4 lessons from a 97-year-old real-estate agent

More than 7 decades in the business have given him wisdom; he shares a few gems.
By John Roach of SwitchYard Media

Nonagenarian George W. Johnson has been selling real estate in Seattle for more than 70 years and is still at his desk six mornings a week. (Photo: Dan Lamont)

Buy a house today if you can, but don't sell one if you don't have to, says George W. Johnson, a 97-year-old real-estate agent who has been working the Seattle market since 1936.

Johnson, who is reluctant to call himself America's oldest real-estate agent — he says he just learned of a 99-year-old broker in Florida — has seen his share of housing booms and busts since he hung his first real-estate shingle 74 years ago.

"I've been through a lot of these ups and downs," he says, remembering the property boom that followed World War II, as well as the deep downturn in the 1970s when Seattle's biggest employer, Boeing, laid off thousands of workers.

Through it all, Johnson says he has learned many enduring lessons. Chief among them: After every housing recession, the market has "gone higher than the one before." You have to have the stomach to hang on through all of the twists and turns, he says.

This market a 'baby' compared to days past

Johnson wasn't always a real-estate guy. He was born to a farming family in South Dakota on Dec. 22, 1912, and moved to Seattle at the height of the Great Depression to attend college and pursue a teaching career. To make ends meet, Johnson juggled three jobs at one time. He delivered milk for a while. "Whatever you could do to get by with, you did it."

Then, in 1936, he started dabbling in real estate. Unemployment hovered around 30%, soup lines stretched around blocks, homelessness was rampant.

"You could have bought the best house in (the Seattle neighborhood of) Ballard for $3,500." Times were tough. The current real-estate market, Johnson says, is "a baby" by comparison.

"In addition to the Depression, we had the drought at the same period, so it was just compounded. You wouldn't believe the things that happened during that period."

Johnson, a natty dresser who drives himself to work every day — including Saturdays – managed to carve out a niche as a service-oriented agent. When the economy turned at the end of World War II, he opened up his own shop in Ballard, north of downtown. He and his sons have run George W. Johnson Realtors ever since, weathering the ups and downs in the market with confidence that profits are there for the making.

"I've lost a lot of money in a lot of things, but I've never lost in real estate," Johnson says. He remembers selling his first house in the 1930s for about $1,500. "It's probably worth $300,000 now."

4 real-estate tips from Johnson

You can't thrive in the real-estate industry for this long without learning some useful lessons along the way. Here are some of Johnson's pearls of wisdom:

Beware one-company towns: Cities dependent on a single company or industry are more vulnerable to jarring downturns if the economy goes south. The Rust Belt's old factory towns have made that abundantly clear.

The Seattle market turned particularly grim in the late 1960s and early '70s when Boeing, the aerospace giant, laid off more than 60,000 people in the Seattle area. "Boeing was about the only major company we had other than (the University of Washington)," he recalls. "Now we've got a much broader base to help out … it is altogether a different proposition."

Johnson counsels homebuyers to look beyond real-estate values and investigate an area's fundamental economy before making a purchase.

Don't get greedy. Johnson blames "plain old greed" for the latest real-estate downturn — people got caught up in the enthusiasm of the moment and banks egged them on with cheap loans.

"Everybody was out to buy a house, raise the price, double it and make a quick buck," he says, shaking his head. "People signed up for stuff that they knew they shouldn't have and they couldn't pay (for) and of course the banks helped them."

Johnson is old-school in that way. At the heart of his real-estate philosophy is his fundamental belief in personal responsibility. "You've got to be able to hang onto a house until conditions are such that you can make a little money," he says, emphasizing that each and every potential homebuyer should make an honest assessment of his or her financial potential and should be wary of offers that seem too good to be true.

"People aren't as dumb as the media is making them out to be. They knew what they were getting into," he says.

But he is compassionate for those who have run into honest trouble. "It's tough on people who lost their jobs and are now losing their homes and that type of thing. It always is," he says.

Their pain, however, is the buyers' gain.

Timing is everything. "In this market, any young person that hasn't bought a house ought to buy one," Johnson says. "A buyers market doesn't come along that often … you just can hardly help but make money on whatever you buy today at the prices they are."

Johnson says rates are only going to go up over the long term, so borrowing will cost more. (Check local interest rates.)

If you don't have to sell, hang on. Unfortunately, Johnson expects sellers to continue to suffer, at least for now. Buyers, on the other hand, "know it's a buyers market – they are going to come in with offers below what we've appraised it at just because they know a lot of people have to sell," he says.

Despite the continued housing-market struggles, Johnson is confident that the latest downtrend is largely over. "We are headed up," he says, "but like I said, I think it is going to be slow. It will take a year or two at least."

And as the market heads up, Johnson hopes to be there helping his customers buy and sell homes just as he has for most of his life – out of a small, family office dedicated to service with a smile.


"We've done a good job," he says of his business. "We've been careful and honest and thorough and it's been good service, and I think that will always produce, no matter what business you're in."

