Hot Housing Areas for Investors

Here’s some news on where the smart money is going today.

Best bet metrics from Zillow:

  • Price/Income (ratio is the lowest)
  • Price/Rent (ratio is low)
  • Price declines moderating or rising
  • Foreclosure rates falling
  • Foreclosure resales higher

This is considering SFH’s used as rentals => Buy – Hold – Rent

Here’s the CNBC video report



From CNBC – What Could Force More Short Sales

Despite a government program designed to streamline and incentivize the process, short sales have not even come close to keeping up with foreclosure sales.

That may be about to change.

If banks see higher losses from foreclosures than from short sales, they may put more resources into approving these deals, where the borrower is allowed to sell the home for less than the value of the loan.

“Loss severities on distressed U.S. residential mortgage loans are likely to increase an additional 5-10 percent from current levels due to higher loss mitigation and foreclosure expenses and weakening home values,” according to a report from Fitch Ratings.

Fitch: The anticipated increases for each sector’s average loss severities are expected to be as follows:

  • Prime loans: currently 44%, increasing to 49%-54%;
  • Alt-A loans: currently 59%, increasing to 64%-69%;
  • Subprime loans: currently 75%, increasing to 80%-85%.
  • We are already seeing home prices double dip in many markets, and that is expected to continue at least through the first half of 2011. One way to mitigate the losses is through short sales. “Short sales generally experience recovery rates about 10 percent higher than foreclosure sales,” according to Fitch.


    Will this be enough to push the banks? Unclear.

    Servicers actually rake in a lot of money from fees surrounding foreclosures, and so far the government’s “Home Affordable Foreclosure Alternative,” program, which pays servicers cash incentives for doing short sales, has had pretty poor results, really still in the hundreds of loans. Second liens pose a big problem, but many big bank servicers also hold the second liens.

    It’s all about where the math comes out. If home prices fall far enough, the equation may tip from foreclosure to short sale.


    It get’s more interesting every day…

    from CNBC:

    Published: Tuesday, 21 Dec 2010

    Posted By: Diana Olick | CNBC Real Estate Reporter

    In a bold statement underscoring the precarious state of the nation’s mortgage market, 52 industry executives sent an “open letter” to the government’s top six money managers.

    “We the undersigned write to you regarding the urgent need to develop national standards for originating, selling and servicing mortgage loans,” the letter begins. “The private residential mortgage securitization market is frozen as to new issuance. The housing market is suffering from a dearth of credit, which is causing a serious lack of confidence among potential homebuyers.”

    The letter was sent to the heads of the Federal Reserve, the FDIC, the Treasury Department, the SEC, the FHFA and the Comptroller of the Currency.

    Not only does it demand a “gold standard” for what exactly constitutes a residential mortgage, but given the, “ongoing litany of revelations pertaining to inadequate servicing, lost loan modification documents, and improper foreclosures which reveal significant problems in the mortgage servicing industry,” it makes eleven separate recommendations designed to protect not just borrowers but investors as well.

    Referring to “misaligned incentives and tranche warfare,” in the securitization market, it demands appropriate action to maximize the net present value of the mortgages for the benefit of all investors in a securitization rather than the benefit of any particular class of investors.”

    What’s striking is the slightly desperate tone of the letter, as the housing and mortgage markets teeter between a double dip and a lengthy flat lining recovery…all in the face of historic new regulation and restructuring.

    “The chaotic situation in the mortgage market today demands immediate action to ensure all parties are treated fairly and to restore the confidence needed to support a recovery in real estate markets and the entire U.S. economy.”

    If you think there was a lot to talk about in housing this year, just wait.



    Good news for the affluent

    Happy New Year !
    Investing December 15, 2010, 11:50PM EST

    It’s a Great Time to Be Rich

    If the tax cuts become law, the next two years will be the best in living memory for many wealthy Americans to shield their income and fortunes

    By Ben Steverman

    A bonanza of new and extended tax benefits could make it as easy as ever for the rich to stay that way.

    Under legislation approved by the U.S. Senate on Wednesday, Dec. 15, and now moving on to the House, savvy wealthy Americans would be able to capitalize on an environment in which their tax rates on income and investments remain at historic lows. Also, new rules would make it possible to pass on fortunes to heirs with less fuss and lower taxes than all but a brief period of the past 80 years. It’s a far cry from the 70 percent bite the federal government took out of the largest incomes and estates as recently as 1980.


    AT&T – too little too late?

    In the news today AT&T reportedly is buying additional radio spectrum from Qualcomm to increase it’s bandwidth for the heavy loads data subscribers are putting on it’s (cellular) network. You think they would have thought of this before they signed the deal with Apple to carry the iPhone?  When AT&T has become the brunt of all running jokes about lousy service for particularly iPhone owners – i.e. What’s that you’re saying?  You keep cutting out, are you on your iPhone?  it may be too late to salvage it’s image & possibly subscribers.  Not to mention the spanking AT&T received from the latest Consumer Reports cellular phone carrier survey…can you say in the basement.

    When the iPhone is unleashed on Verizon’s network I expect little short of an avalanche of subscribers away from AT&T.  Which is a shame because I own AT&T stock (I like regular dividends in this crazy market).  Who is watching the store over there?  You would at least think that as a band-aid measure AT&T would ensure coverage in and around San Francisco and Silicon Valley would be outstanding – after all this is the cradle of technology and home to early adopters and needless to say gazillions of Tech industry mags, blogs, reviewers, etc.  You’ve just gotta scratch your head and wonder if anyone is awake in AT&T’s offices.

    AT&T to Buy Spectrum From Qualcomm for $1.93 Billion to Increase Bandwidth

    Banks: Love ’em, hate ’em, gotta live with ’em.

