I notice "recourse" in business-to-business means "secured by other collateral". Reputation and the ability to sue counterparties in the poorhouse don't enter into it.
Amazing numbers of apartments (Ok- still nominally Condos!!!) still flying up!!
Deathwatch for the homebuilders started today. It is now apparent that Washington will only attempt to save some of the homebuyers and as little of wallstreet as possible.
Macklowe brought it home to Manhattan, I think.
I can hardly wait to see what the next couple of hours of confessional begats. State's budget deficit getting worse
Is beginning to approach my end of the world numbers. Guess I have to move the goalposts.
Someday this war's gonna end...
This kind of underwriting is basically getting loan levels back to normal. Plus it remains consistent with the way Freddie and Fannie are currently underwriting permanent MF loans. It sucks for those developers whose projects no longer "pencil" to originally expected returns.
The Securities Industry and Financial Markets Association, a banking industry group, said those larger loans above the former limit of $417,000 will not be allowed on a widely used trading market, known as the "To Be Announced" market, which permits investors to buy and sell mortgage-backed securities before the loan pools are put together.
The NYC real estate market is probably the most opaque market on earth . . . there is no MLS as other places know it . . . and sponsors put a development on the market a piece at a time . . . and the truth is a rara avis in terra.
But many a condo building here will also be rentals before this is over. It's started already, and will only accelerate.
As a renter, "dammit!". I want the builders to build, build and build some more!"
In the years to come, there'll probably be opportunities for smart operators in some areas to pick up REO "executive homes" and split them into duplexes or triplexes. That happened to a lot of big old Victorians in city centers after people started following the new freeways out to the 'burbs in the '50s and '60s. I lived in one of those; wasn't bad.
Ambac CEO: insurer mulling splitting in two as alternative
Ambac does not have legal authority to "split itself in two," except for going-forward business. For written business, only a regulator can do this. Ambac will be sued to the end of the earth if it tries this for written business. Sounds very desperate.
I was thinking that the hotel market is to luxury condos the same as the rental apartment market is to homes.
Now that there is no reason to buy condos for appreciation, you might consider whether it's better to buy a unit for $500,000 in Miami with $1,500 common charge or else stay in a hotel 100 nights for $400 per night.
Unfortunately, the hotel market is overbuilt and vulnerable to price competition in many parts of the country. This may be another nail in the coffin of construction phase condos.
What do you do with a condo when construction is up to the 35th floor of 40 and the floor falls out from under prices?
If I was the developer, I would do JUMBO JINGLE MAIL.
REBear, if AMBAC splits into two, then the munis are supposedly saved and CDO's get largely written down or written off. Assuming worst case scenario where the CDO's are worth 0, how big will the losses be for the banking system? Will they be enough to take down the whole system?
Judging by all of the political posturing, back-room dealings, numerous vaporware bailout plans, and intense perception management it sure SEEMS as if the banks and government believe that the CDO losses can take down the system.
To be honest, not sure the munis are that great either.
Going back all the way to 1959 we have NEVER had non-borrowed reserves go negative. In fact, the lowest we have ever been is a ratio of .69 for non-borrowed reserves to required reserves in 1984. You can see the historical numbers in the first link. If you download it to excel, you can see that the historical norm is above .90 ratio of non-borrowed reserves to required reserves. Current ratio is -42% for non-borrowed reserves to required reserves.
Technically, at this moment, banks are insolvent. Insolvent. The only way they have met reserves is to have EVERY SINGLE PENNY of their reserves as borrowed reserves. In fact, they have borrowed more money than required, reserves and are actually IN THE HOLE to the FED. Let me repeat, this has never happened and I am not sure of the consequences. The banks could give back every penny they have in reserves that they borrowed and still owe money to the FED. Think of like Margin, but you lost more than your margin and even if you liquidated all your cash you couldn't pay back the money. Banks could of course raise cash in other ways, but we are definitely in untraveled waters.
rich,
Although this has probably been raised 1000 times, those common fees are one of the big problems with condos (of course there are some other big ones, too). Those common charges equal my mortgage and will soon equal new buyers mortgages once prices completely collapse. So, as an investment or just a place to live, the condo itself will be virtually valueless or double the price. Why not just buy a house without the common fees? You'll be much farther ahead.
"The NYC real estate market is probably the most opaque market on earth . . . there is no MLS as other places know it . . . and sponsors put a development on the market a piece at a time . . . and the truth is a rara avis in terra.
But many a condo building here will also be rentals before this is over. It's started already, and will only accelerate."
You're so right Gary. Here in Queens where "luxury condo" are sprouting like weeds, the developers don't yet realize that the "Wall Street types" won't pay $500,000 to a mil for this side of the river.
Shucks - I guess I missed out on all the free money.
EDHOPPER says: Here in Queens where "luxury condo" are sprouting like weeds, the developers don't yet realize that the "Wall Street types" won't pay $500,000 to a mil for this side of the river.
I think it is pretty clear by now that Wall Street types have no actual business sense.
