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It Is Like Throwing Money Down The Drain

A report from the Wall Street Journal. “Mary Babinski, a senior loan officer with Motto Mortgage Champions in Trinity, Fla., recently wrote a 30-year loan for a retiree buying a home in New Port Richey. He had no problem qualifying, but he was surprised he could nonetheless. Why the amazement? Because he was 97 years old, Ms. Babinski said. Loan officers say older borrowers often don’t realize they can get loans with terms that will expire on their 110th, 120th or nearly 130th birthdays.”

“Borrowers over 65 account for roughly 10% of all mortgages originated annually, according to reports by the Federal Housing Finance Agency. Eager to serve this group, some lenders are working harder to find ways to qualify retirees, including rolling out lending programs that let borrowers use their investment portfolios to qualify, without even taking monthly distributions.”

“If income isn’t enough, the next step is to create a distribution from a retirement account, such as an IRA or 401(k). Matt Andre, branch manager in Orlando, Fla., for lender FBC Mortgage, said that in September a retired borrower needed to show $8,000 of monthly income to qualify for a 30-year home purchase loan. She set up a distribution for that amount from a $500,000 IRA and had her financial adviser draft a letter to the lender about the new income stream. This qualified her, even though at that rate, the entire account would likely be drained within five or six years. Fannie Mae rules—which many lenders use as guidelines even if they are not going to sell the loan—only require that distributions are guaranteed to continue for three years.”

“If qualifying is still a problem, lenders are increasingly willing to consider stocks, bonds and mutual funds. This differs from creating a distribution that will be counted as income because the borrower doesn’t have to take a monthly amount out of their portfolio. Instead, the lender uses a formula called ‘asset depreciation,’ (sometimes labeled asset annuitization, depletion or dissipation) to impute a monthly distribution from the portfolio.”

“Some jumbo lenders, particularly who cater to high-net-worth individuals, have implemented far more liberal asset depreciation programs, said Richard Barenblatt, a mortgage specialist with Guardhill Financial in New York. Last year, he got an 83-year-old retired Manhattan co-op owner a $1 million, 10-year, interest-only adjustable-rate mortgage, for a re-fi, at ‘a highly competitive rate’ through a ‘liquidity-based program,’ which is similar to asset depreciation.”

From KTAR in Arizona. “Finding a safe and affordable place to live can be difficult for anyone but with a prison record, it’s nearly impossible. That’s where buying a home comes into play. Over the past three years, Ron Kuhn, senior loan officer with Summit Funding in Tempe has helped about a dozen former inmates apply for home loans. He said that the time in prison gives these men and women a blank slate. Kuhn explained that their first step towards home ownership is establishing a credit score, which he said only takes about six months.”

“‘Now they qualify for the best of the interest rates, the down payment assistance and it’s just wonderful,’ Kuhn said. ‘As long as I can identify that you’ve had a solid two year work history in the past, not even with the same employer, just you’ve worked for two years in your adult life,’ Kuhn said. ‘When you’ve had a gap of employment six months or greater you just need to be back on the job for six months or more.'”

“As for the down payment, Kuhn said each of Arizona’s 15 counties offer first-time buyer programs that help to cover most — if not all — of the down payment in exchange for higher interest rates.”

The Palm Beach Post in Florida. “Jon Leiberman rarely plays the lottery but he felt like he won it this past June. That’s when he became aware of $1 condos for sale at Hunters Run Country Club in Boynton Beach. Without ever seeing it, he bought a two-bedroom, two-bath, 1,400 square-foot condo. His Realtor, Elaine Perlmutter of Lang Realty, face-timed him pictures. ‘I got the steal of the century,’ Leiberman said.”

“The phenomenon of giveaway condos in Palm Beach County at places like Hunters Run and Boca West caught the attention of the New York Post last year. The biggest impediment to country club sales of small condos is that buyers have to pay one-time buy-in fees that can be more than $80,000. Other reasons include: Golf is not as popular as it once was. Annual carrying costs can be as high as $30,000. More condos are on the market at the 30-year-old plus country clubs as owners have passed or moved into assisted-living facilities. Some condo owners upgraded into single-family homes, and do not want to carry two units. Some condos need major upgrades.”

