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[The BBQ Interview] Rick Sharga of Carrington Mortgage Holdings – “Why is REO Volume Down?”

May 30, 2012 | 3:24 pm | |

I was looking for guidance/insight on the issue of future REO volume because I had anticipated a faster pickup in REO volume once the state AG agreement was signed with the major servicers (ie being held back after robo signing scandal) but that is yet the case.

One of the most knowledgeable people in the business and a good friend (as well as an expert in the field of the BBQ) is Rick Sharga, Executive Vice President of Carrington Mortgage Holdings so I traded emails with him, compiled it and received a great overview of the topic:


Miller: Most pundits are looking at all the price metrics saying things are improving and inventory is low. To me it feels like there is an essential component not being factored in and that is foreclosure shadow. Am I overly concerned about it? I thought we were looking at several years of heavy volume. In fact S&P says 48 months of heavy REO volume.

Sharga: I break REO into two distinct phases: activity and inventory. Both have been falling. Inventory levels have been falling largely because of an unexpected drop-off in activity levels. That drop-off has slowed down the pipeline of new REO inventory, and the market has gradually been whittling away at the existing inventory. We seem to have reached a plateau of about 500,000 REO sales a year, and the question of how long it will take to clear the market is a good one. I don’t think we’ve peaked yet in terms of inventory (LPS believes that REO inventory levels will peak in 2015, and they may be right, based on how many seriously delinquent loans there are, and how long it takes to execute a foreclosure).


Miller: But why is volume down?

Sharga: The activity levels being down is a bit of a surprise, but in hindsight probably shouldn’t be. There are several factors at play here. First, from a positive perspective, we’re seeing dramatic increases in short sales. That’s a good trend for everybody – lenders lose less, buyers get a good deal, borrowers take less of a credit hit, properties don’t deteriorate as much and prices don’t drop as far. Every short sale essentially means one less REO, so they’re definitely a factor to consider.

Second, we’re (finally) starting to see some sales of non-performing loans (NPLs) by the major lenders; we’ve purchased two portfolios worth between $150-250 million in the last few months. Those sales at the very least delay REO actions while the notes are being transferred. Then, in cases such as ours where our mortgage servicing unit starts contacting the delinquent borrowers, a lot of loans are modified and taken out of foreclosure. Those that can’t be modified are typically offered the option of a short sale. So foreclosure actions actually are reduced by NPL sales.

Third, the long-awaited AG settlement has had a bit of an unintended consequence in this area. While we anticipated – and have seen – the return of foreclosure processing in some of the judicial states where the engines had seized up during the AG negotiations, we’ve also seen an unexpected drop in activity in the non-judicial states. Part of this is due to the terms of the settlement. The five largest servicers have agreed to write off about $20 billion in principal balance on their delinquent loans. A high percentage of these loans are in the Southwest, in non-judicial states like CA and NV. These states also had some of the largest price declines from peak to trough. The servicers have financial incentives to meet their $20 billion amount as quickly as possible (one servicer, for example, is believed to have a “dollar for dollar” incentive on anything it writes down this year). So, the quickest way to meet the write down requirement is to target delinquent loans in the Western non-judicial states. “Dual tracking” is now illegal. Therefore, it makes sense for the servicers to halt foreclosure actions on these properties and see if the borrowers qualify for the write downs. How big is this? BofA announced that it had already made offers to 200,000 borrowers. The huge drop off in REO activity in these states won’t be offset by increases in the judicial states; even though they’re starting to execute foreclosures again, it will take time to unclog the system in those states and get through the processes.

Finally, some of this is localized (Nevada has some new laws that make it difficult to execute a foreclosure without the original mortgage note); and some of it is due to pending Federal programs (HAMP Tier 2 is scheduled to launch next month, which will require servicers to see which of their previously un-modified loans will qualify for the latest government program).


Miller: What about that shadow inventory we’ve all been hearing about, and the several million seriously delinquent loans not yet in foreclosure?

