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The Intense Suspicion That Met Mortgage Bonds Is Starting To Slowly Fade

A report from Bloomberg. “The subprime mortgage-backed bond may be dead in America a decade after it helped trigger the global financial crisis, but a security with some of the same high-risk characteristics is starting to take off. It’s called the non-qualified mortgage — basically a loan granted to borrowers whose checkered financial record made them ineligible for conventional mortgages.”

“This surge in issuance of non-QM bonds, as they’re called, comes just as some initial indications of delinquency rates on the loans are starting to emerge. The short answer: They’re high. About 3% to 5% in some bonds, according to Barclays Plc.”

“Fund managers’ willingness to plow money into these securities shows how the intense suspicion that met mortgage bonds after the housing bubble burst last decade is starting to slowly fade. ‘It’s obviously disturbing this late in the cycle to see originations for these loans at the kind of level they’ve kicked up to,’ said Daniel Alpert, managing partner at Westwood Capital. ‘The housing market is not quite ready for a big infusion of this product.'”

The Epoch Times on California. “Beijing-based Oceanwide Holdings’ $1 billion trophy development across from the world famous Staples Center in Los Angeles has shut down due to a barrage of lawsuits by unpaid contractors. Just two years after city approval, the famed 49-story central tower was set to include 184-room five star Park Hyatt hotel rooms and 164 condos; flanked by two 40-story towers featuring 504 super-luxury condos; and connected by about 200,000 square feet of high-end retail shopping.”

“But in January 2019, Oceanwide Holdings was targeted in a slew of FBI subpoenas regarding potential bribery, extortion, money laundering, and conspiracy involving LA City Council member Jose Huizar. Other Chinese real estate developers in Los Angeles receiving subpoenas included Shenzhen New World Group that owns the downtown Los Angeles Marriott and the Sheraton Universal hotels, and Shanghai-based Greenland USA that owns the Metropolis Los Angeles and Atlantic Yards in New York.”

“DCBID trumpeted that market-rate apartments in the LA downtown core increased 10-fold over the last two decades, from 2,426 to 27,616 at the start of this year’s third quarter. But with another 3,296 rental units under construction, the LA Weekly reported rents fell slightly in September to $2,665 per unit. The downtowns’ first decline since 2011 was blamed on a 12 percent rental vacancy rate and a looming new supply from Oceanwide and the other Chinese developers with projects at various stages of completion.”

“A Beijing spokesman told Bloomberg its LA Plaza project is still under construction and that the company still has access to development loans. But the Oceanwide Plaza subcontractors are contesting the authenticity of a ‘suspicious’ $325 million deed of trust on Oceanwide Plaza that is held by a group representing Chinese EB-5 visa investors that provided green card work permits for creating U.S. jobs.”

The Real Deal on New York. “As WeWork attempts to scrub its image clean of Adam Neumann, some of the ousted CEO’s transactions serve as a bitter reminder of the company’s former culture of excess. One is WeWork’s $850 million purchase of the Lord & Taylor building. Six current and former WeWork employees familiar with the acquisition told The Real Deal that WeWork overpaid, perhaps by as much as $200 million. Moreover, some said, the deal was rife with potential conflicts of interest.”

“A particular concern was the role of Steve Langman, a WeWork board member who held interests in the buyer, the seller and the tenant in the Midtown building before the sale closed. ‘It was an above-market purchase price, and we had to sign an above-market lease to save Langman’s ass and save the deal,’ said one former WeWork executive. A current employee familiar with the matter said Neumann drummed up support for the acquisition. ‘The rationale internally was, this was a crown jewel.'”

“‘They overpaid by $150 million to $200 million,’ said one person close to the matter. A current WeWork executive said, ‘We clearly overpaid, and it was no secret.'”

From Crain’s New York Business. “A German real estate investor will likely lose tens of millions of dollars on a retail space it has owned for the past five years near Times Square – offering the latest glimpse of distress in the market for brick and mortar stores in the city. Munich-based GLL Real Estate Partners purchased the roughly 17,000 square foot space at 140 W. 42nd St. in the base of a Hilton Garden Hotel in 2014 for about $85 million when the outlook for retail was far rosier.”

