Aaron Layman's Katy Texas Real Estate Forum

Fed Rides To Rescue With Rate Cuts On Dollar Swaps - A Cautionary Tale

Just as Bofa was about to get a 4 handle, The Fed comes to the rescue by cutting rates on dollar swaps and juices the market with more liquidity (fiat currency).  For anyone drinking out of the government sponsored punch bowl, today's rally in the markets should be taken with a grain of salt.  While the world may now be flooded with more devaluated U.S. dollars, Europe's debt problem has not been solved.

Logic will tell you that you can't solve a debt problem with more debt.  This is the fundamental problem facing Europe, and the world as a whole.  Goosing a broken system doesn't cure it; it only makes the crash that much bigger.  Jesse nailed the Fed action yesterday in closing market comments when he predicted as much:

"I think the major monetization is already occurring in the Eurodollar markets, and an ongoing stealth bailout of European debt, in order to save the big money center banks at home and broaden the reach of the Dollar.

And this is why the Fed stopped reporting on Eurodollars some years ago, as a component of M3. It was to pave the way for the monetary equivalent of a financial neo-con, to addict European governance to the US dollar and pave the way for a stronger position for the dollar as a one world currency.

I will be surprised if they do not try and rally stocks in the face of this to put the brave face on and whistle past the graveyard once again. This is what traders like to do when they have been caught offsides by the news. But they may not be able to sustain it without official help from the strong trading desks of the financial sector."

The Fed's latest ploy is no solution.  While it may buy another week or two, it doesn't solve anything.  It is government of the one percent, by the one percent, for the one percent.  These ridiculous manipulations of the market only harm the general population.  While the Fed may say otherwise, there is always a cost to American taxpayers when the Fed prints fiat money to bailout crony capitalists with the deliberate mispricing of risk.

Looking at a possible failure of a large European bank, the various central banks stepped in to provide life support to a flailing global financial system.  The markets were about to go into a coma, and this chart explains why.  Credit was freezing up big time.

The question people should be asking is just how bad things really are if the Fed and other banksters feel the need to intervene in this manner?  What happened after the last coordinated central bank intvervention?  ZeroHedge asked that very same question.  The sobering answer is food for thought.

 

 

Judge Rakoff Slams SEC's Citigroup Fraud Settlement

Judge Jed Rakoff apparently wasn't too fond of the SEC's latest settlement with Citigroup relating to securities fraud allegations with some of their shoddy CDO's.  Judge Rakoff smacked the proposed $285 million dollar settlement as a blatant hand-out to Citi by the SEC.  Citi was caught stuffing a fund with crappy CDO tranches and then betting against them, after they sold the fund to investors.  Sound familiar?

Rakoff had a few notable quotes in his 15 page ruling on matter...

Here, the S.E.C.’s long-standing policy – hallowed by history, but not by reason – of allowing defendants to enter into Consent Judgments without admitting or denying the underlying allegations, deprives the Court of even the most minimal assurance that the substantial injunctive relief it is being asked to impose has any basis in fact.

A large part of what the S.E.C. requests, in this and most other such consent judgments, is injunctive relief... The Supreme Court has repeatedly made clear, however, that a court cannot grant the extraordinary remedy of injunctive relief without considering the public interest.

As for common experience, a consent judgment that does not involve any admissions and that results in only very modest penalties is just as frequently viewed, particularly in the business community, as a cost of doing business imposed by having to maintain a working relationship with a regulatory agency, rather than as any indication of where the real truth lies. This, indeed, is Citigroup's position in this very case.

Finally, in any case like this that touches on the transparency of financial markets whose gyrations have so depressed our economy and debilitated our lives, there is an overriding public interest in knowing the truth. In much of the world, propaganda reigns, and truth is confined to secretive, fearful whispers. Even in our nation, apologists for suppressing or obscuring the truth may always be found. But the S.E.C., of all agencies, has a duty, inherent in its statutory mission, to see that the truth emerges; and if it fails to do so, this Court must not, in the name of deference or convenience, grant judicial enforcement to the agency's contrivances.

