In a surprise to absolutely no one...

The house just passed HR 4173 today that would "tighten federal regulations on financial institutions."

That seems to be the trend these days. "Tightening" and "regulating" is what our government is doing best lately (tightening and regulating everything in the country except our government, that is).

But that's not the embarrassingly predictable part of the bill. No, the bonus to all of us taxpayers is that it will also create--yep, another federal agency. Whatever else the bill provides for (mostly undoing Congress' previously ill-advised Home Valuation Code of Conduct passed this spring), it's providing us with another federal agency to pay for. The federal government, it seems, is the only sector of our economy that's actually growing.

The final shocking twist to this story is the bill's sponsor. Envelope, please..."Oh my God, it's Barney Frank."

Ol' Barn, you'll recall, was the guy back in 2003 who brushed off the administration's concerns about the fiscal viability of Fannie Mae and Freddie Mac by saying from his big chair on the House Financial Services Committee, "These two entities [Fannie & Freddie] are not facing any kind of financial crisis. The more people exaggerate these problems, the more pressure there is on these companies, the less we will see in terms of affordable housing."

Apparently impervious to irony, Rep. Frank is calling for yet another federal agency in this bill.

The Skinny on Short Sales

Diligent Shoreline readers will recall the September 2008 issue in which I referred to a short sale as “foreclosure’s clumsy and viciously irresponsible little brother” and cautioned about what a nightmarish process it was to have to suffer through. I even went as far as describing the proper way to pronounce the term “short sale” (spewed with roughly the same disgust with which Jerry used to snarl out, “Hello, Newman”).

That was then. This is now.
Don’t get me wrong, they’re still tough to deal with. They’re heartbreaking at worst and aggravating at best. But I want to reverse myself a bit on that stance by updating a couple of things.

First, the process is getting better. A lot better. Banks are streamlining their procedures; some banks are actually taking proactive measures to get things done more quickly and efficiently.

And just last Monday, the Treasury Department announced new guidelines which would make short sales simpler to carry out. The biggest change is a requirement to force the mortgage servicers to either approve or disapprove the short sale within 10 days. That’s been the most frustrating part about the process...waiting six months, only to find out that the short sale you’ve been hoping for (both buyer and seller) gets rejected.

Second, it’s absurd to carp about short sales any longer. It’s a little like turn-of-the-century city dwellers complaining about those loud, smelly horseless carriages ruining the streets. It’s just the way the world is now. There’ll be more and more of them in the foreseeable future.

How many more? Take a look at these numbers.

Of all homes that closed in North Las Vegas, Las Vegas and Henderson during the first 11 months of 2007, only 3.6% of them were short sales. That rose to 8% during the same period in 2008. This year, that figure has risen to 10.8%. During the past 30 days, the percentage of homes that have sold that are short sales currently sits at a mind-numbing 17%. If that isn’t trend enough, try this on for size. As of 12:45 p.m. on Wednesday, December 3rd, 63% of all homes in escrow here are short sales. Gulp!

Okay, no more numbers…

So aside from some number-crunching geeks and real estate wonks like me, who should care about these numbers? Well, you, for one. Because even if you’re not one of the majority of people in this town who is upside-down in your mortgage and may be facing a tough decision on what to do about it, I can guarantee you that you personally know at least ten people who are. Short sales are the most desirable alternative for most people. More than a “desirable alternative” really. More like a lifeline. Especially if the alternative is foreclosure.

Loan Mod, Loan Schmod

And if I hear another sickeningly earnest radio spot or TV ad for loan modification attorneys and services, I’m going to throw up. I really will. It’s these folks, more than anything, that have gotten me to commit to helping people this year with the short sale process if that’s what’s best for them. There’s so much lousy information out there, and so many leeches who make a living preying off of regular folks in tough situations, I want to scream. If you’re reading this blog, chances are you know me, and know what I’m all about. I want to help as many people as I possibly can in 2010. So, please, before you or one of your friends subject themselves to bankruptcy attorneys, loan modification hucksters or anyone else, please call me. If I can’t help, I’ll at least steer them away from the bad ‘uns.

