Developers are embracing a new reconveyance fee designed to strip sellers of their equity for the next 100 years.

I want your ugly
I want your disease
I want your everything
As long as it’s free

I want your horror
I want your design
‘Cause you’re a criminal

Lady Gaga — Bad Romance

It is human nature to want everything, and if you can get it for free, that makes it even better. There is a program where developers extract free money from houses they build over the next 100 years. Well, it isn’t exactly free: it comes out of seller’s equity. It is a great deal for developers. For sellers, not so much.

Most of my professional life, I have worked with real estate developers. I spent almost 20 years acting as a project manager, developer representative, and most recently as a land planner. I have worked closely with brilliant and very wealthy individuals. I am fortunate to work with men I admire; although, I have witnessed the actions of many I do not.

Developers are primarily motivated by money, and if there is a method for squeezing a few extra dollars out of real estate, most developers will embrace it. In fact, my livelihood depends on my ability to help developers create, find, and obtain the value in their land. Adding and extracting value has societal benefit, but not every tool available to developers benefits society, and some exist only to enrich developers. Mello Roos is a classic example in California of a financing racket that enriches developers. The latest scam in the development world is called Reconveyance Fee Rights.

Community Facilities District Act enriches developers

According to Wikipedia:

A Mello-Roos District is an area where a special property tax on real estate, in addition to the normal property tax, is imposed on those real property owners within a Community Facilities District. These districts seek public financing through the sale of bonds for the purpose of financing public improvements and services.^[2] These services may include streets, water, sewage and drainage, electricity, infrastructure, schools, parks and police protection to newly developing areas. The tax paid is used to make the payments of principal and interest on the bonds.

When a homebuyer in California purchases a property, most believe they have completely paid for the house. Not so. Instead of building subdivisions with their own money, real estate developers float bonds to pay for the improvements, and buyers pay for these improvements through their tax bills as a special levy. What should be an expense of doing business borne by the developer instead gets passed on to the consumer.

Imagine you purchased a new Ford. After you buy you find out the tires were not paid for as part of the car, and you will have an additional payment for the tires separate from any payments you may have for the car. That is what happens to homebuyers when they purchase in a neighborhood with Mello Roos — and nearly every neighborhood built since 1982 either has or had Mello Roos fees attached to them.

Revenues from Community Facility District bonds serve to make marginal project feasible, and as long as owners realize they have a large tax liability, then I see no real harm in the legislation. It is a big bonus to developers, but there are so many special tax breaks given out for dubious reasons that this one sinks into the morass and generates little outrage.

Reconveyance Fee Rights

A group of entrepreneurs has put together a gross ripoff of future homeowners by leaching seller equity. From the Freehold Capital Partners’ website:

Simply put, a Reconveyance Fee Instrument represents the right to receive 1% of the gross sales price each time a particular piece of real estate property sells. These rights represent a valuable, fully collateralized long-term income stream with no risk of default.

realtor commissions are too high, but at least realtors participate in the transaction and provide some justification for the piece of seller equity they get at closing. No such justification exists for what Freehold Capital Partners is proposing. It is simply theft.

A new real estate cost to watch for: Developer’s private transfer fee

How about this for a new and ingenious real estate money machine? Every time a house sells during the next 99 years, 1 percent of the price goes back to the original developer or is shared among investor partners. Ka-ching!

The levy won’t be subject to haggling between future buyers and sellers, either. That’s because it’s a covenanted mandate — a novel type of lien on the underlying real estate — called a private transfer fee. It’s not a government transfer tax. Nor is it a homeowner association or environmental protection covenant. It’s purely a private requirement that runs with the land. If a seller refuses to pay it to a third-party trustee at closing, the sale won’t proceed.

It isn’t something a seller can fight because no party at the closing table can negotiate. The seller’s choices are (1) pay the fee, or (2) don’t sell the house. I suppose they could try to sue some asset-backed security holder somewhere, but how far do you think that will get?

Guess who doesn’t like this idea?

The National Association of Realtors and the American Land Title Association, for example, are asking their members to persuade legislators to prohibit or limit the use of investor-oriented private-transfer-fee programs. Even the National Association of Home Builders, some of whose members reportedly have signed up to participate in the transfer fee program, isn’t convinced that the idea is sound.

“It’s a very creative concept,” said David Ledford, the builder association’s senior vice president for housing finance, “but it’s largely untested and controversial politically.”

Realtors hate the idea for obvious reasons: they don’t want anyone else in the seller’s wallet at closing because it draws undo attention to how much they are getting. The National Association of Home Builders doesn’t like the idea, partly because they see it for the fraud it is, and partly because they know the inevitable lawsuits will mostly be directed toward its members.

For its part, Freehold maintains that its transfer-fee covenants are good for consumers and good for cash-strapped builders. Curtis Campbell, a spokesman for the firm, said in an e-mail that “private transfer fees represent an adaptation in how to pay for development costs” incurred by builders “at a time when funding is not available” to them on “reasonable terms.”

Did you giggle when you read that? I did. I can tell you from personal observation that builders have no shortage of capital available to them right now. Most builders have restructured their debt, and they have plenty of cash on hand which they are currently using to buy up land.

By creating future revenue streams — which builders can monetize upfront by selling to investors — the plan allows developers to sell houses for lower prices than they otherwise could, Campbell said.

OK, that one isn’t funny, that lie is so offensive it makes me angry. Mr. Campbell is insinuating that customers may actually benefit from this practice with lower prices. No way. The builder is going to sell the house at market, and a transfer fee is not going to create conditions where buyers get bargains from builders.

There is no rational justification for this fee. It is only being charged because they think they can get away with it. The facts are obvious, and the feeble rationalizations are laughably stupid.

Developers Embrace New ‘Flip Tax’

And as if we haven’t learned a lesson about slice-and-dice packaging of mortgages, Freehold Capital apparently wants to “securitize” pools of transfer fees that can then be spun off and sold to investors.

Yes, let’s bring in all the complicated issues of securitization. That way, when this all blows up, the syndicators will already have their money and the government can step in and bail everyone out.

Will cooler heads prevail? Will the legislatures around the country strike this one down?

Now this is, as you might imagine, controversial. So much so, some states have apparently either limited or banned these “private transfer fees.” OK, I should have known you’d want to know which ones: Kansas, Oregon, Florida and Missouri, just plain ban the practice, according to the paper, while Texas and California have some restrictions on it.

But most states do not address the issue of these fees at all, so it is something you the potential home buyer should look for before signing a contract for a new home. That’s vital because the fees (which are paid by the seller) are not subject to negotiation. If you end up selling a house one day that has one of these private transfer fee deals attached to it, you either pay a trustee at closing or, sorry, no sale!

Developers think this is a swell concept because they can, over years, get back some of the initial upfront costs of the project without having to have the first buyer of the property cough up the entire amount. However, others argue that, in the long run, homes with transfer fees attached will actually become more difficult to sell, which, if you happen to be the current homeowner, is not such a good thing!

If you think you may be able to fight this in court someday, think again. Not so easy, apparently.

On the PR Newswire this past weekend, one expert on private transfer fees delivered a commentary of sorts. Says attorney RJon Robins, a member of the Florida Bar’s Real Property, Probate & Trust Law Section, “…absent a specific statutory prohibition, a well-crafted private transfer fee covenant will likely be enforceable, particularly when undertaken in connection with a real estate development project.”

So how long before the Irvine Company does this on the Ranch? Should you buy now before they figure out they can get a piece of your equity as well? Perhaps the California restrictions prevent them, or perhaps they recognize this fee for the theft it is and don’t want to participate. I hope it’s the latter.