Covering up crimes with no admission of wrongdoing appears to be standard policy for the SEC, as noted by the New York Times.  They found 51 instances involving 19 different companies, where the agency claimed the company broke the laws they previously agreed never to violate.  Who would have thought these fair-minded corporations would continue to break the law when they never have to do jail time for previous crimes.  When it comes to the public interest, the SEC apparently has no interest at all.

Case Shiller - U.S. Home Prices Decline In Third Quarter

The Case Shiller home price index declined by 0.6% in the third quarter (3 month average of July, August and September.  Of the 20 metro areas covered, only Detroit and DC showed gains.  The index shows that prices are softening again in most U.S. markets, with prices down 3.6% from September 2010.

 

Michael Dell & Other Hedge Fund Managers Profit From FDIC Sponsored Fraud With OneWest Bank

This fascinating piece on the shared loss agreements created for One West Bank exposes involvement of some major players in the hedge fund industry, including George Soros, John Paulson and even computer mogul Michael Dell.  As part of their arrangement for taking over IndyMac loans, the new OneWest investors created a loss-share agreement with the FDIC whereby they profited handsomely for foreclosing on those loans which were purchased at a discount.  Essentially the investors bought the loans at a discount, but were reimbursed on a formula using the original loan amount thereby inflating the true loss on the loan.  Mish Shedlock offers this example of how the system worked.

The original loan amount was $500,000. Missed payments and other foreclosure costs bring the amount up to $550,000. At 70%, OneWest bought the loan for $385,000

The home is located in Stockton, CA, so its current value is likely about $185,000 and OneWest sells the home for that amount. Total loss for OneWest is $200,000. But this is not how FDIC determines the loss.

‘FDIC takes the $500,000 and subtracts the $185,000 Purchase Price. Total loss according to the FDIC is $315,000. If the FDIC is covering “ONLY” 80% of the loss, then the FDIC would reimburse OneWest to the tune of $252,000.

Add the $252,000 to the Purchase Price of $185,000, and you have One West recovering $437,000 for an “investment” of $385,000. Therefore, OneWest makes $52,000 in additional income above the actual Purchase Price loan amount after the FDIC reimbursement.

I've detailed before why short sales are notoriously difficult to close and should generally be avoided.  The prevalence of shared loss agreements with the FDIC is a large part of the problem.  Too many lenders/investors are gaming the system.  It's more profitable for the investors to foreclose than pursue short sales or modifications when the government is picking up the tab for reimbursements.  OneWest reportedly made $1.57 billion in profit in less than one year.

Surprisingly, there are now some 269 loss-share agreements backing some $160 billion of losses on bad loans.  According to this Sun Sentinel article, the payouts are expected to exceed $21 billion by 2014.  This comes at a time when the FDIC insurance fund is already $20 billion in the hole.

I've not been a fan of Dell computers for quite some time, but these latest revelations cast an entirely new perspective on the matter.  I'm even less of a fan of corrupt, greedy bastards who would game a system designed to protect struggling homeowners.

Banks Earned A Cool $13 Billion In Free Money From $7.77 Trillion In Federal Reserve Assistance

Huge surprise!... bank executives lied through their teeth while they were receiving massive government assistance.  As noted today in Bloomberg, major financial institutions were telling investors everything was rosy while they shoveled in below-market loans from the Fed to prop up their balance sheets.  Bank of America owed the governmnet $86 billion on November 28 2008, even as it touted it was "one of the strongest and most stable major banks in the world."

As it turns out, the banks raked in an estimated $13 billion in income by taking advantage of the Feds' generosity.  There's also the underpriced bank rescue insurance that's been estimated at roughly $300 billion a year for U.S. banks.  Call it money for nothing and government-sponsored credit default swaps for free.

What did the American public receive for their generosity?  A healthy crop of new bonuses for Wall Street and larger, more systemically dangerous financial institutions that continue to plunder the public coffers.  While grandma and grandpa have been getting squeezed by low savings rates and inflationary monetary policy, Wall Street is busy raking in the cash.  The six largest banks spent $146 billion on compensation in 2010, or an average of $126,342 per employee.