"We're experiencing significant growth in repo volume to the point where we're using additional lots to store them," says Tom Kontos, executive vice president of Indiana-based Adesa Auctions. "Our inventories are growing to record levels," caused by repos on top of a glut of cars coming off leases and out of rental service.
"Technically, at this moment, banks are insolvent. Insolvent."
Some may be insolvent, but that is not what the numbers are indicating. The numbers tell us that the Fed and perhaps some member banks have lent over $19B (NSA) more than the required reserves.
The Fed is now truly the lender of last resort. When you lend out $60B, non-borrowed reserves are bound to be negative. This was a foregone conclusion in January.
energyecon, makes sense. Put off the meltdown for another day is the usual policy.
I'm just trying to figure out if the CDO's are enough by themselves to bring the entire Ponzi scheme down or if we have to wait for some other trigger event (like insolvent GSE's for example.)
Why not just buy a house without the common fees? You'll be much farther ahead.
Elvis,
Could you help to answer a question I've been wondering about? When a new condo is built, I understand there's an aggregate common charge that divided pro rata among all condo owners. But what if only half the units are sold? Does everybody's charge double? Or does the developer have to eat some?
I can't imagine it's the latter, because developers don't want to take on a continuing liability.
In some of these Corus-financed construction projects, I doubt they'll be able to sell more than half. So aren't the buyers in those projects schmucks?
"The Fed is now truly the lender of last resort. When you lend out $60B, non-borrowed reserves are bound to be negative. This was a foregone conclusion in January."
This seems like a circular argument. If the Fed lent out $19B more than the required reserves, that implies that the banks NEED this money to keep operations going and that they DON'T have it, otherwise why would they borrow it? Ergo insolvent. What am I missing here?
Um...the monolines don't hold CDO's. They insured them. They did this through quite complicated derivatives. As a group, call the CDS.
So, when a CDO defaults, they have to cough up the insurance coverage. The CDS's have no market value as the market is illiquid. Since they can't sell the anything for covering claims, then they need cash or near cash on the books somewhere as a reserve to be a going concern. (This is SUPER simplified).
So, you're asking the wrong question regarding monolines when you're questioning "the CDO's".
Maybe the monolines purchased some CDO's for their books, I dunno. The question is the quality of the insurance on the CDO's, and weather claims for failing CDO's crush the monolines.
Banks are money stores. They take money from the suppliers and rent it as it were to borrowers for a fee. There is currently a shortage of money suppliers in the private sector, so the Fed is lending against the previously rented money in the hopes that the banks will rent out the money.
This process can mask insolvency, but doesn't definitively indicate insolvency.
The Fed is looking for a new supply of home buyers and smart wealthy renters are all that are left. The best way to get wealthy renters on the hook is by pushing up rental prices and the best way to push price is to diminish supply.
Didn't see this and thought it was important. It would appear that the GSE's are going to seperate the new "mumbo jumbo" loans. Translation- another Paulson plan that lacks substance.
OT - I would like to thank those of you who posted ideas a few days ago for the course on credit that I mentioned. I thought most of them were really quite good. I met with some people about the program today - and I have my doubts. What they propose is having 90 lawyers teach a 6 hour course only on credit abuse (four sessions - each 1 1/2 hours) to 9th grade students in some of the worst inner-city schools here. I think even most of you "credit freaks" here would fall asleep if you had to sit through 6 hours of that (I know I would). And the person I spoke with didn't even know the Rule of 72. I think the idea of teaching all kids about money - how to earn it - spend it - borrow it (if necessary) and invest it is great. But it looks like there are some kinks in this particular program. Still - it is just starting up here - and there will be plenty of time to get it humming if enough people are interested.
BTW - to the one person who thought I might not be telling the truth about this - why would I lie? If I were going to lie here - I'd probably say I made a killing shorting the monolines - which would indeed be a lie (smile)! What's the point of telling a lie about trying to help some kids?
Also OT in this thread - can you believe what is happening with those auction munis? For some reason - I never bought any - although every broker I ever had always recommended them. Guess I didn't get it - where the "gotcha" was. How an issuer could get the benefit of a shorter term interest rate - and the borrower could get the benefit of a longer term interest rate. Without any risk. Didn't compute. FWIW - this doesn't mean I'm smart. It means I'm stupid. And I don't buy anything that I don't understand. I am very much a plain vanilla kind of guy.
Another OT on this thread - this week's CD report. Some long term callables at 5.5-5.75% with good call protection - 3-5 years. Many calls this week from issuers like Bank Hapoalim and National City Bank of Indianapolis. 6% called - reissued at 5.5-5.75% (depending on call protection). I think if these institutions were in a really bad liquidity situation - they wouldn't call old issues and try to refund them with new ones. They wouldn't take the risk of not being able to raise money for .25%. Perhaps I'm not looking at this correctly - but that is my take on it. I am always open to opposing points of view.
Finally - still no great deals in the muni market except for insured bonds whose underlying ratings are junky.