Sharga: It probably means that fewer of them will make it through to REO status, and that the ones that do will get there in a very measured, controlled manner. This makes the LPS scenario believable: all those delinquent loans gradually working their way through the foreclosure process over the next 2-3 years but not creating a flood of REO inventory; peaking sometime in 2015, and falling pretty dramatically after that.


Miller: This is very helpful, thanks. Another important topic of the day is BBQing. Any sage advice for a novice?

Sharga: Always remember my “never fails,” three step grilling mantra:
1. Buy the best food you can find
2. Use 100% hardwood chunk coal
3. Stay out of the way and try your best not to screw anything up

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Manhattan’s 10k+ Square Foot “Trifecta” of Sales

May 21, 2012 | 11:23 am | |

Last week’s Manhattan housing market certainly ended on a high note – literally. You know that old saying about things happening in threes? My word of the week is “trifecta” – it’s always been a favorite, along with “neat, blowhard and Muttontown.

My favorite phrase is “The Trend is Your Friend” and one needs at least 3 data points to make a trend. Sometimes I append “…until it ends.”

I spoke about The $70M Condo versus $52M Co-op Smackdown, Manhattan Style last week but there is another big sale to make headlines was scooped by Alexei Barrionuevo at the New York Times. Alexei corrected me on my Twitter feed that the price was “over” 90M.

It’s all quite breathtaking when you look at this sale in context of the entire market. However what sets the last 3 sales of $52.5M, $70M and $90M+ apart is they all exceed 10k square feet. The recent $88M sale was a nominal 6,744 square feet.

This record sale won’t close until the building construction is completed next year or so and I am not so sure it will still be a record at that point.

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Change is Constant: 100 Years of New York Real Estate

February 7, 2012 | 11:28 am | | Articles |


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Last fall Prudential Douglas Elliman turned 100 years old and they asked me to write an article for their Elliman magazine. If you’ve been living in a cave, I’ve been writing their housing market report series since 1994.

What started as a simple project morphed into a fun, albeit gigantic, research project. I learned a lot about the evolution of the Manhattan housing market, largely through the amazing incredible New York Times archives. This was right about the time of my web site revision and semi-necessary hiatus so I am cleaning out my desk of posts I have been itching to write so please indulge me.

The article I wrote for Douglas Elliman was beautifully presented by their marketing department and prominently inserted in their Elliman magazine (and iPad app!).

Diane Cardwell of the New York Times in her “The Appraisal” (an incredible column name BTW) penned a great piece: In an Earlier Time of Boom and Bust, Rentals Also Gained Favor that originated from my article and zeroed in on the 1920s and 1930s to draw a comparison to the current market.

I have the feeling my project is going to morph into something bigger – it’s just too interesting (to me). A few things I learned about the Manhattan market over this period:

  • Douglas Elliman published the first market study in 1927 [heh, heh] not counting other marketing materials written before WWI)
  • Real estate media coverage in the first half of the century was social scene fodder (same as today) but with extensive and excessive personal details presented on tenants, buyers and sellers yet housing prices and rents were rarely presented in public.
  • Manhattan made a rapid transition from single family to luxury apartment rentals and eventually co-ops.
  • Housing prices and rents by mid century weren’t that much different than the beginning of the century.
  • Manhattan’s population peaked at 2.3M around WWI.
  • Wall Street in the 1920’s was seen as the driver of the real estate market.
  • Federal and state credit fixes in the late 1930’s help bail out the housing market.



• Change Is The Constant In A Century of New York City Real Estate – pdf [Miller Samuel]
• My Theory of Negative Milestones [Matrix]

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Buying Manhattan Apartments with Gold

February 7, 2012 | 11:14 am | | Charts |

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Last year I got an email from a Matrix reader, Ben Tanen, a former VC now running his own investment partnership that invests in public companies, with an interesting take on the buying power of gold as it relates to Manhattan apartments.

Like many things in my life, I let this “nugget” (sorry) slip through the cracks last year. He recently updated it with our new numbers in the recent release and it’s quite compelling.