“Sellers at Boca West and Hunters Run receive back 30% to 40% of their original buy-in fee when they sell. At Hunters Run, the refund is about $30,000. But savvy buyers often want some of that money as an enticement to buy. At Boca West, a seller is willing to do just that. A $100 listing tells buyers to get their apartment ‘for free’ with the seller offering to pay $10,000 toward the $70,000 buy-in. Five other condos at Boca West are listed for under $5,000; one is listed for $1.”

“Meanwhile, back at Hunters Run, Paul Ware of Brockton, Mass. agreed with his Realtor to list for $1. ‘It is sad that it has come to this,’ said Ware. ‘I have yet to receive an offer, and it has been nearly a year.'”

“Ware paid $64,000 for a second-floor unit in 2004. He said he stopped using the unit three years ago. He pays for a social membership but his annual carrying costs still total $27,000 a year. Those carrying costs include property taxes, homeowner association fees and a minimum that must be spent at restaurants. ‘It is like throwing money down the drain,’ he said. But Ware is not prepared to give back part of his buy-in fee to facilitate a sale. ‘If they do not want it for a buck, then so be it. I will just hold onto it.'”

“Carolyn Liss of Hunters Signature Real Estate said one of her clients recently had to give back money to sell her Hunters Run condo. She joked she ‘inherited her mother’s debt.’ Elaine Perlmutter of Lang Realty, said she often feels like ‘the bearer of bad news’ bringing lowball offers on giveaway condos.”

From Crain’s New York Business. “For a Manhattan condo developer in a slowing sales market, the request from an international travel website was irresistible: Let us furnish 20 of your unsold units and offer our users a two-night stay. In its search for empty apartments to decorate in New Year’s resolution themes, Booking.com found its canvas at 25 Broad St., a 308-unit rental building in the Financial District that developer LCOR is converting into for-sale condos. Starting today, the website’s users can book one of the Instagram-ready units and stay there this weekend for a $20.20 fee.”

“For the promotion, a budding stand-up comic can book the ‘Find your Funny’ suite, with a curtained stage, rubber chickens on a bedroom wall and the promise of a script-writing session with a comedy writer. A two-bedroom apartment—for sale at about $1.7 million—is reimagined as a fashionista’s closet and comes with money to spend at Nordstrom. And a unit listed for $2.085 million is equipped with exercise machines and a kitchen full of juicing ingredients, for those who resolve to get in shape.”

“It’s not a bad way to call attention to unsold condos in a borough that’s awash in them. An estimated 7,050 units are competing for buyers in Manhattan, according to a report this month by Halstead Development Marketing. The Financial District has about 1,000 of those units, most of which haven’t been formally listed.”

From Curbed Boston in Massachusetts. “Charlestown. This neighborhood might be worth exploring for possible condo deals. The median sales price was down in the fourth quarter 12.7 percent annually, to $690,000. In fact, every major price indicator, including the average per square foot, was down. Fenway. Here’s another enclave with possible deal potential, at least by downtown Boston standards. The median condo sales price was $604,500 in the fourth quarter, down 11.8 percent annually. What the Miller Samuel-Douglas Elliman report calls Midtown, and what we might better call Downtown Crossing, saw a pretty sizable median sales price drop—down 15.4 percent, to $1,275,000.”

“The West End. Here, finally, the median condo price was down sharply in the fourth quarter: 27.6 percent, to $555,000.”

This Post Has 64 Comments
  1. ‘Loan officers say older borrowers often don’t realize they can get loans with terms that will expire on their 110th, 120th or nearly 130th birthdays. Borrowers over 65 account for roughly 10% of all mortgages originated annually’

    Subprime doesn’t cause bubbles, but is a sign they have run out of borrowers, like the prisoner thing.

    ‘As for the down payment, Kuhn said each of Arizona’s 15 counties offer first-time buyer programs that help to cover most — if not all — of the down payment in exchange for higher interest rates’

    Check!