Hope you all had a nice Valentine's Day (my chocolate arrived a day late - FEDEX was grounded in Newark Wednesday night - but I will nevertheless enjoy it (smile). Roby
I wrote a little ditty about based on Glen Campbell's Oh Galveston:
Haloscan, oh Haloscan, I still hear your reload twirlin'
I see the status bar slowin'
21 minutes since I clicked Haloscan
Haloscan, oh Haloscan, I still hear your servers crashing
Hope of reading comments dashing
I click refresh and dream of Haloscan
I still see her struggling to reload
Waiting there for comments I cant see
Is there something waiting there for me?
On the blog where we had such fun
Haloscan, oh Haloscan, waiting here and sighing
Before I quit and just stop trying
Before I see your reload icon say that its done
At Haloscan, At Haloscan
In tightening construction lending, we haven't seen anything yet.
Back when I was building/developing in the 1990s real estate bust, banks in Southern California would say they were still making construction loans, but in reality it was almost impossible to get one.
Here's how tight the requirements for a construction loan became ...
The lender would only finance 60% of the project; and
The lender would make the loan assuming that no houses would ever sell ... AND therefore the borrower had to basically have the financial ability to make payments on the construction loan from other liquid assets that had available.
Ahh, can you how many developers qualified for these type of construction loans?
For the first time, I can actually add something here, rich asked about who picks up the condo fees for units in new construction that go unsold. That happened to my building and the developer had to eat months of the association fees for the several units that went unsold. The top floor units were way overpriced. The developer was very slow in getting the association its money. he ended up owing 15 thousand.
One other note about the condo common fees. It is my understanding that after the developer has sold all the units, the individual units as a whole are responsible for the common fees. If units go under foreclosure, they are assessed the common fee but the other units pay additional common fee money until the foreclosed units are brought up to date. In other words, the other units will have to come up with additional money to cover the difference from the foreclosed units. At least, this is my understanding.
Rich, I see you have an answer above. So a little detail from a Florida perspective . . .
State condo law regulates this. The developer has responsibility for managing the property up to a trigger point in units sold at which point those rights and liabilities are turned over to a condo association.
I expect the details vary by state. In the case of my building, our condo board had no standing until 51% of the flats were sold. Developer remained responsible for fees on flats he owned until they had new owners.
I read this board to learn, the depth of knowledge is tremendous. I am not an expert in any of these things, so I do not feel like I can add anything.
Franz,
We haven't had any foreclosures or sales in the almost 2 years here, but, in NYC, you can find the mortgage information on any property. It was quite a relevation once I discovered it. We have a number of 100% or nearly 100% financers. I'd say about 1/3. Makes me a little concerned,although the property values in this area have held up (so far)
I'm glad I live in Washington state, which is not subprime and well outside the containment zone ... At least that's what they told us until today.
By DAVID AMMONS
AP Political Writer
OLYMPIA, Wash. The Revenue Forecast Council says state government's income is dropping by about $423 million.
Chief state economist ChangMook Sohn says the state budget is being buffeted by the national economic downturn, due to deteriorating real estate and financial markets, weak employment and declining consumer confidence.
rich, ac, idoc are the ones you want for shorting advice. I have a very small toy account for shorting. My money is in Gold, Silver and rolling CD's now.
Pick-a-Builder, any builder. Their charts all look like they rolled over, again. May be retesting lows. If there's some bond insurer CDO bond guaranty bailout by the USG, not entirely impossible since rate cuts and emergency money drops don't help, we'll see a rally that will juice you like a rocket fuel enema.
Great opening comment. Recourse means exactly that: other assets standing as additional collateral.
I would only add that some amount of principal reduction should be specified up front in the event the builder wants the additional collateral released from the lien.
when you say "May be retesting lows", do you mean 'short-term' lows(?) or do you mean that the CRE stocks currently have already priced in the potential worst-case scenario (and therefore, I being too late for the putting/shorting party)?
I agree that a CDO bond guarantee bailout would destroy any puts/shorting plans, but at the moment, it looks unlikely. The recent developments point more towards separating Munis and Structured Finance guarantees. IMHO, a CDO bond guarantee bailout would be too big and too blatant a helpline for the USG to throw out. I think the regulators are looking to salvage the Munis and that is understandable given the crap that bond insurers are in.
"CDO bond guarantee bailout would be too big and too blatant a helpline for the USG to throw out. I think the regulators are looking to salvage the Munis and that is understandable given the crap that bond insurers are in."
You think they'll just save munis and let the CDO contracts be torn up in BK? That is a bad bet. Easier to have a single fix for the CDOs, however costly, than bail out C, BAC, MER, ML, BSC, AIG... individually.
Misean said, "The question is the quality of the insurance on the CDO's, and weather claims for failing CDO's crush the monolines."
I think more about the banks than the monolines, to be honest. I assume the monolines will go under, and in and of itself this is not particularly surprising or disastrous.
However, the numerous downgrades of the underlying derivatives (due to lack of suitable insurance) will cause a mark-to-market discovery process that may crush the banks. I still wonder, if all CDO's are worth 0 will the banks survive? I think I know the answer to this question but I wanted to hear some opinions on it.
Allen C said: "There is currently a shortage of money suppliers in the private sector, so the Fed is lending against the previously rented money in the hopes that the banks will rent out the money. This process can mask insolvency, but doesn't definitively indicate insolvency."
