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In A Soft Market, It’s Going To Come Out Of The Hide Of The Sellers

A report from Kieth Jurow. “California was the epicenter of cash-out refinancing and HELOC madness during the wild bubble years. There is growing evidence that Californians have learned nothing from the collapse and are once again throwing caution to the wind. According to a leading mortgage broker in California with a widely-read weekly real estate column, it is quite common for non-bank lenders to offer a HELOC with a combined loan-to-value (CLTV) of 90% and an interest rate of roughly Prime + 1%.”

“For a home-equity installment second mortgage loan, the non-bank lenders are quite willing to do a CLTV of 100% at a fixed rate of 10% and a term of 20 years. This leaves no cushion in case of a home price decline. The mortgage broker explained that borrowers are willing to take this kind of loan because they want the money now and don’t care about the interest rate.”

“Since non-bank lenders don’t take deposits, they are forced to use lines of credit obtained from banks to provide funding for their loans. In a housing downturn or liquidity crunch, the banks could pull the line of credit and essentially put the non-banker lender — large or small — out of business.”

“An article published a year ago explained that an office of one non-bank lender had a sign which read ‘If the customer does not buy from us, it’s your fault, not theirs … BE OBSESSED.’ The author went on to state that many of the clients of one non-bank lender have ‘no savings, poor credit, or low income – sometimes all three.’ That sounds much like the sub-prime borrower of a dozen years ago.'”

From Patch Illinois. “Attached luxury home sales were down 68 percent in the Near West Side in the first quarter of this year compared to the same time frame last year, according to a quarterly RE/MAX luxury housing report. Luxury homes are those listed for more than $1 million. Only eight attached units were sold in the first few months of this year.”

“Other neighborhoods also saw a sluggish first quarter: attached luxury sales fell 42 percent in Lincoln Park to 11 units, 36 percent in the Loop to 7 units and 60 percent in the Near South Side to 6 units, RE/MAX reported.”

From Mansion Global on New York. “New York City’s so-called ‘mansion tax’ will increase from a flat 1% surcharge on all home sales over $1 million to a progressive tax starting at 1.25% on homes between $2 million to $3 million up to 3.9% on those $25 million or more.”

“While the letter of the law sticks buyers with the bill, it’s more likely that in today’s sluggish housing market, sellers (and developers) will bear the cost of the tax hike in the form of price reductions, more concessions and sluggish sales, experts say.”

“‘In a soft market, where the seller is already weaker than the buyer in terms of negotiating, it’s going to come out of the hide of the sellers,’ said Jonathan Miller, chief executive of Manhattan-based appraisal firm Miller Samuel.”

The Real Deal on Florida. “A lender that financed construction of a Hollywood condo-hotel in Hollywood filed a foreclosure lawsuit against the developer claiming $40.06 million of delinquent debt. Madison Realty Capital loaned $70 million to the developer in 2016 to finance construction of Costa Hollywood Beach Resort at 777 North Ocean Drive in Hollywood, which opened last October.”

“According to the lawsuit, Costa Hollywood Property Owner defaulted on the loan from Madison Realty in April 2017, but the lender entered a forbearance agreement and extended the term of the loan. Madison Realty claims that the developer defaulted again by failing to fully repay the $40.06 principal balance on the loan by its maturity date on Dec. 20, 2018.”

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  1. ‘in California…it is quite common for non-bank lenders to offer a HELOC with a combined loan-to-value (CLTV) of 90% and an interest rate of roughly Prime + 1%’

    ‘For a home-equity installment second mortgage loan, the non-bank lenders are quite willing to do a CLTV of 100% at a fixed rate of 10% and a term of 20 years. This leaves no cushion in case of a home price decline. The mortgage broker explained that borrowers are willing to take this kind of loan because they want the money now and don’t care about the interest rate’

    These are tough days for the “loans are sound” crowd.

  2. ‘A lender that financed construction of a Hollywood condo-hotel in Hollywood filed a foreclosure lawsuit against the developer’

    Brand new condo-tels in foreclosure – check!

