From CNN Finance, we have an unusual kind of article: College kid tries to sell his future on eBay.
In August, Steen put himself on eBay (Charts) to pay for his college education, offering 2 percent of all future earnings to the highest bidder, with a minimum $100,000 bid.
"I am the real deal" and "a very intelligent guy," he wrote on eBay.
He says that he expects to earn "way more" than $125,000 a year until he turns 65, at which point his investor would break even on a $100,000 investment. (Steen would have to average more than $1.5 million a year to match an investment that yielded a 6 percent return, compounded annually over the same period.)
Here's a link to the PDF of the actual auction. (EBay cancelled the auction, and he got no bids.)
Firstly, I should say flat out that this is, in principle, an excellent idea. After all, exchanging future income for a lump-sum up front is precisely what a bond really is.
Secondly, if enough people did this, you could statistically estimate their future earnings, and price them competitively. (Think of it as an insurance policy on education. The future "investment bankers" are subsidizing the future "secretaries", etc.)
So why is it really stupid?
Several reasons.
Firstly, let's examine the reasons as to what can go wrong. Perhaps, he will renege on the contract, die or get dismembered before 40 years, or simply not make as much money as he thinks he's going to make.
Now let's work through these assumptions. We'll do all the calculations in "future dollars" so we have to include the effects of inflation. If he's really good at what he does, his wages will be above inflation each year by let's say 1-2%. Let's also assume he makes $100K (highly unlikely, but still.) Let's assume inflation runs at a fixed 3%.
You'd get paid between $190K (4% assumption) to $240K (6%).
Take the same $100K and buy 30 year US treasuries, and you'll get roughly $138K of coupons at current yields, plus your original $100K back, plus any interest that you pick up by reinvesting these coupons! Add in interest for an extra 10 years (at the same rate) you get an extra $46K. (That's $284K.)
So this kid is shit out of luck even under the most optimistic assumptions. You don't have to be a genius to figure out if you assume more realistic assumptions, you'd be really stupid to invest in this kid.
I mean, if the kid can't even do these calculations, there's no chance of him making "way more" than $125K.
So what did he really do wrong, theoretically speaking? Obviously, 2% of your income is too little. Up it to 10%, and the numbers would change.
The other alternative would've been not to demand a minimum of $100K, but let the market determine what they're willing to risk on you.
(Incidentally, Robert Shiller has written extensively about this in his book: The New Financial Order.)
Thursday, November 30, 2006
Tuesday, November 28, 2006
Sucka-paloozah
From the San Diego Union Tribune, we have Plan for second tower irks El Cortez owners.
El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there's no doorman to welcome them at the end of the day.
The fact that developer Peter Janopaul – who along with business partner Anthony Block renovated the 1927 hotel – is now planning to build a new condominium tower where their pool and parking is, well, that's just one more slap in the face.
Janopaul declined to be interviewed for this article, but Michael Zucchet, the vice president of Janopaul's development company, said a handful of homeowners at the El Cortez are making Janopaul a scapegoat for problems he had nothing to do with.
“Didn't read your disclosure documents? Blame the developer,” Zucchet said. “Developer's right to build getting vindicated at every turn? . . . Argue that the developer is actually a mean guy. Condo market heading south two years after you bought your unit? Sue the developer.
Residents concede they signed documents acknowledging that another building could be constructed just 40 feet away, but many say they were told it wouldn't happen for a long time. They say construction could damage their home values, their building's foundation and the historic character of the El Cortez.
Janopaul's company also is suing contractors for plumbing defects that include leaking pipes and backups, and lawsuits have been combined. But residents should not be surprised, said Janopaul attorney Tomas Morales. He noted that buyers signed detailed disclosures.
“Before they gave their money to the developer, they had to sign some very direct documents that said a building is coming (next door) and they were buying a unit built in 1927 and it would be unreasonable to expect it would operate like a building built in 2004,” Morales said.
Oooh, this is like front-row tickets to the "shear the sheep" finals!
Developers are smart cookies, particularly the crooked ones. If you signed a contract, there's absolutely nothing you can do about it!
So long, suckahs!
El Cortez condo owners feel cheated. They bought homes in the historic hotel with luxury in mind, but their sinks back up, their homeowners association is broke and there's no doorman to welcome them at the end of the day.
