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Archive for May, 2009

[Three Cents Worth #122] Inventory Not A Three-Year Cycle!

May 28, 2009 | 9:47 pm | | Charts |

Sure happy it’s Thursday to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

This week I try to re-cycle excess inventory.

Click here to view this week’s post.

Check out previous Three Cents Worth posts.

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[No OCC, OTS in T-E-A-M] Reducing Banking Regulatory Clutter

May 28, 2009 | 10:34 am | |

Empirical evidence says that the myriad of alphabet soup regulatory agencies didn’t work to prevent the systemic breakdown of the financial system on a global scale, stemming from CMBC activity. Of course, I’m not naive to think that they would have prevented it, but I do think the scale of the crisis was significantly larger as a result of the lack of logical oversight.

It’s not about lack of regulation, it’s about limited coordination, lack of responsibility and most importantly, departmental turf wars.

Hopefully this may change in a few weeks as the administration takes the wraps of an emerging plan to reorganize regulatory oversight.

Senior administration officials are considering the creation of a single agency to regulate the banking industry, replacing a patchwork of agencies that failed to prevent banks from falling into the worst financial crisis since the Great Depression, sources said.

Ideas include

  • Federal Reserve – becomes a powerful systemic risk regulator
  • Create a new agency to protect consumers of consumer products
  • Merge the SEC into CFTC to protect investors from fraud
  • OCC and OTS would go away and their responsibilities would be distributed to FDIC and the Federal

One of the key issues, which runs parallel to investment banks being able to select the most favorable ratings agency or mortgage brokers to pick their own appraiser, is the fact that banks can pick whichever regulator is most lenient: FDIC, OTS or OCC.

Seriously, a regulator that is competing with other agencies to get more banks to work with them to justify their existence is inherently flawed.

Of course the American Bankers Association is against this:

“As a practical matter, I think the idea is a nonstarter,” said Ed Yingling, president of the American Bankers Association. He said the administration should focus on the two ideas that command the broadest consensus: the creation of a system risk regulator and a resolution authority for collapsing companies. “That’s probably all Congress can handle,” he said. “They can propose a lot of things, but there’s a real risk in doing so that you just overload the system.”

Good grief. Use of the word “Risk” and “Overload” seems kind of quaint at this point, doesn’t it?

The proposal also urges creation of a new government agency to conduct “prudential regulation,” with supervision authority over state and federally chartered banks, bank holding companies and insurance firms, the source said.

Yes the Fed will have new powers, but seriously, why have any of these agencies if they aren’t very effective? In the current format, it all seems like a colossal waste of taxpayer dollars unless the system is streamlined and reorganized. However, the turf wars will move from the regulators to Congress as everyone tries to hold onto their power base.

The new bank regulatory agency could prove controversial because it would consolidate the Office of the Comptroller of the Currency and the Office of Thrift Supervision and strip supervisory powers from the Federal Reserve and the Federal Deposit Insurance Corp.

Ideally, it is in everyone’s benefit to reduce the regulatory clutter and create clean lines of responsibility and authority. My worry is that we don’t jettison enough of what didn’t work after the power struggle/compromise struggle shakes out.

Housing doesn’t stabilize until banking/credit stabilizes. Period.

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[In The Media] Bloomberg TV 5-23-09

May 25, 2009 | 10:46 pm | | Public |

Both Hamptons sales activity and sales prices are down. Ok.

The looming Memorial Day weekend – summer, beaches, vacations, getaways – made The Hamptons a favorite topic.

Hamptons Homes Drop Most Since Realtors Kept Records [Bloomberg]

The Hamptons: Economic Downturn or Killer Tornado? [CityFile]

Bargains abound for well-heeled in the Hamptons [AP]

Trivial background stuff to ignore – down to the wire via remote

Thursday night I got a call from Bloomberg TV asking if I could come to their studios to do a segment and I begged off. I had opted to work from home on Friday because one of my kids was getting an award at school in the morning and I wanted work at home…plus it was the Friday before Memorial Day weekend. Wait, why am I justifying this? 😉

They offered to set up a remote interview (third party company) in CT so I didn’t have to commute into NYC. Easy enough. Google maps said the remote studio was 10 minutes away – I gave myself 25 minutes. The address wasn’t on my GPS unit so I used my iphone, following the pulsating blue dot.