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Both themes are sleek, modern, easily-customized, and allow you to showcase your listings and have a blog (if you want one).

Try them out and let us know if you need help.

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Most public employees, if they hang around to retirement, can count on pensions equal to 75% to 90% of their pay in their highest-earning years. And many public employees earn even more in retirement than their best year’s base compensation as a result of “spiking” their last year’s income by working ferocious amounts of overtime and rolling in years of unused sick and vacation days into their final-year pay computation.

A survey by the watchdog group California Foundation for Fiscal Responsibility found that some 15,000 Golden State public employees are knocking down $100,000 or more, while some 200, mostly police and fire chiefs and school administrators, are members of the $200,000-a-year-and-up club.

Failed loan mod? Try again – Inman News

I have personally witnessed the approval of modifications well over a year after documents have been submitted and resubmitted, and after wrangling with loss mitigation staffers and even flat-out denials. If you need your loan modified in order to keep your house (which you very well might, if you missed six monthly payments), gear up emotionally to resubmit your application and don’t give up — not yet.

Taking On China – Paul Krugman

And it’s a policy that seriously damages the rest of the world. Most of the world’s large economies are stuck in a liquidity trap — deeply depressed, but unable to generate a recovery by cutting interest rates because the relevant rates are already near zero. China, by engineering an unwarranted trade surplus, is in effect imposing an anti-stimulus on these economies, which they can’t offset.

So how should we respond? First of all, the U.S. Treasury Department must stop fudging and obfuscating.

Is China’s Politburo spoiling for a showdown with America? – Telegraph, Ambrose Evans-Pritchard

Within a month the US Treasury must rule whether China is a “currency manipulator”, triggering sanctions under US law. This has been finessed before, but we are in a new world now with America’s U6 unemployment at 16.8pc.

The Forthcoming Financial Reform – The Big Picture

In America, history shows, every major financial reform that followed a crisis and was offered to us as the way to avoid the next one. Each of those efforts failed. As for this newest one, the burden of proof is on the politicians in the Congress and the Obama administration. Time will tell.

It’s Official: The US Housing Downturn Has Resumed in Earnest – HuffPo

The year 2009 was the year of reflation theories and bubble blowing. Theses of “Green Shoots”, catching the bottom, and QE reigning supreme were the order of the day. Sure enough, asset prices (nearly all of them) went one direction, straight up. We all saw it coming, but guys like me who actually count the money and rely on the fundamentals didn’t believe it was a sustainable gain. It wasn’t a bull market, but a bear market rally. After nearly one year, the reflationists have had their hay day, or have they?

Real short sales of O.C. – The Orange County Register

The latest bi-weekly analysis of the Orange County real estate market by Steve Thomas of Altera Real Estate shows 123 homes priced at $1 million and above in the “foreclosures and short sale” category of current listings.

Drill down further and you see there were 16 short sales listed above $2 million in Orange County a year ago, according to Thomas. Today there are 25.

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One of the things that I love about my job is when I get to talk to people that are on the “inside”.  What I mean by the “inside” is someone that is working for the banks.  A disgruntled bank employee. A pissed off loss mitigator.  Someone who decides whether or not to pursue you for a deficiency judgment.  Each of my conversations have many commonalities.  Some are upset that the government is over promising and obviously… under delivering.  Others are happy to have a job, however are quite sick of feeling like they can’t get anything done because of the basic lack of resources.  I mean come on? Mr. CEO of XYZ Lender… after all that government bailout money…can’t you afford to get a new fax machine or use efax so you stop losing all our faxes?

After a long conversation with this particular head of loss mitigation for …………. Mortgage lender, I asked him to email me his thoughts on what he has been seeing and feeling.  Enjoy.

DUMP The HAMP

President Obama had big aspirations on bringing America a much needed change, yet “change” seems to be all that’s left in our bank accounts each month. We were promised a new modification program that would help between 3 to 4 million at-risk homeowners – both those who are in default and those who are at risk of imminent default – by reducing their mortgage payments to a more affordable rate. It sounded pretty good to me, until I found out how everything works.

First of all, there are 4 different versions of the Home Affordable Modification Program;

Non-GSE (loans owned by your lender)

The Treasury wrote this version in 3 weeks after Obama introduced his financial stability plan and has been continually revised since.

Fannie Mae

They took the Treasury’s version, rewrote it and took many things out of its original context (such as defining common definitions differently, thus causing massive confusion and ultimately making your lender’s job a heck of a lot harder…)

Freddie Mac

They say you have to be more than 60 days behind on your mortgage payment or you are considered current… and ineligible for this program…thanks! Fannie Mae will be implementing this by June 1st as well.

FHA

They will deny you if you have non-mortgage expenses that are over 24% of your total gross income, lame.

You can find out if your lender is participating by calling, or by visiting the Making Home Affordable website.

The one major pet peeve I have about this program is how it doesn’t help the average family man as mush as it helps a bachelor or someone who is single. Shouldn’t it be the other way around??  Let’s say you have a family of 4, a mortgage payment of $2,000, average monthly expenses around $2,000, and your total gross income has been dropped from $6,500 per month to $4,000. Will this program help you? The answer is NO! This is because the program multiplies your current monthly gross income by 31% to achieve your target monthly mortgage payment. In this case, $4,000 x 31% = $1,240. This would save you $760 per month. However, when you factor in the car payment, the kid’s clothes, food, insurance, utility bills, etc., you are left sailing toward the same iceberg you feared from the beginning ($1,240 + $2,000 = $3,240 subtracted from a net income of $3,200 = -$40/month). All it would take is one unexpected event to cause you to fall behind and be right back where you started. This brings me to my next point. If you happen to be lucky enough to receive this modification and face a new hardship 1 year later and you to fall behind, forget about asking for this HAMP again. You only get one shot.

I could go on and on about how terrible this program is, but I want to tell you about what is going on inside of your lender’s Loss Mitigation Department.

In the early 2000’s a typical lenders had about a 1% delinquency ratio. In 2007, after investors on Wall Street quit backing high-risk mortgage loans, your lender’s delinquency ratio’s began skyrocketing from 3 to 4% to up to 8% or more in other cases, and foreclosure ratios have jumped up to around 3 to 4% for stable lenders who never even originated high risk ARM loans! For your lender to keep up with the amount modification requests they receive, they would need to quadruple or even occtiply (yes, an octomom reference…) their Loss Mitigation Department to keep up and comply with investor modification guidelines. There lies the problem.   How do you fund your loss prevention department if your sales department isn’t making as much money? The answer is they have to convert the HAMP trial plans into actual modifications, so they can receive their pay for performance incentives from the government.  But they can’t…  The problem is the underwriting requirements.

Completing a HAMP modification is like originating a brand new loan, except your loan officer is unable to contact you by any other means than mail, and his/her processors are quickly (or inadequately) trained, robotic associates who have to keep up with rapidly changing, loosely defined guidelines from Fannie Mae, Freddie Mac, and FHA. It is almost impossible to ever finish one of these things correctly! Not to mention, loan modifications are so much like a originating a brand new mortgage loan that the government wants all Loss Mitigation employees to be licensed.   This is a good idea for training, but a bad idea for lenders because this will be very costly and time consuming to complete (this will ultimately have to happen though…). It’s just another daunting task for your lender’s loss mit department, which will ultimately slow down your modification.

Probably the most difficult thing your lender has to do is build calculators, use cumbersome excel documents, and report to numerous sources to correctly implement this modification. The HAMP is such a hassle, people who work at Fannie Mae don’t even like it and are praying it ends in 2012 like it’s suppose to. We need a better solution. DUMP the HAMP already, and give us something that works NOW!