The fact that developer Peter Janopaul – who along with business partner Anthony Block renovated the 1927 hotel – is now planning to build a new condominium tower where their pool and parking is, well, that's just one more slap in the face.
Janopaul declined to be interviewed for this article, but Michael Zucchet, the vice president of Janopaul's development company, said a handful of homeowners at the El Cortez are making Janopaul a scapegoat for problems he had nothing to do with.
“Didn't read your disclosure documents? Blame the developer,” Zucchet said. “Developer's right to build getting vindicated at every turn? . . . Argue that the developer is actually a mean guy. Condo market heading south two years after you bought your unit? Sue the developer.
Residents concede they signed documents acknowledging that another building could be constructed just 40 feet away, but many say they were told it wouldn't happen for a long time. They say construction could damage their home values, their building's foundation and the historic character of the El Cortez.
Janopaul's company also is suing contractors for plumbing defects that include leaking pipes and backups, and lawsuits have been combined. But residents should not be surprised, said Janopaul attorney Tomas Morales. He noted that buyers signed detailed disclosures.
“Before they gave their money to the developer, they had to sign some very direct documents that said a building is coming (next door) and they were buying a unit built in 1927 and it would be unreasonable to expect it would operate like a building built in 2004,” Morales said.
Oooh, this is like front-row tickets to the "shear the sheep" finals!
Developers are smart cookies, particularly the crooked ones. If you signed a contract, there's absolutely nothing you can do about it!
So long, suckahs!
Monday, November 27, 2006
Economics, Ethics and Morality
To give a break from the stunningly single-minded (according to some of you) economic stupidity in the housing market, we'll get back to the Editorial from the New York Times: When Don’t Smoke Means Do.
Philip Morris has adopted the role of good citizen these days. Its Web site brims with information on the dangers of smoking, and it has mounted a campaign of television spots that urge parents, oh so earnestly, to warn their children against smoking. That follows an earlier $100 million campaign warning young people to “Think. Don’t Smoke,” analogous to the “just say no” admonitions against drugs.
Just why the costly advertising campaigns produce no health benefits is a rich subject for exploration. The ads are fuzzy-warm, which could actually generate favorable feelings for the tobacco industry and, by extension, its products. And their theme — that adults should tell young people not to smoke mostly because they are young people — is exactly the sort of message that would make many teenagers feel like lighting up.
Philip Morris says it has spent more than $1 billion on its youth smoking prevention programs since 1998 and that it devised its current advertising campaign on the advice of experts who deem parental influence extremely important. But the company has done only the skimpiest research on how the campaign is working. It cites June 2006 data indicating that 37 percent of parents with children age 10 to 17 were both aware of its ads and spoke to their children about not smoking. How the children reacted has not been explored. And somehow the company forgot to tell the parents, as role models, to stop smoking themselves.
Philip Morris, the industry’s biggest and most influential company, is renowned for its marketing savvy. If it really wanted to prevent youth smoking — and cut off new recruits to its death-dealing products — it could surely mount a more effective campaign to do so.
Let me bluntly say that I abhor smoking. I'm terribly allergic to it, and have hated it since I was a child. My parents can tell you that I have, flat out, at age 7 told my grandfather that I'm going to leave the room while he was smoking, and will come back when he was finished (and followed up on that for the next 8+ years or so.)
I have also worked in the theater for 15+ years through graduate school, and those of you have some experience in the theater will know what I mean when I say "everyone" in the theater smokes, and I have put up with it, and pretty damned patiently at that.
However, all of these are personal opinions not "economic" or "rational" ones.
Let's go to the economic stupidity which is, after all, the point of this blog.
Firstly, there is quite literally, no incentive for a company to do something against its own interests.
The real question is not "would you?" but if you were the steward of a company with a given mandate, "would you?"
Please note that we're talking about the subtle distinction between ethics and morals here!
Secondly, the blunt economic truth is that governments can never ban anything that people genuinely want to do. At best, they can act as traffic policemen.
Ask yourself, how well has the "war on drugs" really performed? Which major American city can you not buy marijuana at any hour of the day or night? Hell! There's home delivery for the product!