        1. floating river condos

          This is for idiots. I have a seaworthy cabin cruiser that can do all these routes and much more which cost less than 5% of these marine condos. I don’t have to share the deck with anyone I don’t want to! HOA fees, >$1K/mo. OMG. Ok, I have to drive the thing myself. Poor poor me.

    2. “A lender that financed construction…”

      Nice to see a “Real Estate Private Equity Firm & Debt Fund” getting their rosebud tapped.

  4. Big RE guy in Portland area told me the other week they were back to doing no-doc loans again. Time to hunker down. . .

    3. Ok now we have shaky loans at the very top. Last time we had shaky loans for years before the bubble burst. So I am guessing that there are bad loans out there, but nowhere near the level as last time. So we have learned, a little.

      1. So we have learned, a little.

        It was not shaky loans that caused the drop after 2005 at all. It was too high price paid. More to learn, but you won’t have to wait long.

    1. ‘borrowers are willing to take this kind of loan because they want the money now and don’t care about the interest rate’

  6. ‘An article published a year ago explained that an office of one non-bank lender had a sign which read ‘If the customer does not buy from us, it’s your fault, not theirs … BE OBSESSED’

    Gosh, they might even resort to….appraisal fraud! Holy Jingle Mail, that could never happen! But come to think of it, all the sales I am aware of the past couple of years, the appraisal hit the sales price – exactly.

    ‘The author went on to state that many of the clients of one non-bank lender have ‘no savings, poor credit, or low income – sometimes all three’

    But posters have told us for years these people couldn’t get loans. Wait, ohhh, time flash back music:

    May 25, 2018

    “In his corner of American finance, where hard selling meets hard luck, Angelo Christian is a star. Each time Christian sells a home loan, the company he works for, American Financial Network Inc., takes as much as 5 percent. Many of Christian’s customers have no savings, poor credit, or low income—sometimes all three. Some are like Joseph Taylor, a corrections officer who saw Christian’s roadside billboard touting zero-down mortgages. Taylor had recently filed for bankruptcy because of his $25,000 in credit card debt. But he just bought his first home for $120,000 with a zero-down loan from Christian’s company. Monthly debt payments now eat up half his take-home pay. ‘If he can help me, he can help anyone,’ Taylor says. ‘My credit history was just horrible.’”

    “Christian can do this kind of deal because he is, in effect, making the loan on behalf of the federal government through its most important affordable housing program. It’s a sweet deal: He gets his nearly risk-free commission. Taylor puts no money down. If things go south, the government ultimately bears the risk. Many borrowers ‘are living paycheck to paycheck and, if they lose their jobs, they go into default immediately,’ says John Burns, a housing consultant.”

    http://thehousingbubbleblog.com/?p=10443

  8. I have read many comments that say that if property prices crash, rentals would go up as more people would be looking to rent instead of buying, either because they left their house to the bank or because they prefer to rent. This sounds wrong to me in so many ways, but it seems to be an ongoing meme. Well, I always check rental listings in my zip code to be ready in case we have to move, and I can now definitely say that this is not true. A couple of homes that were in the market for sale are now for rent at ridiculous prices (like 8k for a 3×2), but the competing listings are slightly more down to earth, and there are many more of them.

    1. I have read many comments that say that if property prices crash, rentals would go up as more people would be looking to rent instead of buying, either because they left their house to the bank or because they prefer to rent.

      I think it can be temporarily true until the market sorts itself out. Rents are spiking in the very specific area I’m at this spring as inventories rise, and I believe it’s because it’s an area where lots of people want to live but few want to sign on the dotted line at current prices.

    2. I have so much money left after “throwing money away on rent” every month that I don’t know where to throw it.

    3. The only reason rental prices were able to rocket up is because of the massive overhang of shadow inventory in conjunction with the speculation into houses and apartments which led to an artificial shortage. The real question I have is will we EVER see these zombie houses hit the market? There are some which have been in default for more than 10 years now.