The value of gold has risen sharply in recent years during the wobbling of the global financial markets – investors see precious metals like gold as a way of preserving purchasing power over the long run. In fact, in 2011, gold had more purchasing power relative to Manhattan real estate than at anytime during the past 22 years (the limit of our publicly released data).

It would take 908 ounces of gold to purchase the average Manhattan apartment versus the 1996 low point of 1,030 ounces, a point where many think our asset bubble problems began (stocks, then housing).


[Commentary] The RBI Pending Home Sales Index Concept

February 14, 2011 | 12:29 pm | | Podcasts |

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[Interview] Barry Ritholtz, CEO, Director of Equity Research, Fusion IQ, Author, Bailout Nation, The Big Picture Blog

January 21, 2011 | 11:23 am | | Podcasts |

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[Interview] Adam Leitman Bailey, Real Estate Attorney, Founder, Adam Leitman Bailey, P.C., Author

October 13, 2010 | 10:11 am | | Podcasts |

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[Interview] Jon Gollinger, Founder, CEO, Accelerated Marketing Partners, LLC

August 17, 2010 | 9:44 am | | Podcasts |

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[Eye on Real Estate] WOR NewsTalk Radio 710 June 19, 2010

June 21, 2010 | 12:37 am | | Public |

For each week’s Eye on Real Estate Show on WOR NewsTalk Radio 710, we include a segment called “The BlogCast” where I discuss several housing related (sometimes a stretch) posts from some of my favorite blogs. They cover topics that are current, funny or simply a “must read”.

Saturday’s BlogCast covered the following blog posts:

[The Real Estate Bloggers] The Watergate Hotel Sold To European Investment Group For many of us, the term Watergate brings back bad memories of politicians gone bad. We forget that the scandal is named after the Watergate Complex, a group of 5 buildings near the John F. Kennedy Center for the Performing Arts. The hotel that was attached to the complex failed in 2007 but was purchased yesterday by a European real estate management company. They plan on returning the hotel to it’s former glory while keeping the option of turning some of the rooms into condos if the market will accept it.

[Straight Talk About Mortgages] Lending Rule #101 – Don’t Loan Money to People Who Can’t Pay It Back… Duh, it’s all about common sense. People who can’t pay it back shouldn’t get the loan in the first place…

[ST Paul Real Estate] Should I take the fridge? I got a call last week from a woman who is being foreclosed upon and there isn’t anything she can do about it at this point…She wanted to know if she had to leave her appliances behind when she left her home. She told me that they are fairly new and that she would like to keep them.


If you missed this past Saturday’s show or any prior show, you can listen to the podcast at any time or subscribe to it for free via iTunes to always get the latest show delivered automatically to your computer or handheld device. My Blogcast is usually in the first hour of the show.

Listen to the most recent Eye on Real Estate podcast.

Subscribe to the free weekly Eye on Real Estate podcast.

Become a fan on Facebook.

Or visit the Eye on Real Estate Website.


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[MBA] Mortgage Applications At 1997 Levels

June 17, 2010 | 9:30 am | |

Until real estate market participants stop drawing comparisons to the 2003-2007 housing boom as the standard for “normalcy” rather than seeing it for the anomaly it was, it’s going to seem very depressing.

Here’s a good article in the the New York Times – Housing Market Slows as Buyers Get Picky that accurately portrays the state of housing right now as we enter the “post-housing stimulus” market.

While we have good news about low mortgage rates, application rates have fallen to mid-1990s levels. And I have long maintained the Mortgage Banker Application index is overstated since it doesn’t consider rejected applications, a significant phenomenon during periods of weak market conditions, especially now.

Even the lowest home mortgage rates in decades are not doing much to invite deals. The Mortgage Bankers Association said Wednesday that applications for loans to buy houses were down by a third compared with last year. Applications are back to the level of the mid-1990s, when the country’s housing market was smaller.

In other words, sellers need to take a look around them and realize what the market is actually like and price accordingly. This outburst in activity may very well have damaged the latter half of 2010 in the form of disconnected sellers. Combine that with the tax credit expiration and it’s, well, it’s time to be reasonable.