15 minutes before air time
Forgot about heavy Memorial Day traffic.

10 minutes before air time
I got to the street, but there were no numbers on the building I was ultimately looking for but I ran out of street. There was a security booth at the end of the street and a woman without teeth in the booth grunted to go around the corner.

7 minutes before air time
I enter the parking garage, which connected multiple buildings, and of course none were identified with numbers. I guessed it was the farthest building away. I was right.

5 minutes before air time
The lobby security guard had no idea where a TV studio was, so I called the contact number and they told me what floor to go to.

3 minutes before air time
I took the elevator to the floor and no one is there – just a series of glass doors in 3 directions. I picked one and started walking around trying to find the studio. Nothing was labeled.

1 minute before air time
Some came out of an unmark door, took me to the remote studio, mic’ed me up with a minute to go. And then anchor Peter Cook in DC started speaking to me to get acquainted.

air time
We went live and the TV feed was Fox News for the first 30 seconds instead of Bloomberg – a bit confusing. But somehow it worked out.

And I made it to my son’s award ceremony.

Listen to the segment.

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[The Housing Helix Podcast] Economist Kevin Gillen PHD, Econsult, Wharton

May 25, 2009 | 10:09 pm | Podcasts |

This week, I have a conversation with economist Dr. Kevin Gillen, Vice President of Econsult and is affiliated with the University of Pennsylvania as a Research Fellow in its Institute for Urban Research, through which he publishes his quarterly updates on the current state of Philadelphia’s housing and condominium markets. He’s been sharing his research each quarter with the readers of my other blog, Matrix for which I am grateful.

In the podcast we cover his Philadelphia Housing Indices, as well as the three key economic hurdles facing the Philadelphia’s housing market:

  1. Problems with the accuracy and proposed redistribution of tax assessments
  2. The controversial 10-year tax abatement
  3. Political turmoil relating to the building trades and the associated above average cost of construction.

Much of his commentary is in the context of the US housing market.

Check out this week’s podcast.

You can subscribe on iTunes or simply listen to the podcast on my other blog The Housing Helix.

[Interview] Kevin Gillen PHD, Economist, Econsult, Wharton

May 25, 2009 | 12:01 am | | Podcasts |

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[Miller Cicero] 1Q 09 Manhattan Building Sales Report Is Available For Download

May 22, 2009 | 5:57 pm | Reports |

Our commercial advisory firm just released the Manhattan Building Sales Report prepared in conjunction with Massey Knakal, a leading commercial real estate brokerage firm.

My commercial valuation partner John Cicero, MAI in our firm Miller Cicero oversees the report preparation. The report is the only one of its kind that tracks cap rates, income multipliers, price per square foot and number of sales.

The format has changed to quarterly and the expanding series will be more borough-specific.

An excerpt:

The first quarter of 2009 property sales market in Manhattan is characterized by a dramatic slowdown in sales activity. This is the first period tracked that truly reflects the market mentality created in September 2008 with the collapse of Lehman Brothers, the federal bailouts of AIG, Fannie Mae and Freddie Mac, and the ensuing paralysis of the credit markets throughout the fall. (In contrast, our last market report for the second half of 2008 included numerous sales that were negotiated pre- September)…

Massey Knakal will distribute nearly 300,000 hard copies of the report over the next few months.

Massey Knakal Manhattan Building Sales Report [1Q09]

Report Methodology [Miller Cicero]

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[Three Cents Worth #121] Hamptons Real Estate Gets Absorbent!

May 21, 2009 | 10:12 am | | Charts |

Sure happy it’s Thursday to share my Three Cents Worth on Curbed, at the intersection of neighborhood and real estate.

Today the Lockhart Steele and the Curbed Network officially launch Curbed Hamptons, a revamped version of the former site “The Beach” to prove once and for all, that there really are curbs at the beach.

From Westhampton to Montauk, and every place in between, CurbedHamptons covers the real estate, neighborhoods, and personalities that make the Hamptons, well, the Hamptons.

