Rumor Mill: Coldwell Banker Burnet Has Purchased Minnetonka Realty

Though this can be filed as (maybe) rumor for now, we have it from a very good and trusted source that Coldwell Banker Burnet has purchased Minnetonka Realty.  Given the love-letter of Interest that CBB sent out to local brokers, which we covered in September, this should not surprise. 

We expect to see more big-fish-gobbling-little-fish consolidation activity in the real estate, home builder, and mortgage space during The Great Real Estate Unwind™.

We'll work on further information, details, and confirmation through the day.  Anyone with any knowledge, speculation, or opinion, feel free to add some color in the comments below.

12/21/07 at 08:08 AM Permalink | Comments (1) | TrackBack (0)
Filed Under: Breaking News, Industry News, Twin Cities, Western Burb's

Mortgage Banking and Cows, and Barn Doors and Stuff

First, from Today's NYT, which lays blame on Federal Regulators for letting the cows out of the Barn:

An examination of regulatory decisions shows that the Federal Reserve and other agencies waited until it was too late before trying to tame the industry’s excesses. Both the Fed and the Bush administration placed a higher priority on promoting “financial innovation” and what President Bush has called the “ownership society.”

Second, from the WSJ on the Fed's proposed method of shutting the barn door:

The Federal Reserve on Tuesday is set to consider a plan that would mark the central bank's biggest regulatory response to date of the country's mortgage turmoil.

The staff proposal under review would curb the types of subprime products lenders can offer, prohibit certain misleading disclosures, and limit the compensation of mortgage brokers.

The press release and details Fed proposal are here, for those so inclined. 
Fed Proposes New Mortgage Rules... [WSJ]
Fed Shrugged as Subprime Crisis Spread [NYT]

12/18/07 at 10:59 AM Permalink | Comments (3) | TrackBack (0)
Filed Under: Financing Options, Industry News, Sub-Prime, The Fed

This is What Happens When You Shoot Your Mouth Off to the Media

The Southwest Journal is running as its lead story (at least online) the sale of Financial Freedom Realty to a group of Entreprenuers, led by former commercial real estate agent Rocky Osborn and two other silent partner residential real estate agents.

The article contains a choice quote-string from yours truly that we'd like to clarify:

Alex Stenback, a mortgage banker who runs the real estate blog www.behindthemortgage.com, said he doubts Financial Freedom has much value.

“Financial Freedom Realty existed to serve the projects that Gassen was converting,” Stenback said. “They hung some nice numbers on the market for a few years but once the condo conversion train ground to a halt, there’s just not a whole lot left.”

Stenback said he couldn’t begin to guess how much might have been paid for the company, but he didn’t think it was much.

“You’d be hard pressed for me to write a check for fifty grand for that thing,” he said.

Stenback said making Financial Freedom work in today’s struggling market would be challenging, but easier than starting from nothing.

“The bottom line is the real estate brokerage,” he said. “Attracting those people and retaining those people. It’s hard when there are a lot of other established places in town.”

One point we press a lot around here is proper consideration of sources.  As in, "does this person really have any clue about what he's/she's talking about."

Though we stand by the other statements in the above, the "price" opinion was voiced from a position of complete ignorance.  So for the record: We haven't the first earthly clue of what Financial Freedom Realty looks like as a business.  For all we know, they have assets galore, a full pipeline of projects, and a stable of productive agents not reliant on the continuance of the conversion market.

In other words, FFR might be worth millions, or it might be worth $50k.  Either way, opening our yap about a number was a misstep that won't be repeated.
Financial Freedom Realty Sold [SW Journal] 

12/17/07 at 12:50 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Industry News, Minneapolis, Twin Cities

Getting Granular: Finding Some Positives in the Monthy Real Estate Data Dump

It's that time of the month again - When all the local realtor orgs disgorge their housing stats from the previous month, and the media covers the numbers.

The data, as expected, paints a fairly bleak picture for our housing market:  YOY Sales down 19%, Median Price Down 5.1%, and 13 homes for every buyer.  The lone bright spot in the face of declining prices:  Affordability is up. 

But before you get all negative and write off the housing market entirely, consider this:  In the same way that national real estate metrics don't necessarily give us an accurate rendering of our local market, the Twin Cities Metropolitan stats don't necessarily tell us much about prices in individual cities, suburbs, and the neighborhoods within.  In other words, in order to really asses the health of your neighborhood, we need to get granular.

Which brings us to one of our favorite (and under appreciated) reports published by the MAAR, called The 100 125, which breaks down the pricing trends in 125 individual communites.  In some cases, a closer look at these numbers will surprise you. In a good way.

For instance, here's a breakdown of average sales price in Minneapolis, by neighborhood:

Click to Biggify

As you can see, despite the overall decline, there are still pockets of decent appreciation, which is timely confirmation of the fact that despite the big-picture housing woes, you aren't necessarily signing up for financial ruin if you buy in this market.  There are good deals out there, and real estate is appreciating in some areas (and people accuse us of being all doom and gloom around here.  They do!)