“Now the investment firm has hired a sales team from the brokerage Meridian Capital Group to market and sell the space, which includes the basement, ground, second and third floors, for roughly $50 million – what would amount to a $35 million loss.”

“GLL purchased the retail space at a moment when its location along West 42nd Street between Times Square and Bryant Park seemed ascendant. GLL is one of several foreign based real estate investors who made large real estate acquisitions in the city in recent years, only to lose millions of dollars.”

From KMBC. “The owners of one of Kansas City’s largest low-income housing companie are experiencing financial trouble, multiple employees told KMBC 9 Investigates. T.E.H. Realty owners did not meet payroll, this week, and employees fear they may lose their jobs, according to the employees who spoke to KMBC on the condition of anonymity.”

“T.E.H. Realty, based in Reading, Pennsylvania, with several connections to Israel, has faced a barrage of complaints from residents and increasing scrutiny from government officials after multiple KMBC 9News investigations into critical fire-code violations, sewage backups and potential mold in apartments.”

“The employees said management called properties in Kansas City, St. Louis, Indianapolis, and Tulsa, Oklahoma, this week, to inform them they had to delay payroll by a week. T.E.H. Realty investors own 11 low-income properties around the Kansas City metro with 1,600 units. The company owns at least 26 complexes with more than 5,700 apartment units across the country.”

“T.E.H. is currently facing a foreclosure lawsuit from federal mortgage backer Fannie Mae at the Crestwood Apartments in Kansas City, Kansas. The company is one of Kansas City’s largest evictors, according to a tenants’ rights group, KC Tenants.”

This Post Has 74 Comments
  1. ‘The employees said management called properties in Kansas City, St. Louis, Indianapolis, and Tulsa, Oklahoma, this week, to inform them they had to delay payroll by a week. T.E.H. Realty investors own 11 low-income properties around the Kansas City metro with 1,600 units. The company owns at least 26 complexes with more than 5,700 apartment units across the country’

    ‘T.E.H. is currently facing a foreclosure lawsuit from federal mortgage backer Fannie Mae at the Crestwood Apartments in Kansas City, Kansas’

    Can’t say you weren’t warned. This at a time when dollar rents have never been higher and the percentage of incomes going toward rents have never been higher.

    1. I do not understand how rents were able to hyperinflate across the entire country, irrespective of local wages. Where did all this extra rent money come from? In many places, they’re up over 50%. Rent is not something you pay on a credit card, to my knowledge. I suppose people could be doing cash advances, but this has been going on for years.

      Further, the Airbnb thing also confounds me. When I look at the prices of some of them, it’s jaw-dropping. Where are all of these rich people coming from to support these short-term rental prices? It feels like 2005 again where it seems everybody became filthy rich except for me.

      1. like 2005 again where it seems everybody became filthy rich except for me

        Yeah, back when everybody had a more expensive boat than I did. Turns out they were almost all deeply in debt.

      2. ‘how rents were able to hyperinflate across the entire country’

        I’ve been following this since 2014. A massive speculative frenzy in purchases, value adds and rents are jacked up. Building 90% luxury apartments year after year, all boosted with over a trillion in government backed loans. This “luxury” thing spread to every nook and cranny of the US, and segments – senior, student, everything. Apartment owners went into a race to the bottom of returns to where they are losing money in general. Basically a cluster-fark extraordinaire. Mel Watt strikes again!

        1. But who are the people who can suddenly pay a bunch more in rent? When the money isn’t there, it isn’t there. Is it a situation where they are moving in with each other and splitting rents that way? I suspect it must be, with the remainder of the rental stock sitting empty. Because these rent prices are not supported by wages. Far from it.

          1. It’s made people poorer, bubbles always do. But rents in the major metros have been falling for years mainly due to oversupply.

          2. I think headless bankers is saying that there is no explanation for the rent price increase from the demand side. I feel the same way. My best answer is that money is fungible, and that if you have any cash income you can use that cash to pay your rent while you throw every other necessity on your credit card. So in some way, yes the answer could be credit cards. But, I think there must be more to it than that. Exactly what I do not know and remains to be seen.

          3. Because these rent prices are not supported by wages. Far from it.

            I wonder how many people are working three jobs to pay the rent?

          4. “I do not understand how rents were able to hyperinflate across the entire country, irrespective of local wages.”