——————————–

Conclusion

We have been getting calls non-stop from homeowners who are DONE.  If you are DONE, you know what I mean.  Tired of spending countless hours trying to save your home, when quite frankly it doesn’t seem like it’s worth it anyways.  You feel like your lender doesn’t give a crap.  Even if you get a modification, they won’t reduce your principle so… you’re still stuck with a home that’s not worth anywhere near what you owe on it.  Values are stagnant or dropping.  Credit is still contracting.  Banks like Citi and Wells have new incentive programs designed to lower your credit card limits and get you to pay down your principle.  It’s clear to me that lenders don’t want to lend and won’t resume common sense lending anytime soon.  Ask a local loan officer.  They are still having trouble getting great credit loans done.  I agree.  Dump the Hamp and start re-appraising homes, cut the principle balance down to 94% of the value (so people can sell their home if they’d like without being punished), give the same rate to anyone who accepts the program, whatever the 30 year fixed rate is at the time and revenue share on the upside 10-20% of the equity when they sell the house.  Another idea would be allow short refinancing.  This will not happen because the banks don’t have to “mark to market” their loans.  They are better off just leaving them delinquent.  Which is what we are seeing.  Lenders continuing to postpone auction dates.  14-18 month foreclosure timelines, where the lender should take only 8 months to foreclose.

Wait a minute here.  If bankers got to “mark to market” when values were going up… thus taking HUGE bonuses based on those profits, and now they don’t have to “mark to market” when values are plummeting, so they can still take big bonuses…isn’t that called CHEATING? Uh let’s see… Isn’t that is exactly like heads I win, tails I win?  Hmm… So wouldn’t that be similar to a homeowner buying a house, value goes up, they take out all the cash, then when the value goes down, they walk away without recourse? Government, can you please change the recourse laws in all the other 40 or so states to make it fair?  Since you are taking care of your banking buddies, don’t forget about the people who pay taxes that you’re supposed to be WORKING FOR.  We want the same rules for us.  Please share your thoughts below…

Jon Maddux, CEO

www.YouWalkAway.com

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My husband and I watched HGTV’s House Hunters last night because the show finally aired that I filmed last summer with my clients, Lali and Chris.

I’m not really the star of this show, btw, Lali and Chris take center stage, and that’s just fine with me. When House Hunters first came on the air, I applied to the show. They called and we scheduled filming with clients. Then, those clients backed out. I set up a filming with another set of clients and, they too, got cold feet. So, I gave up. It wasn’t that important.

Enter into the picture, Chris and Lali. By the time they contacted me to be their buyer’s agent, they had already signed up to do House Hunters. They told me that one of the conditions of working with them was I had to agree to go on the show. I was a little reluctant, actually. One of the requirements, now that a couple of years had passed, was the agent had to submit a video and get approval in advance. I did not have video equipment at that time, a situation I have since rectified.

Chris immediately volunteered to shoot a video for me and sent it to House Hunters. He’s a science teacher and Lali is a stay-at-home mom to Madison, a delightful little girl who dances all the time. They were fun clients and, as a result, a total joy to do the show with, even though the filming dragged on for 3 days. We shot the interview video at the home they bought in Natomas.

Each of the homes shown in that show was an actual Sacramento short sale and my listing. I tried to get the agents whose homes we really had toured to let us film those homes. But those listing agents refused. One Sacramento short sale agent said when I asked, “What’s in it for me?” I don’t know why some agents feel so competitive. There’s enough business in Sacramento to go around for everybody. When agents ask me for help, I freely give it to them.

Anyway, if you’d like to watch the show, here are the dates and times it will air again:

• April 4, 2010 at 12:00 PM EST / PST
• May 18, 2010 at 10:00 PM EST / PST
• May 18, 2010 at 1:00 AM EST / PST

P. S. As a side note, I just noticed that the National Association of REALTORS is advertising on my Homebuying website. How cool is that?

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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

The views expressed herein are Weintraub’s personal views and do not reflect the views of Lyon Real Estate.

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They estimate that the current backlog of distressed mortgages will take just under 3 years to clear. They call that estimate conservative… I think it is likely optimistic given that delinquency rates are still climbing. Still it is a reasonable guess. Here in CA we have one million homeowners who are already delinquent, and we seem to be clearing about 25-30k a month based on foreclosures and short sales (which are the only “solutions” that are actually clearing the distress by eliminating negative equity). Divide one million by 30k, and you come to the same 33 month conclusion they reach.

Another interesting part of the report deals with recently cured loans… those no longer delinquent, primarily due to loan modifications. They suggest that these should be included in calculations of shadow inventory, as they have had a nearly 70 percent rate of recidivism – in other words, most become delinquent again because the loan mod failed to address the core problem of negative equity. Seems like a reasonable conclusion to me.

Where I take some issue with Standard & Poors assessment is there conclusion that liquidation will lead to lower housing prices. They come to this conclusion based on the simple idea that an increase in supply will lower prices. There is some truth in that notion. For example we certainly have seen some pricing strength recently due to efforts to slow foreclosures which have clearly constrained supply, while at the same time demand has been stimulated with low interest rates and tax credits.

But this simple supply/demand theory of housing prices fails to adequately consider the fact that housing is highly leveraged, and that price is primarily a function of income and loan terms, and only secondarily supply and demand. Worse, this over-simplistic supply/demand model has led many to believe that foreclosures cause price declines, when in fact it is exactly the opposite… price declines cause foreclosure.

Note that the foreclosure crisis started in earnest in late 2006, however, price declines did not start until lenders removed the ridiculous loan products that enabled people to over pay in August of 2007. At that point we had a precipitous drop in price… not due to foreclosures, but instead due to the fact that people simply couldn’t afford the prices reached during the bubble without those loan products.

Foreclosures and housing supply grew rapidly during the price correction, but those who think the correction was due to either these foreclosures or the growing supply are terribly mistaken. Instead it was simply a correction back to reasonable prices, that buyers could afford based on their incomes and the more traditional loan products that remained available.

Unfortunately the belief that foreclosures and supply caused those declines remains all too common as yet again evidenced by the conclusion of this report. It is a belief that is delaying our recovery as government works to artificially constrain supply by slowing foreclosures, leaving homeowners stranded in prisons of debt, and buyers with little available inventory to choose from.

The reality is that there is a bottom to housing prices. People need a place to live and are willing to spend a certain portion of their income on housing to do so. Investors need to find returns, and there is a point where buying homes as an investment make sense. In many parts of California we’ve returned to those prices levels. And in those areas that have already corrected withholding supply won’t return prices to prior levels… people simply can’t afford it. And contrary to Standard & Poors’ analysis increasing supply is just as unlikely to cause further price declines… people need a place to live, and investors are too desperate for reasonable returns.

This post originally appeared on Sean’s blog http://www.foreclosuretruth.com/

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I received an email yesterday from one of my short sale sellers who had closed an Elk Grove short sale on October 30th and bought a new home on December 30th, 2009.

The client was excited to share the news, and added that he bought the home without an agent, using the help of a “sales associate.” While I am not thrilled that the client was hoodwinked into believing he did not need to hire his own buyer’s broker and therefore did not call me, I am super jazzed that he bought the home. His email made me realize that I need to be more diligent in letting my clients know that I can represent them if they want to buy a new home from a builder.

The last new home construction that I negotiated was a model home. Buying a model home from a builder is a bit complicated because those homes involve upgrades already in place. But builders in Sacramento are hurting financially and are willing to wheel and deal at the moment. Not only did this particular single woman home buyer get her model home at a terrific price, she also received all of the furniture for free. It pays to hire an agent, and it doesn’t a buyer one thin dime.