Please note the argument for precisely what it is. I neither care for drugs nor cigarettes. Nor do I care for a nanny state. But then, nor do I care for free healthcare (if "you" can't pay, and the state is paying for "your" healthcare, then the state can and should ban cigarettes for "you", not for the people willing to pay.)
And, negative incentives do actually work. The trifecta of higher taxes, banning cigarettes in bars and restaurants, and free nicotine patches in New York has transformed the "Paris of the US" into a non-smoking paradise.
So if you want to disincentivize something, ask the Federal Government to behave like New York City, not the company to act against in its own self-interest.
Which brings us to the stupidity part, which is what the Editorial is being accused of!
Fair Disclosure: I used to own stock in Altria, and was forced to dispose it for professional reasons. (If not, I would've hung on to it!)
Philip Morris has adopted the role of good citizen these days. Its Web site brims with information on the dangers of smoking, and it has mounted a campaign of television spots that urge parents, oh so earnestly, to warn their children against smoking. That follows an earlier $100 million campaign warning young people to “Think. Don’t Smoke,” analogous to the “just say no” admonitions against drugs.
Just why the costly advertising campaigns produce no health benefits is a rich subject for exploration. The ads are fuzzy-warm, which could actually generate favorable feelings for the tobacco industry and, by extension, its products. And their theme — that adults should tell young people not to smoke mostly because they are young people — is exactly the sort of message that would make many teenagers feel like lighting up.
Philip Morris says it has spent more than $1 billion on its youth smoking prevention programs since 1998 and that it devised its current advertising campaign on the advice of experts who deem parental influence extremely important. But the company has done only the skimpiest research on how the campaign is working. It cites June 2006 data indicating that 37 percent of parents with children age 10 to 17 were both aware of its ads and spoke to their children about not smoking. How the children reacted has not been explored. And somehow the company forgot to tell the parents, as role models, to stop smoking themselves.
Philip Morris, the industry’s biggest and most influential company, is renowned for its marketing savvy. If it really wanted to prevent youth smoking — and cut off new recruits to its death-dealing products — it could surely mount a more effective campaign to do so.
Let me bluntly say that I abhor smoking. I'm terribly allergic to it, and have hated it since I was a child. My parents can tell you that I have, flat out, at age 7 told my grandfather that I'm going to leave the room while he was smoking, and will come back when he was finished (and followed up on that for the next 8+ years or so.)
I have also worked in the theater for 15+ years through graduate school, and those of you have some experience in the theater will know what I mean when I say "everyone" in the theater smokes, and I have put up with it, and pretty damned patiently at that.
However, all of these are personal opinions not "economic" or "rational" ones.
Let's go to the economic stupidity which is, after all, the point of this blog.
Firstly, there is quite literally, no incentive for a company to do something against its own interests.
The real question is not "would you?" but if you were the steward of a company with a given mandate, "would you?"
Please note that we're talking about the subtle distinction between ethics and morals here!
Secondly, the blunt economic truth is that governments can never ban anything that people genuinely want to do. At best, they can act as traffic policemen.
Ask yourself, how well has the "war on drugs" really performed? Which major American city can you not buy marijuana at any hour of the day or night? Hell! There's home delivery for the product!
Please note the argument for precisely what it is. I neither care for drugs nor cigarettes. Nor do I care for a nanny state. But then, nor do I care for free healthcare (if "you" can't pay, and the state is paying for "your" healthcare, then the state can and should ban cigarettes for "you", not for the people willing to pay.)
And, negative incentives do actually work. The trifecta of higher taxes, banning cigarettes in bars and restaurants, and free nicotine patches in New York has transformed the "Paris of the US" into a non-smoking paradise.
So if you want to disincentivize something, ask the Federal Government to behave like New York City, not the company to act against in its own self-interest.
Which brings us to the stupidity part, which is what the Editorial is being accused of!
Fair Disclosure: I used to own stock in Altria, and was forced to dispose it for professional reasons. (If not, I would've hung on to it!)
Sunday, November 26, 2006
Eyes Wide Shut
Just to make sure that stupidity is a trait shared by all humans, we have Tony Levene writing for the UK Guardian: Landbanking flop ends field of dreams.
One of Britain's biggest landbankers has gone bust, leaving investors who paid a total of £7m for tiny slices of farmland, wondering where their money went. Land Heritage (UK) Ltd told 700 land purchasers this week it was going into liquidation on the "advice" of accountants PricewaterhouseCoopers (PWC).
