Will Tighter Lending Rules Matter?

We often call the chairman of the Federal Reserve "Gentle Ben" Bernanke, because that has been his approach so far to the subprime mortgage crisis: No table-thumping, no finger-wagging, no jawboning -- just gentle prodding of lenders to be more careful in the future.

The Fed and other regulators issued new guidelines Friday advising -- but not requiring -- some lenders to fully consider whether subprime borrowers can afford their mortgage payments after the cheap "teaser" rates expire.

The guidelines do not apply to independent, state-regulated lenders, but are still expected to have some impact.  The New York Times: "The rules are likely to make it harder for some borrowers to qualify for loans, although many lenders have been tightening their standards in response to rising levels of foreclosures and mortgage delinquencies."

The Fed could have thrown its weight around, but chose not to, as Floyd Norris points out: "The Federal Reserve chose not to use the authority it has under a 1994 law to impose the rules on all mortgage lenders, said Michael D. Calhoun, president of the Center for Responsible Lending."

The problem, as we see it, is that the Fed waited so long that it can't really throw its weight around. Much tougher lending standards now would probably drive housing prices lower, which would leave even greater numbers of recent home-buyers upside-down, which would lead to more foreclosures, which would scare Wall Street investors away from mortgage-backed securities, which would tighten credit even further, and on and on. The Fed is stuck at this point, wishing and hoping that the mortgage mess doesn't get worse.

Photo Credit: Reuters

What $3 Million Buys in Brentwood

What does $3 million buy these days? The Real Estalker blog, one of our favorites, asks that question in Brentwood and comes away disappointed.

In this post, RealEstalker's Your Mama is flummoxed by how little house -- and how little luxury -- $3 million buys in Brentwood.

The house: a renovated five-bedroom traditional, with 3,276 square feet, owned by former "JAG" stars David James Elliott and Nanci Chambers, listed for $3.25 million. No pool.

RealEstalker: "The Elliott/Chambers house is located in a nice, non-descript section of Brentwood that sits in the morning shadow of the Getty Museum. The area is nice, it's Brentwood after all, but seriously people, Your Mama is falling down with flabbergast and shock to learn that home prices top $3 million in this lackluster part of town."

More: "It's not a bad house for a suburbanish family house, and clearly the couple have sunk some dough into renovating the kitchen and baths. Nonetheless, for three and a quarter million clams Your Mama wants electronic security gates and a heated swimming pool. No question about it. For that amount of money we want to feel insulated and protected from the wild and dangerous streets of Brentwood, and have a recreational oasis out back."

Photo Credit: RealEstalker

Tree of the Week: Olive Tree

Good morning, and it really is a good one. Not a hint of June gloom in Santa Monica. Today Pieter Severynen, our tree-loving friend, celebrates one of those archetypal Southern California things that isn't really from California at all: the olive tree.

"Olea europaea -- Cultivated in Greece and the eastern Mediterranean area since the Stone Age, the olive tree was revered both as a symbol of peace and wisdom, and as a dependable provider of cooking oil. The Franciscan friars brought it here from Spain by way of Mexico. From their mission gardens the tree spread across California as a beloved symbol of our pastoral past, be that real or imagined.

"This drought-tolerant, evergreen tree grows slowly to 25 to 30 feet high and as wide. It can live as long as 600 years. Foliage is silvery gray, trunk and branches dark gray. With age the trunk forms a buttress network of awe-inspiring gnarly shape. Those who want an instant historic garden can successfully transplant even old trees. The olive tree comes in both fruiting and fruitless varieties and can be shaped as a single or multi-trunk specimen."

Thanks, Pieter
E-mail Pieter: PISeve@earthlink.net
Photo Credit: OliveCoop.com

Bear Stearns Blogger Bounced

Remember the Bear Stearns big shot who was blogging about movies and how tough his job was while a hedge fund he managed was going down the subprime drain?

Richard Marin was head of Bear's asset management business -- and not a fan of the new Kevin Costner movie. We say he "was" head of asset management, because he was bounced from that job Friday:

Reuters: "The investment bank Bear Stearns replaced the head of its asset management business today after two of the unit’s hedge funds almost collapsed after making bad bets on mortgage-related securities.

"The meltdown of the hedge funds embarrassed Bear Stearns.... The funds buckled on wrong-way bets tied to subprime loans, which are made to people with weak credit. Bear said that Jeffrey B. Lane, a longtime senior executive at Lehman Brothers Holdings Inc. and Neuberger Berman Inc., would succeed Richard A. Marin as chairman and chief executive of Bear Stearns Asset Management.

Was the blog a factor? It couldn't have helped Marin's cause. Then again, having a hedge fund explode doesn't help either.

Photo Credit: Reuters

Mortgage fraud: Shred it!

It's Mortgage Fraud Week Here at L.A. Land, and we have a wild one for you today. It involves possible obstruction of justice at a major home builder under investigation by the FBI.

From the Atlanta Journal-Constitution: "Atlanta-based Beazer Homes USA said it fired its chief accounting officer, Michael T. Rand, for attempting to destroy documents. The home builder, facing federal probes into its mortgage practices, disclosed the move in a filing with the Securities and Exchange Commission.

More: "'Michael T. Rand has been terminated for cause . . . due to violations of the company's ethics policy stemming from attempts to destroy documents in violation of the company's document retention policy,' Beazer said in the SEC filing."

Wall Street Reaction: "This raises red flags regarding the content of the documents in question, in our view," Michael Rehaut, an analyst at J.P. Morgan Securities.

Backstory: Beazer said it was "fully cooperating" with an FBI investigation that it steered North Carolina home buyers into mortgages they could not afford.