The thing that struck a chord with me in my client’s email was the fact a bank made him a loan 3 months after his short sale. This is what happened: Even though he was current on his payments to Wells Fargo, the bank made a notation on this client’s credit report that the second loan was charged off. We tried to get that verbiage removed from the short sale approval letter, but Wells Fargo refused. After the short sale closed, Wells Fargo reported the loan as a charge off with a balance owing. The client called Wells Fargo and insisted that the loan should be reported with a zero balance because the debt was forgiven. So, Wells Fargo changed the reporting status to: Paid as Agreed Less Than Full with a zero balance. After that adjustment, the client’s FICO score jumped from 651 to 740.

This is why it’s a good idea for sellers who do short sales to check their credit reports after closing. Another not-so-lucky client had Bank of America file a foreclosure against her after the loan was paid off as a short sale. And she was current on her mortgage payments when it closed. That was a real mess to untangle.

However, if you are thinking about buying a home after a short sale, and if your payments are current, you might want to contact Flagstar Bank and ask about an FHA loan. Flagstar is funding loans for buyers after selling as a short sale. The minimum FICO score required by Flagstar is 650.

Photo: Big Stock Photo

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Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

The views expressed herein are Weintraub’s personal views and do not reflect the views of Lyon Real Estate.

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But why raise taxes and cut essential services when we can stop unnecessary wars and unnecessary interest costs instead?

The Sham Recovery – Robert Reich

Are we finally in a recovery? Who’s “we,” kemosabe? Big global companies, Wall Street, and high-income Americans who hold their savings in financial instruments are clearly doing better. As to the rest of us — small businesses along Main Streets, and middle and lower-income Americans — forget it.

Fragile riches – Rolfe Winkler

Leverage amplifies gains and losses — and with further deleveraging needed and interest rates having nowhere to go but up, there’s more stacking up on the loss side of the scale. The newly richer may be feeling good about their wallets right now, but it may not last.

Centrally Planned Suburbia – Matthew Yglesias

Not being a libertarian or a conservative of any sort, I’m happy to just take it for granted that you’re never going to have a genuinely “small government” approach to the built environment. But I would sort of be interested to see, as an exercise, someone try to put together a serious, genuinely libertarian view of how cities and towns should be built—what’s the absolute minimum we could get away with.

Spotlight on the Non-Recovery in Texas; Heads Still Buried In The Sand – Mish

It is pretty amazing when you can put a positive spin on horrendous data like this:”In February, the state’s sales tax collections were down 8.8 percent compared with the same month a year earlier. Though still in the red, the February figure looked better than the previous months’ double-digit decreases that have put the state 13 percent behind last year’s collections six months into the budget year.”

Good Grief.

Time, It Turns Out, Isn’t on Their Side – The New York Times

Mr. Bergman said. “I wrote back that I’d like to explain how I could do the position. I said: ‘I would never take a job I don’t want. You reached out to me.’ ” After two e-mail messages and three calls with no response, he gave up. “If I don’t get something soon, I’m heading for the mall — Home Depot, Burger King. I need to work.”

Frugal San Francisco – The New York Times

At first glance, San Francisco would seem to be precisely the wrong place to do this. According to Forbes magazine’s 2009 survey of America’s most expensive cities, San Francisco ranks fourth, and according to 2008 Census figures, San Franciscans have fewer children than the rest of the state. The hills are rough on strollers, and the homeless people, strip clubs and ubiquitous pot smoke can challenge a protective parent’s patience. Do the math, and it looks crazy to take a baby there for vacation.

China’s Property: Bubble, Bubble, Toil and Trouble – Time

Some economists worry that oversupply in both the residential and commercial real estate markets has already prompted a downturn in pricing, and that the recent government initiatives could lead to a hard landing. In Beijing, vast swaths of commercial space sit vacant — including floors of retail space right next to the iconic Water Cube, the swimming venue for the 2008 Olympics. According to Colliers, commercial rents are now a shade lower than they were last year and residential prices have also begun to weaken. Residential prices, according to China Reality Research data, peaked late last year and are now headed down.

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In Coos Bay real View Slideshow estate it is important to remember that the median sales price represents the average price of what homes are selling for.  It is not representing the size, condition or value of a home.  The median sales price can be offset by foreclosure property that is selling in an area as well as by luxury property that is selling in an area.

The best way to determine the value of your Coos Bay real estate is to get it analyzed by and experienced real estate professional.  There are many factors in determining real estate values today and picking an average out of the air could hinder the sale of your home.  In today’s Coos Bay real estate market it is more important than ever to price your home appropriately.

Contact Jan Delimont today, 541-290-1850, for more information about Coos Bay real estate and access to the Coos Bay MLS.

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But before we jump into that, I want to let my Conversations subscribers know that we have posted a recent conversation with two hedge-fund managers, Kyle Bass of Hayman Advisors [and his staff] here in Dallas and Hugh Hendry of the Eclectica Fund in London. Our discussions centered on what we all think has the potential to be the next Greece, but on a far more serious level. It was a fascinating time.

Then next Wednesday we will post a Conversation I had with George Friedman of Stratfor fame, and then the following Wednesday a Conversation that I just completed with Dr. Ken Rogoff and Dr. Carmen Reinhart, the authors of This Time Is Different.

For new readers, Conversations with John Mauldin is my one subscription service. While this letter will always be free, we have created a way for you to “listen in” on my conversations with some of my friends, many of whom you will recognize and some whom you will want to know after you hear our conversations. Basically, I will call one or two friends each month and, just as we do at dinner or at meetings, we will talk about the issues of the day, with back and forth, give and take, and friendly debate. I think you will find it very enlightening and thought-provoking and a real contribution to your education as an investor.

And as you can see, I can get some rather interesting people to come to the table. Current subscribers can renew for a deeply discounted $129, and we will extend that price to new subscribers as well. To learn more, go to http://www.johnmauldin.com/newsletters2.html. Click on the Subscribe button, and join me and my friends for some very interesting Conversations.

The Velocity of Money

The Federal Reserve and central banks in general are running a grand experiment on the economic body, without the benefit of anesthesia. They are testing the theories of Irving Fisher (representing the classical economists), John Keynes (the Keynesian school) Ludwig von Mises (the Austrian school), and Milton Friedman (the monetarist school). For the most part, the central banks are Keynesian, with a dollop of monetarist thrown in here and there.

Over the next few years, we will get to see who is right about debt and stimulus, the velocity of money, and other arcane topics, as we come to the End Game of the Debt Super Cycle, the decades-long cycle during which debt has grown. I have very smart friends who argue that the cycle is nowhere near an end, as governments are clearly increasing debt. My rejoinder is that it is nearing an end, and we need to think hard about what that end will look like. It will not be pretty for a period of time. The chart below shows the growth in debt, both public and private.

But the end of this debt cycle involves more than just debt reduction. There are a number of ideas we have to get our heads around, including the velocity of money. Basically, when we talk about the velocity of money, we are speaking of the average frequency with which a unit of money is spent. To give you a very rough understanding, let’s assume a very small economy of just you and me, which has a money supply of $100. I have the $100 and spend it to buy $100 of flowers from you. You in turn spend $100 to buy books from me. We have created $200 of our “gross domestic product” from a money supply of just $100. If we do that transaction every month, we will have $2400 of annual “GDP” from our $100 monetary base.

