UPDATE 3-Wells Fargo: Housing worst since Great Depression

[truthisfreedom]

Source: Reuters

By Jonathan Stempel

NEW YORK, Nov 15 (Reuters) - Wells Fargo & Co (WFC.N: Quote, Profile, Research), which has sidestepped many of the credit and liquidity problems plaguing U.S. mortgage lenders, believes the nation's housing slump is the worst since the Great Depression and is far from over, Chief Executive John Stumpf said on Thursday.

Stumpf said the second-largest U.S. mortgage lender and fifth-largest U.S. bank is "not immune" to the storm, but is well-positioned to ride it out, despite expectations for "elevated" credit losses from home equity loans into 2008.

He also said the San Francisco-based bank has "minimal" exposure to the collateralized debt obligations and other mortgage-related debt that have caused well over $40 billion of write-downs industrywide, with more expected.

"We have not seen a nationwide decline in housing like this since the Great Depression," Stumpf said at a Merrill Lynch & Co banking conference in New York. "I don't think we're in the ninth inning of unwinding this," he continued, using a baseball reference. "If we are, it's an extra-inning game."

Read more: http://www.reuters.com/article/newsOne/idUKN1530003920071115?pageNumber=1

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I'm trying to sell a cute rental house I own. It's located 2 blocks (almost sightline) to the most coveted lake in Minneapolis, Cedar Lake, and I bought it for $289K two years ago. When I contacted my local expert area realtor about selling it, she said I had to drop the price to $275k or "nobody will look at it." Even at that price, she said it would take up to 10 months to sell it. And that is in the HOTTEST neighborhood in Minneapolis. So, to solve that problem, I'm going to sell it via contract-for-deed to one of my employees, but I have to float him for a couple of months while he straightens out his credit... I hooked him up with a credit specialist to make it work. Can you imagine? My mortgage broker told me that renters in the area are offering FIRST MONTH FREE to anyone who will rent, because unsold condos are being turned into rental properties everywhere in town. IT'S MADNESS! and on top of that, I received my propery tax assessment for that property today, and they have it appraised at $311K!!! I called them up and screamed... the workers at the tax assessors office were completely flustered, obviously, by thousands of complaining homeowners.

[madrchsod]

1. my son was offered a deal on a brand new

3000 sq ft house in wisconsin for 800 per month for a year and at the end of the year the developer would help him get a loan. the guy has 7-8 new homes that are`t moving.....

[truthisfreedom]

2. Unbelievable. My mortgage on this house is $2100/month, but as a rental I MIGHT be able to ask

$1.5k. It's only 1050 square feet, but the neighborhood is very desirable.

[madrchsod]

3. i think the 800 dollars was to cover the developer's interest

on his construction loan. the house was in the 200 to 225 range.

[NBachers]

4. Yay! Bread lines around the block,

high unemployment, Bonus marchers, hungry & desperate low-wage slaves.

Happy Days Are Here Again!

My Dad was a casualty of the Great Depression. For all he accomplished in life (way more than I ever will) he was always darkened by the fear that it was coming back again. He died in a very tragic way during the Nixon Administration. My Mom's assessment: "I know he was very concerned with the state of the United States of America."

Brought to you by the same ruthless motherfuckers, no less.

[Gman]

5. Local governments across the country are in a huge bind because of this

Local leaders such as city councilpersons for years have been bragging about not raising property taxes when in fact, the way they raise taxes is to just raise the valuations. Your property has a market value of at most the $275 and that should be more than the tax appraisal value. Multiply the difference by the tax rate per $100 and everywhere in the country is facing a huge shortfall in the future. Also figure in that there is tons less money flowing down to the states and local governments due to 1) Bush's tax cuts and 2) Iraq. Local governments have the choice of either reducing values according to the market then having to later declare bankruptcy, or keep increasing valuations and risk city hall being stormed at night by mobs with torches and ax handles in hand.

In no more than 2 years, this will explode like a hydrogen bomb across the country as a huge issue because it's not right to have a property appraised for tax purposes at maybe up to 150% of it's market value and maybe more. IT is something that the next president will have to deal with.

Democrats would be VERY wise to get out in front of this issue right now while the GOP is whistling past the graveyard about it.

[davsand]

6. I can't speak with knowledge about property tax law in MN.

I can tell you that in Illinois real estate taxes are supposed to be based on the estimated market value of the property. I hear people out there saying that we just raise values to generate more revenue, but I will tell you that in Illinois, at least, that isn't legal and would never be sustained in any legal challenge.

Something that I think eludes a lot of people (not just in Illinois, but all over the US) is the fact that for the last few decades our real estate values have shown a steady increase over time. (If you look at it as a line graph it is mostly a nice fairly gradual uphill slope since the Depression ended.) What is REALLY creepy, however, is that all at once there was almost a vertical climb in property values. It appears no place else in our history and I have no explanation for it--only speculation about what caused it. In any event, it doesn't take a degree in rocket science to know that anything that goes up that fast is capable of coming down equally fast.