Are slow housing sales always a bad thing? Hell no.

by Stephane Fitch


Real Estate Advisor
 
The stock market plunged yesterday, driven largely by concerns over news of a 26% slowdown in the pace of home sales reported by the National Association of Realtors. But before we all conclude that there’s nothing good about huge drop in sales of used homes, that it absolutely must be terrible news, let’s stop and think.


I’d like to propose a simple idea: The drop in sales volumes is good news, even great news.

Whenever thinking about economic data that is universally regarded as a harbinger of horrible things to come, I try to consider an opposite scenario. What if the data had said housing sales were at a blistering pace? Well, that would have been greeted as good news. And in fact, the last time that the Realtors were reporting that homes were trading at an all-time record pace was…

Well, by golly, that was during the housing bubble. The housing market of 2005-2006 was a model of poor health—prices out of whack with rents and median incomes, Fannie, Freddie and the banks giving away debt to anybody with a pulse—yet the vast majority of folk (not everybody, but most) were citing the rapid pace of sales back then as great news.

So couldn’t all the people pointing at the super-slow pace of sales now be wrong when they say that housing and the economy is forever doomed, just like they were wrong when they were citing rapid home purchases as a sign of good economic footing back in 2005 and 2006? Hell yes, they’re wrong.

I think the slow pace of home sales represents, above all, a sign that homeowners, home sellers and home buyers are coming to their senses. A market full of sober, careful players is a good thing.

If you want to watch housing data, pay attention to the numbers that really matter, like “affordability.” That’s the measure of the average monthly payments that buyers in an area face when buying median-priced homes versus the median income. In the vast majority of places in the U.S., affordabilty is up since 2005-2006. That means that the people buying homes today will not be house poor. They’ll have more to spend as their incomes grow and the economy recovers in the next year or two.

That’s a hell of a lot better than those of us who purchased homes when the pace of sales was roaring can say. (My situation? I purchased a home in Chicago in December 2007 for less than it had been worth when values peaked in Chicago but at least 10% above its current value.)

Image by Getty Images via @daylife

Hedge Fund Heavyweight Paulson Makes New Housing Bet

Published: Friday, 20 Aug 2010 3:57 PM ET By: Maneet Ahuja

Hedge fund manager John Paulson is underscoring his bullish bet on America in a big way.

The billionaire investor, who famously made more than $4 billion betting against the US subprime housing market at its peak in 2007, will be throwing his hat into the race to acquire residential land—and dirt cheap.

John Alfred Paulson, president of Paulson & Co., Inc.

Picture byTim Sloan AFP Getty Images

Paulson, who manages the $31 billion Paulson & Co. fund, has made a "stalking horse" bid of $42.4 million to acquire the assets of Engle Homes, which includes land and lots in Arizona targeted for more than 8,000 homes, and nine completed residences.

Engle-owned property in Colorado and Nevada is also part of Paulson's proposed deal. Engle is a subsidiary of Technical Olympic USA of Hollywood, Fla. [TOUSQ 0.0040 --- UNCH (0) ].

The offer follows auctions earlier this year by TOUSA where Paulson also participated, according to Reuters and sources familiar with the matter.

Paulson runs the $31 billion hedge fund Paulson & Co.

With builders suffering due to continued sluggish sales of new homes, slow job growth, and the competition for market share, it really is survival of the fittest—talks of consolidation among the biggest players have been circulating in the industry and among investors.

According to Citigroup [C 3.7876 0.0376 (+1%) ] analyst Josh Levin, in a note issued to clients Wednesday, "We view consolidation as the proverbial elephant in the room. Management teams are not discussing the issue publicly, but we would be surprised if at least some of them were not talking about it privately.

Investors like Paulson see this as an opportunity to strike while the iron is hot. Buying land makes sense because they recognize the demand from builders who could benefit from increased supply and lower prices.

The case for a $50 billion Facebook

August 20, 2010 3:00 AM

When will Facebook go public? How will it monetize its users? We don't know yet, but here's one educated guess about how much the social networking giant will be worth.

by Andy M. Zaky, contributor

Like many privately held companies, Facebook is very tight-lipped about its financial performance. It told us it became cash flow positive for the first time in September 2009, and earlier this summer it announced it had eclipsed 500 million subscribers. It continues to push into new businesses – earlier this week it announced new location-based features – but when pressed to share the plans for monetizing these businesses, Facebook CEO Mark Zuckerberg typically declines to elaborate.

Facebook CEO Mark Zuckerberg

But all this mystery doesn't stop rampant speculation about Facebook's valuation. Nor does it stop big investors from taking sizable stakes in the company in the hopes of getting handsome returns on an IPO that some insiders suspect will happen in 2012.

Based on a recent study released by eMarketer, Facebook is expected to bring in roughly $1.3 billion in revenue in 2010, nearly double the $665 million the research firm estimates Facebook recorded in 2009. Yet despite its enormous revenue growth, Facebook currently only brings in a meager $0.56 per 1,000 page impressions compared to the industry average of $2.43, according to Comscore. Furthermore, according to current estimates provided by Second Shares, Facebook makes only about $2.60 per user on an annual basis, which is significantly lower than the $18 made by Google (GOOG) or the $12 made by AOL (AOL).

