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David's Macro Blog

Analysis and commentary on business, economics, real estate, financial markets, and other fun topics

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Tag: Real Estate

Real estate and mortgage fraud ran rampant during the 2000’s great housing bubble. We’ve all heard the stories but there have been few prosecutions, so it’s good to see some in progress.

David Crisp and Carl Cole were arrested by federal agents on mortgage fraud charges. They ran a prominent real estate brokerage in Bakersfield and apparently created straw buyers and manufactured false loan documents in order to sell homes and inflate housing prices.

Ten people, including Realtors, loan officers, and a notary, were arrested on 56 different indictments. It looks like these people will move from their private gated neighborhoods to a public gated high-density community of inmates.

Low interest rates and easy lending standards created an environment primed for mortgage fraud. It is good to see arrests that will likely result in jail time for the most prolific perpetrators. Unfortunately, this investigation took five years.

Rapidly rising home prices are not usually a good thing because they cause new buyers to pay high prices that are not supported by market fundamentals or their ability to pay back the debt.

Also check out the local news coverage of Crisp and Cole’s arrest at KGET.

Ever wonder how the real estate boom and bust occurred? Why is the foreclosure process such a mess and causing problems across the country?

The system was set up for failure.

Watch both videos of the deposition of alleged robosigner Dhurata Doko of Nationwide Title Clearing. The deposition was taken by attorney Christopher Forrest of The Forrest Law Firm.

This is not about the actions of a few lower-level employees but the system created by those in power.

Part 1

Part 2

Again, this is not about the people performing tasks on a daily basis — they were NOT the ones in power or control. They were just following orders from above.

Other robosigner deposition videos:

Ever wonder how the real estate boom and bust occurred? Why is the foreclosure process such a mess and causing problems across the country?

The system was set up for failure.

Watch all three videos of the deposition of alleged robosigner Brian Bly of Nationwide Title Clearing. The deposition was taken by attorney Christopher Forrest of The Forrest Law Firm.

This is not about the actions of a few lower-level employees but the system created by those in power.

Part 1

Part 2

Part 3

Again, this is not about the people performing the tasks on a daily basis — they were NOT the ones in power or control. They were just following orders from above.

Other robosigner deposition videos:

Ever wonder how the real estate boom and bust occurred? Why is the foreclosure process such a mess and causing problems across the country?

The system was set up for failure.

Watch all four videos of the deposition of Crystal Moore, alleged robosigner of Nationwide Title Clearing. The deposition was taken by attorney Christopher Forrest of The Forrest Law Firm.

The main issue is not the actions of a few low-level employees but the system created by those in power.

Part 1

Part 2

Part 3

Part 4

Again, this is not about the people performing the tasks on a daily basis — they were NOT the ones in power or control. They were just following orders from above.

Other robosigner deposition videos:

It is always interesting to go back and read what I wrote last year because often I’ve forgotten! Plus it is humbling to realize how imperfectly we see the future, which looked so clear at the time.

My favorite quote for 2010 is:

“Prediction is very hard, especially about the future.” – Yogi Berra

Let’s take a look at the past year and what happened. My next post will contain my 2011 predictions.

Notable Events During 2010

Economic

  • The unemployment rate is just below 10%, which is about where it was at the end of 2009. Most of the decrease came from a decline in the Labor Force Participation Rate and Employment Population Ratio. Some new jobs were created but far below the number needed to decrease unemployment down to a reasonable 6% range.
  • Consumer spending recovered remarkably well despite no real improvement in unemployment.
  • Credit was tight for those at the lower ends of the financial spectrum but was certainly extremely loose for large financial institutions and businesses.
  • The stock market continued its climb back up from the 2008 Financial Crisis lows, yet suffered the May-6 Flash Crash. There was plenty of volatility in the trading ranges.
  • The S&P 500 rose about 12% to 1257.
  • Commodity and precious metal prices rose during the year. Gold and silver are at new highs and oil is back to $90 per barrel.

Real Estate

  • Real estate prices continued to stabilize across most markets.
    • The residential market is of course driven by location. Most lower priced homes already fell dramatically because subprime loans were the first to fail. Now higher priced homes are showing weakness.
    • In the commercial market, there was a bifurcation of assets. The best assets actually saw increased prices and rents because investors were chasing yields higher than bonds. The lower-end assets fell because they don’t produce much stabilized income.
  • U.S. home mortgage rates fell to multi-generational lows in the mid-4% range. This wasn’t expected originally because it was projected to rise when the Fed ceased buying additional mortgage debt.

Political

  • Reappointment of Ben Bernanke as Fed chairman in closest vote ever.
  • The Federal government still has a $1 trillion budget deficit. We’ll see if the new, more conservative Congress reins in spending (not too likely). At some point the Federal debt problem will have to be addressed as in Greece.
  • States, counties, and cities did not go bankrupt en-mass yet. However some politicians are speaking out on their budget crisis finally. We may see radical change in 2011.
  • The Federal government passed sweeping national health care reform. The effects are just starting to be known.
  • The Federal government also passed financial reform legislation. The effects aren’t clear yet, but does anyone think radical reform will improve abusive behavior?
  • The power of the financial industry over the American economy and the government became more evident.
  • The Fed kept the money flowing with Quantitative Easing 2 (QE2). When QE2 ends, will QE3 be required?
  • Economies in Europe and even the Euro currency experienced major challenges. There were bailouts in Greece and Ireland, with more on the way for Portugal, Spain, and maybe Italy. Curiously Iceland opted out of the bailout scheme and is recovering faster than expected.

Now let’s review some of my 2010 predictions and grade them.

Most Accurate Predictions from Last Year (2010)

Perhaps unemployment might fall below 10%, but it should remain at or near double digit territory.

Pretty accurate, unemployment for December 2010 came in at 9.7%.

[Interest rates] are at zero and should remain there for 2010. Remember, Japan had zero interest rates for 10+ years. It can happen.

There wasn’t any hint that short term rates would move up from the 0% -0.25% range they’ve been in for awhile now. Honestly this wasn’t difficult to predict so it hardly qualifies as a “most accurate prediction.”

If forced to make a firm prediction, I’d say the best chance of a currency crisis is in the EU, not Asia or North America.

The European Union did have a very large currency crisis in the form of bailouts. The EFSF was formed to backstop unmanagable debt in countries like Ireland, Greece, and eventually Spain and Portugal.

Least Accurate Predictions from Last Year (2010)

The market indices should fall in 2010 and stay within their prior 2 year trading range with a 1/3 chance of retesting the prior lows of March 2009.

The stock market finished up about 12% (S&P 500). There were some swing trades up and down but in general the stock market continued its recovery.

If the economy doesn’t suffer a major meltdown and doesn’t recover either, then gold prices will probably flatten and possible show downward bias.

Gold (and silver) prices didn’t fall in 2010 – they increased instead as investors and hot money flowed into alternatives to risky paper money.

Oil prices remained in the $60 to $80 range for most of the year [2009]. I expect more of the same and a downward bias too.

Oil prices finished year 2010 at $90/barrel as the global economy strengthened and GDP grew. I expected slower growth, which would have likely kept oil prices lower.