be underwater if home prices decline 5 percent from current levels. ‘A lot of people who want to move up, they’re not going to move up until they sell their existing homes,’ said Vinod Agarwal, an economist at Old Dominion University. ‘So that reduces the number of buyers in the market.’”

“Across the country, the number fell slightly to 10.9 million, down from 11.1 million at the end of 2010, the firm reported. That represents about 22.7 percent of all residential properties with a mortgage nationwide. The highest concentration of underwater loans was in Nevada at 63 percent.”

From KPTV Portland. “Home prices in the biggest metro areas across the country have reached their lowest level since 2002, according to a price index. And 12 housing markets, including Portland, are seeing home prices at the lowest level since 2006. ‘Basically, you have a lot more people who were mortgaged right up to the hilt. And then when the price decline came, they were under water. The estimate for Oregon is that a third of our homeowners right now are under water,’ says Portland State University professor Gerry Mildner.”

From CNN Money. “The economy is still struggling. And Americans are in for a long and painful adjustment period. One major reason: their own household debt. The bubble economy that led to the recession was fueled by American consumers, businesses and banks taking on too much debt, particularly in real estate, during the decade before the crisis.”

“Total private sector debt — held by consumers and businesses combined — peaked at 283% of gross domestic product in early 2008 — nearly three times the size of the entire economy.”

“The good news is that since the recession, consumers have been paying off debt and saving more. Private debt fell to 234% by the end of last year, though much of that decline resulted from bad mortgage debt shifting from banks to the government through the bailout of mortgage finance giants Fannie Mae and Freddie Mac, said Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and a leading expert on financial crises.”

“But even with some modest improvement in savings in recent years, households still can’t afford the current debt levels, which are well above the average disposable income. ‘At least households are being prudent and rational and bringing the debt down. But I worry we’ll see it leveling off higher than I think it should,’ said David Wyss, a visiting fellow at Brown University and former chief economist at Standard & Poor’s.”

“Stephen Roach, the chair of Morgan Stanley Asia, wrote a recent note suggesting that American consumers were turning into ‘zombie consumers,’ greatly because ‘burdened with underwater mortgages, excessive debt, and subpar saving, U.S. consumers are stretched as never before.’”

“And the process of unwinding those huge debt loads is slow going. Despite Americans paying down debt, saving more of their paychecks, and shedding some of their debt through bankruptcy and foreclosure, Reinhart estimates that the amount of consumer debt alone has declined to only about 92% of the gross domestic product.”

“That’s down from only 98% at its high point at the end of 2007 — a peak that shot up from less than 70% in 1999. ‘The deleveraging process doesn’t really get underway quickly,’ Reinhart said.”

From WCTV. “In Kissimmee, Florida the mortgage crisis hit Areliz Martinez-Rodriguez. Martinez-Rodriguez says, ‘I purchased the house for 255 and right now, the house is for 87 thousand dollars.’ The biggest investment of her life withering away in a market chilled by one of the nation’s highest rates of foreclosure. ‘I’m stressed out because I need a house for my kids and for me and I’m trying to work with the bank and the bank doesn’t want to work with me.’”

“When Donna Thomas’ real estate company of 40 years went under during the mortgage crisis, she lost everything she was saving for retirement. Thomas says, ‘We basically had to give up our regular insurance and go to an HMO and we’ve had to cut back on everything.’”

View the original article here

Negative Equity and Rising Rates: Toxic Cocktail for Housing

First came the surge in negative home equity, now a surge in mortgage interest rates. Add it up, and it throws a big pail of underwater on the hope for a big spring housing surge. At face value on their own, the two reports out today shouldn't cause too much concern, but the effect they have on consumer confidence is bigger than both of them.

The average rate on the 30 year fixed rate mortgage is now over 5 percent, which when you think historically is really a great rate, but that was then, and this is now. Consumer confidence and jobs are the two biggest drivers in the housing market.

"Because we had rates as low as 4.25 percent last year, any increase — particularly to above 5 percent — is likely to reduce loan applications as borrowers adjust to a higher interest rate environment," says Guy Cecala of Inside Mortgage Finance.