So readers, lets get granular.  Check out the report, hit the comments, and let us know how your 'hood (or the hood you aspire to) is doing.

12/13/07 at 11:43 AM Permalink | Comments (6) | TrackBack (0)
Filed Under: Industry News, Market Stats, Minneapolis, Reports & Research, St. Paul, Twin Cities

Prime Borrowers: Cost of Mortgage Money Going Up

To this point, prime borrowers have been relatively insulated from the effects of the mortgage mess.  There's been some tightening of guidelines around the margins, the price of home loans for those with marginally-prime credit is already set to increase, and as can be seen seen in the graphic above, spreads over treasuries have increased (due to an increase in perceived risk for all home loans) and Jumbo (larger than 417K) mortgage rates have gotten much more expensive, relatively.

But for the most part, your average high FICO, prime-conforming (conforming = loan amounts under the agency limit of $417,000) borrower has seen very little impact as the mortgage credit markets have unwound.

This is about to change.  From the Wall Street Journal: Update: Freddie has followed Suit.

Fannie Mae, the giant government-sponsored mortgage investor, last week raised costs for many borrowers by quietly adding a 0.25% up-front charge on all new mortgages that it buys or guarantees. On a $400,000 mortgage, that would mean an extra $1,000 in fees, almost certain to be passed on to the consumer. Freddie Mac, the other big government-sponsored mortgage investor, is expected to impose a similar fee soon, according to a person familiar with the situation.

This is an across the board increase - regardless of credit score, loan-to-value, or any other factor.  Though most lenders have yet to implement this fee (goes into effect March 9th 2008, though many lenders will implement the add-on much earlier) and prime borrowers will see this increase either reflected as an up front fee, or a slightly higher rate.
Mortgage Pain Hits Prudent Borrowers [WSJ]

12/11/07 at 09:37 AM Permalink | Comments (0) | TrackBack (0)
Filed Under: Financing Options, Industry News, Interest Rates

Hope Now Deniallance: The Plan, Unpacked

So The Plan's details can be found over at the American Securitization Forum (PDF here).

Exactly as we expected: The Plan Captures a very small slice of Sub-Prime ARM borrowers for relief, and is front page news on every paper.

This obviously will be covered to death in the mainstream media, and a lot of the blog coverage will be inside baseball that only mortgage geeks will care to wade through.  That said, there are a couple of points worth understanding, even for the casual observer, that will help to illuminate the key underpinnings, and potential impact, of this plan.

First, who's eligible? Who's the thin slice? The requirements are a little obtuse, with FICO tests, Equity tests, and so on, but Felix Salmon has a nice three sentence summary:

If you have good credit and are current on your mortgage, you're not eligible for the freeze. If you have bad credit and you are behind on your mortgage, you're not eligible for the freeze. The only way that you can be eligible for the freeze is if you have bad credit and you're current on your mortgage, and it will reset to a higher rate after January 1, and your mortgage servicer determines that you won't be able to make your mortgage payments after they reset.

Further, in most cases, one needs to have less than 3% equity in their home to be eligible.

Which brings us to this, from Elizabeth Warren at Credit Slips, who points out that there is precious little incentive for those who are eligible to actually take the deal:

In a falling market, a huge proportion of subprime mortgages are now in the 125% LTV territory--"below water" in the foreclosure parlance.  The current "deal" will have homeowners paying off all the mortgage debt or facing foreclosure once again. 

Whether you think that homeowners ought to pay all of the debt or not, regardless of the value of the property, it doesn't make much sense from a families' point of view to do so.  Those who can, will walk away.

At some point, in some of the worst markets, it is going to become socially acceptable to just mail in the keys. You heard it here second (somebody else has said this, we've read it, but can't recall who.)

And no post on major mortgage market news would be complete without Tanta, at Calculated Risk, who sheds some light on why the plan was so narrowly targeted: It is as much about limiting servicer risk, as helping strapped borrowers:

None of that is about figuring out whether the borrower "needs" or "deserves" to be helped. It is about figuring out whether the borrower has any realistic option of refinancing, given current contraints in the mortgage market and the [Home Price Appreciation ] outlook. That, in turn, is crucial because to modify a loan that could have refinanced opens up the servicer to liability for contract violations...

...I'd say the contracts were the part of this that got the most thorough protection. In my reading of this, giving a deal to a borrower almost seems incidental.

At the end of the day, "something" had to be done about the foreclosure problem, and due to the constraints of the market, the structure of this plan represents the only something that could be accomplished.  Will it help some homeowners keep their homes?  Yes.  Will it make a significant dent in the foreclosure problems, and turn the real estate market around?  No.

12/07/07 at 09:23 AM Permalink | Comments (2) | TrackBack (0)
Filed Under: Foreclosures, Hope Now Deniallance, Industry News, Sub-Prime

It Ain't the ARM's: What Really Causes Foreclosures

As the world awaits the details of the Hope Now Deniallance's plan to save the housing market (some details have leaked,) by freezing Adjustable Rate Mortgage resets, we wanted to leave everyone with a thought, and a couple of graphics.