So, what that means is that gross domestic product is a function of not just the money supply but how fast that money moves through the economy. Stated as an equation, it is P=MV, where P is the nominal gross domestic product (not inflation-adjusted here), M is the money supply, and V is the velocity of money. You can solve for V by dividing P by M. By the way, this is known as an identity equation. It is true at all times and all places, whether in Greece or the US.

Our Little Island World

Now, let’s complicate our illustration a bit, but not too much at first. This is very basic, and for those of you who will complain that I am being too simple, wait a few pages, please. Let’s assume an island economy with 10 businesses and a money supply of $1,000,000. If each business does approximately $100,000 of business a quarter, then the gross domestic product for the island is $4,000,000 (4 times the $1,000,000 quarterly production). The velocity of money in that economy is 4.

But what if our businesses get more productive? We introduce all sorts of interesting financial instruments, banking, new production capacity, computers, etc., and now everyone is doing $100,000 per month. Now our GDP is $12,000,000 and the velocity of money is 12. But we have not increased the money supply. Again, we assume that all businesses are static. They buy and sell the same amount every month. There are no winners and losers yet.

Now let’s complicate matters. Two of the kids of the owners of the businesses decide to go into business for themselves. Having learned from their parents, they immediately become successful and start doing $100,000 a month themselves. GDP rises to $14,000,000. In order for everyone to stay at the same level of gross income, though, the velocity of money must increase to 14.

Now, this is important. If the velocity of money does not increase, that means that (in our simple island world) on average each business is now going to buy and sell less each month. Remember, nominal GDP is money supply times velocity. If velocity does not increase, GDP will stay the same. The average business (there are now 12) goes from doing $1,200,000 a year down to $1,000,000. The prices of products fall.

Each business now is doing around $80,000 per month. Overall production is the same, but divided up among more businesses. For each of the businesses, it feels like a recession. They have fewer dollars, so they buy less and prices fall. So, in that world, the local central bank recognizes that the money supply needs to grow at some rate in order to make the demand for money “neutral.”

It’s basic supply and demand. If the demand for corn increases, the price will go up. If Congress decides to remove the ethanol subsidy, the demand for corn will go down, as will the price.

If Island Central Bank increases the money supply too much, you will have too much money chasing too few goods and inflation will rear its ugly head. (Remember, this is a very simplistic example. We assume static production from each business, running at full capacity.)

Let’s say the central bank doubles the money supply to $2,000,000. If the velocity of money is still 12, then the GDP will grow to $24,000,000. That will be a good thing, won’t it?

No, because with the two new businesses only 20% more goods are produced. There is a relationship between production and price. Each business will now sell $200,000 per month, or double their previous sales, which they will spend on goods and services, which only grew by 20%. They will start to bid up the price of the goods they want, and inflation sets in. Think of the 1970s.

So, our mythical bank decides to boost the money supply by only 20%, which allows the economy to grow and prices to stay the same. Smart. And if only it were that simple.

Let’s assume 10 million businesses, from the size of Exxon down to the local dry cleaners, and a population that grows by 1% a year. Hundreds of thousands of new businesses are being started every month and another hundred thousand fail. Productivity over time increases, so that we are producing more “stuff” with fewer costly resources.

Now, there is no exact way to determine the right size of the money supply. It definitely needs to grow each year by at least the growth in the size of the economy, the population, and productivity, or deflation will appear. But if money supply grows too much then you have inflation.

And what about the velocity of money? Friedman assumed the velocity of money was constant, and therefore he stated that inflation is always and everywhere a function of the supply of money. And it was, from about 1950 until 1978 when he was doing his seminal work. But then things changed.

Note that nothing Friedman says contradicts the equation MV=PT, if you assume constant velocity. Almost by definition you get inflation if the money supply grows too fast.

Let’s look at two charts sent to me by Dr. Lacy Hunt of Hoisington Investment Management in Austin (and one of my favorite economists). First, let’s look at the velocity of money for the last 108 years.

Notice that the velocity of money fell during the Great Depression. And from 1953 to 1980 the velocity of money was almost exactly the average of the last 100 years. Also, Lacy pointed out in a conversation that helped me immensely in writing this letter, that the velocity of money is mean reverting over long periods of time. That means one would expect the velocity of money to fall over time back to the mean or average. Some would make the argument that we should use the mean from more modern times, since World War II; but even then, mean reversion would result in a slowing of the velocity of money (V), and mean reversion implies that V would go below (overcorrect) the mean. However you look at it, the clear implication is that V is going to drop. In a few paragraphs, we will see why that is the case from a practical standpoint. But let’s look at the first chart.

Now, let’s look at the same chart since 1959 but with shaded gray areas that show us the times the economy was in recession. Note that (with one exception in the 1970s) velocity drops during a recession. What is the Fed response? An offsetting increase in the money supply to try and overcome the effects of the business cycle and the recession. P=MV. If velocity falls then money supply must rise for nominal GDP to grow. The Fed attempts to jump-start the economy back into growth by increasing the money supply.

In this chart from Hoisington, the recessions are in gray. If you can’t read the print at the bottom of the chart, he assumes that GDP is $14.5 trillion, M2 is $8.2 trillion, and therefore velocity is 1.7, down from almost 1.97 just a few years ago. If velocity is to revert to or below the mean, it could easily drop 10% from here. We will explore why this could happen in a minute.

P=MV

But let’s go back to our equation, P=MV. If velocity does slow by another 10%, then money supply (M) would have to rise by 10% just to maintain a static economy. But if we assume 1% population growth, 2% (or thereabouts) productivity growth, and a target inflation of 2%, then M (money supply) actually needs to grow about 5% a year, even if V is constant. And that is not particularly stimulative, given that we are in recession.

Bottom line? Expect money-supply growth well north of 7% annually for the next few years, or at least the attempt. Is that enough? Too much? About right? We won’t know for a long time. This will allow armchair economists (and that is most of us) to sit back and Monday-morning quarterback for many years.

A Slowdown in Velocity

Now, why is the velocity of money slowing down? Notice the real rise in V from 1990 through about 1997. Growth in M2 (see the above chart) was falling during most of that period, yet the economy was growing. That means that velocity had to rise faster than normal. Why? Primarily because of the financial innovations introduced in the early ’90s, like securitizations, CDOs, etc. It is financial innovation that spurs above-trend growth in velocity.

And now we are watching the Great Unwind of financial innovations, as they were pursued to excess and caused a credit crisis. In principle, a CDO or subprime asset-backed security should be a good thing. And in the beginning they were. But then standards got loose, greed kicked in, and Wall Street began to game the system. End of game.

The financial innovation that drove velocity to new highs is no longer part of the equation. Its absence is slowing things down. If the money supply hadn’t risen significantly to offset that slowdown in velocity, the economy would have been in a much deeper recession, if not a depression. While the Fed does not have control over M2, when they lower interest rates it is supposed to make us want to take on more risk, borrow money, and boost the economy. So they have an indirect influence.

And now we come to the policy conundrum for the Fed. They have pumped a great deal of money (liquidity) into the economy. Normally, banks would take that money and multiply it by lending it out (through fractional reserve banking at a potential 9-times factor), increasing velocity and the overall money supply. In the past, the more the Fed increased the money supply, the more banks lent.

But today bank lending is still falling at an average of 15% annually, so far this year. But what if that trend stops?

Corporations in the US have more money on hand than ever in the last 54 years. They are more productive. Their debt-to-equity ratio has been dropping by about 25% for the last 3 quarters, as they repair balance sheets. Capital spending jumped 18% annually in the last quarter. If we are not at an inflection point of rising employment, we are close to it (although we do need at least 100,000 new jobs a month to make up for increased population). And thus are the stock market bulls inspired, and we hit new trend highs weekly.