Hopefully you are reading what you wrote here and understand how truly screwed up this situation is. In the world you just described, the very term "insolvency" has no meaning as the banks are merely renting out something which they never had to begin with. Therefore how can any bank ever be insolvent? Why even call them banks? They are no such thing, as they own nothing and are not a source of savings capital at all.
BTW, I don't totally disagree with your point of view, and in fact like the way you think. However my original statement still stands. The banking system is insolvent as it is nothing more than borrowed reserves and there is no capital (other than the occasional SWF Citi infusion.)
developers are responsible for the pro rata share of HOA fees for unsold units. but this only helps the other owners if the developer isn't BK - if so then they would have to make up any shortfall to their HOA budget, or agree as group to scale back as much as possible on expenditures. the only item the group would have to continue paying is insurance and basic common area maintenance - they could agree to temporarily forego set asides for future maintenance, ie roof replacement to temporarily lower monthly costs, maybe get rid of the management fee by managing the building themselves, etc.
now if the construction lender forecloses and takes the whole project back - interesting question. i've paid off many construction loans for condos and but i can't recall if the docs specifically release the construction lender from this liability. probably so. may not matter since i don't believe the developer's obligations can be transferred (and the lender isn't a party to the recorded CCR's of the HOA) but not sure about that. again, the other owners are probably left to manage this problem.
(some of these lenders - say corus - may be in this position soon. interesting to see whether they keep funding these HOA's to keep the property looking good for potential future buyers, or whether they turn their backs on it. i predict the latter.)
on the other hand when a mortgage holder forecloses on an individual condo, does that lender have the obligation to continue to pay the HOA fee for that unit? yes and no, depends on how the CCR's are written. some lenders require that the CCR's release them of this obligation in the event of a foreclosure, some lenders do not. with the recent orgy of lending i did see some lenders accepting this responsibility.
also there have been some posts throwing opinions about condo fees. all condo projects are not the same. the high rise projects of a miami or chicago will have much higher HOA dues due to increased management, maintenance, insurance and future replacement set asides - those can often be over $1000/mo plus. however lower density projects in the 10 to 50 unit range (say four stories) have much lower HOA assessments. in metro LA these projects average $200/mo for new, quality construction without outside management.
contrary to what others have posted here, this HOA fee is either equal or even less that what the monthly equivalent for home ownership would be: the fee covers would i noted previously, insurance, maintenance, set asides for future replacement and water/sewer/trash charges. anyone who claims they spend less than this for all those items on a single family house is either full of shit, or lives in a market without a home depot or lowes nearby - those damn stores take at least $100 from me every month.
As an Apartment Broker and future Developer this is not good news. In my market of Las Vegas, Nevada we have a serious crisis with affordable housing, land shortages and a Foreclosure boom happening all at once. For the past decade, developers in Clark County have only been able to build roughly 3,000 units per year as construction costs have skyrocketed. While at the same time the population growth has gone parabolic. The only avenue for small developers currently are Low Income Tax Credits to build Senior Housing and the competition is brutal.
I notice "recourse" in business-to-business means "secured by other collateral". Reputation and the ability to sue counterparties in the poorhouse don't enter into it.
This is going to do wonders for rents.
As a renter, "dammit!". I want the builders to build, build and build some more!
ROI should be zero for residential construction. That's what "The Ownership Society"™ should look like. Anything else is modern-day peonage.
To which I say, it's about #$@% time!
Troy, maybe . . . in about 5-10 years. It's too late in almost every overbuilt market. Including mine (NYC).
Um, Troy, move to Phoenix.
Amazing numbers of apartments (Ok- still nominally Condos!!!) still flying up!!
Deathwatch for the homebuilders started today. It is now apparent that Washington will only attempt to save some of the homebuyers and as little of wallstreet as possible.
Macklowe brought it home to Manhattan, I think.
I can hardly wait to see what the next couple of hours of confessional begats.
State's budget deficit getting worse
Is beginning to approach my end of the world numbers. Guess I have to move the goalposts.
Someday this war's gonna end...
This kind of underwriting is basically getting loan levels back to normal. Plus it remains consistent with the way Freddie and Fannie are currently underwriting permanent MF loans. It sucks for those developers whose projects no longer "pencil" to originally expected returns.
The Securities Industry and Financial Markets Association, a banking industry group, said those larger loans above the former limit of $417,000 will not be allowed on a widely used trading market, known as the "To Be Announced" market, which permits investors to buy and sell mortgage-backed securities before the loan pools are put together.
The NYC real estate market is probably the most opaque market on earth . . . there is no MLS as other places know it . . . and sponsors put a development on the market a piece at a time . . . and the truth is a rara avis in terra.
But many a condo building here will also be rentals before this is over. It's started already, and will only accelerate.
Ambac CEO: insurer mulling splitting in two as alternative
Ambac CEO: insurer mulling splitting in two as alternative - MarketWatch
Is anyone interested in wholesale lender rate sheets?
I have a couple I could share.
SBA Loans, Hotel/Motel, Office, Multifamily, Bridge, Rehab, Construction Loans with Bank Rates since 1997
this might give some insight w/ one lender.