And while Facebook is poised to surpass Google in terms of visits – in July, according to Compete.com, Google had 3.161 billion visits and Facebook had 3.152 billion -- it's worth questioning the company's ability to fully monetize its user-base. But it's also important to remember that other Internet-based companies started in a similar way -- including Google -- and that Facebook could easily improve upon its anemic revenue per-user growth.

Facebook insists there's no imminent public offering. But that won't stop us from asking: What is Facebook really worth, and what kind of IPO valuation might we expect?

Shares of Facebook already trade on two private exchanges, where a small market exists for investing in venture-backed companies. The trades aren't made public, and the lack of liquidity makes it difficult to determine a true market value. According to Next Up Research, investors were valuing Facebook at between $11.1 billion and $12.5 billion earlier this year, based on an analysis of shares purchased on the SharesPost private exchange. Today, they're valued at $24.9 billion, according to Bloomberg.

And, according to Larry Albukerk, a specialist at EB Exchange Funds who privately brokers shares of Facebook, the company occasionally trades at an even higher valuation. "There are very larger, sophisticated institutional investors who are buying at a $30 billion valuation," he recently told MSN Money.

The volatility of the private market

Those are big swings, but Facebook investors are all too familiar with such volatility. When Microsoft (MSFT) took a $240 million stake in the company in October 2007, it was valued at $15 billion – the same valuation it had in early 2008 when Hong Kong billionaire Li Ka-Shing made the second of two $60 million stakes. But by 2009, Facebook's value had dropped. A $200 million stake made by the Russian technology firm Digital Sky Technologies in May 2009 put the company at a valuation of roughly $10 billion.

So are private investors getting overzealous in their assessment of the company or will these large stakes prove as lucrative as they were for Google's earliest investors? With 500 million subscribers, Facebook already owns a quarter of the world's Internet users. Yet, as the financial community learned with YouTube, having a gaggle of users is only one part of the equation.

Facebook will probably be able to monetize its user-base more efficiently in coming years as its business strategy shifts, says eMarketer analyst Debra Aho Williamson. Although half of Facebook's current growth comes from the blockbuster success of its self-serve ad platform, its future lies with big-brand advertisers who want to reach customers through Facebook and are willing to pay higher CPM rates (cost per thousand page impressions) than the current platform delivers. Procter & Gamble (PG), the world's largest advertiser, continues to take a significant interest in Facebook, and other big brand names will likely follow.

Secondly Facebook will soon see a significant uptick in user-growth through international markets, which is key in making the overall platform very attractive to brand advertising.

Finally, despite the company's massive customer base, it's still far outpacing Google's growth in users. According to recent estimates, Facebook grew its user-base by 150% in 2009 versus Google's 40% growth based on similar metrics.

Even if Facebook doesn't substantially raise its revenue per user in the immediate future, that staggering user growth by itself justifies a valuation of nearly $50 billion over the next several years. Facebook is expected to earn nearly $1.8 billion in revenue in 2011 and that's based on a projected 600 to 700 million users. Google currently trades at a $150 billion market capitalization and the only thing standing between Google and Facebook is Google's revenue per user. If Facebook figures out a way to command similar revenue per user rates as Google, the company could potentially be worth upwards of $150 billion.

It almost doesn't matter exactly when Facebook's business model meets its full potential – it is certain to have a welcome reception whenever it decides to go public. What investors will likely see on Facebook's IPO is a rally not seen since Google's IPO. Many investors missed out in getting ahead of Google's meteoric stock surge, and Facebook will give investors a second opportunity to participate in a blockbuster IPO.

'Vultures' Save Troubled Homeowners

Wall Street Journal

By JAMES R. HAGERTY


Anna and Charlie Reynolds of St. George, Utah, were worried about losing their home to foreclosure last year. Then they got a lucky break—from an unlikely savior.

Some investment funds are emerging as the best hope for millions of U.S. households, like the Reynolds, above, who were behind on their mortgage payments. James Hagerty discusses. Also, Anupreeta Das and Liam Denning talk about BHP's $38.6 billion hostile bid to buy Canada's Potash, a bid that Potash's management called 'grossly inadequate.'

Selene Residential Mortgage Opportunity Fund, an investment fund managed by veteran mortgage-bond trader Lewis Ranieri, acquired the loan at a deep discount and renegotiated the terms with the Reynolds. The balance due was cut to $243,182 from $421,731, and the interest rate was lowered. That reduced the monthly payment to $1,573 from $3,464, allowing the family to stay in their home despite a drop in Mr. Reynolds' income as a real-estate agent. "It was a miracle," says Ms. Reynolds.

But Mr. Ranieri isn't your typical miracle worker. As a fund manager who was once vice chairman of the bond-trading firm Salomon Brothers, he's a member of the Wall Street crowd that is often pilloried for helping inflate the housing bubble, though he sat out the excesses of recent years. The 1989 book "Liar's Poker" made him famous for billion-dollar trades in mortgage bonds and junk-food "feeding frenzies" with his trading-desk buddies.

“Good for the vultures. Like the real bird, they serve a purpose in the financial ecology, like it or not. Ugly as some might think they are, they are doing a better job cleaning up the detritus than our federal government. ”

—Edward Berry.



