November 2007 Charleston Market Report

8/9/2019 November 2007 Charleston Market Report

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November 2007 Commentary

"Oh My Head I Don't Even Remember The Party Last Night. Ooh! Who Is This?"

Happy Veterans Day!I read that 25% of all homeless are Veterans. Why doesn't our government take care of these Vets???

Hello everyone. We truly live in interesting times. I appreciate all the kind comments I have been receivingfrom many local subscribers who know me and really like The Charleston Market Report. I do not relishreporting all this bad news each month and wish I had better news to deliver since I am a postive guy.Unfortunately, "What is is." Somebody has to report the truth and reality out there so it might as well be me.Many people in our industry will not do this because they are afraid of someone getting mad about what theysay and they will lose business. I have already been through that scenario so I frankly do not care what other

people think. I have a strong desire to clear away the Smoke and Mirrors of Real Estate and Wall Street so youcan protect and build wealth for you and your family.

BTW, the Q3-2007 has finally been posted on the website if you want to take a look. Just go to the website.

You will also notice some advertising I have placed above on the left side. I wanted to let everyone know that Ido Custom Consulting and Market Monitoring for real estate. I have never really advertised this consultingservice in the past. I have done a number of feasbility studies and private appraisals (NO BANK APPRAISALS) for clients over the past year. You may ask what makes my consulting different than what other professionals provide. Then answer is trend analysis. 99.9% of the appraisers and consultants do not use TrendAnalysis in their reports. In my opinion this is critical information in any real estate analysis report that most of

you are not getting. I have a unique background in real estate, finance, appraisals, the stock market andtechnical analysis that provides data and analysis you will not get anywhere else. This service can be done inmost real estate markets around the country. Call or email me for more info if you are interested.

Now I know many of you are forwarding this newsletter to clients or friends. If you have a website and want tolink to The Charleston Market Report be my guest. I have heard from many real estate agents that the info inthis report helps their relationship with their clients because it puts them on the same page with the cuurentevents and market conditions in Charleston and around the country. The best way to forward the newsletter is toscroll down to the bottom of the newsletter and click on "Forward to a friend."

The best way to get this newsletter is to simpy subscribe. I keep all emails confidential and usually only send



out 1 email per month.

The Cartoon I think the cartoon above sums up the current scenario perfectly in real estate and Wall Street. Now I know wehave some former "Players" who read this report. Remember in college or your "player" years when you gotreally drunk and had a blast dancing all night in the bars? Then you suddenly find yourself on the dance floor with a young lady who you think is hot and you have a great time all night. Now, ladies this scenario could goeither way ok. Then one thing leads to another and you go home together and you wake up the next morningwondering what happened last night, your head is pounding and you wonder who the hell is sleeping next toyou. Then when you take a look that person does not look as hot as you thought when you were drunk and you just want to get out of his or her place as fast as you can. Well, this is how Wall Street feels about securitizingloans right now. They wish they had never gotten in bed with Ms. Mortgage as the writedowns mount each dayand clobber their stock prices. Just ask Stan O'Neil from Merrill Lynch or Chuck Prince from Citigroup. They

lost their jobs courtesy of Ms. Mortgage.



The party was great while it lasted but thehangover really hurts. There is truly not enough Advil in the world to go around for all the Wall Street firms andBanks who banked so much of their money on the inflated housing market. Sorry fellas because this hangover isgoing to last a while and Ms. Mortgage just looks uglier and uglier each day. I will say there is going to be oneheck of a financial rally in the near future as this sector bottoms out. There will be some fantastic companies on

sale via the NYSE.

The Appraisal Industry and Lendron Last week New York Attorney General Andrew Cuomo sent a shock wave throughout the lending and appraisalindustry when he found a "pattern of collusion" between Washington Mutual and the appraisal unit of FirstAmerican Corp called eAppraiseIT. Cuomo also subpoenaed Fannie Maie and Freddie Mac to conduct a reviewof all WaMu appraisals and loans they purchased. I will tell you that Cuomo would not have subpoenaed any of these large coroprations without a smoking gun. Washington Mutual is the third-largest provider of loans toFreddie Mac, selling $24.7 billion in 2007, Cuomo said. It ranks 14th at Fannie Mae, with $7.8 billion of loansthis year. Click here for the Bloomberg article.

Below is the chart of WaMu imploding:

What is also interesting about WaMu is that last summer they fired their inhouse appraisers and vendors to shiftall of their work to the Appraisal Management Company, AMC, eAppraiseIT. I personally know the owner,Jonathan Miller, of one of the appraisal firms in Manhattan called Miller Samuel who lost business to thisWaMu decision. Miller Samuel is one of the top appraisal firms in the country. Why would WaMu eliminatewhat appeared to be a good risk management strategy of appraising properties via in-house and outsideappraisers? My only answer is GREED and STUPIDITY, which many finance companies have done such agreat job of demonstrating recently with past business decisions related to mortgages and housing. Maybe

WaMu was losing to many loans because their appraisers were doing their jobs and not inflating reports andactually cutting deals on overpriced purchases and refis.

Part of the problem in the real estate industry is that mortgage brokers usually work on a commission with their loans and the appraiser gets paid a fee. The mortgage broker probably averages around 1.5-2% per amount their client is borrowing and the appraiser normally gets paid $350 per appraisal. Obviously, the mortgage broker,who carries NO liability for originating inflated loans through their company, wants to push loans through thesystem so they get PAID. The appraiser who makes the least amount of anyone in this transaction can kill thesedeals if the data supports it. Their is enormous pressure placed on appraisers by some mortgage brokers to "hitthe number" so they can originate the loan and then sell it off to the secondary market (Wall Street) which will bundle various loans together in Mortgage Back Securities (MBS) and sell them to an investors. Many



appraisers will not go along with this pressure because the liability and reputation risks are so high.Unfortunately, in any business their are always those bad apples that can be bought and pressured to doanything for some extra cash and business. What is amazing about this case is that the appraisers are hired bythe banks/lenders to protect them from themselves. The last thing a bank or lender wants to do is have torepurchase inflated appraisals that show them forcing what are supposed to be independent appraisers intoinflating home values. If WaMu loses this case and is forced to repurchase these loans they are DONE, TOASTand will become BANKRUPT.