It appears nothing was learned from the crisis of 2008, and we've set the stage for another, even larger blow-up.  For what it's worth, Bofa was very nearly a $4 stock today, hitting $5.14 before closing at $5.25. 

New Home Sales In October At 307,000 (Seasonally Adjusted Annual Rate)

The Census Bureau reported October new home sales of 307,000, up from a downwardly revised 303,000 in September.  Inventory of new homes stood at 6.3 months of supply.  The combined total of completed new homes and those under construction is still tracking at depressed levels.  New home sales have averaged only 299,000 units SAAR in the 18 months since the expiration of the tax credit.

 

Katy ISD Releases Preliminary Recommendation For Attendance Boundary Modifications

Katy ISD released their preliminary recommendation for attendance boundary modifications affecting Woodcreek, Griffin, Stanley, and Kilpatrick Elementary, as well as Woodcreek Junior High.  The full report is now available for review.

Elementary 33 (Falcon Landing) will impact attendance zones at Griffin, Kilpatrick and Stanley.

Elementary 34 (Firethorne) will impact Stanley and Woodcreek.

Elementary 35 (Cinco Southwest) will impact Stanley Elementary.

Junior High 13 (Seven Lakes Campus) will affect Woodcreek Junior High.

Planned Community Madness In Cinco Ranch - Managment Companies Pile On The Fees When Buyers/Sellers Request A Resale Certificate

Imagine you've owned your home for four years, taking great pride in the curb appeal and overall appearance of your home, performing maintenance as needed and generally keeping things in tip top shape.  The time comes to sell your home, and your prospective buyers ask for a resale certificate from your Cinco Ranch association management.

Depending on whether you live in Cinco I or Cinco II, that could mean either PCMI or CIA Services.  Unbenownst to you, you fill out the appropriate form requesting the certificate since you know you've paid your dues on time every year.  As part of the resale certificate process, Cinco management also sends out an inspector, (although they won't provide the name of said inspector) and then they send you a notice containing the following language...

"The corner landscaping requires twenty-five 5 gallon size shrubs – there are none. Please
install twenty-five 5 gallon size shrubs."

"The front landscaping requires forty 1 gallon size shrubs – there are four. Please install
thirty-six additional 1 gallon size shrubs."

This is language is from an actual notice sent to one of my clients.  There were actually five other items listed on the notice, but these two were the most comical as they point to the absurd requests coming out of the Cinco Ranch compliance department.  I called the compliance assistant for CIA handling Cinco Ranch, and she would not provide the name of the inspector who visited the property.  One of her assistants only had this to offer:

"Thank you for your e-mail regarding the non-compliance your client received on their home. We do not provide our inspectors names as they are contracted by C.I.A. Services and not by the community."

The Addendum for homeowners associations relating to real estate purchase contracts will be changing next year, with the costs for those resale certificates shifting to the buyers.  This a long overdue change, because it will bring more attention to the overcharges by various management companies relating to the preparation of the HOA documents.

Instead of serving the residents of the neighborhoods they oversee, some management companies are tacking on unecessary fees for simple document preparation and inspections.  If you've paid your dues on time for years and maintained your home, you would think your HOA would be there to help you when it came time to sell your home.  If you live in Cinco Ranch, the operations of the compliance department call that assumption into question.

As a practicing real estate broker, I can appreciate the importance of deed restrictions.  I take a rather critical view, however, of abusive and counter-productive policies pursued under the guise of community management.

If CIA's inspectors stand behind their work,  you would think they would have no problem disclosing their names.  The fact that CIA chooses to keep their identities hidden speaks volumes about what they are doing and the lack of accountability they have to the homeowners they are supposed to be serving.

For all of it's many wonderful assets, the over-reaching compliance department of Cinco Ranch is certainly not one of them.  When Cinco's management companies flag perfectly nice, well-maintained homes for supposed non-compliance issues which have existed for years, they are practicing retro-active abuse of power.