      1. The rent vs buy calculator from realtor.com tells me that renting my current house is cheaper than buying for 30 years. To get to buying cheaper than renting after 9 years, I have to drop the price of the house from $1.7 million (realtor.com estimated value) to $1 million. In another scenario, if I had to move to a similar house and double my rent payment from what it is now, it would be cheaper to rent than to buy for 7 years. If this is true, there could be a flood of renters once house stop appreciating as they have been, especially if the economy tanks. I do not have the necessary training to think through all the possible ramifications but none of the ones that come to my mind are good, and most could be “solved” with a bailout.

  11. Oil seems to have settled down 10% this week with WTI around $60. This is good news for me as I am about to put the first fill in Blue Skye’s enourmous gas tank for the cruising season.

  12. “Renewables Are Dead”

    Inevitable, just like in the 70s. People refuse to learn or understand thermodynamics. Germany is the latest to throw in the towel, which means it’s really over.

    If we really want to conserve, we have to use less, not play shell games with how we keep using so much.

    1. If we really want to conserve, we have to use less, not play shell games with how we keep using so much.

      On this point, I will agree with you.

        1. “Use it up, wear it out, make it do, or do without.” – WW2 Conservationist Motto

          We have adopted this as one of the 7 pillars of our core family values.

    1. I got a cold call from my bank today and was a bit bored so I decided to listen (normally would just hang up). They said I was ore qualified for a home loan and I went ahead and gave a bit of info. Minutes after the call I got an approval letter. They are very hungry! FYI the rates they put on the loan (900k):
      NonConf Fixed 30 Conventional
      4.000%
      4.010%
      1st Lien P&I
      2nd Lien P&I
      Property Taxes Homeowner’s Insurance Mortgage Insurance Other/HOA Fees
      $3,437.39
      ———
      $643.00
      $400.00
      ———
      ———
      NO Not Escrowed NO Not Escrowed
      Monthly Payment
      $4,480.39
      Closing Costs
      Closing Costs
      $12,790
      Includes $6,729 in Loan Costs + $7,393 in Other Costs – $1,332 in Lender Credits.
      they assured me that they would be able to get the closing costs waived…

      Renting is winning for sure!

      1. On a smaller scale: I do have a few credit cards but don’t carry a balance on any of them. The past few months I am getting frequent 0% interest for a year, no fee balance transfer offers, with blank checks in the envelope.

        1. Ya I am sure BoFA likely just sold me info off and those will be coming in the mail too. Free money for everyone, MAGA!

        2. “On a smaller scale: I do have a few credit cards but don’t carry a balance on any of them.”

          +1 Once you leave the debt plantation you’ll never return!

  14. Trump Says 10% China Tariff Rising To 25% On Friday (ZH)

    “Sunday, President Trump tweeted that 10% tariffs paid by China on $200 billion in goods will rise to 25% on Friday”

    I thought the importer paid the tarriff.

    1. It’s a tax on foreign goods. Some economists say it will be a hit to consumers because the tariff will be passed on in prices, or absorbed by the importing nation via lower prices. Indeed, there is some evidence that this has happened as China has lowered prices of goods targeted by tariffs, thus sacrificing profit margins in order to not lose market share.

      1. How will I survive without all these China Junks?
        Correction: how will my wife survive? 🙂

      2. “…or absorbed by the importing nation via lower prices.”

        You probably meant to say ‘exporting nation’ (e.g. China), as their producers may receive a lower price for what they sell us?

    2. It depends on the elasticity of demand for the import, from the importing country’s perspective, and the elasticity of supply, from the exporting country’s perspective. If the import is an essential product with no other source, the tariff may be passed on to the importing country’s consumers as a price increase.

      1. It depends on the elasticity of demand for the import

        Not down the line impacts, the tariff is paid by the importer or the exporter. I was thinking the tariff was paid by the importer, which is not China.

    1. Just going the wave of ex-pats who are living and working abroad because their wages will be forever garnished by their unservicable student loans.

    2. Doesn’t sound conducive to household formation, either from the housing demand or the reproductive standpoint.

  18. I’ve really got an itch to move back to CA. I flagged two places in Monterey I was interested in on Friday. By Monday morning both were sold. And these were not cheap.

      1. I’m 12 years older than last time. I don’t care about nailing the bottom anymore. I want to retire some place beautiful and can afford it.

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