            It’s pretty simple, as seen by myself and others who lived in the CA Bay Area. Money that could’ve been used elsewhere for savings, vacations, paying off debts, etc, is instead rerouted to landlords and rental companies. This is why quality of life is so piss poor in so many areas of the country, and is precisely why I’ve since moved out of CA to Boise.

            Comparatively speaking, I went from about 68% of my take-home going to rent (wife works too, so that knocked it down to 40%), to now 34% of my reduced take-home being used for rent. My wife doesn’t even need to work now, but if she does get a job that’ll all be gravy.

          5. “Money that could’ve been used elsewhere for savings, vacations, paying off debts, etc, is instead rerouted to landlords and rental companies.”

            I should also add that this is precisely why I abhor the H1B Visa crowd and illegals flooding across the border, because it increases competition for those already expensive assets, forcing people to pay so much more of their hard-earned cash to keeping a damn roof over their heads.

            While my Boise comparison is better, it has also undergone a crazy increase in home value of ~100% in the last 7 years, which is of course, batt-sh!t crazy. I rent, biding my time for the inevitable crash to come so I can finally move into something permanent (which was impossible in the bay area).

          6. Loosening credit standards free up money for other expenses so your paycheck can go to rent. Then you just have to shift your debts around and juggle e ehy couple of months and have faith that things will get better, something Americans are very good at. The ones who aren’t good at hope and change voted for Trump.

          7. “Loosening credit standards free up money for other expenses so your paycheck can go to rent.”

            Easy credit is money printing that reduces your paycheck’s ability to purchase assets, goods and services. Hasn’t there been enough easy credit?

        2. every nook and cranny of the US

          Indeed. Even in my little out of the way village, they turned a dilapidated century old grain storage building into “Luxury Apartments”.

          1. Inventory in several cities is back to par this fall vs. Piling up in the summer
            Per movoto

            Pro que?

        3. “Building 90% luxury apartments year after year, all boosted with over a trillion in government backed loans.”

          What was the political justification for federally insured loans going to luxury housing construction, while ever more truly impoverished families were unable to afford rent of any available housing and found themselves on the street as a result?

      3. Correct. You usually cant pay rent with a credit card, but you can shift all of your other expenses to a credit card, including food, clothing, utilities, daycare, health care, fuel, and entertainment.

        1. “…but you can shift all of your other expenses to a credit card, including food, clothing, utilities, daycare, health care, fuel, and entertainment.”

          Really? WTF?? I’d prefer to stay out of debt.

  2. ‘The subprime mortgage-backed bond may be dead in America a decade after it helped trigger the global financial crisis, but a security with some of the same high-risk characteristics is starting to take off. It’s called the non-qualified mortgage — basically a loan granted to borrowers whose checkered financial record made them ineligible for conventional mortgages’

    Most shack loans for years have been subprime. This is the horse-sh$t reporting we get from the REIC.

    ‘This surge in issuance of non-QM bonds, as they’re called, comes just as some initial indications of delinquency rates on the loans are starting to emerge. The short answer: They’re high. About 3% to 5% in some bonds’

    Surprise surprise… How about them apples Mel?

  3. ‘They overpaid by $150 million to $200 million…We clearly overpaid, and it was no secret’

    Barely concealed fraud to the tune of hundreds of million$. Note that just a couple of months ago, Softbanks idiot in charge was being called a “mastermind.”

  4. Gary Shilling …

    Millennials Should Be Happy They Are Stuck Renting – Bloomberg
    https://www.bloomberg.com/opinion/articles/2019-11-04/millennials-should-be-happy-they-are-stuck-renting

    Millennials spend a lot of time bemoaning their inability to buy a home, forcing them to keep renting. They should want to stay renters, if they know what’s good for them financially.

    It’s generally believed that appreciation in home values is what created middle-class wealth in earlier decades. But that was only because monthly loan payments forced homeowners to save and eventually retire their mortgage debt. Most of the rise in single-family house prices over time is due to larger new structures with more marble bathrooms, fancier kitchens, etc.

    The quality-adjusted house price index, developed by Prof. Robert Shiller of Yale University, removes this upward price bias by comparing the prices of the same house when it is sold repeatedly over time. It shows that average quality-adjusted single-family house prices, corrected for overall inflation, have risen a paltry 1.1% at a compound annual rate since 1972. The reason the results have an upward bias at all is that they don’t adjust for interim owners doing upgrades.