I say this because the property in question was actually built in 2007, with the landscaping installed by Village Builders.  If the property was non-compliant, you would think the owner would have been told prior to purchase or at least within the first year of ownership.  You would be wrong in this case, because this is where the issue of resale certificates comes into play.  The order for the resale certificates is another opportunity for the management company to generate profits for the HOA by charging a few hundred dollars for the certificate, along with fees for inspections and re-inspections.

We're talking several hundred dollars in fees before you even get to costs for actually addressing the supposed compliance issues.  And if you are wondering, no, that does not include the $300 transfer fee for Cinco.  That transfer fee is on top of your certificate fee and inspection fees.  Such is the case when logic gets thrown out the window and planned community management becomes planned community madness.

Is your Cinco Ranch home compliant?  If you have to order a resale certificate, you may be surprised at the answer!

Updated 11-22-2011 - My clients receive a variance on their property after submitting various forms of evidence outlining the folly of the notice which was issued.  After doing some research and photographing various homes in the area, it appeared that none of the roughly 90 or so homes in this section would have met the guidelines requested by CIA.  While doing my research, I had the opportunity to speak with a few other homeowners as well, and they were not happy with the over-reaching hand of the HOA.

The builder/developer guidelines are meant to be just that, guidelines.  Sending an inspector to count plants and measure the caliper of tree trunks is utter nonsense.  I should also point out that the people performing the supposed compliance "inspections" have no objective way of determining a 1 gallon shrub from a 5 gallon shrub which is planted in the ground.  Plants grow differently depending on soil conditions and other factors.  Unless the inspectors are going dig the plants up and check the root bulb, the whole exercise is a joke.

The point of the matter is that the HOA exists to protect property values and maintain a semblance of order in the neighborhood.  When the HOA attempts to retroactively apply updated guidelines to homes that are several years old, a compliance inspection should be a subjective matter.  Counting the numbers and sizes of plants is just plain nonsense.  More importantly, if the homeowner has been a member in good standing with no documented compliance issues, the owner should not be punished when they decide to sell their home.

It is my opinion that the resale certificates and inspections highlight the broader problem with HOAs, in Texas.  When given the opportunity to overcharge for unnecessary services, the HOA will error on the side of revenue.  Cinco ranch is approaching a 1000 sales per year.  That translates into $175,000 of revenue generated by the resale certificates averaging the cost of Cinco I and Cinco II ($175 per certificate).  That doesn't even take into account the subsequent inspection fees which may be piled on as well.  In addition, owners are also paying $300 in transfer fees on top of the certificate fees every time a home is sold.  That translates to almost half a million dollars in fees generated by the Cinco Ranch HOAs every year due to transfer of ownership!

I have a simple suggestion for the Cinco Ranch HOA.  Why not lower the cost of the resale certificates to $50, and do away with most of the "compliance inspections" altogether.  The certificates only take about 15 minutes to prepare, and most of the inspections are unnecessary.  HAR MLS guidelines stipulate that listings must contain a minimum number of photos, and almost all listings contain photos of the front and exterior of the home.  For recent listings, a simple HAR search would tell the management company whether the owner is maintaining the yard.  If a drive-by is needed, those visual inspections only need to take a minute or two.  Getting out and measuring plants is a waste of time and money for the HOA and the homeowner.

The planned community folly in Cinco Ranch and other master-planned communities in Texas highlights the need for further reform in the industry.  When it comes to HOA's in Texas, you are presumed guilty until you prove otherwise.  That needs to change, and until it does, homeowners will likely continue to deal with unaccountable companies and individuals wasting their money.

Nevada AG Indicts LPS Employees For Robo-Signing

Is the wheel of justice beginning to turn?  Perhaps so, as Nevada AG Catherine Cortez Masto has just handed down 606 counts against two employees of Lender Processing Services for their involvement in robo-signing.   While the two employees charged are mid-level players, Masto's office has said they will follow the trail as far as it goes.

Yves Smith makes a salient point regarding the current turn of events:  "When you throw your capital into the hands of people who have no incentive to use it wisely, the economy suffers. When you enforce the rule of law, sound business models prevail and ordinary citizens have more confidence in the system and spend and invest accordingly. As an economic policy, justice works." 

Number Of Mortgages Underwater By State

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