The biggest effect of course is in refis, which dropped over 7 percent last week, according to the Mortgage Bankers Association's weekly survey. Last year refis accounted for two thirds of all mortgage originations, so that will clearly change with the new rates. The question is how the rates affect home purchases. Purchase applications also dropped last week, but just by 1.4 percent.

"We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis," says the MBA's Michael Fratantoni.

Higher rates will make loans a little bit more expensive, but not all that much. The bigger driver of mortgage cost will be the new regulatory rules on the horizon and potential changes to Fannie Mae and Freddie Mac loan limits and fee structures.

But rising rates also put a bigger burden on those trying to modify or refinance troubled loans, especially those underwater. The new report from Zillow notes that the foreclosure freeze from the "robo-signing" scandal put an artificially high number of borrowers in the underwater pool because many were supposed to be foreclosed and weren't. Still, as I Tweeted yesterday from Laurie Goodman of Amherst Mortgage Securities, "Home equity is the single most important determinant of mortgage default, not unemployment."

Zillow's chief economist, Stan Humphries, agrees: "Once you get above 125-130 percent loan-to-value ratios, that means that you're 25 to 30 percent underwater on your house, at that point really you start to see a higher rate of strategic default, that's people actually feeling a sense of futility about making their mortgage payments and they walk away from the mortgage."

And how high will rates go? "I think if the 10-year Treasury yield remains at around 3.70 percent, mortgage rates will head to 5.25 percent over the next two weeks," opines Peter Boockvar of Miller Tabak. Again, that's still historically low.

"Realistically, long-term mortgage rates in the 5-6 percent range over the next few years would be affordable enough to support a “normal” housing market all things being equal," claims Cecala.

Unfortunately nothing in today's housing market is normal or even approaching equal.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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[The Housing Helix Podcast] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

I sat down with my good friend Barry Ritholtz, CEO/Director of Equity Research of Fusion IQ, Author of Bailout Nation and the engine behind The Big Picture Blog.

Barry is the only person I know who is described as providing “trenchant economic commentary” -(Norris/NYT) in fact, I’ve never even used “trenchant” in a sentence before now.  Barry makes his 3rd visit to The Housing Helix podcast and he does not disappoint his fans for the depth of his insight.

This is an R-rated (“R” for “Ritholtz”) podcast – children, young adults, rating agencies and commercial bankers beware.

Check out the podcast.

The Housing Helix Podcast Interview List

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

View the original article here

Negative Home Equity Is Worse Than You Think

There was a lot of talk last week about how negative equity, now at 22.5 percent of all homes with mortgages, according to CoreLogic [CLGX  Loading...      ()   ] , will affect the housing recovery. Then mortgage rates popped up to 5 percent overnight, thanks to the 10-year Treasury, and more folks voiced concern over today's potential home buyer and his or her ability to take advantage of this low-priced housing market.

Owing more on your mortgage than your home is currently worth doesn't necessarily mean you can't afford your monthly mortgage payment or that you're going to go about your day any differently, other than feeling a little financially depressed. While it may make some more likely to walk away or "strategically default," most won't.

It does mean that you can't use your home to pay for anything, like a new car or your kids' college tuition, and it does mean that you can't move up to a nicer home without having to take a hit by paying off your mortgage with whatever stash of cash you have. Now here's the issue: The move-up buyer (which is the market we're counting on now to get us out of this mess, given that the home buyer tax credit pulled a lot of first-time buyer demand forward to the beginning of 2010). A significant number of move-up buyers, even if not underwater on their mortgages now, may be in a negative equity position when it comes to buying a new home.

Let me just preface that if you happen to be wealthy independent of your home, or a relative just died and left you a sizeable chunk of cash, this doesn't apply to you. Now here goes. Mortgage expert Mark Hanson makes an excellent point and did some math, which I want to share:

"In order to sell and re-buy, a homeowner must receive enough proceeds from the sale to 1) pay off the mortgage(s), 2) pay a Realtor 5-6 percent and 3) put a 3.5-20 percent down payment on a new vintage loan," begins Hanson, and those alone may be too financially off-putting in today's economy for many potential buyers.