Nationwide Commercial Wholesale Lender
E M P O W E R I N G M O R T G A G E B R O K E R S
Paul Lopez
Your Account Executive
Direct (786) 497-6128
Fax (305) 442-4696
E-Mail PLopez@Met-West.com
Call me for more information and for all your commercial lending needs
sorry about the last post, not all came through.
"This is going to do wonders for rents.
As a renter, "dammit!". I want the builders to build, build and build some more!"
In the years to come, there'll probably be opportunities for smart operators in some areas to pick up REO "executive homes" and split them into duplexes or triplexes. That happened to a lot of big old Victorians in city centers after people started following the new freeways out to the 'burbs in the '50s and '60s. I lived in one of those; wasn't bad.
here are some others.
Indymac Bank e-Ratesheets -
Ambac does not have legal authority to "split itself in two," except for going-forward business. For written business, only a regulator can do this. Ambac will be sued to the end of the earth if it tries this for written business. Sounds very desperate.
REbear-
don't for one second think that ambac is currently steering that ship.
I was thinking that the hotel market is to luxury condos the same as the rental apartment market is to homes.
Now that there is no reason to buy condos for appreciation, you might consider whether it's better to buy a unit for $500,000 in Miami with $1,500 common charge or else stay in a hotel 100 nights for $400 per night.
Unfortunately, the hotel market is overbuilt and vulnerable to price competition in many parts of the country. This may be another nail in the coffin of construction phase condos.
What do you do with a condo when construction is up to the 35th floor of 40 and the floor falls out from under prices?
If I was the developer, I would do JUMBO JINGLE MAIL.
REBear, if AMBAC splits into two, then the munis are supposedly saved and CDO's get largely written down or written off. Assuming worst case scenario where the CDO's are worth 0, how big will the losses be for the banking system? Will they be enough to take down the whole system?
Judging by all of the political posturing, back-room dealings, numerous vaporware bailout plans, and intense perception management it sure SEEMS as if the banks and government believe that the CDO losses can take down the system.
To be honest, not sure the munis are that great either.
As someone else posted, Bank reserves are in uncharted waters.
Historical values:
http://www.federalreserve.gov/releases/h3/hist/h3hist1.txt
Present Values:
FRB: H.3 Release--Aggregate Reserves of Depository Institutions--December 3, 2009
Going back all the way to 1959 we have NEVER had non-borrowed reserves go negative. In fact, the lowest we have ever been is a ratio of .69 for non-borrowed reserves to required reserves in 1984. You can see the historical numbers in the first link. If you download it to excel, you can see that the historical norm is above .90 ratio of non-borrowed reserves to required reserves. Current ratio is -42% for non-borrowed reserves to required reserves.
Technically, at this moment, banks are insolvent. Insolvent. The only way they have met reserves is to have EVERY SINGLE PENNY of their reserves as borrowed reserves. In fact, they have borrowed more money than required, reserves and are actually IN THE HOLE to the FED. Let me repeat, this has never happened and I am not sure of the consequences. The banks could give back every penny they have in reserves that they borrowed and still owe money to the FED. Think of like Margin, but you lost more than your margin and even if you liquidated all your cash you couldn't pay back the money. Banks could of course raise cash in other ways, but we are definitely in untraveled waters.
Darth,
It's just that the muni's will take quite a bit longer to vaporize...compared to the structured finance bits that is
Must read-
BlackRock Internet
and-
http://www.eatonvance.com/closed_end/APS%20Update%202-14-08.pdf
rich,
Although this has probably been raised 1000 times, those common fees are one of the big problems with condos (of course there are some other big ones, too). Those common charges equal my mortgage and will soon equal new buyers mortgages once prices completely collapse. So, as an investment or just a place to live, the condo itself will be virtually valueless or double the price. Why not just buy a house without the common fees? You'll be much farther ahead.
"The NYC real estate market is probably the most opaque market on earth . . . there is no MLS as other places know it . . . and sponsors put a development on the market a piece at a time . . . and the truth is a rara avis in terra.
But many a condo building here will also be rentals before this is over. It's started already, and will only accelerate."
You're so right Gary. Here in Queens where "luxury condo" are sprouting like weeds, the developers don't yet realize that the "Wall Street types" won't pay $500,000 to a mil for this side of the river.
Shucks - I guess I missed out on all the free money.
EDHOPPER says: Here in Queens where "luxury condo" are sprouting like weeds, the developers don't yet realize that the "Wall Street types" won't pay $500,000 to a mil for this side of the river.
I think it is pretty clear by now that Wall Street types have no actual business sense.
O/T but interesting - No social stigma for personal BK in the UK.
There is increasing evidence that going bankrupt is losing its stigma as consumers struggle with mounting debts
More volunteer for bankruptcy as going bust loses its stigma - Times Online
Corinthian Custom Homes has today filed for bankruptcy (small regional player)
Nice background music on thier website
Sorry. Page not found.