It told them to direct future correspondence towards PWC. But when Guardian Money contacted the accountancy firm, it said it had never heard of Land Heritage (UK) Ltd.
"Whatever LHUK says, we have not been instructed by this company and will not be. We have not provided any formal advice and we have not billed the company for anything. We shall not be handling any liquidation - we have no relationship whatsoever with it," PWC says.
Whoever acts as liquidator, the end of LHUK destroys what slim hopes investors had of the firm turning their minuscule plots into potentially valuable housebuilding sites - or of getting any refund.
"I fully expected 20% annual returns over the next decade - multiplying my money up to eight times. I know that's a lot but I did not go into this investment with my eyes closed," says one Kent investor who asked for anonymity.
Now all he has is title to a plot of land in the middle of a field which is unlikely ever to gain planning permission.
Wow, this is stunning in its sheer panoramic scope.
A worthless piece of land in the middle of nowhere, no planning permission ergo no way to access your own piece of land. The land is literally worthless! You could probably plant vegetables on it, if you got air-dropped or something.
A company that PWC has never even heard of, and an investor who was multiplying his "mental money" by "up to eight times".
Stupendous, just absolutely stupendous!
One of Britain's biggest landbankers has gone bust, leaving investors who paid a total of £7m for tiny slices of farmland, wondering where their money went. Land Heritage (UK) Ltd told 700 land purchasers this week it was going into liquidation on the "advice" of accountants PricewaterhouseCoopers (PWC).
It told them to direct future correspondence towards PWC. But when Guardian Money contacted the accountancy firm, it said it had never heard of Land Heritage (UK) Ltd.
"Whatever LHUK says, we have not been instructed by this company and will not be. We have not provided any formal advice and we have not billed the company for anything. We shall not be handling any liquidation - we have no relationship whatsoever with it," PWC says.
Whoever acts as liquidator, the end of LHUK destroys what slim hopes investors had of the firm turning their minuscule plots into potentially valuable housebuilding sites - or of getting any refund.
"I fully expected 20% annual returns over the next decade - multiplying my money up to eight times. I know that's a lot but I did not go into this investment with my eyes closed," says one Kent investor who asked for anonymity.
Now all he has is title to a plot of land in the middle of a field which is unlikely ever to gain planning permission.
Wow, this is stunning in its sheer panoramic scope.
A worthless piece of land in the middle of nowhere, no planning permission ergo no way to access your own piece of land. The land is literally worthless! You could probably plant vegetables on it, if you got air-dropped or something.
A company that PWC has never even heard of, and an investor who was multiplying his "mental money" by "up to eight times".
Stupendous, just absolutely stupendous!
Tuesday, November 21, 2006
Starlight, starbright...
From the Detroit Free Press, we have a "Free Press Staff" write about Detroit-area home prices plunge 10.5% compared with year ago.
"And for sellers, it's almost a nightmare," he says. "A property can be marketed with every kind of tool you can think of, and unless there are really, really great incentives that make the property 20% below what the market price should be, they're just sitting there."
I have news for you, sunshine!
There is no "should be" in the market. What the market says is precisely what the market is.
If a piece of property sells for 20% less than what you think it "should be" then that's what the market thinks the property is worth. Everything else is what we call "wishing prices".
In the words of Yoda, "Is or is not. There is no should."
"And for sellers, it's almost a nightmare," he says. "A property can be marketed with every kind of tool you can think of, and unless there are really, really great incentives that make the property 20% below what the market price should be, they're just sitting there."
I have news for you, sunshine!
There is no "should be" in the market. What the market says is precisely what the market is.
If a piece of property sells for 20% less than what you think it "should be" then that's what the market thinks the property is worth. Everything else is what we call "wishing prices".
In the words of Yoda, "Is or is not. There is no should."
Monday, November 20, 2006
That sickening feeling...
From the St. Petersburg Times in sunny Tampa Bay, FL, we have the holy trinity of James Thorner, Scott Barancik, and Matthew Waite writing about Bay's home boom suddenly belly-up.