"Effective negative-equity is the big weight on housing that has no easy or quick cure," continues Hanson.

His math:

Real effective negative-equity as it pertains to house selling and buying starts at: <9.5% positive equity for FHA repeat buyers (6% Realtor fee + 3.5% down payment) <16% positive equity for Fannie/Freddie repeat buyers (6% Realtor fee + 10% down payment) <26% for Jumbo repeat buyers (6% Realtor fee + 20% down payment) When lowering Corelogic's negative equity threshold to 75% on CA mortgages, 53% are effectively underwater.

And I would add to Hanson's logic, that CoreLogic also noted that an additional 2.4 million borrowers are in a "near-negative equity" position, with less than 5 percent equity in their homes. That puts them out of the move-up market as well.

With rising mortgage rates, even if they don't go much higher, the "effective" negative equity rate of the move-up buyer will impact recovery, slowing sales as more buyers/demand are priced out of the market.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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Why Care About Negative Equity?

Just because you owe more on your mortgage than your home is worth doesn't necessarily mean that you are no longer able to afford your mortgage. For many Americans who bought their homes during the housing boom, little has changed for them financially other than what the appraiser has determined on paper.

What has changed are attitudes, and attitudes can be dangerous.

22.5 percent of U.S. borrowers were in a negative equity position on their homes at the end of Q3, according to a new report from CoreLogic [CLGX  Loading...      ()   ] .

That is actually an improvement from Q2, but only because many severely underwater homes went into foreclosure in the quarter, thereby taking them out of the pool.

The authors of the study warn that deteriorating home prices now will likely push the percentage back up in Q4.

The definition of home ownership, at least according to the Census, includes homeowners in a negative equity position. "However, homeowners in negative equity are not likely to behave similarly to homeowners with equity, because their financial interest (the equity) has disappeared and has only a small prospect of returning soon, given price trends," note CoreLogic authors. Underwater borrowers are more likely to behave like renters, which means they're not going to invest much in home improvement. They are also more likely to walk away from their commitment, although not in the waves some had predicted.

So what happens if you take those underwater borrowers out of the homeownership equation? It pushes the homeownership rate down to 56.6 percent, down 10 percentage points from the current reported rate, according to CoreLogic. That rate was over 69 percent during the housing boom.

The Obama Administration has been pushing lenders, Fannie Mae and Freddie Mac to write down principal on underwater mortgages in order to put borrowers back into a positive equity position. Interestingly, the latest push is for borrowers who are current on their mortgages. They lenders argue, why should they give money voluntarily if the loans are still performing? They don't even do that very often when the loans are in trouble!

The answer is: attitudes.

The Administration is clearly concerned that more borrowers will either walk away from their commitments or stop spending money on their homes, which are usually their single largest investment.

Think about how much money you have put into your home over the years.

That lack of consumer spending has already hit the economy hard, and the more borrowers who become effectively renters, the less spending we'll see.

But is the Administration's answer—to give borrowers back a few percentage points of equity on paper—really going to fix that and change owner attitudes? No, especially since so many Americans got used to taking money OUT of their homes to pay for all those lovely upgrades.

The change has to come in real home price appreciation.

That is the only thing that is going to give homeowners that much-needed faith in the market, that confidence to stay where they are and spend, not some measly equity handout that won't amount to much and may just prompt the borrowers to put their house on the already glutted market.

And how do you get home price appreciation?

Get rid of that glut of inventory—especially the foreclosures. I'm back on my investor high horse again. Stop offering handouts to underwater borrowers who don't need them to pay their mortgages and start focusing that same money on eating up empty houses and restoring real home price appreciation through a competitive marketplace. If you help well-vetted, responsible investors buy up the properties and rent them to all the families that lost their homes, you will do a lot more good.

Questions?  Comments?  document.write("");document.write("RealtyCheck"+"@"+"cnbc.com");document.write('');And follow me on Twitter @Diana_Olick

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