Re: Fw: Re: Fw: Fw: Mortgage Crisis

Sometimes I see politicians as that last guy on earth to get a chain email. Everyone knows one of these people. They’ll send you an email with the subject, “This is Sooooo Funny!!!!!” and—against your better judgment—you open it, only to see a joke or story someone sent you three years ago. And again two years ago. And again...

That was my impression this week when I read that HUD Secretary Shaun Donovan was asking Congress’ permission to tighten up the FHA’s lending practices by increasing the minimum amount of down payment borrowers were required to pay so they’d “have more skin in the game.” Yo, Shaun. In addition to invoking that “skin in the game” cliché which I believe became officially overused about two years ago, you’ve come up with an idea that’s equally well past it’s time. It’s about six years past its “use by” date.

Of course requiring more down payment is a sound policy, but it’s a little late now. Had we been using that guideline of loaning money only to people with a clear intent and ability to pay it back instead of patting ourselves on our progressive backs for the idiotically naive Community Reinvestment Act, we’d be living in a different world than we are now.

Yes it makes sense. But it made more sense the first time that email showed up in our Inbox back in 2002 when actual adult politicians were warning Congress of the recklessness of Fannie Mae’s lending policy. But now I can see this move doing far more harm than good. Now that there’s no shame, embarrassment or, for that matter, any long-lasting financial repercussions from walking away from a mortgage, it serves as a bigger deterrent to getting a mortgage than walking away from one. What we need now are more home buyers, not fewer.

Now, forward this to 20 people and you’ll get $100 from Bill Gates. Really.

A Recent E-mail Exchange

A couple of weeks ago, I got an e-mail from my friend Steve Forsythe. He had a graph from CNBC and a simple 6-word question about it. As usual, I couldn't just answer the question. No, I had to ramble on and on and on...

SF:

Kenny, are these stats on target?

KS:

Yep. We were #8 as late as 2007, but are #1 with a bullet now.

We had a lot of help: A red-hot market; a lending climate that--argue as one might--had its hand kind of forced into profit-driven products; and, ABOVE ALL, the sine qua non of cultural greed all contributed to this.

Start with the 17th century Holland tulip bubble, if you like, and take it down through every 80 years thereafter until the late 19th century (when you could adjust the cycle to every 20-35 years) and you find that each generation has its own get-rich-quick, "I'm-a-freaking-genius" scandal of over-valuation which always ends in an economic disaster. Each time (when left the hell alone), the economy rises--phoenix-like--to rebuild itself until another prosperity-fueled hubris starts the cycle over again.

Las Vegas had a lot going for us to land the part of the superstar headliner of the most recent financial debacle blockbuster. All of the sunbelt hotspots occupy the Top 5 Shame list in foreclosures, because that's where the most "irrational exuberance" Mr. Greenspan warned us of was centered: Las Vegas. South Central Florida. Phoenix. California (various markets) and Texas (various markets) were where the most idiotic speculation was taking place, and that's where most of post-crash calamity has occurred.

Everyone was getting into business (the speculation business, that is) with so little money down that there is now so precious little reticence in walking away from that investment as there is so little (or in some cases, no) investment capital lost. Crazy lending led to crazy investing. Or maybe a little of the other way around.

It was madness. Mass hypnosis almost.

The Republicans will (rightly) blame such government idiocy as the Community Reinvestment Act for the problem. It amounted to governmental meddling (however naively well-meaning) into the private sector and, worse, distorting every fiscal precept upon which finance, itself, is based. The Democrats blame (also rightly) that a hands-off (actually, a hands-on) approach to banking/investment deregulation escalated the problem. (Actually, the Democrats tend to blame the entire mess on deregulation which, in my opinion, is like blaming a lack of spare newspaper spread on the floor--instead of the dog--for piles of crap on the carpet.)