Borrowers less lucky than the Reynolds family must work with middlemen—loan-servicing firms that don't actually own loans, but represent banks and investors, and collect mortgage payments on their behalf. These firms follow often-ambiguous rules set by the owners of the loans. In cases where a loan has been bundled into a security, it might have thousands of owners scattered around the world, making it impossible to know all their preferences.

By contrast, Mr. Ranieri's Selene is the sole owner of its loans and has a servicing affiliate that can negotiate directly with borrowers. "Every case is individual," Mr. Ranieri says. "There's no template."

But the main reason Mr. Ranieri can strike deals with borrowers is that his firm buys loans, mostly from banks, at steep discounts to the balance due. If his fund pays $50,000 for a loan with a $100,000 balance due, for example, it can make a profit even if the borrower ends up paying back only $70,000.

Since mid-2007, nearly 3.4 million households have received loan modifications, according to industry data from the Hope Now alliance of loan servicers. But the group doesn't disclose how many of those borrowers have fallen behind on payments again. Many of the loan modifications granted in the early months of the default crisis didn't reduce payments for the borrowers and merely helped them catch up on arrears; some of those modifications resulted in higher payments.

Cutting the loan balance is one of the most effective ways to motivate borrowers to resume payments because it gives them more hope of eventually owning the home, say nonprofit groups that work with distressed borrowers. But analysts say banks have been reluctant to reduce principal, partly because that would require them to recognize losses they still hope to avoid. Their modifications almost always involve reducing the interest rate or giving the borrower more time to pay.

Around 90% of Selene's loan modifications involve reducing the principal, compared to less than 2% of the modifications done by federally regulated banks in the first quarter.

"There are obvious inconsistencies in treatment [of borrowers] depending on who owns and services the loan." says Edward Delgado, a former Wells Fargo & Co. executive who is now chief executive of Five Star Institute, a provider of training programs for mortgage professionals. To some extent, he says, "it's the luck of the draw."

But only the lucky few have so far benefited from Selene or other distressed-debt investors. Selene, which owns about $1 billion worth of home mortgages, will say only that it has modified "thousands" of loans, a drop in the bucket among the millions of overdue mortgages. Many loans are locked up in securities and thus unavailable for sale. In other cases, owners of loans aren't willing to take the losses that would be needed to mark down the mortgages enough to lure buyers like Selene.

Over the past two years, less than $25 billion of delinquent mortgages have been sold to investors who specialize in this area, estimates Dwight Bostic, a managing director of Mission Capital Advisors, which advises investors on mortgage transactions. That is only about 0.25% of U.S. home loans outstanding. But Mission Capital executives say the number of loans sold is likely to grow in this year's fourth quarter as banks try to clean up their books before year end. Some banks have more bad loans to sell because they have had to buy back from Fannie Mae and Freddie Mac mortgages that didn't meet quality standards.

Selene buys loans to make a profit on them, not as a public service, but company officials say it is often more profitable to keep the borrower in the home than to foreclose. If a delinquent loan can be turned into a "performing" loan, with the borrower making regular payments, the value of that loan rises, and Selene can turn around and either refinance it or sell it at a profit. Mr. Ranieri declines to discuss the fund's performance. But one of the shareholders, the Public Employees Retirement Association of New Mexico, reported that its holdings in the fund had a market value of $19.8 million as of June 30, up from $18 million in late 2008. That excludes distributions of profits to shareholders in the funds.

Once Selene acquires a loan, the firm immediately tries to contact the borrower, sometimes sending a FedEx package with a gift card that can be activated only if the borrower calls a Selene debt-workout specialist.

Paul Cheatham, a Houston oil-field engineer with two children, says he was worried about payments rising on his adjustable-rate mortgage and so was eager to talk when he got a registered letter from Selene saying it had acquired his loan and might be able to help. He says Selene was able to arrange lower payments and a fixed interest rate for him within about a month. "They helped me out," says Mr. Cheatham, who had fallen behind on payments because of a drop in income. Selene reduced his balance by $16,000, to $80,000, and his monthly payments to $541 from $831.

Selene says it's able to keep about half the borrowers it deals with in their homes through a refinancing or modified loan terms. Sometimes the company gets creative, paying off other debts, such as car loans, to lower a borrower's overall debt load enough to qualify for a refinancing. In roughly 20% of cases, the home is sold without a foreclosure in a so-called short sale for less than the balance due.

As for the remaining 30% or so of cases—their luck runs out when Selene proceeds with foreclosure. The company says some borrowers can't afford their homes, even at the reduced terms the fund would be willing to offer.

One reason Selene has the leeway to help borrowers is that it generally bypasses the federal government's $50 billion Home Affordable Modification Program, or HAMP. The program offers financial incentives to lenders and servicers to modify loans. When President Barack Obama announced HAMP 18 months ago, the program raised hopes among millions of borrowers. As of June 30, however, only about 389,000 households were benefiting from long-term reductions in payments under that program, and 364,000 were in "trial" periods, trying to qualify by showing they could make reduced payments.