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[Eye on Real Estate] WOR NewsTalk Radio 710 June 12, 2010

June 14, 2010 | 10:40 am | | Public |

For each week’s Eye on Real Estate Show on WOR NewsTalk Radio 710, we include a segment called “The BlogCast” where I discuss several housing related (sometimes a stretch) posts from some of my favorite blogs. They cover topics that are current, funny or simply a “must read”.

Saturday’s BlogCast covered the following blog posts:

[City Room/NYT] Life Costs More Here, Unless You’re Hiring In both Boston and the San Francisco Bay area, the average worker receives more in wages and benefits than does the typical worker in the New York metropolitan area, according to figures released this week by the federal Bureau of Labor Statistics. Boston and San Francisco are also the only big American cities where the cost of providing health care, year-end bonuses and other benefits is higher than it is in New York, the numbers show…

[Naked Capitalism] RealtyTrac: Most foreclosures have positive equity Of all of the foreclosures in the RealtyTrac online database, less than 50% have mortgages worth less than what is owed, said Rick Sharga, senior vice president at RealtyTrac, during a session at REO Expo, which concludes in Dallas Wednesday…

[Sienna Research Institute] 4.7% of New Yorkers Want To Buy, Most Since Lehman Tipping Point Ok, so this isn’t really a blog, but it pertains to the listening area and I covered it here on Matrix. 4.7% of consumers in the state plan to buy a home this year, compared with just 3.4% in April and 3% in May 2009. As good as it is, the latest reading is still far shy of the three-year high set in June 2007, when 5.6% of New Yorkers said they wanted to buy. Conversely, in January 2009, at the lowest ebb in the last three years, a mere 2.2% said they would buy a home.


If you missed this past Saturday’s show or any prior show, you can listen to the podcast at any time or subscribe to it for free via iTunes to always get the latest show delivered automatically to your computer or handheld device. My Blogcast is usually in the first hour of the show.

Listen to the most recent Eye on Real Estate podcast.

Subscribe to the free weekly Eye on Real Estate podcast.

Become a fan on Facebook.

Or visit the Eye on Real Estate Website.


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[Estate Tax] 2010: Throw Momma From the Train?

June 14, 2010 | 12:01 am | |

The New York Times had a trifecta of estate-related coverage this weekend.

In What an Estate Looks Like to the Taxman explores the lack of estate tax for 2011. The threshold could be dropped from $3.5M in 2009 to $1M in 2011 if its reinstated. The coffers are pretty empty with all the spending post-credit crunch so I would find it hard to believe that it won’t be re-instated.

When Congress passed a law that eliminated the estate tax for people who die this calendar year — with plans to bring it back with a vengeance in 2011 — the joke among estate planners was that 2010 might go down as the year of “Throw Momma From the Train.”

The Confusion Over the Dormant Estate Tax Keeps Advisers Busy talks about the scramble for estate planning this year. Since housing tends to be the biggest asset in a typical estate, and the level of property values in the region, I’m anticipating a lot of estate tax appraisals next year.

The real problem comes for the merely rich — individuals worth more than $1 million and less than $3.5 million and couples with net worths of $2 million to $7 million who previously did not have to worry about the estate tax. If Congress fails to act again this year, the estate tax laws next year will revert to their levels before 2001, and that could snare a host of people who set up the estate plans on the assumption that there would be no tax when they died.

The real estate section cover story this weekend was Loved. Lived In. Listed as an Estate Sale. The article covers a fact of life (no pun intended) in real estate. In NYC, “estate condition” is a common term that suggests the property needs significant updating.

That is when the property entered the realm of the estate sale, a segment of the market often inhabited by one-of-a-kind apartments that haven’t been touched in decades. These places tend not to be bargains, especially after factoring in the often necessary and sometimes costly renovation. But they attract a certain species of intrepid buyer, satisfying an appetite for an ambitious redo, architectural distinction or an aura of prestige.


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