The fun time has ended for Leonard and Joyce Sondheimer. In October 2005, the Bradenton couple bought a $338,900 MiraBay townhome on Aberdeen Pond Drive. The bayside investment home with stone counters, hardwood floors and stainless steel appliances was sure to appreciate to half a million dollars. Or so the Sondheimers thought.
After a year on the market, no one has nibbled. Their Realtor chopped the price to break even. The tax bill alone on that single investment -— $8,900 a year — is draining the Sondheimer’s nest egg.
“I was retired and now I’ve had to go back to work. I’ve got to pay all these bills,” Leonard Sondheimer, 68, said of his new job as a mattress salesman. “It’s getting sickening.”
It was sure to appreciate to half a million, eh?
Well, it didn't, so I guess you're working off a different meaning of "sure" than the rest of the world.
You've made your mattress, now I suppose you're going to have to lie in it!
The fun time has ended for Leonard and Joyce Sondheimer. In October 2005, the Bradenton couple bought a $338,900 MiraBay townhome on Aberdeen Pond Drive. The bayside investment home with stone counters, hardwood floors and stainless steel appliances was sure to appreciate to half a million dollars. Or so the Sondheimers thought.
After a year on the market, no one has nibbled. Their Realtor chopped the price to break even. The tax bill alone on that single investment -— $8,900 a year — is draining the Sondheimer’s nest egg.
“I was retired and now I’ve had to go back to work. I’ve got to pay all these bills,” Leonard Sondheimer, 68, said of his new job as a mattress salesman. “It’s getting sickening.”
It was sure to appreciate to half a million, eh?
Well, it didn't, so I guess you're working off a different meaning of "sure" than the rest of the world.
You've made your mattress, now I suppose you're going to have to lie in it!
Sunday, November 19, 2006
"Daddy, buy me a condo!"
From the Minneapolis Star Tribune, we have Jackie Crosby writing about Option ARMS right for you?
In April, Marie Senn found the home of her dreams, a condo that hadn't even gone on the market yet. Then she fell into a nightmare of a mortgage -- a type of adjustable-rate mortgage known as an option ARM.
"I was a young buyer," said Senn, 24, who said she wasn't told that she could qualify for low-interest loans targeted at first-time homeowners.
"I'd never heard of this loan," she said. "There are so many things that I wish I knew then."
That's where Senn was headed. Her payments eventually would have tripled from a low payment that came with her option ARM if she hadn't just refinanced into a fixed-rate mortgage, which still leaves her strapped with higher monthly payments than she had planned.
"I want to put this behind me," she said.
It is behind you, honey, it is totally behind you.
Open up wide, baby, daddy's coming home!
In April, Marie Senn found the home of her dreams, a condo that hadn't even gone on the market yet. Then she fell into a nightmare of a mortgage -- a type of adjustable-rate mortgage known as an option ARM.
"I was a young buyer," said Senn, 24, who said she wasn't told that she could qualify for low-interest loans targeted at first-time homeowners.
"I'd never heard of this loan," she said. "There are so many things that I wish I knew then."
That's where Senn was headed. Her payments eventually would have tripled from a low payment that came with her option ARM if she hadn't just refinanced into a fixed-rate mortgage, which still leaves her strapped with higher monthly payments than she had planned.
"I want to put this behind me," she said.
It is behind you, honey, it is totally behind you.
Open up wide, baby, daddy's coming home!
Tuesday, November 14, 2006
Orwell Lives!
From CBS Marketwatch, we have John Spence reporting on D.R. Horton's quarterly net slips 51%.
"This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year," said Chief Financial Officer Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.
Say what?
Let's work through the gobbledy-gook:
"core margin deterioration" = "our sales margin is shrinking"
"lack of pricing power" = "no buyers are showing up"
"increased use of sales incentive" = "we're cutting prices"
"scaling back inventory" = "having trouble selling, cutting prices to sell stuff"
I think he means, "Our ass is toast!"
"This decline was due primarily to core margin deterioration resulting from a lack of pricing power and increased use of sales incentives relative to last year," said Chief Financial Officer Bill Wheat. The company is focusing on further scaling back its inventory, the CFO added.
Say what?
Let's work through the gobbledy-gook:
"core margin deterioration" = "our sales margin is shrinking"
"lack of pricing power" = "no buyers are showing up"
"increased use of sales incentive" = "we're cutting prices"
"scaling back inventory" = "having trouble selling, cutting prices to sell stuff"
I think he means, "Our ass is toast!"