But the real culprit, as it always is, is us. The public. The fat, happy public. We half-smart numbnuts think we can make a fortune with nothing down (besides our own smarts, which are really on loan from a friend of a friend) to make piles of dough. That dynamic is compounded by people exactly like... well, me. When times were wildly optimistic, we borrowed on our paper equity and bought crap. Some of it on transient goods (man, I loved the CTS), and some of it on investments to make more money.

Being swept up in optimism is a wonderful thing. You could argue that it's what has promulgated the species for, lo, these 3.8 billion years (or whenever you ascribe life on this orb to have begun). It's what fuels procreation, for crying out loud. From that ill-advised coupling in the back room at that party in college to the random bar foraging in our 20s to the very marital bed, this innate brave slurping from the well of invincibility has always led us (although, let's be honest, sometimes inadvertently) to carry on the our gene pool.

So maybe this financial disaster is just another cycle of the human species on this planet. It's the story of our America. The story of every civilization since recorded history:

1. We struggle.
2. We overcome through hard work and sacrifice.
3. We pat ourselves on the back for such a good job.
4. We live well from having worked/overcome.
5. We think we're stinkin' geniuses.
6. We take (presumably) calculated risks to better ourselves based on our own (presumed) infallibility.
7. We fall on our faces because we forgot that it was #2 that got us where we're at, not #6.
   

So here we are. On the precipice of going down the same familiar path as the Minoans, Egyptians, Etruscans, Romans, Mayans and any other fabulous culture that rolled a 7 when they were betting on the Come Line. (If you're a craps player and I screwed up that analogy, forgive me...my acumen for gambling is limited to pulling a handle and waiting for coins to drop.)

I will say that there's another layer to this foreclosure thing here in Las Vegas that doesn't put the blame on the lenders or the speculators who gambled and lost. There are many, many people who neither took out idiotically usurious loans, nor over-leveraged themselves, but simply had the misfortune of buying at the wrong time (the peak) of the market. These folks are ethically torn between continuing to pay on a, say, $350,000 loan for a house that's now (and for the foreseeable future will continue to be) worth $186,000 or just walking away.

It’s a tough dilemma.

On the one hand, they wouldn't have such an ethical quandary if they were paying on a loan for a $243,000 house that was now worth--all of a sudden, two years later--$540,000. That happened, too. But I didn't see anyone lining up at Countrywide, guilt-ridden to hand the bank a bunch of money because their asset was now worth 82% more than they paid for it 24 months ago, and all they did to "increase that value" was cook on the stove and crap in the toilet.

In that sense, it's just like any other investment.

Still, I can't easily argue with folks who say, "Hey, this is my family and our future here. I'm not going to pour bad money after questionable money into this house."

So while I'm long on opinions about all this, I'm regrettably short on answers of what to do.

It's a mess. It's a gut-wrenching mess. It's a seemingly hopeless mess.

Then again, my grandma was an immigrant widow at 30 with 4 kids during the Great Depression living in a redneck Oklahoma town where they still lynched blacks if they were out after dark (not the most cosmopolitan place for such a lady). Despite those hardships, Saleema Mahfood Adwan worked three jobs, clothed four kids and wouldn't take a penny of relief from anyone, neighbors, relatives or—of all things—the government. (see stage 2 above)

All her children rose up to honorable adulthood and she lived a rich, God-loving life of 96 years without a complaint. Hell, whatever life she carved out for herself here was better than what the Ottoman Turks would have ceded to her if she'd have stayed in Lebanon.

Okay, I've written 22 paragraphs (and 1,043 extra words) when that first paragraph would have answered your question. And besides that, I’ve veered into all sorts of unrelated minutiae which none of you asked for.

It's all opinion and observation by me. And in the end, I may be as crazy as a bag of rats.

But, the answer is yes, we’re a soiled market to say the least (which, I believe, was your original—and only—question).