Comments? Thoughts?
Photo Credit: Reuters

Real Homes of Genius: Compton

Good morning. That Dr. Housing Bubble sure does have an eye for a bargain -- he writes:

"Real Homes of Genius: Today we Salute you Compton. $279,900 for 768 Square Feet.  This 768 square foot palace will wet the appetite of any hungry home buyer.  Take a look at the gates.  Doesn’t it remind you of the entrance of Windsor  Castle?  I’m glad we both had the same initial reaction."

"In addition, this place has some uncanny ability to squeeze gold out of turnips.  This place has 3 bedrooms in 768 square feet.  How they do this is like asking Oscar Mayer's how they make hot dogs, you probably don’t want to know."

Here's the news nugget, though: The house sold for $282,000 in April 2005, and $293,000 in January 2006. The Doctor: "Fascinating. So you are telling me we have a place in Southern California with 2 years of zero appreciation? Blasphemy! This goes against the sunshine tax laws and all things that make this world spin. But here is the real kicker. The Zillow Zestimate is $418,000! Bwahaha! Who are we to believe? Zillow, the current price, or our gut?"

Photo Credit: Dr. Housing Bubble

Real Estate Fraud Week Continues

Real Estate Fraud Week continues here at L.A. Land. Tonight, an update on that alleged real estate investment scheme that has resulted in a big mess of foreclosures in Riverside and Temecula, and a bunch of lawsuits: The brokers who arranged the investments have agreed to forfeit their real estate licenses:

From the Press-Enterprise: "Stonewood Consulting Inc. and its broker, Hendrix Moreno Montecastro, will forfeit their real estate licenses rather than contest a wide range of violations filed against them by the California Department of Real Estate, according to an agreement filed with the department.... Among the accusations the department filed late last month against Stonewood and Montecastro was that they used inflated appraisals and took commissions ranging from $74,000 to $115,000 for each house they bought for investors."

Very large commissions, no?

Read the original post here.

To refresh: The alleged victims say the scheme preyed on older, middle-class investors who overpaid for more than 100 "investment properties" in Riverside and Temecula, believing the extra cash was being wisely invested on their behalf, only to see the cash disappear.

Click here to see a very elaborate website run by the alleged victims.

The Thursday Mortgage Rate Update

As you probably know, Gentle Ben Bernanke (pictured) and his Fed friends left their key short-term rate unchanged today at 5.25%.

Long-term rates, and mortgage rates, continued to slip this week -- investors witnessing the carnage in the subprime market are paying more for stability, which drives rates down.

Inman news reports: "In Freddie Mac's survey, the 30-year fixed-rate mortgage dipped to an average 6.67% from 6.69% last week.... In Bankrate.com's survey, the average 30-year fixed mortgage rate this week in Los Angeles held steady at 6.79%.

Freddie Mac Timeline
6/14        6.74%
6/21        6.69%
6/28        6.67%

Comments? Insights?
Photo Credit: Reuters

The Secret Bear Stearns Blog

Everybody blogs, right? It sometimes seems that way: the head of the Bear Stearns unit that ran those suprime hedge funds into the ground? He was blogging while the hedge funds were gasping for air.

The New York Times found the blog, Whim of Iron, authored by Richard Marin, in which he talks about the stresses of trying to save those hedge funds:

"The blog was personal, he said, intended for his friends and family. It let him talk about movies, life on Wall Street and his efforts to lose weight. Still, the episode — and Mr. Marin’s blog — offer some insight into Bear’s response to the near collapse of the funds."

More: "On June 23, he posted an entry saying he had spent two weeks 'trying to defend Sparta against the Persian hordes of Wall Street.' ... 'Nothing like a good dog fight 24X7 for a few weeks to remind you why you chose the life you chose,' he wrote. 'The good news is that after two embattled weeks both I and my loyal staff are still standing to fight another day.' "

It sounds like Marin locked up the blog after he realized the N.Y. Times was going to write about it. It's now locked. But those people at the Times think fast: They captured some pages, so you can see what the blog looks like.

Comments? Thoughts?
Photo Credit: Wall Street Trading, by Reuters

Realtors Blame Media for Housing Slump

Oh, now we understand. This entire slowdown in home-buying, the collapse of the subprime lending industry, the surge in bankruptcies, it's our fault -- bloggers and journalists made this happen.

This, at least, is the thrust of an essay by Lawrence Yun, the senior economist for the National Assn. of Realtors. Read the whole thing here. Highlights:

"To a great extent, we can thank steady media coverage of the real estate market “correction” for unfounded consumer concerns.... But there’s no real correction where consumers are concerned. Yes, home price appreciation has slowed considerably, and nationally we’re expecting a price drop of 1% for 2007. But that drop comes at the tail end of a five-year spurt that increased home prices by 53%. We may have taken one small step back, but that’s after taking 53 steps forward."

More: "When today’s consumers look at real estate markets, they need to use the same analytical approach as investors in the stock market. Those buyers aren’t generally concerned about the volume of stock trades on a given day. Why should they be? They’re focused on price trends. And by that measure, now is a great time for consumers to be in the housing market: Prices have steadied, and inventories are healthy."

Yun replaced David Lereah, who was widely criticized -- ridiculed is more accurate -- on blogs for being a cheerleader for the housing bubble. This essay will earn Yun similar attention -- in fact, there's already at least one blog dedicated to yun-watching, www.lawrenceyunwatch.blogspot.com.

Comments? Thoughts? (Warning: They will be slow to post; L.A. Land is outside the TMZ.)
Thanks for the tip: The new-and-improved Blown Mortgage
Photo Credit: Reuters