    But then there’s the mortgage rate offset. Since 1972, 30-year fixed-rate mortgage rates in real terms have averaged 4.1%, meaning it has cost the homeowner 3% per year to own a house before taxes, maintenance, utilities and insurance. That’s a real negative return. No wonder only about a third of millennials owned their homes in 2016, compared to half of Generation X at a similar age in 2001 and half of Baby Boomers in 1989. The homeownership rate for people under 35 has declined by 7.2 percentage points from a peak of 43.6% in mid-2004 to 36.4% in mid-2019, steeper than the 5.1-percentage point drop from 69.2 to 64.1 in the total rate.

    To be sure, millennials do face financial strains not encountered by previous generations. According to Federal Reserve data, Millennial households in 2016 had an average net worth of $92,000, or 40% less than Generation Xs at the same age and 20% less than Baby Boomers in 1989. Many millennials, born between 1980 and 1996, entered the workforce during the Great Recession or shortly after at low pay, and history suggests they’ll never catch up. When the unemployment rate jumps five percentage points, as it did then, cumulative earnings fall by 10% over the first decade of a new employee’s career.

    Some millennials were caught up in the subprime mortgage boom and collapse, and remain scarred by it. They believed they could buy houses with no money down and never shell out a dime because continuing rapid appreciation would allow for continual refinancings. So the bursting of the subprime mortgage bubble and subsequent one-third decline in house prices was a rude awakening, especially since it was the first nationwide drop in values since the 1930s.

    In the aftermath, mortgage lending standards have been dramatically tightened and millennium incomes and net worth growth weak. So by choice or necessity, many millennials are renters. Since the housing collapse, multi-family housing starts, mostly rental apartments, have surged past their previous 300,000 annual rate level to 340,000 in September. But single-family starts, after nosediving from a 1.82 million annual rate in January 2006 to 350,000 in March 2009, have only revived to 920,000, well below the long-term average of 1.2 million. Also, investors have bought huge quantities of single-family houses and converted them to rental units. Last year, investors bought 20% of houses in the lowest one-third price range, up from the 15% average. These are abodes that first-time home buyers normally purchase.

    Many millennials are accepting their fate. A new Freddie Mac survey found 24% of renters “extremely” unlikely to ever own a house, four percentage points lower than four years ago. Some 82% said renting is cheaper than buying, 15 percentage points higher than in February 2018 even though at $1,008 a month average as of the second quarter, rents nationally risen 20% faster than inflation between 1980 and 2016.

    The trend toward renting over owning own should persist and may even increase. I continue to favor investments in rental apartments—assuming, of course, they meet the location, location, location test.

  5. ‘A single large player manipulated the price of bitcoin as it ran up to a peak of nearly $20,000 two years ago, a new study concludes. The study reviewed the period between March 2017 and March 2018, when the price of bitcoin soared and its total market value rose to $326 billion. About half of that increase was due to the influence of a manipulation scheme, according to the study’s authors.’

    ‘They said the unknown manipulator operated from a single account at Bitfinex, the largest cryptocurrency exchange at the time. The manipulator used another cryptocurrency, called tether, to boost demand for bitcoin, leading to the price surge.’

    ‘If the price of bitcoin was manipulated, this would undermine a key feature of the crypto market, said Mr. Shams. “The promise of a decentralized financial system was that it would be free from the influence of banks and governments,” he said. “Ironically, there are large, new entities that have gained centralized control.”

    ‘One pattern was especially illustrative: The study looked at 95 nonconsecutive hours that comprised the largest percentage of tether dispersals. This showed a consistent pattern: In the three hours before those dispersals, the price of bitcoin was falling. Immediately after the dispersal, the price began rising. Those 95 hours accounted for 59% of bitcoin’s compounded returns between March 2017 and March 2018.’

    https://www.wsj.com/articles/large-bitcoin-player-manipulated-price-sharply-higher-study-says-11572863400

    1. “The manipulator used another cryptocurrency, called tether, to boost demand for bitcoin, leading to the price surge.”

      I will use my imagination to envision the manipulator also using bitcoin to boost demand for tether, leading to its price surge.