I deal with property tax appeals and real estate valuation ALL the time. It is a major part of what I do in my day job. I will tell you freely that a lot of what I see in the USA Today or Wall Street Journal on the subject of property valuation is focused mostly on areas of the country where speculation was a large part of the real estate market. If you live in an area where people might want to live (the coast, a predominately sunny place, or a place that is scenic) or in a place that is seen as a desirable vacation place, you probably had a bunch of speculators in your market. If that is the case, you will see a sharp decline in the sale price of your real estate. The people who were playing in that market are swirling down right now, and it really is a matter of the market "adjusting" back down to reality, IMO.

Part of that adjustment (more of my opinions here) is driven (or created) by the adjustable rate mortgage mess that began to hit. We have talked on here a great deal about predatory lending, greedy yuppies living beyond their means, and uninformed buyers. I suspect that all those elements are present in varying levels depending on where you live, but the common denominator is that people are not able to make the payments on these houses and the lenders are trying to get out from under those properties. Lenders do not want to be landlords, and as a result they will unload a property as soon as they are able after the foreclosure is completed. The result of that is a market flooded with houses for sale. Competitive markets are great for buyers but terrible for people who are trying to sell. Locally, this is starting to manifest in longer market times, but not in reduced prices (yet.)

My personal prediction is that you are gonna see stuff sell for less that it would have a few years ago, and the net value of property will start to drop off over time. What I have been suggesting to taxpayers that I talk to is to watch your local area sales and see what stuff is actually selling for. IF the prices are dropping off on properties similar to yours in your area have an appraisal done by a licensed appraiser and appeal your property valuation based on that that appraisal. I expect to see a lot of this hit in the next couple years.



Regards!


Laura

[Gormy Cuss]

7. In addition to what you said, there's the overbuilding phenomenon.

By that I mean both too much new, large square footage housing far from job centers and cities. I'm not talking McMansions, just over-sized tract housing developments plunked miles from anything. When the real estate prices in closer in areas were escalating rapidly the choice to buy one of these houses and live with a long commute made sense to many. Now, with the cost of oil driving up the prices of gasoline, home fuel, grocery, and other goods combined with the less overheated prices closer in, people weighing the option of a bit less space and lower commuting times.

There's also the unmistakable element of fraud. Loan brokers changing documents and lying to applicants in order to close the deal. Mortgage brokers steering applicants to subprime products even when they qualify for prime loans. Appraisers pressured to meet the sales price. Buyers lying on no doc loans.
All of these contributed.

[davsand]

8. Appraisers are screwed no matter what we do.

Understand, as a government wonk, I do not do any fee appraisal work. I do not compete in that arena, but I see the product on a regular basis. I know full well the pressures that are there for appraisers who are small business people trying to earn a living.

When a lender calls you as an appraiser, to do a job (and trust me, there is competition for work) they want to write a loan--that IS why they are contracting for an appraisal. IF you are the appraiser, there is a pressure to "make" or "hit" the value on that property--in spite of the fact that our professional standards preclude us from accepting a job contingent on a specific value. (I am not supposed to take any appraisal job that requires me to come up with a value that is not accurate, in other words.) I can lose my license for that particular lapse in ethics, and thus lose my ability to earn a living.

The flip side of that is the realization that if I do NOT give the lender an appraised value that will allow the sale to proceed, I will probably NOT be called again by that lender because there ARE appraisers out there who can and do massage the numbers to hit a specific value.

I was at a professional standards class just a few months ago (required to renew an Appraisers License) and we had quite a discussion about this very issue. Sadly enough, the people who were the most critical of appraisers "massaging" numbers to hit a value were the wonks like me who do not have to rely on the lenders for our income.

I will also tell you that in reviewing appraisal work in the course of my job, it is evident that the purpose of an appraisal will impact a great deal on the value that is reported. Same house in a 6 month period of time--no change in condition--a $30,000 difference in value reported. One appraisal was for a re-fi, one was paid for by the current owner for a divorce settlement. Can you guess which one was highest in value? Can't really point to anything that was "wrong" in either appraisal, but you have to know that a $30,000 variation in value threw up some pretty big warning flags for me...

This current mess in the market has been driven by a lot of factors--no doubt. I am not sure who exactly is to blame, but I will tell you that property owners and local government bodies will probably be the ones hit hardest by the reductions in real estate values.




Laura

[Gormy Cuss]

10. IIRC, it used to be that appraisers were pressured by lenders to be conservative

because back when most mortgages were held by portfolio lenders the banks didn't want the risk associated with loaning based on inflated values. With the shift away from portfolio holding in recent decades it's apparently turned around completely. I've had friends leave the appraisal field because of it.

[0007]

9. Man, I remember those days as a child and it was bad.

I was always hungry. Had no shoes to wear in the summer time, had to save em for school. I could go on and on, but ya had to live it to know it! My mother was a flapper and there were times I wished I hadn't been born.

I remember when a nickle was serious money.