Monday, November 13, 2006
Living the American Dream
From the New Jersey Herald News we have A bitter ending.
The Maldonados, like many other homeowners, faced financial difficulties and refinanced with a nontraditional mortgage -- the kind of adjustable-rate loan that has inundated the market over the past few years, promising quick cash or low interest rates.
Now, mortgage payments eat up Maldonado's entire monthly income.
Oooh, good, a payment more than your entire monthly income. This is definitely going to end well.
But the same year Maldonado bought his home, his wife had started racking up thousands of dollars in credit card debt while out of work.
In May 2005, creditors placed a $15,000 lien against the house on $80,000 of unpaid debt. The Maldonados panicked. But the house had grown in value, so they refinanced, using the equity to pay the debt. Their monthly mortgage payments grew by $800 -- tight but manageable for the family.
Then earlier this year, they discovered additional credit card bills.
His wife racked up $80K in debt while out of work. $80K?!?
The sum total of all the money I have spent in the last 10 years barely adds up to $80K. (and yes! I actually pulled out the spreadsheet.)
What the fuck?!?
And they, "discovered" additional bills. Please note that this is the same usage as in Lavoisier discovered oxygen, Newton discovered gravity, and Columbus discovered America.
It was totally unexpected, of course. The bills were just "discovered".
While Maldonado toyed with selling the house, daughter Wanda Perez began looking for alternatives.
She found Equity Source Home Loans, a Morganville-based company catering to those with damaged credit. Equity Source said the value of the Maldonado's home had grown to $345,000. They offered the family a $230,000 adjustable rate mortgage, with monthly payments of $2,330 -- more than Maldonado's take-home pay.
More than the pay. Yippee-skippee!
But Equity Source verbally promised them that they could refinance again in six months, when their bills were paid off, the Maldonados said. With better credit, they'd get a lower interest rate and smaller monthly payments, Equity Source told them.
If it ain't in a written contract, it ain't worth shit!
The Maldonados devote more than 53 percent of their gross income to the Equity Source mortgage, according to the loan documents. There are no legal limits to debt-to-income ratios.
But the mortgage documents don't list the Maldonados' actual income. According to documentation the Maldonados provided, the family pays 63 percent of its income to its monthly mortgage.
Ooh, the documents say that they only pay 63% but, in reality, they have to pay more than their income.
Can you say "fraud"? I knew you could!
Hurrah for the American consumer!
Hurrah for the American dream!
The Maldonados, like many other homeowners, faced financial difficulties and refinanced with a nontraditional mortgage -- the kind of adjustable-rate loan that has inundated the market over the past few years, promising quick cash or low interest rates.
Now, mortgage payments eat up Maldonado's entire monthly income.
Oooh, good, a payment more than your entire monthly income. This is definitely going to end well.
But the same year Maldonado bought his home, his wife had started racking up thousands of dollars in credit card debt while out of work.
In May 2005, creditors placed a $15,000 lien against the house on $80,000 of unpaid debt. The Maldonados panicked. But the house had grown in value, so they refinanced, using the equity to pay the debt. Their monthly mortgage payments grew by $800 -- tight but manageable for the family.
Then earlier this year, they discovered additional credit card bills.
His wife racked up $80K in debt while out of work. $80K?!?
The sum total of all the money I have spent in the last 10 years barely adds up to $80K. (and yes! I actually pulled out the spreadsheet.)
What the fuck?!?
And they, "discovered" additional bills. Please note that this is the same usage as in Lavoisier discovered oxygen, Newton discovered gravity, and Columbus discovered America.
It was totally unexpected, of course. The bills were just "discovered".
While Maldonado toyed with selling the house, daughter Wanda Perez began looking for alternatives.
She found Equity Source Home Loans, a Morganville-based company catering to those with damaged credit. Equity Source said the value of the Maldonado's home had grown to $345,000. They offered the family a $230,000 adjustable rate mortgage, with monthly payments of $2,330 -- more than Maldonado's take-home pay.
More than the pay. Yippee-skippee!
But Equity Source verbally promised them that they could refinance again in six months, when their bills were paid off, the Maldonados said. With better credit, they'd get a lower interest rate and smaller monthly payments, Equity Source told them.