Auto Loan problems accelerating
"We're experiencing significant growth in repo volume to the point where we're using additional lots to store them," says Tom Kontos, executive vice president of Indiana-based Adesa Auctions. "Our inventories are growing to record levels," caused by repos on top of a glut of cars coming off leases and out of rental service.
Repo lots overflow with reclaimed cars - USATODAY.com
Kudlow & Company: "The bottom was put in on January 22nd".
You can't make this stuff up!!!
"Technically, at this moment, banks are insolvent. Insolvent."
Some may be insolvent, but that is not what the numbers are indicating. The numbers tell us that the Fed and perhaps some member banks have lent over $19B (NSA) more than the required reserves.
The Fed is now truly the lender of last resort. When you lend out $60B, non-borrowed reserves are bound to be negative. This was a foregone conclusion in January.
energyecon, makes sense. Put off the meltdown for another day is the usual policy.
I'm just trying to figure out if the CDO's are enough by themselves to bring the entire Ponzi scheme down or if we have to wait for some other trigger event (like insolvent GSE's for example.)
Elvis,
Could you help to answer a question I've been wondering about? When a new condo is built, I understand there's an aggregate common charge that divided pro rata among all condo owners. But what if only half the units are sold? Does everybody's charge double? Or does the developer have to eat some?
I can't imagine it's the latter, because developers don't want to take on a continuing liability.
In some of these Corus-financed construction projects, I doubt they'll be able to sell more than half. So aren't the buyers in those projects schmucks?
"The Fed is now truly the lender of last resort. When you lend out $60B, non-borrowed reserves are bound to be negative. This was a foregone conclusion in January."
This seems like a circular argument. If the Fed lent out $19B more than the required reserves, that implies that the banks NEED this money to keep operations going and that they DON'T have it, otherwise why would they borrow it? Ergo insolvent. What am I missing here?
Darth Toll,
Um...the monolines don't hold CDO's. They insured them. They did this through quite complicated derivatives. As a group, call the CDS.
So, when a CDO defaults, they have to cough up the insurance coverage. The CDS's have no market value as the market is illiquid. Since they can't sell the anything for covering claims, then they need cash or near cash on the books somewhere as a reserve to be a going concern. (This is SUPER simplified).
So, you're asking the wrong question regarding monolines when you're questioning "the CDO's".
Maybe the monolines purchased some CDO's for their books, I dunno. The question is the quality of the insurance on the CDO's, and weather claims for failing CDO's crush the monolines.
Cheers,
"This seems like a circular argument. "
Banks are money stores. They take money from the suppliers and rent it as it were to borrowers for a fee. There is currently a shortage of money suppliers in the private sector, so the Fed is lending against the previously rented money in the hopes that the banks will rent out the money.
This process can mask insolvency, but doesn't definitively indicate insolvency.
The Fed is looking for a new supply of home buyers and smart wealthy renters are all that are left. The best way to get wealthy renters on the hook is by pushing up rental prices and the best way to push price is to diminish supply.
Didn't see this and thought it was important. It would appear that the GSE's are going to seperate the new "mumbo jumbo" loans. Translation- another Paulson plan that lacks substance.
‘Jumbo Conforming’ Won’t Be Part of TBA Trades: SIFMA : HousingWire || financial news for the mortgage market
OT - I would like to thank those of you who posted ideas a few days ago for the course on credit that I mentioned. I thought most of them were really quite good. I met with some people about the program today - and I have my doubts. What they propose is having 90 lawyers teach a 6 hour course only on credit abuse (four sessions - each 1 1/2 hours) to 9th grade students in some of the worst inner-city schools here. I think even most of you "credit freaks" here would fall asleep if you had to sit through 6 hours of that (I know I would). And the person I spoke with didn't even know the Rule of 72. I think the idea of teaching all kids about money - how to earn it - spend it - borrow it (if necessary) and invest it is great. But it looks like there are some kinks in this particular program. Still - it is just starting up here - and there will be plenty of time to get it humming if enough people are interested.
BTW - to the one person who thought I might not be telling the truth about this - why would I lie? If I were going to lie here - I'd probably say I made a killing shorting the monolines - which would indeed be a lie (smile)! What's the point of telling a lie about trying to help some kids?
Also OT in this thread - can you believe what is happening with those auction munis? For some reason - I never bought any - although every broker I ever had always recommended them. Guess I didn't get it - where the "gotcha" was. How an issuer could get the benefit of a shorter term interest rate - and the borrower could get the benefit of a longer term interest rate. Without any risk. Didn't compute. FWIW - this doesn't mean I'm smart. It means I'm stupid. And I don't buy anything that I don't understand. I am very much a plain vanilla kind of guy.
Another OT on this thread - this week's CD report. Some long term callables at 5.5-5.75% with good call protection - 3-5 years. Many calls this week from issuers like Bank Hapoalim and National City Bank of Indianapolis. 6% called - reissued at 5.5-5.75% (depending on call protection). I think if these institutions were in a really bad liquidity situation - they wouldn't call old issues and try to refund them with new ones. They wouldn't take the risk of not being able to raise money for .25%. Perhaps I'm not looking at this correctly - but that is my take on it. I am always open to opposing points of view.