While growth this quarter will not be as robust as last, it will be fairly good for an economy with 10% unemployment. If you are a Fed governor, you have to be worried that things could turn around quicker than now seems plausible. What if corporations decided to take their cash and start investing in growth?

The last chart showed a small uptick in velocity at the end of last year. What if that is for real? What if we have turned the corner? Then the Fed will have to start taking back the money they have put into the economy, unless they want to see inflation. And indeed, that is what some Fed governors are arguing. They want to raise rates now, or at least signal that they will begin to do so soon. Note there have been a number of speeches by Fed officials of late assuring the bond market that they are aware of the problem, and that they have all the tools they need to keep inflation (and higher interest rates) at bay.

But then again, while there are signs that the economy may be picking up, it is a strange type of recovery. It is what I call a statistical recovery. Let’s look at this litany from my friend David Rosenberg of Gluskin Sheff. He notes that there are measures of economic health other than the stock market and GDP. To wit:

• More than five million homeowners are behind on their mortgages.
• There are over six million Americans who have been unemployed for at least six months, a record 40% of the ranks of the jobless.
• The private capital stock is growing at its slowest rate in nearly two decades.
• Roughly 30% of manufacturing capacity is sitting idle.
• Nearly 19 million residential housing units, or about 15% of the stock, is vacant.
• One in six Americans is either unemployed or underemployed.
• Commercial real estate values are down 30% over the past year.
• The average American worker has seen his/her level of wealth plunge $100,000 over the last two years, even with the recovery in equity markets this past year.
• Bank credit is contracting at an unprecedented 15% annual rate so far this year as lenders sit on a record $1.3 trillion of cash.
• Unit labor costs are down an unprecedented 4.7% over the past year, and what has replenished household coffers has been the federal government, as transfer payments from Uncle Sam now make up a record 18% of personal income (and the Senate just passed yet another jobless benefit extension bill!).”

Wow. 18% of personal income in the US is now from the US government (also known as taxpayers, current and future).

If you take away the punchbowl too soon, you risk strangling a very shaky recovery that is significantly dependent on stimulus spending, which is going to rapidly go away the second half of this year. Further, the Fed situation is complicated by the fact that taxes are highly likely to go up in 2011 (maybe the largest tax increase ever), which will put a serious strain on the economy.

I think the Fed is on hold throughout 2010 and well into 2011, as they see what effect the tax hikes, coupled with decreased stimulus, bring. Next week we will explore the potential effects of the tax hike on the 2011 economy. Stay tuned.

Let me ask for a little bit of help. I am trying to find data on the potential tax increases, and what I am finding is all over the board. In fact, I had intended to write about that topic this week, but simply don’t trust the numbers I am reading. If you have a source or RECENT paper, I would love to see it. Thanks.

Dallas, and Thoughts on the Economy

What started me thinking about tax increases was the problems that so many people I know personally are having, including my kids. It is difficult watching your kids struggle with fewer work hours, the need to make car payments and buy diapers. For many, it’s cuts in pay, lost jobs, and more. Lack of health insurance is often a worry, too.

And knowing it could get worse is rather sobering. Trust me, I see the human side of the need for health-care reform, but also balance it with the need for some fiscal responsibility. We have $38 trillion in unfunded Medicare liabilities. How can we add more? Does anyone really believe that this bill being offered will actually cut spending? How do you cut Medicare by $500 billion when it is already so underfunded? Really? But what about kids and families with no insurance? Something better than what we are seeing is needed to get the problem solved. More on this next week.

I will be a panelist in the inaugural “America: Boom or Bankruptcy?” summit to be held in Dallas on March 26. There will be five of us, presenting problems (plenty of those!) and possible solutions. This promises to be a no-holds-barred, full-throttle event. It should be a lot of fun. Details at www.fedfriday.com.

It’s time to hit the send button. I have kids coming to the airport, and I want to be there. Spring break and all, and I look forward to it. Have a great week.

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Elk Grove Short Sales

Just this past week –
We closed 2 Elk Grove short sale listings…the bank on both was Aurora Bank. These properties were investment properties for the seller and were listed the first part of November 2009. We received approvals on them by mid January 2010, which means about 70 days on each. Then we had 30 days to get them closed…which we did this week! One was sold to an investor and the other to a first time homebuyer! Both buyers are very happy that they hung in there for the 100 days it took to get these properties closed….not bad. In a normal market, the marketing period is often times 90 days on a home before it goes pending…these 2 took about 1 week to actually have buyers in contract on them!

In addition, this week, we closed an escrow for an investor client on an Elk Grove Short Sale and got 2 more buyers into escrow on Elk Grove short sale listings! Not a bad week for short sales in the Elk Grove area! With this being the year of the Short Sale , it is important that we all learn how to navigate through them. The process is getting easier…the banks are starting to get with it more…agents and buyers are getting more educated on the process.

If you are a buyer, watch for more information on the Top 10 things you need to know about Short Sales, coming in the next couple of days. And in the meantime make sure to read, First Time Home Buyers Buying Elk Grove Short Sales!.

If you are a homeowner in distress and want more information on Elk Grove Short Sales, make sure to check out www.ElkGroveShortSale.com or contact us at (916) 230-0371 for a FREE private consulation.

Search All Elk Grove homes here

Lori Mode, Keller Williams Realty – Elk Grove
www.AllElkGroveHomes.com
Lori@ModeandDurhaM.com
(916) 230-0371

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A couple of days ago, a baby giant anteater was born at the Sacramento Zoo in Land Park.

The baby giant anteater looks just like an alien. And you know I’ve seen my fair share of aliens. So, I know exactly what they look like. Just kidding, I have no idea what an alien looks like, but if aliens were to come to Earth, I bet they would resemble giant anteaters. Neither the Sacramento Zoo’s website nor the Sacramento Bee article disclosed the gender of this newborn giant anteater. I wonder why.

I was thinking about this as I showed homes in Land Park yesterday. Did you know that a mother anteater is pregnant for 180 days? That’s as long as a listing agreement. Well, I do take one-year listing agreements, but those are generally short sales. My regular contract period for a traditional sale is 6 months. Not that it takes me 6 months to sell homes in Land Park, but it could take 45 days to get an offer, depending on the price range, and another 45 days to close. I am required to get a listing extension if closing runs over that time period, so being the efficient person that I am, I make my listing agreement durations longer than necessary to avoid additional paperwork.

It was cold yesterday, too. And wet. My feet were freezing. It was my own fault for not wearing boots and choosing ballerina flats instead. Two of the homes I showed had no heat. So, while my buyers were wandering around in the back yard in the rain, I grabbed a cellphone call. Sometimes I look at my phone when it rings to see who is calling, but I was too cold to take it out of its holster; I answered the call on my Bluetooth Jawbone.

The caller was a home seller in Iowa. She had been doing research online and said every website she went to led her back to me. That’s the downside of enjoying a strong Internet presence. Strangers from all over the country call me. This woman could not sell her home. Buyers had been telling her over and over that although they liked the home, the bedrooms were too small. What could she do to sell it?

I tried to explain that homes with undesirable features tend to sell for less than desirable homes. I asked her to think about why she bought the home in the first place because, whatever the reason, that’s why a buyer will purchase it now. I suggested she lower the price.

Turns out she built the home. Well, lady, I hate to say this, but you built your bedrooms too small.

Photo: Big Stock Photo

—

Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

The views expressed herein are Weintraub’s personal views and do not reflect the views of Lyon Real Estate.