It has become axiomatic that the foreclosure problems we face are a result of exploding and toxic ARM's that have made mortgages unaffordable.  Now take a look at this graphic (via WSJ Marketbeat & Peridot Capitalist):

Notice that of the causes in this chart, the only one that can be directly impacted by policy action is the payment adjustment.  This should be a clue, though we do note that the percentage caused by adjusting payments will go up - these resets will peak early next year.

And now this, from a Boston Fed Study on Causes of Foreclosures in Massachusetts (PDF):

Click for larger graphic.

So, given this information, and knowing that The Plan is targeting payment adjustments on only a certain subset of subprime Adjustable Rate Mortgages, we ask, how much good will this actually do?

12/06/07 at 10:27 AM Permalink | Comments (5) | TrackBack (1)
Filed Under: Foreclosures, Hope Now Deniallance, Industry News, Market Stats, Sub-Prime

More on the Hope Now Deniallance: Sorting them Out

Perhaps the most useful and succinct description of the Sub-Prime ARM Freeze we've seen, from Calculated Risk:

[Treasury Secretary] Paulson clearly defined the group of borrowers that are being targeted for modifications: Homeowners with "steady incomes and relatively clean payment histories who could afford the lower introductory mortgage rate but cannot afford the higher adjusted rate".

Whenever the freeze ends, most of the homeowners in the defined group will still face foreclosure. So the purpose of this plan is clear - since the industry lacks the infrastructure to handle the work load, this guideline helps decide which loans to foreclose on now, and which loans to foreclose on later.

Emphasis ours.  Sounding less like a rescue and "keeping the dream alive" and all that, isn't it?

12/03/07 at 02:30 PM Permalink | Comments (2) | TrackBack (0)
Filed Under: Foreclosures, Industry News, Sub-Prime

Subprime Freeze: The Hope Now Deniallance

From the Wall Street Journal:

The Bush administration and major financial institutions are close to agreeing on a plan that would temporarily freeze interest rates on certain troubled subprime home loans, according to people familiar with the negotiations.

Lots, and lots and lots and lots (and lots, and Lots!) of chatter about the above quoted, in-the-works plan to freeze rates on Subprime adjustable ARM's being advanced by a coalition with a puke-sounding name: The "Hope Now Alliance"

The debate on the topic boils down to this:  As officials contemplate the details of the plan, they have a very fine line to trod.  Either they concoct a plan that captures too few borrowers, which won't solve the problem but will make the front pages.  Or, they cook up something more aggressive which captures a greater precentage of sub-prime borrowers, but will have all sorts of unintended consequences like bondholder lawsuits, rewarding those who overextended, inspiring defaults-on-purpose to get relief, or simply delaying the inevitable.

Here's our prediction:  What we will get is an agreement that captures only a very small slice of sub-prime borrowers - certainly not enough to make any sort of significant den't in the problem - but enough to score PR points, and garner some big headlines.  This may be by design, or by accident.

Here's why:  Even with prime home loans, the circumstances leading to a borrower default are incredibly diverse, complicated and varied.  Rarely do they boil down to a single factor such as an ARM that is adjusting.  Now we have a generation of sub-prime mortgages whose original structure, underwriting, appraisals, etc. are all suspect, if not outright fraudulent, which means that even the most aggressive plan may not offer much help.

In other words, we just may find out that mamy sub-prime loans are so bad that the borrowers are beyond the help any freeze or modification will offer.  It just won't make any difference. You can't exactly fix a loan that should never have been made at all, at any terms, in the first place.

Either way, any meaningful solution will require sorting through the universe of sub-prime loans and looking at each borrowers situation on a case by case basis. Nothing more, nothing less, and anyone who argues otherwise is in denial about the true nature of the problem.  This is heavy, resource intensive, expensive work, and the industry does not have the infrastructure (or resolve, apparently) to do it.   

Complicated problems don't ever get fixed by uncomplicated "lets freeze all ARM's" solutions.  Until the industry and politicians grasp that central fact, it will be much easier and cheaper to slap a one size fits all non-solution solution on problem and grab a few cheap headlines in the name of doing "something," which is what we fully expect out of this Hope Now Alliance, which we are officially dubbing the Hope Now Deniallance.

12/03/07 at 02:18 PM Permalink | Comments (0) | TrackBack (0)
Filed Under: Foreclosures, Industry News, Sub-Prime

More Stats for Your Next Cocktail Party

The previous post on foreclosures inspired some quick back-of-the notepad calculations to put the numbers into perspective.  In other words, how large a problem is this, relative to the broader real estate market?

According to the Minneapolis Area Association of Realtors, there have been 35,061 closed sales through October of this year.

According to a count performed by the Pioneer Press, there have been 10,521 homes foreclosed (sold at Sheriff's Auction) through October of this year.

That's 1 foreclosure for every 3 homes sold in the Twin Cities this year.  Trot that one out at your next cocktail party.

11/28/07 at 03:41 PM Permalink | Comments (3) | TrackBack (0)
Filed Under: Foreclosures, Industry News, Market Stats, Twin Cities