Critics say the program is overly complex, unwieldy and revised so often that servicers have a hard time keeping up with the latest requirements for modifications. The Treasury Department blames servicers. They "have done a terrible job of making sure that they are doing everything they can to meet the needs of their customers who are facing the possibility of losing their home," Treasury Secretary Timothy Geithner told a congressional panel in June.

Nonprofit counselors who help homeowners say far more borrowers have either failed to qualify or given up than have actually received modifications. Some borrowers have spent more than a year trying to find out whether they qualify.

Among those whose future is uncertain are Alberta and Arthur Bailey, who live in a bungalow in LaPlace, La. Mr. Bailey, 69 years old, worked for decades in an auto-body shop but retired after a stroke in 2002 and now needs a cane to get around.

Tiffany Brown for the Wall Street Journal

Selene bought and modified Anna and Charlie Reynolds' home loan.

The Baileys bought their bungalow in 2003 and hoped to spend the rest of their lives in it. In 2004, Mr. Bailey got a call from a loan officer from Countrywide Home Loans, now part of Bank of America Corp. The loan officer told the Baileys they had $33,000 of equity in their home and could refinance the loan in a way that would release some of that money. They used the money to repair the roof and install new doors, Mr. Bailey says.

The Baileys ended up with more debt than they could handle on their income of $1,600 a month in Social Security payments, plus food stamps. Help, however, has yet to arrive. The mortgage ended up as one of hundreds of mortgages owned by investors in a series of securities. Alexa Milton, a manager at Affordable Housing Centers of America, a nonprofit group counseling the Baileys, determined that they qualified for HAMP. But, she says, the servicer of the loan, Litton Loan Servicing LP, told her that the rules governing the securities don't allow for a HAMP loan modification.

A spokeswoman for Bank of America, which now owns Countrywide, the original issuer of those securities, disagrees, saying that the rules would allow a HAMP modification. A Litton spokeswoman declines to comment. A person familiar with the situation says Litton believes that the rules are ambiguous and so a modification would subject the servicing firm to the risk of lawsuits by the owners of the securities.

Litton has held off on foreclosure while studying other means of reducing the Baileys' payments, currently about $750 a month. "If I can get it down to $500 a month," says Mr. Bailey, "I can make it."

Write to James R. Hagerty at bob.hagerty@wsj.com

An Overnight Hollywood Success 8/16/2010 7:02:38 PM

Coinstar's DVD rental group has risen from nowhere to become a major film player -- and the story's not over yet.

Fannie conference sees call for subsidy reduction

By Ronald D. Orol, MarketWatch


WASHINGTON (MarketWatch) -- Participants at a housing finance conference Tuesday largely agreed that subsidies for housing need to be reduced but not eliminated even as they disagreed on how far government assistance to the mortgage market should be curtailed.

The gathering Tuesday comes in the wake of the near-nationalization of Fannie Mae and Freddie Mac at the peak of the credit crisis in 2008. So far, the mortgage giants have cost taxpayers roughly $145 billion in funds, used to cover their losses, with more losses expected on the horizon.

Nonetheless, most new mortgage loans are guaranteed by Fannie Mae /quotes/comstock/11k!fnma (FNMA 0.36, -0.01, -1.88%) and Freddie Mac /quotes/comstock/11k!fmcc (FMCC 0.40, -0.01, -1.25%) and the Federal Housing Administration.

U.S. Treasury Secretary Tim Geithner, fourth left, participates in the Obama administration's Conference on the Future of Housing Finance in the Cash Room of the Treasury Building in Washington, August 17. With Geither are (L-R) PIMCO's William Gross, Bank of America's Barbara Desoer, National Urban League's Marc Morial, New York University's Ingrid Gould Ellen, American Enterprise Institute's Alex Pollock and the University of Pennsylvania's Susan Wachter.

U.S. Treasury Secretary Timothy Geithner and the vast majority of the participants at a gathering on the fate of Fannie and Freddie decided that no matter what structure will emerge - and dozens of different approaches are being considered - the government would offer some type of federal guarantee of mortgage securities to buyers in the market for a fee. Read Geithner's remarks.

Some participants called for a significant continuation of the guarantee program, while others called for a transition to a system where the guarantee should only kick in to cover catastrophic losses.

Ingrid Gould Ellen, professor of Urban Planning and Public Policy at New York University's Wagner Graduate School of Public Policy, said that the government should set up such a "catastrophic loss" guarantee where private investors take the first set of losses before the guarantee kicks in. In one scenario, investors would take the first 5% of losses when a high quality pool of mortgage securities fails, while the government guarantees the other 95% of the package. She argued that over time the catastrophic guarantee would cover a smaller share of the market, as the private sector increases its share.

"Private-market insurers, securitizers would cover the first losses and all of their capital would be at risk, and you might even require, for instance, that there be -- that private mortgage-backed securities stand in front of the -- of the guaranteed bonds to provide a further cushion on losses," Ellen said. "We certainly want to begin to ratchet down the public involvement, and we want to begin to ratchet down, over time, the limits on the government programs so over time that this sort of catastrophic guarantee would cover a smaller share of the market."