My 3CW column did a Route 27 today and covered the East End, being the first post on Curbed Hamptons since it went “official.” Ok, that’s a stretch but I can’t help but think this is an attempt to get even, after Lock was subjected to my first interview on The Housing Helix a few weeks ago.

Click here to view this week’s post.

Check out previous Three Cents Worth posts.

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[Social Networking+Real Estate] Diving for Wisdom from a Panel of Green Pearls

May 20, 2009 | 9:25 am | Public |

About a month and a half ago, I participated in a panel discussion on social networking held by Ryan Slack of GreenPearl.

Allie Herzog of Quinn & Co. who was the moderator, posted an introduction to the panel discussion at the GreenPearl event – the video clips are available online. The series is surprisingly informative, despite my participation.

If you’re interested in learning about the topic, I feel pretty strongly that it’s worth listening to even, even if the weather is nice outside and you do have a life.

[Appraisal Management Companies] An Accident Waiting To Happen

May 20, 2009 | 12:51 am | |

In other words, the institutional entities that are responsible for ordering, reviewing, approving and managing licensed appraisers, aren’t held to the same or similar standard – Appraisal Management Companies (AMCs).

One of the byproducts of New York State Attorney General Cuomo’s agreement with Fannie Mae (HVCC), was to prevent mortgage brokers from ordering appraisals for conforming mortgages that would be purchased by Fannie Mae. That’s a good idea in general. But by doing that, most national retail banks and many regional banks, are forced by necessity to manage the appraisal process directly. Few have the overhead to do this and therefore resort to appraisal management companies. Call an 800 number and order a report anywhere in the country.

Appraisal management companies are generally paid the same fee as an independent appraiser would be, so they have to find appraisers who will work for 1/3 to 1/2 the market rate (or 2/3 the rate as their trade group claims). To differentiate, they generally require 24 to 48 turn time per assignment, yet an appraisal is not a commodity like a flood certification – it’s a professional analysis by an expert.

Here’s a classic example of the new breed of unregulated appraisal oversight. It’s worth the read. Same problem as the mortgage boom days – pressure, sloppy work, crank it out – just a different type of institution doing the ordering.

And AMCs have a trade group called TAVMA (The NAR of AMCs), which does all it can to further their mission. Here’s their recent blog post saying their fees are 60% of the market rate rather than 50% as has been my experience as well as the appraisal organizations who testified in front of Congress.

Think about it – their argument is essentially this: Taking a 40% pay cut is a whole lot better than a 50% pay cut.

Whether it’s 40-20-10 [yet even more spin] or whatever percent the fee reflects what willing sellers (appraisers) and willing buyers (AMCs) in the local marketplace are willing to accept based upon their own self-interests. To try and draw a cause-effect relationship between fee and quality before congress is a little bit disingenuous, absent hard data.

Here’s the AMC fee logic in a nutshell:

If an employer posted a job listing with a starting salary 40% below the last hire’s salary – this will result in no measurable differences in the quality of job applications received? Forget the correlation/causation argument, what about common sense?

Good grief.

For once, I agree with NAR.

Appraisal management companies are not currently regulated at the federal level and regulation at the state level varies. Regulation would ensure that AMCs operate within the same basic guidelines and standards as independent appraisers. Further, this allows AMCs to be regulated within the existing appraisal regulatory structure, which avoids the need to create additional layers of government bureaucracy.

The Appraisal Institute announced the House version of bill 1728:

Furthermore, the bill requires separation and clear disclosure of fees paid to appraisers and fees paid for appraisal administration (i.e., fees paid to appraisal management companies); prohibits the use of broker price opinions in loan origination; and requires registration, and a regulatory framework, for Appraisal Management Companies, with mechanisms to prohibit infiltration by appraisers sanctioned by state regulatory agencies.

That specific wording “and a regulatory framework, for Appraisal Management Companies, with mechanisms to prohibit infiltration by appraisers sanctioned by state regulatory agencies” reflects the situation discussed in the St. Petersburg Times article.