    ‘She set up a distribution for that amount from a $500,000 IRA and had her financial adviser draft a letter to the lender about the new income stream. This qualified her, even though at that rate, the entire account would likely be drained within five or six years. Fannie Mae rules—which many lenders use as guidelines even if they are not going to sell the loan—only require that distributions are guaranteed to continue for three years’

    All together now: “they never should have given me this loan!”

    1. One would think that seniors would have some equity in their homes, but when you think about it, new cars, vacations and non covered medical bills don’t pay themselves. HELOC to the rescue!

    2. Remember the wave of boomers overpaying 2x-5x for houses at 50-58 years old? This is the end result.

      They’re all broke.

    3. How many times have I read “Lending is solid, there are NO bad loans being made after 2009.”

      And yet people are getting mortgages into their 120s. Jesus.

    4. When we moved from NYC to Tulsa in 1977, my Dad could only get a 15-year mortgage, not a 30.

      Why? He was 39 years old at the time. And mortgages ought to be paid off by 55, it was believed.

  2. ‘Paul Ware of Brockton, Mass. agreed with his Realtor to list for $1. ‘It is sad that it has come to this,’ said Ware. ‘I have yet to receive an offer, and it has been nearly a year’…Ware paid $64,000 for a second-floor unit in 2004. He said he stopped using the unit three years ago. He pays for a social membership but his annual carrying costs still total $27,000 a year. Those carrying costs include property taxes, homeowner association fees and a minimum that must be spent at restaurants. ‘It is like throwing money down the drain’

    Well, it was cheaper than renting Paul…

  3. I just got this in an email:

    618 N. ELM DRIVE, BEVERLY HILLS, CA | $7,895,000

    NOT IN THE MLS
    ‘Outstanding opportunity to build your dream home on what is considered to be the best street in the flats! This expansive lot is just shy of 15,000 square feet and awaits the next vision on prime Beverly Hills real estate. This house is not in the MLS and prospects will be admitted entrance to the current residence with accepted offer only. This offering is being sold for land value.’

  4. “Charlestown. This neighborhood might be worth exploring for possible condo deals. The median sales price was down in the fourth quarter 12.7 percent annually, to $690,000. In fact, every major price indicator, including the average per square foot, was down. Fenway. Here’s another enclave with possible deal potential, at least by downtown Boston standards. The median condo sales price was $604,500 in the fourth quarter, down 11.8 percent annually. What the Miller Samuel-Douglas Elliman report calls Midtown, and what we might better call Downtown Crossing, saw a pretty sizable median sales price drop—down 15.4 percent, to $1,275,000.”

    “The West End. Here, finally, the median condo price was down sharply in the fourth quarter: 27.6 percent, to $555,000.”

    Well, it was still cheaper than renting. Tom told me!!!!

  5. ‘One of China’s richest business entrepreneurs recently ranted on his YouTube channel about how he was forced into retirement by Chinese authorities. “Suddenly, an organization [of the Chinese government] called me: ‘You must come here to complete the retirement process.’ I’m a private business owner. How can they force me to retire?” Feng Lun said in a YouTube video published on Jan. 2. The video was also available on some Chinese social media platforms.

    ‘The Beijing city government told him his pension would be 8,000 yuan (roughly $1,160) a month, a high amount by Chinese standards. According to Chinese state-run newspaper China Economic Weekly, the average pension in 2016 was 2,362 yuan ($342.5) per month.’

    ‘Feng did not reveal whether authorities gave him an explanation for why he was forced into retirement, but he complained that the amount would not be enough for his high-flying lifestyle.’

    ‘Feng founded Vantone Real Estate, a publicly listed real estate developer, and China Minsheng Bank, the country’s first bank funded by private capital. He is also chairman of Yufeng Group, an investment firm. According to an annual list of the country’s wealthiest people compiled by Hurun magazine, Feng was worth 2 billion yuan ($289 million) in 2019.’

    ‘Feng is just one of dozens of Chinese tycoons who were met with unexpected fates in the past year. Amid a crushing economic downturn, the Chinese regime pushed a number of policies to prop up state-owned firms, while a growing number of private company executives announced their resignations or retirement amid fears that the Communist Party would become more deeply entrenched in the private sector.’