However, Bill Gross, manager of the world's biggest bond fund at Pacific Investment Management Co., said he favored the creation of one national agency that would impose a broad government guarantee. Gross said that without government guarantees, mortgages would be hundreds of basis points higher, resulting in a moribund housing market for years. He added that PIMCO would not buy a privately insured mortgage pool unless it was made up of mortgages that each had at least a 30% down-payment, an amount that is unachievable for most first-time borrowers.

"The concept of guarantees is crucial to the liquidity and to the cost of home financing; it lowers it. It is the ultimate liquidity provider and the lowest cost provider," he said. "PIMCO advocates a hundred-percent public finance, with government guarantees that are protected by adequate down payments, obviously, and sufficient insurance premiums."

However, Alex Pollock, fellow at the American Enterprise Institute, argued that the bulk of mortgages should be private and the government should phase out much of its guarantees.

"The way we get there is by ratcheting down the limits for all the government guarantees; that is, for Fannie, for Freddie and the Federal Housing Administration," Pollock said.

Marc Morial, president of the National Urban League, indicated that he was concerned about what impact a reduced reliance on government guarantees would have on the flow of credit to homeownership in the U.S.

"One thing I don't want is a system where homeownership is available to a few, where underwriting rules require 35 % down-payments, where only some Americans can afford a home -- and then we create a class of renters," he said "What impact does the design of the guarantee have on the objective of improving and increasing the flow of credit in homeownership in this country."

Ronald D. Orol is a MarketWatch reporter, based in Washington.

Banks Should Let More Homeowners Refinance: Adviser

Published: Monday, 16 Aug 2010

By: Michelle Lodge

Special to CNBC.com

Banks should allow homeowners who are deeply in debt but are current on their mortgage payments to refinance without documentation, an investment adviser suggested on CNBC Monday.

A Prescription for Recovery

The reasons behind the slowed growth in the economy, with Doug Dachille, First Principles Capital Management CEO.

“If you’ve demonstrated a track record of paying your mortgage consistently, not late, on time, for the past 24 months, we’re going to re-fi you without documentation, without looking at an appraisal, we’re just going to lower your mortgage rate,” said Doug Dachille, CEO of First Principles Capital Management.

Dachille, formerly president of Zurich Capital Markets and global head of proprietary trading for JP Morgan [JPM 37.48 -0.21 (-0.56%) ], acknowledged that if banks became more flexible in their lending practices toward homeowners, it would would upset investors of mortgage-backed securities. But he added that those investors have reaped the financial rewards of the Federal Reserve's policy of mortgage-backed securities to help keep interest rates low.

“Mortgage-backed securities investors have gotten a benefit from something that was unprecedented too,” he added. “And that was that the Fed was buying $1.25 trillion (of mortgage securities) at a time when people couldn’t re-fi, driving up the price to historical levels.”

Dachille said the Fed policy has failed to benefit those it intended to help—the borrowers. He added that some homeowners can't refinance, which would make it easier to repay their loans, because banks require proof from documentation like income and bank statements. Dachille said that many homeowners got the mortgages initially without documentation.

“It’s frustrating to look at a 3.5 percent mortgage rate,” he added, “and have no one able to take advantage of it.”

The government already has spent billions on helping troubled homeowners, including $3 billion in aid to unemployed homeowners announced last week. Meanwhile, US mortage rates continue to hit record lows, helped by plunging Treasury bond yields and the Fed's pledge to continue buying up government debt.

Dachille's suggestion came a day before the US Treasury Department will host a summit on overhauling Fannie Mae and Freddie Mac and the troubled mortgage market, which accounts for about 15 percent of the country's economy.

© 2010 CNBC.com

Mortgage eligibility at heart of Fannie, Freddie debate

Aug. 16, 2010, 4:40 p.m. EDT · Recommend · Post:

Policymakers to square off over future of Fannie and Freddie on Tuesday

By Ronald D. Orol, MarketWatch

WASHINGTON (MarketWatch) -- Policymakers in Washington discussing the future of Fannie Mae and Freddie Mac on Tuesday are set to battle over the kinds of mortgage securities that should be eligible for government guarantees -- a clash that could mean hundreds of dollars a month in additional payments to those with loans that don't get Uncle Sam's backing.

"One reason you need a federal guarantee is to keep mortgage rates in the 6% range that they have been in the past," said Paul Leonard, vice president of government affairs for the housing policy council at the Financial Services Roundtable.

Currently, most new mortgages are guaranteed by Fannie Mae /quotes/comstock/11k!fnma (FNMA 0.37, -0.01, -1.87%) and Freddie Mac /quotes/comstock/11k!fmcc (FMCC 0.40, 0.00, 0.00%) and the Federal Housing Administration while the Federal Reserve has purchased $1.1 trillion in agency mortgage securities as a means of propping up the market and keeping loan rates affordable. See separate story on FHA loans.

The two mortgage giants were essentially nationalized at the peak of the crisis in 2008 to avoid losses and stem the credit contagion. So far, they've cost taxpayers roughly $145 billion in funds, used to cover their losses, with more losses expected on the horizon.