    SEC, Banks discuss CDO settlement

    Here’s the story as reported in the Wall Street Journal.

    • DECEMBER 2, 2010

    Banks in Talks to End Bond Probe


    U.S. securities regulators are in preliminary discussions with several major Wall Street banks aimed at reaching settlements to resolve a broad investigation of their sales of mortgage-bond deals that helped unleash the financial crisis, according to people familiar with the matter.

    The probe involves complex pools of mortgages and other loans called collateralized debt obligations, or CDOs, slices of which were sold to different investors.

    Wall Street has come under intense fire from critics for its sale of the securities, seen as a central factor in the crisis. Settling the allegations would resolve one of the biggest law-enforcement threats hanging over leading banks.


    The Securities and Exchange Commission, after issuing subpoenas for documents and interviewing officials from nearly every bank that was a major player in creating, selling or trading CDOs, has begun negotiating with the companies, these people said.

    The talks are at early, informal stage and could fall apart, people with knowledge of them cautioned, especially as the banks and SEC wrangle over settlement terms.

    Still, the move to try to work out deals with each bank is a sign of interest by all sides in ending the probe without a rerun of the public fight between the SEC and Goldman Sachs Group Inc. Goldman agreed in July to pay $550 million to settle SEC civil charges that it misled investors by not disclosing that it manufactured one CDO with input from a hedge-fund client that planned to bet against it.

    Firms that received SEC subpoenas include Citigroup Inc., Deutsche Bank AG, J.P. Morgan Chase & Co., Morgan Stanley and UBS AG. None has been charged as a result of the investigation. A spokesman for the SEC wouldn’t comment.

    Banks churned out more than $1 trillion of CDOs. They often created them at the request of investors who made bets against the deals. Some banks made their own bearish bets. Such bets paid off when the mortgage market crashed, though financial firms also suffered steep losses from CDOs stuck on their books.

    Shortly after suing Goldman over a CDO deal in April, SEC enforcement director Robert Khuzami said the agency would look closely at deals similar to Abacus 2007-AC1, the one at the center of that suit. People close to the probe say it has become a top enforcement priority as the SEC pushes to show it is holding Wall Street accountable.

    The investigation is homing in on a range of possible conflicts of interest. For instance, investigators are looking at how the assets in the CDOs were selected and valued, including how much influence particular hedge funds may have had in the selection, and when such funds may have been betting against those assets, people familiar with the matter said.
    Among the CDOs being scrutinized are some invested in by Magnetar Capital, an Illinois hedge-fund firm. One of these is a $1.1 billion deal sold by J.P. Morgan in early 2007. Other CDOs being looked at include a $1 billion deal by Citigroup in 2007 called Class V Funding III.Citigroup, J.P. Morgan, UBS, Deutsche and Morgan Stanley declined to comment. Magnetar, which like the banks hasn’t faced any charges in the probe, said it has cooperated with requests for information. “We are not aware that this inquiry is focused on any particular person or firm, or on any particular group of transactions,” a spokesman said.
    The Goldman settlement fueled speculation it could be a template for an industry-wide deal. Goldman conceded a “mistake” in not disclosing the full role of Paulson & Co. in the Abacas CDO. Goldman also agreed to toughen oversight of mortgage securities and employees who create or sell them. Paulson wasn’t accused of any wrongdoing.
    An industry-wide strategy was followed by regulators in their crackdown over the earlier mess involving auction-rate securities, long-term debt instruments whose interest rates are reset periodically at auctions.  After that market froze in the financial crisis, regulators alleged the investments were wrongly sold as safe and liquid, and later reached agreements with Citigroup, UBS and Merrill Lynch—now part of Bank of America Corp.—to buy back more than $36 billion of securities.  Those deals became the framework for settlements with other banks.  But the practices used by banks in manufacturing and pitching CDOs aren’t similar enough to make an industry-wide settlement possible, say people familiar with the situation.  Morgan Stanley disclosed when creating CDOs that its own traders could bet against the deals, people familiar with the bank said. That is a different situation from the conflict the SEC alleged in the Goldman suit, involving failure to disclose a hedge fund’s role.
    The degree of disclosure varied between CDO deals, as did the role played by investors betting against the housing market. Because of the differences, SEC officials are aiming to reach individual settlements with banks, the people familiar with the situation said.  It isn’t clear when formal settlement talks could begin, or whether the SEC will demand fines or restitution to certain investors.  Also unclear is the potential effect of any settlements on a related criminal probe launched earlier this year by the U.S. Attorney’s office in Manhattan. Officials there declined to comment.
    At least some companies under SEC scrutiny are inclined to settle because of the pounding Goldman’s shares took after suit against it was first filed, said people familiar with the matter. Goldman fought the case for three months, repeatedly saying it had done nothing wrong and would prevail if the lawsuit went to trial.  Some officials at other banks favor a settlement because any damage from a deal likely would be less-drawn out than the Goldman suit, according to people familiar with the situation. Goldman employee Fabrice Tourre still is battling civil-fraud charges filed against him by the SEC.
    Another important factor in the probe is the concept of suitability—or the degree to which the CDO products were an appropriate investment for clients. In general, CDOs were sold more frequently to less-sophisticated investors as the market matured in 2006 and 2007.

    —Dan Fitzpatrick, Aaron Lucchetti and Serena Ng contributed to this article.

    Alternate headlines not selected for this and all the other similar stories:

    When profits are high, hype takes over and legality and common sense go out the window.

    Buy at your own country’s economic and social risk.  Due diligence not Done.

    Abacus: It just doesn’t add up!

    What’s behind curtain number 3… tell ’em what they’ve won Johnny…

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