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An excerpt:

For years we’ve been hearing about gradual changes in the interior preferences of homebuyers, but during the boom years many builders stuck with the tried and true rather than risk their production schedules – and profit margins – on risky changes. Of course with discounted short sales and foreclosures continuing to dominate most local housing markets, new homes not only have to be competitively priced, but offer updated design cues and interior amenities…

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“I was on my way to recovery, then you enabled me.” – Drug Addict

Bailing out banks is like a mother giving her 28 year old son that is living at home, money for heroin, driving him downtown to buy the drugs and then back home so he can use ’safely’.

What does recovery mean to us?  We’ve heard it over and over.  America is addicted to debt.  Experts even say, for our economy to grow, we need more debt.  Of course, that is how money works in the first place.  There is not a dollar that is created without debt attached to it.

So what’s the answer?  Less debt. Also known as de-leveraging.  Not more stimulus and bailout paid for by taxpayers… which partly ends up in the bankers bonus check.  The answer is also in getting back to freedom.  Our country was founded on freedom and we have betrayed ourselves by thinking it’s ok to owe thousands of dollars to other people.  This has robbed our freedom and caused us to be so dependent upon working long hours and doing everything to just “get by”.  I am sick of just “Getting by”.

Since the government can theoretically spend only what it takes from the people (taxpayers), its increased spending will drive the people to poverty.  We are allowing this to happen to our country.

After 2 and a half years of listening to YouWalkAway.com customers and seeing time after time that by defaulting, they feel freedom again, they can afford a normal life again, I am convinced that a strategic default could possibly save our economy…and much quicker than any other solution that I’ve seen thus far.  Let’s look at a real life example.

In the WSJ, there is an article titled: American Dream 2: Default, Then Rent

“It’s just a better life. It really is,” says Ms. Richey. Before defaulting on her mortgage, she owed about $230,000 more than the home was worth. People’s increasing willingness to abandon their own piece of America illustrates a paradoxical change wrought by the housing bust: Even as it tarnishes the near-sacred image of home ownership, it might be clearing the way for an economic recovery.

In the WSJ, there is an article titled: Americans Pare Down Debt

“The speed of the adjustment is lightning fast because it’s happening through debt destruction,” said Joseph Carson, director of global economic research at AllianceBernstein in New York. “It puts us closer to the point where the consumer can start making a stronger contribution to recovery.”

I guess I’m not alone in my thinking.  In essence, you are taking back the power from the bank by saying I don’t care about my credit score right now, I care about my economic future.  You are creating your own stimulus package by following the law and staying in the home until the bank takes it back.  There is a breakdown of how it works here.

“A rapid and cost-efficient mark to market”. consider: Snow Job: Strategic Defaults in an Era of Negative Equity

Strategic walkaways employ laws established to protect them from predatory or avaricious lending practices. They create an efficient, rapid, cost-efficient mark to market, stripping away inaccurate and illusory pricing practices that lenders cling to. Solving the mortgage crisis is going to take more than nibbling away at the edges of valuation, tweaking monthly loan payments through interest rate adjustments and loan extensions.

Being protected from crisis may simply be doing nothing more than preventing and delaying a true healthy economic recovery.  Strategic defaults are paving the way for true home values, responsible lending practices and allowing for homeowners that once felt trapped…to be free again.

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You can follow the performance of this asset at: Tracking Our Toxic Asset

Planet Money is committed to following the financial crisis to the bitter end. And what better way to do that than to own a piece of it. We bought one of those things that no one wanted, one of those things that almost brought down the global economy: our very own toxic asset. This one has more than 2,000 mortgages in it. We paid $1,000, with our own money, for our piece. It used to be worth more like $75,000. Click on the timeline and roll over the states to watch a disaster in progress.

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You can’t make this stuff up. No one would believe it.

GMAC: Too Important to GM to Fail – The Atlantic

Who should be concerned with the GMAC bailout? The U.S. taxpayer. This diagram explains why. You’re the little building with columns on the left:

Greek general strike sparks riots – CBC News

Even police officers, firefighters and coast guard officials participated, some 200 marching in uniform in Athens to express their discontent.

Europe’s banks brace for UK debt crisis – Telegraph, Ambrose Evans-Pritchard

UniCredit has alerted investors in a client note that Britain is at serious risk of a bond market and sterling debacle and faces even more intractable budget woes than Greece.

Eurozone could risk ’sovereign debt explosion’ – Telegraph, Ambrose Evans-Pritchard

The warning comes as bond giant PIMCO spoke of a “sovereign debt explosion” that has taken the world into uncharted waters and poses a major threat to economic stability. “Our sense is that the importance of the shock to public finances in advanced economies is not yet sufficiently appreciated and understood,” said Mohamed El-Erian, the group’s chief executive.

Rapid Rise in Seed Prices Draws U.S. Scrutiny – The New York Times

During the depths of the economic crisis last year, the prices for many goods held steady or even dropped. But on American farms, the picture was far different, as farmers watched the price they paid for seeds skyrocket. Corn seed prices rose 32 percent; soybean seeds were up 24 percent.

California public pension funds take new hits on real estate investments – The Sacramento Bee

First up was CalPERS, which Wednesday walked away from a controversial Boston investment that cost it about $91 million.

Then came CalSTRS. A New York skyscraper it co-owns is about to go into default, a credit-rating agency warned Thursday. Default could cost the California State Teachers’ Retirement System its share of a $75 million investment.

Why the Real Estate Boom Will Not Bust – And How You Can Profit from It: How to Build Wealth in Today’s Expanding Real Estate Market – David Lereah

Feeling nostalgic…

Get Yours Today

A couple of funny videos (ht Patrick)

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Other governments around the world take steps to curb lending and warn citizens of the perils of excessive mortgage debt. Why don’t we?

My friends feel it’s their appointed duty
They keep trying to tell me all you want to do is use me
But my answer yeah to all that use me stuff
Is I wanna spread the news that if it feels this good getting used
Oh you just keep on using me until you use me up

Bill Withers — Use Me

Lenders with encouragement from the US Government want to use you to pay for their mistakes; they want to use you, and they want you to feel good about it. Buy now, it doesn’t matter if you go underwater; lenders don’t care as long as you make your rent payments on the money.

Recently, I wrote about Canadian finance minister Jim Flaherty preventing further inflation of Canadian housing bubble.

Allow me to recap and interpret:

(1) He is forcing qualification at a higher payment rate. If he had stated 30-year fixed rather than a 5-year fixed, It would be better, but it is a step toward stable financing. I wish the statement clarified whether or not interest-only ARMs are permitted there. I believe the qualification standard he is imposing is based on a 30-year amortizing mortgage with only a 5 year fixed rate.

(2) Twenty percent down payments? I would like to see this on all property, but common sense says investment properties and second homes should require a significant down payment — people don’t hesitate to walk away from investment properties.

(3) And limiting cash-out refinancing to 90% LTV is identical to the proposal I made. I like this requirement because it provides an equity cushion that stabilizes markets and prevents walkaways.

“We do want to discourage the tendency by some to use their home as an ATM machine, the tendency by some to buy three or four condominiums by way of speculation,” Flaherty said. “This will discourage the kind of mortgage refinancing that can create unsustainable debt levels as interest rates go up.”

Our government actively encouraged us to borrow, spend and be happy while Canadians are being warned about excessive debt and spending their equity foolishly. The contrast is conspicuous.

It isn’t just the Canadians who exercise better control over lending and warn their citizens of the perils of buying and borrowing today. The Swiss, long known for their banking prowess, do not cave in to banking interests.

The Swiss Central Bank sends warning on excessive mortgage borrowing

By Catherine Bosley

The Swiss National Bank warned banks and borrowers on Thursday about taking on too much debt while interest rates were still very low, indicating it is concerned about a possible housing bubble.