Finally - still no great deals in the muni market except for insured bonds whose underlying ratings are junky.
Hope you all had a nice Valentine's Day (my chocolate arrived a day late - FEDEX was grounded in Newark Wednesday night - but I will nevertheless enjoy it (smile). Roby
Rule of 72 rulz!!!!!!
Well good ol' haloscan is flipping out again.
I wrote a little ditty about based on Glen Campbell's Oh Galveston:
Haloscan, oh Haloscan, I still hear your reload twirlin'
I see the status bar slowin'
21 minutes since I clicked Haloscan
Haloscan, oh Haloscan, I still hear your servers crashing
Hope of reading comments dashing
I click refresh and dream of Haloscan
I still see her struggling to reload
Waiting there for comments I cant see
Is there something waiting there for me?
On the blog where we had such fun
Haloscan, oh Haloscan, waiting here and sighing
Before I quit and just stop trying
Before I see your reload icon say that its done
At Haloscan, At Haloscan
Cheers,
Oh yeah,
Here's some good news:
"Subprime Mortgage Litigation Outpacing Savings-and-Loan Crisis of the Early
1990s, According to Navigant Consulting Study"
http://www.businesswire.com/portal/site/home/index.jsp?epi-content=GENERIC&newsId=20080214005906&ndmHsc=v2A1202994000000B1203042984000DgroupByDateJ1*N1000837&newsLang=en&beanID=202776713&viewID=news_view
Cheers,
Robyn- glad you got the chocolate we sent. There was a lot of discussion about whose identity to send it under, I guess that was resolved okay.
Any pointers to the big players in CRE and their exposures to the seemingly obvious over-capacity?
rich / idoc / Shnapps / Misean / energyecon ...anyone?
Much appreciated.
PS: Sorry for the re-post, but looks like folks have moved out of the previous topic.
In tightening construction lending, we haven't seen anything yet.
Back when I was building/developing in the 1990s real estate bust, banks in Southern California would say they were still making construction loans, but in reality it was almost impossible to get one.
Here's how tight the requirements for a construction loan became ...
Ahh, can you how many developers qualified for these type of construction loans?
You guess it - almost zero.
Robert Campbell
Correction ...
Should be "can you guess how many developers qualified ...
And also ...
"You guessed it" - not "guess" it
Sorry, and I'm too tired to look for any other mistakes because I didn't take time to edit my work.
For the first time, I can actually add something here, rich asked about who picks up the condo fees for units in new construction that go unsold. That happened to my building and the developer had to eat months of the association fees for the several units that went unsold. The top floor units were way overpriced. The developer was very slow in getting the association its money. he ended up owing 15 thousand.
BROOKLYN!,
"For the first time, I can actually add something here"
Seriously? As silly as this board often gets...especially during 'tini time?
Cheers,
sumDyood,
"Any pointers to the big players in CRE and their exposures to the seemingly obvious over-capacity?"
You have to be more clear on what you're looking for. Builder's, lenders, supply/demand, short opportunities?
Cheers,
Misean,
I'm looking at builders and lenders from the perspective of shorting/buying puts on them.
Again, thanks in advance.
One other note about the condo common fees. It is my understanding that after the developer has sold all the units, the individual units as a whole are responsible for the common fees. If units go under foreclosure, they are assessed the common fee but the other units pay additional common fee money until the foreclosed units are brought up to date. In other words, the other units will have to come up with additional money to cover the difference from the foreclosed units. At least, this is my understanding.
Rich, I see you have an answer above. So a little detail from a Florida perspective . . .
State condo law regulates this. The developer has responsibility for managing the property up to a trigger point in units sold at which point those rights and liabilities are turned over to a condo association.
I expect the details vary by state. In the case of my building, our condo board had no standing until 51% of the flats were sold. Developer remained responsible for fees on flats he owned until they had new owners.
Misean,
I read this board to learn, the depth of knowledge is tremendous. I am not an expert in any of these things, so I do not feel like I can add anything.
Franz,
We haven't had any foreclosures or sales in the almost 2 years here, but, in NYC, you can find the mortgage information on any property. It was quite a relevation once I discovered it. We have a number of 100% or nearly 100% financers. I'd say about 1/3. Makes me a little concerned,although the property values in this area have held up (so far)
I'm glad I live in Washington state, which is not subprime and well outside the containment zone ... At least that's what they told us until today.
By DAVID AMMONS
AP Political Writer
OLYMPIA, Wash. The Revenue Forecast Council says state government's income is dropping by about $423 million.
Chief state economist ChangMook Sohn says the state budget is being buffeted by the national economic downturn, due to deteriorating real estate and financial markets, weak employment and declining consumer confidence.
sumDyood,
rich, ac, idoc are the ones you want for shorting advice. I have a very small toy account for shorting. My money is in Gold, Silver and rolling CD's now.
Cheers,
John Stark writes:
"I'm glad I live in Washington state, which is not subprime and well outside the containment zone"
Sarcasm that could be cut by a knife....ROFL
Cheers,
Pick-a-Builder, any builder. Their charts all look like they rolled over, again. May be retesting lows. If there's some bond insurer CDO bond guaranty bailout by the USG, not entirely impossible since rate cuts and emergency money drops don't help, we'll see a rally that will juice you like a rocket fuel enema.