    ‘In the coming year, Chinese entrepreneurs are pessimistic about the business environment for private companies. “We [Chinese entrepreneurs] all feel that we had less money in 2018, and have no money left in 2019… But we all say that 2019 will be great compared to the next 10 years,” Feng said in his video.’

    ‘William Li, the 45-year-old founder and CEO of NIO, a manufacturer of electric autonomous vehicles, is known as the “Elon Musk of China.” He appeared in one of Feng’s videos and said: “Actually, my life in 2019 was difficult and miserable.”

    ‘Zhou Hang, co-founder and former chairman of Yongche, China’s first ridesharing platform, said in the same video: “In 2019, no matter which business you invested in, you lost [money].”

    ‘And according to the latest data compiled by Taiwan news outlet Credere Media, 41 Chinese listed private companies changed their ownership to different divisions of China’s agency for overseeing state-owned firms, the State-owned Assets Supervision and Administration Commission (SASAC), in the first 11 months of 2019. The total market value of these companies reached 220 billion yuan ($31.9 billion).’

    ‘This phenomenon has been dubbed by Chinese netizens as, “state enterprises advance, while the private sector retreats.”

    https://www.theepochtimes.com/chinas-private-sector-pessimistic-about-economic-outlook-in-2020_3204458.html

    1. “Suddenly, an organization [of the Chinese government] called me: ‘You must come here to complete the retirement process.’ I’m a private business owner. How can they force me to retire?” Feng Lun said in a YouTube video published on Jan. 2.

      Two things: 1) Feng Lun just became an involuntary organ donor for complaining about the all-wise, all-omniscient Chinese Communist Party (CCP) on social media; and 2) In a Communist dictatorship, you’ll do as you’re damn well told.

  6. “He pays for a social membership but his annual carrying costs still total $27,000 a year. Those carrying costs include property taxes, homeowner association fees and a minimum that must be spent at restaurants. ‘It is like throwing money down the drain,’ he said.”

    – Not a simile. Actual throwing money away, down drain, etc. Those are non trivial IMHO. That’s $2250/mo; equivalent of a house payment, but no P&I, so assuming paid off. Way too high. Crazy.

  7. For how long can extraordinary liquidity injections tip the balance in favor of risk assets and against safe havens?

    1. ft.com
      Opinion Markets Insight
      The Federal Reserve is the cause of the bubble in everything
      We know from experience that liquidity-fuelled asset markets usually end badly
      Michael Howell yesterday

      It’s liquidity, stupid. Rephrasing the words of Bill Clinton’s adviser James Carville helps explain why many stocks are hitting record highs, why gold is breaking higher and why economies look set to rebound sharply this year.

      About a year ago we described how modern financial systems have grown dependent on central bank balance sheets, and why another round of easing from the US Federal Reserve — a “QE4” — was vital for markets. Fed chair Jay Powell has so far proved sufficiently flexible to reverse the balance sheet shrinkage, to which his immediate two predecessors, Ben Bernanke and Janet Yellen, had been committed.

      The “Fed Listens”, as the name of its tour of US cities suggests and, true to form, recent worries in the repo market spurred the central bank to inject a further $400bn into the financial sector. It increased its balance sheet by about 10 per cent between last September and the year end.

      Yet, the Fed’s spin-doctors are trying to persuade us that this is not quantitative easing. Certainly, it has not involved direct buying of US Treasury notes and bonds, but it has still led to a sizeable uptake of short-term Treasury bills. The difference between QE and “not QE” is mysterious, then, because liquidity has expanded and, in the process, relieved funding pressures and reduced systemic risks. As a result, the prices of haven assets, such as the 10-year US Treasury note, have fallen, while risky assets such as equities have gone up.

    2. “Last week we found out that Dallas Fed president Kaplan knows that the Fed is creating excess and imbalances in stocks. Yes, bloating the Fed’s balance sheet by over $400B in four months has a massive impact on stock markets. And billions of repo liquidity unleashed each day can be seen impacting the daily action as well (see: Repo Lightning).