      I like it. Reminds me of a pendulum swinging back and forth.

      On one swing of the pendulum tether is sold and bitcoin is bought; When tether is sold the price of it drops, when bitcoin is bought the price of it rises.

      During the alternate swing of the pendulum bitcoin is sold and tether is bought. The manipulator make money both ways.

      As I said, I like it.

      1. This manipulative process could only work on a population that has been dumbed down to the absolute core, which is why it works so well.

      2. This is for any of you pukes that do not get the reason this manipulation of cybercurrencies works so well. The reason boils down to this:

        (ok, take a deep breath)

        Price is seen to be equal to value. The two terms are interchangeable.

        If the price of bitcoin (or whatever) rises then the value of it seems to be rising. If the price of it falls then the value of it is seen to be falling.

        It is easy to manipulate the value if one can manipulate the price. And it is easy to manipulate the price because the world is filled with dummies who will sell when the price falls and will buy when the price rises. It is Econ 101 turned on its head.

        If a cryptocurrency had a value that was separate from its price then people would not behave in this manner. In such a case a fall in price would induce buying – not selling – and a rise in price would induce selling – not buying.

        But these cryptocurrencies do not have a value that is different than its price; In the case of cryptocurrencies the value IS DETERMINED by its price.

    2. ‘A single large player manipulated the price of bitcoin as it ran up to a peak of nearly $20,000 two years ago, a new study concludes.’

      Major shocker!

      1. I can’t get over my surprise to learn the rapid runup in the Bitcoin price was not due to its readily apparent fundamental value.

    1. “The Salt Lake Tribune gets IRS approval to become a nonprofit”

      Bahahahahahahaha … it is already a nonprofit. It wasn’t intended for it to be this way but, hey, that’s how things have turned out.

      I have seen the future of the Information Age and it is filled with blogs.

    2. Interesting approach!

      I suppose The Deseret News won’t need to do this, since the church owns (subsidizes) it.

  6. When this logjam in housing inventory finally breaks, you can expect quite a flood.

    A million-dollar neighborhood in Salt Lake City.
    Real Estate
    People Are Staying in Their Homes Longer—a Big Reason for Slower Sales
    Homeowners nationwide are staying put an average of five years longer than they did in 2010, a new analysis shows
    By Laura Kusisto | Photographs by Lindsay D’Addato for The Wall Street Journal
    Nov. 3, 2019 5:30 am ET

    U.S. homeowners are staying in their residences much longer than before, keeping a glut of housing inventory off the market, which helps explain why home sales have been sputtering.

    Homeowners nationwide are remaining in their homes typically 13 years, five years longer than they did in 2010, according to a new analysis by real-estate brokerage Redfin. When owners don’t trade up to a larger home for a growing family or downsize when children leave, it plugs up the market for buyers behind them.

    1. “When owners don’t trade up to a larger home for a growing family or downsize when children leave, it plugs up the market for buyers behind them.”

      What they’re really saying is that it means fewer commissions.

      1. Just like “cash on the sidelines” was a favorite bullish talking point on CNBC. Think about it for more than a microsecond and one realizes that every share of stock is held by somebody at every point in time.

    2. What is there about Utah? I am reading that numerous people are moving to Utah to get out of e.g. Chicago
      Is Utah really that great? Convince me/dissuade me

      1. Is Utah really that great? Convince me/dissuade me

        It’s similar to other Rocky Mountain states in regard to weather and population density and politics…all pluses for me. But I wouldn’t move to that state specifically unless I liked the Utah-specific flavor of Mormon culture. Which I don’t…and I say that as a member of the religion. I think Colorado is a good compromise.

    3. “keeping a glut of housing inventory off the market”

      With 25 million excess, empty and defaulted houses out there, they got a lot to keep off the market.

      1. “…With 25 million excess…”

        Would be interesting if there was a way to calculate the number of square feet of housing stock for every man, woman, child in the USA.

        Further, $$$ debt (of all types) per square foot.

        Would be very interesting numbers, indeed.

    1. Utah Housing Tanks As Desperate Real Estate Brokers Admit, “Carp isn’t so bad if you smother it in barbecue sauce first.”

  7. Starting to see a slight increase in foreclosure activity in lower priced properties in this area, either homes on the market and not selling, or not on the market at all. Not sure if it’s a canary in the coal mine yet.