Fair Economist,
Great opening comment. Recourse means exactly that: other assets standing as additional collateral.
I would only add that some amount of principal reduction should be specified up front in the event the builder wants the additional collateral released from the lien.
Barely,
when you say "May be retesting lows", do you mean 'short-term' lows(?) or do you mean that the CRE stocks currently have already priced in the potential worst-case scenario (and therefore, I being too late for the putting/shorting party)?
I agree that a CDO bond guarantee bailout would destroy any puts/shorting plans, but at the moment, it looks unlikely. The recent developments point more towards separating Munis and Structured Finance guarantees. IMHO, a CDO bond guarantee bailout would be too big and too blatant a helpline for the USG to throw out. I think the regulators are looking to salvage the Munis and that is understandable given the crap that bond insurers are in.
Thanks.
"CDO bond guarantee bailout would be too big and too blatant a helpline for the USG to throw out. I think the regulators are looking to salvage the Munis and that is understandable given the crap that bond insurers are in."
You think they'll just save munis and let the CDO contracts be torn up in BK? That is a bad bet. Easier to have a single fix for the CDOs, however costly, than bail out C, BAC, MER, ML, BSC, AIG... individually.
Misean said, "The question is the quality of the insurance on the CDO's, and weather claims for failing CDO's crush the monolines."
I think more about the banks than the monolines, to be honest. I assume the monolines will go under, and in and of itself this is not particularly surprising or disastrous.
However, the numerous downgrades of the underlying derivatives (due to lack of suitable insurance) will cause a mark-to-market discovery process that may crush the banks. I still wonder, if all CDO's are worth 0 will the banks survive? I think I know the answer to this question but I wanted to hear some opinions on it.
Allen C said: "There is currently a shortage of money suppliers in the private sector, so the Fed is lending against the previously rented money in the hopes that the banks will rent out the money. This process can mask insolvency, but doesn't definitively indicate insolvency."
Hopefully you are reading what you wrote here and understand how truly screwed up this situation is. In the world you just described, the very term "insolvency" has no meaning as the banks are merely renting out something which they never had to begin with. Therefore how can any bank ever be insolvent? Why even call them banks? They are no such thing, as they own nothing and are not a source of savings capital at all.
BTW, I don't totally disagree with your point of view, and in fact like the way you think. However my original statement still stands. The banking system is insolvent as it is nothing more than borrowed reserves and there is no capital (other than the occasional SWF Citi infusion.)
rich,
developers are responsible for the pro rata share of HOA fees for unsold units. but this only helps the other owners if the developer isn't BK - if so then they would have to make up any shortfall to their HOA budget, or agree as group to scale back as much as possible on expenditures. the only item the group would have to continue paying is insurance and basic common area maintenance - they could agree to temporarily forego set asides for future maintenance, ie roof replacement to temporarily lower monthly costs, maybe get rid of the management fee by managing the building themselves, etc.
now if the construction lender forecloses and takes the whole project back - interesting question. i've paid off many construction loans for condos and but i can't recall if the docs specifically release the construction lender from this liability. probably so. may not matter since i don't believe the developer's obligations can be transferred (and the lender isn't a party to the recorded CCR's of the HOA) but not sure about that. again, the other owners are probably left to manage this problem.
(some of these lenders - say corus - may be in this position soon. interesting to see whether they keep funding these HOA's to keep the property looking good for potential future buyers, or whether they turn their backs on it. i predict the latter.)
on the other hand when a mortgage holder forecloses on an individual condo, does that lender have the obligation to continue to pay the HOA fee for that unit? yes and no, depends on how the CCR's are written. some lenders require that the CCR's release them of this obligation in the event of a foreclosure, some lenders do not. with the recent orgy of lending i did see some lenders accepting this responsibility.
also there have been some posts throwing opinions about condo fees. all condo projects are not the same. the high rise projects of a miami or chicago will have much higher HOA dues due to increased management, maintenance, insurance and future replacement set asides - those can often be over $1000/mo plus. however lower density projects in the 10 to 50 unit range (say four stories) have much lower HOA assessments. in metro LA these projects average $200/mo for new, quality construction without outside management.
contrary to what others have posted here, this HOA fee is either equal or even less that what the monthly equivalent for home ownership would be: the fee covers would i noted previously, insurance, maintenance, set asides for future replacement and water/sewer/trash charges. anyone who claims they spend less than this for all those items on a single family house is either full of shit, or lives in a market without a home depot or lowes nearby - those damn stores take at least $100 from me every month.
hope this helps.
As an Apartment Broker and future Developer this is not good news. In my market of Las Vegas, Nevada we have a serious crisis with affordable housing, land shortages and a Foreclosure boom happening all at once. For the past decade, developers in Clark County have only been able to build roughly 3,000 units per year as construction costs have skyrocketed. While at the same time the population growth has gone parabolic. The only avenue for small developers currently are Low Income Tax Credits to build Senior Housing and the competition is brutal.