      So what’s Jerome Powell have to say about all this? Silence. Not a word. Of course he doesn’t have to because the crack reporters never confront him on the issue in his post Fed meeting press conferences. Bubble away accountability free. Why bother asking the hard questions? That may just get you disinvited from the next press conference. Too strong of an assessment? I let you be the judge, but why are the hard questions not asked when it matters?

      But actually we don’t need to wait for the answer from a press conference. Why? Because we already know the answer and the answer is: He knows.”

      https://northmantrader.com/2020/01/15/he-knows/

  8. “The Federal Reserve is the cause of the bubble in everything”

    – No kidding. They (along with DJT) own this one. Just remember when we get to the finger pointing phase…

    1. Dumb question of the day: Has the Fed always used massive liquidity injections to sustain risk asset bubbles, or is this something entirely new in the Greenspan-Bernanke-Yellen-Powell QE/not-QE era?

      1. This is all unconventional and extraordinary monetary policy since the GFC. They’re trapped like a rat and they know it. The closest analogy I can think of is John Law and the Mississippi bubble. That didn’t end well either.

        BTW, the end is nigh when debt monetization is out in the open ( like it is now).

        1. They did some liquidity in the Great Depression, but it was minuscule compared to recent antics.

          Right. This is them showing that “they learned the lesson of the GD and will never let that happen again”. They’d rather burn than freeze this time.

          1. Fire and Ice
            By Robert Frost
            Some say the world will end in fire,
            Some say in ice.
            From what I’ve tasted of desire
            I hold with those who favor fire.
            But if it had to perish twice,
            I think I know enough of hate
            To say that for destruction ice
            Is also great
            And would suffice.

      2. During the GFC, the oligarch-owned FED greatly expanded its powers. Now they don’t even need congressional approval to loot the country in order to make the obscenely wealthy whole on all their bad bets, or simply backstop their wealth so it can only go up, stealing the wealth of future generations to do it.

          1. And the little people will remain obedient so that they will have a shot heaven.

            I dunno. This country still has a lot of Scots-Irish bloodlines. If history is anything to go by, they don’t do “obedient” so well.

          2. When deemed necessary the deep-state swindlers just trot out their stooge pastor with the gold plated crozier and tall mitre quelling even the tightwad-drunken rabble to accept their collective fate.

    1. FWIW, there are prairie dog colonies all over the place in metro Denver, and they too can spread the bubonic plague. So far there hasn’t been an epidemic. Then again, the homeless don’t camp out over the colonies.

      Side note: the homeless population has grown to over 500 in my little burg. I haven’t seen any tent cities, but I haven’t gone looking for them. What I see are a lot more of are panhandlers at the busier intersections and an increase in scruffy looking types in our recently gentrified downtown, which has lots of new luxury apartments and an oh so trendy cinema multiplex with restaurant and bar service to your seat, so you can eat and drink while being lectured by the latest woke flick about how bad you are for being you.

      A local charity has placed sandwich boards announcing that they can help the homeless at the intersections (it’s just a few blocks away from the intersection), yet the panhandlers remain, at least when it isn’t too cold.

      1. The /r/Denver reddit threads on this topic are particularly entertaining.

        LMFAO at all the used house buyers in Denver who deal with this on a daily basis and who have realized that Denver Police will do nothing about it.

  9. “so you can eat and drink while being lectured by the latest woke flick about how bad you are for being you.”

    +1

    – Theater revenue down bigly last year. “Get woke, go broke.”

    1. I think this must be why they are installing bars and restaurants in cinemas, hoping that you’ll drop another $20+ on dinner.

      I just looked at the menu online. Their priciest item is salmon cakes, $21. A 1/2 lb cheeseburger with fries is $13. A beer is $6. I guess that’s better than paying $8 for a coke and some popcorn.

      1. I guess that’s better than paying $8 for a coke and some popcorn.

        Exactly. We’ve got one of those theaters here. I’m ok with paying $20 for something nice to eat while I watch the movie compared to spending almost that much for popcorn and sugar.