If it ain't in a written contract, it ain't worth shit!
The Maldonados devote more than 53 percent of their gross income to the Equity Source mortgage, according to the loan documents. There are no legal limits to debt-to-income ratios.
But the mortgage documents don't list the Maldonados' actual income. According to documentation the Maldonados provided, the family pays 63 percent of its income to its monthly mortgage.
Ooh, the documents say that they only pay 63% but, in reality, they have to pay more than their income.
Can you say "fraud"? I knew you could!
Hurrah for the American consumer!
Hurrah for the American dream!
Melodrama
From the Press Democrat, we have a lovely little Spanish soap-opera The Pachecos.
Neil Pacheco just about gave up hope after five months of shopping for a home.
The monthly payments seemed prohibitive on the $484,000 house he was eyeing on a cul-de-sac in Windsor.
But then the slowing housing market turned in his favor. The seller, who had lowered the price by almost $6,000, knocked another $8,500 off the price tag - and then agreed to pay $10,000 toward closing costs.
Add in some creative lending help, and Pacheco, 26, and his wife, Graciela, 27, got the house off Los Amigos Road in the Lakewood Glen subdivision.
Ooh, "creative" lending. Sounds a bit ominous.
Pacheco works as a food server at River Rock Casino and runs his own landscaping business. Graciela works full time as a cook.
Slightly more than half of their combined income will go toward their $3,100-per-month house payment. And that doesn't cover insurance or property taxes.
A "food server" and a "cook" bought a $460K piece of property. More than half their combined income will go towards the mortgage, and that doesn't include insurance, property taxes, or maintenance.
How can this not end badly?
It gets better:
Their monthly payment is more than three times the $1,000 rent they were paying for a two-bedroom apartment.
Three times the rent must mean that they are three times richer, right? Right? RIGHT?
And then comes the grand finale:
"We know that we can do it," said Pacheco of the relatively steep house payments. "We want to work hard for this. We were working hard before."
Wish in one hand, and shit in the other. See which one fills up first, Pacheco!
Neil Pacheco just about gave up hope after five months of shopping for a home.
The monthly payments seemed prohibitive on the $484,000 house he was eyeing on a cul-de-sac in Windsor.
But then the slowing housing market turned in his favor. The seller, who had lowered the price by almost $6,000, knocked another $8,500 off the price tag - and then agreed to pay $10,000 toward closing costs.
Add in some creative lending help, and Pacheco, 26, and his wife, Graciela, 27, got the house off Los Amigos Road in the Lakewood Glen subdivision.
Ooh, "creative" lending. Sounds a bit ominous.
Pacheco works as a food server at River Rock Casino and runs his own landscaping business. Graciela works full time as a cook.
Slightly more than half of their combined income will go toward their $3,100-per-month house payment. And that doesn't cover insurance or property taxes.
A "food server" and a "cook" bought a $460K piece of property. More than half their combined income will go towards the mortgage, and that doesn't include insurance, property taxes, or maintenance.
How can this not end badly?
It gets better:
Their monthly payment is more than three times the $1,000 rent they were paying for a two-bedroom apartment.
Three times the rent must mean that they are three times richer, right? Right? RIGHT?
And then comes the grand finale:
"We know that we can do it," said Pacheco of the relatively steep house payments. "We want to work hard for this. We were working hard before."
Wish in one hand, and shit in the other. See which one fills up first, Pacheco!
Tuesday, November 07, 2006
Popeye, the Sailor Man
From the Orlando Sentinel, we have Jack Snyder (what a name!) writing about Savings of 100 at risk in investment flap.
Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000 -- but make no mortgage payments for two years. Main Street USA, in addition to paying the loan for 24 months, promised to use some of his unit's rental income to renovate the property inside and out. And some of his cash was to be placed in a real-estate-investment trust paying double-digit returns.
Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then stopped.
The couple has been making the payments since then, but they say it isn't easy coming up with $1,128 each month in the hope of keeping their investment alive.
"It's tough," said Cortes, an aircraft technician. "I'm working a lot of overtime trying to make ends meet."
Aah, good ol' fashioned counterparty risk.
It comes back to bite with a vengeance. And in this case, it's indistinguishable from fraud, and the FBI is involved.