Here’s usually the way the process works:

  • To be approved, the appraiser submits a state license and in some cases, submits a couple of sample reports.
  • The appraiser agrees to the half market rate fee structure and 24-48 hour turn time requirements (market rate is 5-7 days).
  • The appraiser is placed in a computerized queue and is given an assignment
  • The appraiser gets 1-2 calls by young kids out of high school making sure the appraiser will turn around the assignment in 24-48 hours
  • The appraiser has to be very pushy to be able to get into the property in order to turn the assignment around in time.
  • If there is a valuation problem or issue that needs interpretation by the AMC, the solution is often to just disclaim the problem in the addendum somewhere.
  • Little if any interaction available from qualified appraisal professionals on AMC staff
  • The appraiser gets more work if the jobs are turned around faster because the queue is set to have maximum amounts allowed by an appraiser at any one time.
  • Remember, the fees are half market rate. In higher cost housing markets, the fees can be as low as 1/3 the market rate because the AMC appraisal fees are often set at national rates. In other words, appraisers in Manhattan would be paid the same as North Dakota even though the cost of doing business is 4x higher in Manhattan.

Now imagine the quality and reliability of this product, which is not a commodity, but an expert opinion prepared by a professional. It’s hard imagine much professionalism squeezed in this process, isn’t it?

HR 1728 H.R. 1728: Mortgage Reform and Anti-Predatory Lending Act was just passed by the House and Senate and is ready to be signed by POTUS. Here’s the appraisal portion.

It looks as though AMCs will be licensed just like appraisers will:

‘(7) maintain a national registry of appraisal management companies that either are registered with and subject to supervision of a State appraiser certifying and licensing agency or are operating subsidiaries of a Federally regulated financial institution.’

However, this will be more of a revenue opportunity by the states – licensing doesn’t have much to do with competence. Plus, I don’t see how states will have the manpower to provide meaningful oversight other than clerical aspects.

Mark my words here – this is an accident waiting to happen.

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1-Across Is No Puzzle

May 19, 2009 | 4:06 pm | | Favorites |


The Real Deal Magazine, one of the best resources for real estate information on the New York housing market, also delves into the world of crossword puzzles in each monthly issue.

You know you’ve arrived when you make it to 1-Across.


Ok, back to work.


[DMV-Like Executives] Placing All Our Housing Hopes On Institutions Losing Billions

May 19, 2009 | 10:24 am |

Every quarter for more than a year, we have seen losses in the neighborhood of $10B – $20B for each of the former GSEs Fannie and Freddie. However, with the Stim and bailouts in the multi-trillion range, the current losses seem like chicken feed (no offense meant to hard working chickens).

My kids remind me often of the Austin Powers quote:

Why make trillions,
…when you can make…billions?

Modified version “why lose trillions, when you can lose billions?”

FHFA, the federal oversight agency that was created after the meltdown began (don’t get excited, it is essentially the former OFHEO and appears to be run per the same executives that were in charge of oversight before the meltdown) reported that both Fannie and Freddie are facing “critical” problems.

Ok, this is nothing new. We know these agencies will be losing money for many years until we undergo extensive de-leveraging.

What continues to be a concern for me is the ability of these agencies to attract talented people to steer them. Even though the GSEs are essentially federal agencies, they are dealing with enormous and complex problems. Their predecessors were highly compensated but, like everyone else, didn’t see it coming.

Images of the government issued gray painted rooms and bulky metal desks come to mind – ie, your local DMV. One could argue that the “talented” executives were the ones that got us in trouble. However, I think this is an over simplification and short sighted.

One hurdle to putting Fannie and Freddie back on firm financial footing is the many vacancies in their executive ranks. Hiring has been slowed by compensation concerns, the agency said.

That’s why salary caps in most company situations are probably short-sighted. Ben & Jerry’s took several years to find a CFO because of their 5x salary cap from lowest to highest paid employees kept away good talent.

Yes some Wall Streeters got crazy compensation packages, but do we get even with them and apply it to all executives connected with this financial morass that take Fed dollars or work in Fed agencies? Is this a case where the exception makes the rule?

How will “toxic mortgages” be sold off if the company purchasing them feels even a hint of salary cap talk, even retroactive salary caps? Senior executives are not likely to jump in the pool, if their bathing suit might be taken away without warning – ok, bad visual but hopefully you get my point.

Although when I renewed my driver’s license last year, it only took 10 minutes.

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[Interview] Ellen Harnick, Center for Responsible Lending

May 18, 2009 | 12:01 am | Podcasts |

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