  8. Bottom 10% of housing are Absolute sub standards! Rotting core with termites and rodents! inadequate plumbing’s, wirings, un-heatable! Take out the shacks and suddenly we have a very tight housing supply! No wonder, the millenniums are eating crow!

  9. A ‘Big Short’ Investor’s New Bet: Climate Change Will Bust the Housing Market – VICE
    https://www.vice.com/en_ca/article/wjwyy9/a-big-short-investors-new-bet-climate-change-will-bust-the-housing-market

    (snip)

    Now Burt thinks there could be another financial disaster growing inside the real estate market. But this time, the bubble is being inflated by climate change denial.

    We tend to conceive of global temperature rise as a slow, steady and predictable threat: humans release emissions, the atmosphere gets warmer and sea levels get higher and higher. But the disaster Burt thinks the markets are ignoring could strike a lot sooner and more abruptly. It would likely be felt first in Texas, Florida, New Jersey, California or anywhere else with a ton of homes and other real estate exposed to flooding, and then spiral outwards into the financial system, potentially wreaking destruction rivaling what happened in 2008.

    To understand the mechanics of this threat it helps to visualize the market for coastal real estate as a brand new condo tower on the beach. The foundations for this tower are built upon maps drawn by the federal government that seriously downplay the likelihood of sea-level rise and floods. The lower floors are filled with homeowners paying off mortgages on homes that could be chronically flooded within the next few decades. The penthouse is occupied by banks and other investors turning those mortgages into ever more complex investments. Though it’s hard to predict a specific event that knocks this tower to the ground—perhaps it could be a devastating $1 trillion Florida hurricane, or a stampede to the exits by investors once denial of climate dangers turns to fear—it’s clear to anyone paying attention that the entire structure is teetering in the ocean wind.

    (end of snip)

    There’s more, I suggest everyone give the article a read. (Keep in mind that we are all gonna die in 12 years or so.)

    1. First off, this all assumes that the people who are buying beach front property and trying to scare everyone else out of it are telling the truth…

      a stampede to the exits by investors once denial of climate dangers turns to fear

      …and second of all I don’t anticipate ever feeling fear over this. IF it happens I’ll adapt to whatever change needs to be made. And we’re way overdue for a stock market stampede anyway.

      1. They really are pushing the narrative. We have to stop climate change, and if we don’t, your shack will be worthless! Now get out there and buy a coal powered car.

    2. Burt could be onto something, but more likely sea rise hysteria than sea rise itself. A half a century ago there weren’t so many shacks in flood plains, for obvious reasons. Now there are, because obvious doesn’t matter, at least in the short term. I hope Burt can ride with this speculation strategy for several centuries, or just sell some books in the short term.

      1. It did not keep Obama from buying beach front property. He has access to the the best information on AGW. There could not be better evidence on how much AGW is hyped.

          1. Example:

            “In Climate Justice class, we’re writing to our congressman to ask that the right to vote be contingent on passing a Climate Literacy test

            The temperature section would start in the Dalton Minimum, the forest fire section in 1985, etc.”

        1. IMHO, another good example is the money Google is pouring into New York City property. When I checked a map, that all looks like it’s pretty close to the water.

  10. ‘You Can Develop, Own 119 Apartment Complex In Stratford
    This 2.57-acre parcel has been approved for a massive apartment complex in Stratford.’

    ‘STRATFORD, CT — This 2.57-acre parcel of land at 382 Ferry Boulevard in Stratford is currently on the market for $2.99 million.

    Address: 382 Ferry Blvd, Stratford, Connecticut
    Price: $2,990,000
    Square Feet:
    Bedrooms:
    Bathrooms: Baths
    Built: 1969
    ‘place for a 119 unit apartment complex comprised of 115 one bedroom apartments, 4 studio apartments and a 1, 245 first floor retail storefront. Located within walking distance to Railroad Station, Stratford Center and bus lines.’

    ‘Close to ‘The Dock’ shopping area, restaurants, Wal-Mart, and Home Depot. Plans and rendering of site available. Price reduced – at approx. $25, 000/unit is a very viable project.’

    https://patch.com/connecticut/stratford/you-can-develop-own-119-apartment-complex-stratford

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