…”The SNB is warning banks and borrowers to be extremely cautious,” the central bank said in its quarterly policy statement. “The fact that interest rates are exceptionally low by historical standards must be taken into account.”

…”What they wanted to avoid is house prices going up too much in response to a slightly brighter economic outlook. That would mean another bubble,” said Henrik Gullberg of Deutsche Bank. “One way of doing that is to keep sending these verbal warning shots while policy is still very expansive.”

The Swiss government is openly concerned about its citizens financial well being, and they post warnings about mortgage borrowing to help people. Why is it only bloggers like me who issue these warnings here in the US?

The US Government wants its citizens to borrow as much as possible to help out ailing banks even if that destroys the borrower. Shameful.

Some analysts have argued that the central bank may raise borrowing costs earlier than the market currently predicts, and despite the strong Swiss franc, due to the housing concerns.

The SNB said it was conducting an in-depth investigation into banks’ mortgage-granting practices and that it would work with regulators to see if any corrective steps were needed.

SNB statistics show that prices for single family homes in Switzerland rose by some 4 percent last year.

SNB vice-chairman Thomas Jordan warned as early as autumn last year of a possible bubble in the private housing market.

Why is the US Government out to screw us?

Hasn’t it become obvious that our government does not care about the people? As a citizen of this country, you should be outraged by the way your government puts your interests last. Our government openly advocates destructive policies that transfer wealth from you to the lenders.  The US Government as ruled today is completely captured by money interests; they feed us a steady stream of bullshit bailouts and false hopes to convince us to take on more debt and keep the Ponzi Scheme alive.

It wasn’t always that way.

Andrew Jackson and the Second Bank of the United States

AIG was not the first institution that was too big to fail. Andrew Jackson waged a personal war against the banking behemoth of his era, and as a former general, he knew how to win a battle. From Wikipedia:

The Second Bank of the United States was authorized for a twenty year period during James Madison’s tenure in 1816. As President, Jackson worked to rescind the bank’s federal charter. In Jackson’s veto message (written by George Bancroft), the bank needed to be abolished because:

• It concentrated the nation’s financial strength in a single institution.
• It exposed the government to control by foreign interests.
• It served mainly to make the rich richer.
• It exercised too much control over members of Congress.
• It favored northeastern states over southern and western states.

Following Jefferson, Jackson supported an “agricultural republic” and felt the Bank improved the fortunes of an “elite circle” of commercial and industrial entrepreneurs at the expense of farmers and laborers. After a titanic struggle, Jackson succeeded in destroying the Bank by vetoing its 1832 re-charter by Congress and by withdrawing U.S. funds in 1833.

Does Jackson’s reasoning sound familiar to you? Isn’t most of what he identified as problems exactly what we have with too-big-to-fail institutions? Who will be our modern Andrew Jackson who will crush our banking cartel? Our current crop of politicians are hopeless or worthless completely captured by banking interests and too fearful to do anything to help the people. We are lost, and we need a real leader like Andrew Jackson to help us find our way.

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Real Estate in Davis County experienced a 1.3% decline in the number of houses sold last year. Median prices decreased by 3.5% and average prices decreased by close to 5%.

Although sold prices have dropped, condos in Davis County sold increased 177% in 2009. Median price is currently listed about 5% higher than last year’s sold price. For information about individual cities in Davis County, continue reading.

Bountiful Houses: Bountiful was one of many other cities in the area that experienced an increase in the quantity of houses sold. Median sold price declined 2% and sold price decreased 4.25% on average. Inventory is somewhat higher, a sign that the city is experiencing a buyers market.

Centerville Houses: Numbers crawled up by 5 homes last year. Median price fell by close to $10,000 but sellers are still trying to get the same price they did in 2008.

Clearfield Houses: All of the numbers in Clearfield stayed pretty similar last year as changes were all fewer than 1%.

Clinton Houses: Quantity of homes sold slipped by close to 4%. A decrease in prices was also seen and today’s houses are priced close to 2008 sold prices.

Farmington Houses: The number of houses sold crawled from 147 to 161. Sold price decreased a median of 6% and an average of around 3.5%. Although Farmington hasn’t listed as many homes as other cities have, monthly inverntory is the highest in the county at 8.8.

Kaysville Houses: Kaysville witnessed the biggest increase of homes sold, jumping by greater than 60. Median prices declined $9,000 and sold price fell from $316,552 to $270,000 on average. Today’s median price is $289,107.

Layton Houses: 8% fewer homes sold in Layton, decreasing more than any other city in the county. That being said, Layton sold more than twice the number of houses that surrounding cities did.  With 361 houses currently listed, Layton has more homes on the market than any other city in the county.

North Salt Lake Houses: Median sold price and quantity of homes sold stayed close to the same but sold price dropped 12.5% on average. Listed price is close to $400,000 on average, possibly signifying that Layton has a few upper scale homes on the market.

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Before I talk about fixing inaccurate Sacramento County tax records, let me ask if you have any idea how much it costs to get an MRI scan?

The deal is you lie perfectly still on a bed. The bed moves back into a chamber, which sort of resembles a giant front-loading washing machine. Then the MRI scanner whirls, clicks, spins and chugs while it takes a series of images. For that 5- or 10-minute procedure, the cost at UC Davis is $8,704.50.

UC Davis apparently has no room in the hospital for the MRI machine. It was installed in a manufactured home out back in the parking lot. Eight grand to spend 15 minutes in a trailer.

My insurance paid $1,432.75. The hospital wrote off $7,062.56, so my out-of-pocket expense was about $210. I have no idea how billing works at hospitals but it makes me wonder if people without insurance would be forced to foot the entire bill; no wonder people are losing their homes. I mean, why do the silly dance? Why not just ask me for two hundred bucks? I suppose the seven grand loss is a tax write-off . . .

Everybody is looking for tax breaks. A big tax bill that many of us pay is property taxes. Some people are afraid to call the Sacramento County Tax Assessor because they worry that their tax bill will go up. However, in the Sacramento real estate market, many values have decreased, which means just the opposite could happen.

You probably know that due to Proposition 8, home owners with declining property values can get a temporary reduction on their property tax bill.

Something you may not know, though, is a Sacramento home owner can ask the County Assessor’s office to fix inaccuracies. I am listing a 5-bedroom pool home in Carmichael next week. And guess what? It’s not a short sale. But when I pulled the tax records — which appraisers rely on for accuracy — I noticed the County shows this home as a 4-bedroom. Well, I don’t want the buyer’s appraiser to lowball the appraisal when we’re in escrow and hit my sellers on price.

The guy in charge of the Sacramento County Assessor’s office, Ken Stieger, came to my Lyon Real Estate office a while back to talk about how the Assessor’s office works. He told us that sellers and real estate agents can get the Assessor’s records changed if they find a discrepancy. So, I gave it a whirl. I called the Assessor’s office and after several transfers was put through to Kevin, an appraiser. Explained the situation, and Kevin changed it while I was on the phone with him. Easy as can be. And it was free. Took about the same amount of time as my MRI scan.

The Sacramento County Assessor’s office is located at 3701 Power Inn Road, Suite 300, Sacramento, CA 95826. Phone: 916.875.0700.

Photo: Big Stock Photo

—

Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout Sacramento. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. DRE License # 00697006.

The Short Sale Savior, by Elizabeth Weintraub, available through bookstores everywhere and at Amazon.com.

Photo: Unless otherwise noted in this blog, the photo is copyrighted by Big Stock Photo and used with permission.

The views expressed herein are Weintraub’s personal views and do not reflect the views of Lyon Real Estate.

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