Replacing Fannie and Freddie

MarketWatch's Alistair Barr explains how a replacement for Fannie Mae and Freddie Mac might work and what's at stake, including the value of your home.

Many Washington legislative observers argue that no matter what structure will emerge - and dozens of different approaches are being considered - the government would offer some type of federal guarantee of mortgage securities to buyers in the market for a fee.

Treasury Secretary Timothy Geithner said he supports a federal guarantee though he hasn't provided many details about how it would work except to say that it should ensure that U.S. borrowers could easily finance the purchase of homes even in a deep recession.

Assuming that policymakers agree to permit some form of government backstop, a battle is expected to ensue over the quality of mortgages that the successors to Fannie and Freddie will be permitted to guarantee. The quality of mortgages that could be guaranteed will be subject to debate at the Fannie and Freddie conference.

"There will be a big fight in Congress about what constitutes a quality loan that would qualify for a federal guarantee," said Mark Calabria, director of financial regulation studies at the CATO Institute in Washington.

Calabria said some conservative lawmakers such as Sen. Bob Corker (R., Tenn.) are likely to seek legislation that would only permit guarantees of securities made up of the highest quality fixed, 30-year-mortgages with significant down-payments and strong borrower credit scores.

Meanwhile, Ted Gayer, fellow at the Brookings Institution in Washington, contends that Democrats will be under pressure both from the housing lobby and consumer advocates to give government guarantees for higher risk mortgage pools with lower borrower requirements, in part, to promote homeownership among lower income Americans.

"The right would say they will go deeper into high risk pools to promote home ownership among subprime borrowers," he said.

Calabria added that Democrats are likely to push to ensure that the future mortgage giants don't guarantee loans that have prepayment penalties; a provision in some mortgage contracts that in the event a borrower pays off a loan early they will pay a penalty.

One possible way of trying to deal with the dispute is for mortgage investors to be charged higher guarantee fees for riskier pooled mortgages and lower fees for plain-vanilla mortgage securities, Gayer said.

"If there are more subprime securities in the loan [pool] there would be a higher guarantee fee," Gayer said. "Lower fees would be for pools made up of mortgages with 30-year-loans with 10% down payments."

Lawmakers also expected to disagree over whether a limit should be placed on the dollar-figure size of each mortgage in the pool that could receive a guarantee.

FSR's Leonard said that the size cap for loans that will become approved for federal guarantees are expected to be lowered over time, limiting the kind of risk involved. Currently, he added that big and small loans are permitted to be purchased by Fannie and Freddie as part of the government's continued effort to stabilize the housing market.

Calabria said he would prefer that Fannie and Freddie be permitted to buy long-term mortgages with payments of at least 20% of the home's purchase price, but he added that it was unlikely lawmakers would agree to such a restriction.

"The industry is going to fight any onerous down-payment requirement, but people like Senator Corker are going to try to counter that pressure," Calabria said.

FSR's Leonard said he expects to see tighter underwriting standards for mortgages that could receive a government guarantee when they are pooled into securities. He expects that acceptable loans will be traditional, fixed, 30-year-mortgages with some sort of down payment requirement. Borrowers would be required to document their income, he added.

Reform is still a long ways off. The Obama administration is still in the early stages of identifying its own proposal, which is due for Congress to consider in January. After that, legislative efforts to reform the mortgage-giants would expand.

Ronald D. Orol is a MarketWatch reporter, based in Washington.

Condo Buyers Find Escape Clause

Court Ruling in Manhattan May Help Unhappy Owners to Break Purchase Deals.
Text By CRAIG KARMIN

A decades-old federal law initially intended to reduce fraud in sales of Florida swampland was applied for the first time to help dissatisfied buyers of Manhattan condominiums.

A federal judge in Manhattan ruled on Tuesday that a company controlled by property developer Africa Israel, a unit of Israeli-based AFI Group, had to return deposits to three buyers of condos in a downtown apartment building because of inadequate disclosure in the condo's offering plan.

The judge referred to the obscure federal law known as the Interstate Land Sales Full Disclosure Act, or ILSA, as the basis for allowing the three buyers of units at 111 Fulton St. to get out of their contracts and receive refunds on their deposits.

Mustafah Abdulaziz for The Wall Street Journal

Condo buyers at 111 Fulton St., above, won their case in federal court.

Officials at Africa Israel didn't respond to calls seeking comment.

Judges in other states have cited ILSA when ruling on behalf of home buyers but lawyers say this decision marks the first time in New York that a developer hasn't prevailed in an ILSA case.

The ruling comes at a time when hundreds of New York condo buyers have been trying to escape contracts signed around the market's peak and whose units have since fallen significantly in value.

Lawyers have pored through piles of documents and arcane laws in an effort to find something that would enable buyers to invalidate their contracts. Starting in early 2009, many buyers have based their cases around interpretations of ILSA. Some attorneys suggest that Tuesday's ruling could make way for pending cases and new appeals based on the act.

"It's quite significant," says James Schwartz, partner at Mitchell Silberberg & Knupp, a New York law firm not involved in the case. "It opens the door for wholesale use of the act to get out of contracts."