Now according to Tanta from Calculated Risk in the great article WaMu and The Rep War:

"Fannie Mae is saying that WaMu will take back any loans with dubious appraisals this "independent examiner" digs up. WaMu is saying that it will "rigorously" avoid doing so.

WaMu is also saying, in effect, that it signed a contract with eAppraiseIT that puts all liability for inflated appraisals on eAppraiseIT.

Fannie Mae is saying, in effect, that it signed a contract with WaMu that puts all liability for inflated appraisals

on WaMu.

This is very interesting precisely because it isn't going to be about inflated appraisals. It's going to be about how far anyone can get away with two practices that are the lynch-pins of the mortgage industry: outsourcing regulatory liability to a third party bag-holder and doing business on a representation and warranty basis

without pre-sale due diligence." In response to questions about whether he will charge other companies, the attorney general said hisinvestigation is continuing.

"The appraisal process is a systemic weakness, in our opinion, in the housing industry," Cuomo said. "This is a

case we believe is symbolic of an industrywide problem, a long-term problem." OUCH!!

Cuomo said a nine-month investigation uncovered numerous e-mails from senior executives at the companiesshowing that eAppraiseIT intentionally broke the law to win future business with Washington Mutual.

First American said the e-mails were taken out of context or mischaracterized.

"We get pressured every single day to inflate our values," said Dan Tosh, principal at Tosh & Associates, an

appraisal firm in Brentwood. "We get people telling us we'll never work again, or they won't pay us because we

won't play ball."

"This makes things such as Enron and WorldCom look small by comparison," said Ted Faravelli, executive

director of the California Association of Real Estate Appraisers and principal at San Jose's T.E. Faravelli &

Associates, an appraisal firm. "It was an epidemic."

In a nationwide survey released early this year, 90 percent of 1,200 appraisers said they had felt "uncomfortable pressure" to adjust property values. Mortgage brokers were named as the most common culprits, followed byreal estate agents, consumers, lenders and appraisal management companies. The increase in pressure wasdramatic compared with that found in a similar survey in 2003, when 55 percent of appraisers reported feeling pressured.

The real kicker with this lawsuit is that the way appraisals are currently done may have to revamped. I do nothave all the answers as to what the best way for the appraisal business to work. I think the way WaMuoriginally was managing risk via in-house and outside appraisers such as Miller Samuel was a much better



model than using an AMC exclusively. I believe AMCs are not any good for any of the bank and lenders. TheAMCs do a poor job of getting the most qualified appraisers the work and instead reduce the fees where oftenthe less qualified appraiser gets the work. There is no doubt this case will have a major impact on the appraisaland lending industry and we need to monitor it closely. If these types of cases spread to other states then thiswhole Lendron scenario may get even uglier. Stay tuned!

Souces:Bloomberg- http://www.bloomberg.com/apps/news?pid=20601087&sid=ajFo10xQYMd0&refer=home

Calculated Risk - WaMu and The Rep War http://calculatedrisk.blogspot.com/2007/11/wamu-and-rep-war.htmlMish's Global Economic Trend AnalysisWaMu Collapses Under Appraisal Probe- http://globaleconomicanalysis.blogspot.com/2007/11/wamu-collapses-under-appraisal-probe.htmlTanta on WaMu vs. Cuomo - http://globaleconomicanalysis.blogspot.com/2007/11/tanta-on-wamu-vs-cuomo.html

Charleston Real Estate Snapshot

I have circled in red what I like to look at in this snapshot of Charleston residential real estate. Clearly the worstsegment of the market is on the SFR high end (>$600k) right now. Sales are way down from a year ago andmonthly inventory has tripled. This is worse than the high end condo market! Obviously, the inability to getqualified and a good rate on a Jumbo loan is part of the blame. I just can not understand why so many investorscontinue to put out spec homes in this price range. These are not cheap mortgages while your home sits on themarket waiting and waiting and waiting to sell.

Tri-County

Single FamilyResidential

Less than $600,000



Tri-County

Single FamilyResidential

Greater than $600,000



Tri-County

Condo/Townhomes

Less than $600,000



Tri-County

Condos/Townhomes

Greater than $600,000

Disclaimer

The research done to gather the data in The Charleston Market Report involves examining thousands of listings. With this much data inaccuracies will occur. Care is taken in gathering and processing the data andinformation within this report is deemed reliable. IT IS NOT GUARANTEED. The real estate market iscyclical and will have its ups and downs. Past performance cannot determine future performance. The purposeof the Charleston Market Report is to educate you on current and consistent market conditions by reportingleading market indicators with the support of traditional real estate data.

This information is offered with the understanding that the author is not engaged in rendering legal, tax or other professional services. If legal, tax or other expert assistance is required, the services of a competent professional are recommended. This is a personal newsletter reflecting the opinions of its author. It is not a production of my employer. Statements on this site do not represent the views or policies of anyone other thanmyself.

Investing in real estate is not a get-rich-quick scheme nor is there any guarantee you will make a profit. Everyeffort has been made to make this report as complete and accurate as possible. However, there may bemistakes. Therefore, this report should be used only as a general guide and not as the ultimate source for making money in real estate.

Documents

November 2007 Charleston Market Report