    2. Theater revenue down bigly last year. “Get woke, go broke.”

      And that was with NINE Disney blockbusters that pulled in 1 billion (worldwide) each. I read that the blockbuster pipeline won’t be as good this year, what with no Avengers or Star Wars movies, and that theater operators are very concerned.

      Meanwhile, a streaming show starring a green puppet and a dude wearing a helmet is the runaway hit everyone is talking about.

    1. Anyone who has better things in life to think about than shelter gets to deal with the devastating consequences of the bubble along with the REIC industry constituents who profit from it.

    2. Hats off to The Economist writers for elevating the issues we have been discussing here since 2004:

      ECONOMIES CAN suffer both sudden crashes and chronic diseases. Housing markets in the rich world have caused both types of problem. A trillion dollars of dud mortgages blew up the financial system in 2007-08. But just as pernicious is the creeping dysfunction that housing has created over decades: vibrant cities without space to grow; ageing homeowners sitting in half-empty homes who are keen to protect their view; and a generation of young people who cannot easily afford to rent or buy and think capitalism has let them down. As our special report this week explains, much of the blame lies with warped housing policies that date back to the second world war and which are intertwined with an infatuation with home ownership. They have caused one of the rich world’s most serious and longest-running economic failures. A fresh architecture is urgently needed.

    3. Regarding the $10,000 cap on property tax deduction: “In the past, homeowners have been legally able to deduct all state and local taxes they’ve paid on all properties they own. Under the new tax law, homeowners will only be able to deduct $10,000 each year in state and local taxes (SALT) starting with the 2018 filing season. For many people who are in a high-tax area, this deduction cap could be an uncomfortable hit.”

      This is behind the RE landslide in Greenwich, CT.

  10. Last year, he got an 83-year-old retired Manhattan co-op owner a $1 million, 10-year, interest-only adjustable-rate mortgage, for a re-fi, at ‘a highly competitive rate’ through a ‘liquidity-based program,’ which is similar to asset depreciation.”

    You can’t make this stuff up. Some day at some post-collapse tribunal, I hope prosecutors will be handing derelict regulators, enforcers, and policymakers life sentences.

  11. and which are intertwined with an infatuation with home ownership.

    You’d better think long and hard about use of the scare word in here before you blindly accept the premise.

  12. John Haltiwanger 11 hours ago

    GOP Sen. Martha McSally of Arizona called CNN reporter Manu Raju a “liberal hack” on Thursday as he questioned her on whether she’d be open to considering new evidence that’s emerged in President Donald Trump’s impeachment trial.

    Raju asked: “Sen. McSally, should the Senate consider new evidence as part of the impeachment trial?”

    The senator responded: “You’re a liberal hack, I’m not talking to you.” 🙂

    here’s the video

    https://www.businessinsider.com/gop-senator-calls-cnn-reporter-liberal-hack-asked-about-impeachment-2020-1

    1. Ive been watching a hideous city ventures development in scotts valley ca take some nice price cuts. When it went up they were anticipating amazon opening a location nearby. No development on that front and these “luxury” air boxes are failing to find buyers. Some listed under 800k now from a original wish price of 900k.

    1. Or, as we sometimes call it, Grossly Ill…

      The contentious issue at the moment for the island is that of the two bridges connecting it to the mainland. The “free” bridge suffers from structural issues, and was recently closed for an extended period for emergency repairs, forcing residents to use the “toll” bridge and causing significant traffic delays:

      https://www.detroitnews.com/story/news/local/wayne-county/2019/11/13/free-bridge-grosse-ile-closed-repairs/4187527002/

    1. Whoops: Link

      TRAVERSE CITY — Three
      adjacent lots on Grandview
      Parkway across from Open
      Space Park still are for sale
      after a two-day online auction
      ended Wednesday. The high bid
      of $4.7 million didn’t reach the
      auction’s unspecified reserve
      price…The property consists of three
      adjacent parcels in the Warehouse District. Together, the
      three properties —207, 211 and
      221 W. Grandvlew Parkway —
      total 325 feet of frontage on the
      bayfront road. The trio of lots sit
      between the Traverse City Tourism visitors center and Hotel
      Indigo.

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