U.S. District Court Judge George B. Daniels ruled that the developer failed to comply with ILSA, which requires that buildings with more than 100 units provide buyers with documents that include a long list of disclosure details, from information about the condo association to zoning regulations.

If the developer fails to meet the disclosure requirements, buyers under the act have the right to tear up their contracts and receive refunds on their deposits within two years of their contract signings.

In previous New York cases, developers have argued successfully in court for exemptions from ILSA, such as saying that even though their buildings were marketed as having more than 100 units, fewer than 100 were actually sold. The law was initially intended to protect consumers from fraud on sales of Florida swampland and Arizona desert land.

Mustafah Abdulaziz for The Wall Street Journal

The Fulton Street building

.Bruce H. Lederman, an attorney with D'Agostino, Levine, Landesman & Lederman who has represented developers in other ILSA cases, says that Tuesday's ruling wouldn't have a far-reaching effect. "The judge decided that the very specific language of that condo offering plan did not qualify for exemption," he says.

But Lawrence Weiner, a Wilentz, Goldman & Spitzer attorney who represented the buyers in the case, said developers had sometimes said that ILSA does not apply to high-rise condonimums. "This case reconfirms that it does apply," says Mr. Weiner. He added he has about nine pending ILSA cases related to New York buildings, involving more than 50 purchasers.

He is also appealing two other ILSA-related cases, one in Harlem and one in Long Island City, where the court ruled on behalf of the developers.

Recent federal court rulings in Virginia and Florida that sided with buyers in ILSA cases had given hope to New York lawyers working with condo owners that their state would follow the same logic. "Even though it's a different jurisdiction, the ruling was persuasive and supports the purchaser," Mr. Weiner said of the Virginia case.

The 163-unit Fulton Street building began selling condos in June 2007, and three condo owners in the case signed contracts in 2007 and 2008. Their combined deposits totaled about $300,000, and the purchase price of their apartments ranged between $800,000 and $1.485 million, court documents said.

Africa Israel is headed by Lev Leviev, an Uzbekistan-born diamond merchant who immigrated to Israel and in recent years has bought up trophy properties in Brooklyn and Manhattan. That includes the historic Apthorp on the Upper West Side which is being converted into a high-end condo from a rental.

Write to Craig Karmin at craig.karmin@wsj.com

Realty Check

Airtime: Thurs. Aug. 12 2010

11:31 AM ET

Total foreclosure filings in July rose 4%, but they are still down 10% from a year ago. CNBC's Diana Olick has more on this and other real estate headlines.

21 new properties to our listings!

We just added 21 new properties to our listings. Thank you team! Excellent work. We will continue putting in the effort.

Houses That Make Their Own Energy

Divine Help For Home Sellers?

Published: Tuesday, 3 Aug 2010 1:02 PM ET By: Jane Wells

CNBC Correspondent

There's a lot of funny business out there, ideas which don't always make sense. Some of them are intentionally half-baked and could, if brought to fruition, create chaos. Like the bluetooth earpiece made in the shape of a gun. A bad idea. A really, really bad idea.

Saint Joseph Homer Seller Statue Kit

Source: amazon.com

Then there are the ideas which may seem silly to some, but have merit to others.

Like burying a statue of St. Joseph in your yard to quicken the sale of a home.

Catholics and non-Catholics say it works.

Some realtors swear by it.

One even wrote a book called "St. Joseph, My Real Estate Agent: Patron Saint of Home Life and Home Selling", where realtor Stephen Binz argues that "seeking Joseph's intercession is not a superstitious act, but a devotional one." Who better to help someone facing foreclosure than a man forced to leave his home for the census and who later vacated it again to avoid Herod? (Yes, I went to Sunday School.)

Well, here's a revelation. This is a housing debacle of nearly apocalyptic proportions.

Even Heaven may not help us.

St. Joseph statues and "home seller kits" are suffering price cuts on Amazon.com (though not the "Eco Joe" statue made of earth-friendly clay--that's still full price).

The product reviews reveal that while some sellers credit the statue and prayers with finally getting a home sold, not everyone is a believer.

"In no time I started getting numerous walk-throughs and bids on my home," writes "M" on Amazon about the statue she bought and buried. "Jackpot! I was able to sell my house quickly and for a goodly profit. I even donated 10% of my increase to a local church to show God my gratitude."

J. Hokett was also impressed. "House had been on the market for 7 months and got an offer within 1 week of this statue's arrival."

On the other hand, J. Schleier is still waiting. "I first tried (burying the statue) by the sales sign, nothing. I then moved it to the backyard, facing the house, upside down. It is not working. Someone told me to dig him up, bath him in salt water and return him. He is not soaking in salt water. It has been 7 months and nothing on my house which is priced below market value. Oh well!"

S. Hartwell wrote, "I bought and buried this statue in Oct 2009 a little over a month after I put my house up for sale. Needless to say I'm still waiting!! I know it's a slow market but..... "

Finally, JustMe's review illustrates that to every thing there is a season. "It hasn't worked yet.. but I will keep faith, that house is gonna sell, it will, I tell ya."

With faith like that, you don't need anything else.

Questions? Comments? Funny Stories? Email funnybusiness@cnbc.com

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