What's with the subject line, eh?
Remember Wimpy?
"I will gladly pay you Tuesday for a hamburger today."
Caveat emptor!
Like at least 100 other investors, Ralph was told he could buy a newly converted condominium unit for as little as $150,000 -- but make no mortgage payments for two years. Main Street USA, in addition to paying the loan for 24 months, promised to use some of his unit's rental income to renovate the property inside and out. And some of his cash was to be placed in a real-estate-investment trust paying double-digit returns.
Anthony and Evette Cortes of Orlando dug deep into their savings to make a $14,900 down payment on a condo unit in The Villas at Waldengreen. Main Street USA made two mortgage payments, then stopped.
The couple has been making the payments since then, but they say it isn't easy coming up with $1,128 each month in the hope of keeping their investment alive.
"It's tough," said Cortes, an aircraft technician. "I'm working a lot of overtime trying to make ends meet."
Aah, good ol' fashioned counterparty risk.
It comes back to bite with a vengeance. And in this case, it's indistinguishable from fraud, and the FBI is involved.
What's with the subject line, eh?
Remember Wimpy?
"I will gladly pay you Tuesday for a hamburger today."
Caveat emptor!
New York, New York
From New York Magazine, we have S. Jhoanna Robledo writing about This Isn't Their Moment.
Few jobs are as irregular as acting. Which may be why Jeremy Kushnier waited until last year to buy his one-bedroom in Morningside Heights. “I just got tired of paying rent,” says Kushnier, who coincidentally had been playing Roger in the Broadway musical Rent. “I was lucky enough to get great jobs in the past few years, and I wanted to build some equity.” So much for that: Sixteen months later, Kushnier’s selling his place and moving to Los Angeles to join his actress girlfriend. If he gets his price—$509,000—he’ll do slightly better than break even. But a little negotiation could wipe out his profit altogether.
Let's see what's wrong with this picture. He's an actor - the ultimate temp job, if ever there was one. Most actors wait tables in New York, and even those working on Broadway don't actually make that much money.
He bought a one-bedroom for half a million dollars. An actor buying a half a million dollar condo!
And in Morningside Heights!!!
For those not familiar with Manhattan, this is technically on the island but so far away from any amenities that it might as well not be.
Also, anyone who makes the kind of dough to cover that mortgage will not live in Morningside Heights, flat out! (This "actor" probably has an interest-only or neg-am loan.)
But the best is yet to come:
Kushnier’s co-op doesn’t allow sublets so soon after an owner moves in—ruling out that option—and the expenses are piling up. “It’s a financial burden,” he says.
Can't rent it out. Can't pay for it either. Trying to move to LA to get a job.
I bet he's shitting ice-cold bricks right now!
Few jobs are as irregular as acting. Which may be why Jeremy Kushnier waited until last year to buy his one-bedroom in Morningside Heights. “I just got tired of paying rent,” says Kushnier, who coincidentally had been playing Roger in the Broadway musical Rent. “I was lucky enough to get great jobs in the past few years, and I wanted to build some equity.” So much for that: Sixteen months later, Kushnier’s selling his place and moving to Los Angeles to join his actress girlfriend. If he gets his price—$509,000—he’ll do slightly better than break even. But a little negotiation could wipe out his profit altogether.
Let's see what's wrong with this picture. He's an actor - the ultimate temp job, if ever there was one. Most actors wait tables in New York, and even those working on Broadway don't actually make that much money.
He bought a one-bedroom for half a million dollars. An actor buying a half a million dollar condo!
And in Morningside Heights!!!
For those not familiar with Manhattan, this is technically on the island but so far away from any amenities that it might as well not be.
Also, anyone who makes the kind of dough to cover that mortgage will not live in Morningside Heights, flat out! (This "actor" probably has an interest-only or neg-am loan.)
But the best is yet to come:
Kushnier’s co-op doesn’t allow sublets so soon after an owner moves in—ruling out that option—and the expenses are piling up. “It’s a financial burden,” he says.
Can't rent it out. Can't pay for it either. Trying to move to LA to get a job.
I bet he's shitting ice-cold bricks right now!
The "Experts" Weigh In
From AZCentral, we have Catherine Reagor writing about Experts weigh in on market in Phoenix.
The number of local and national real estate gurus tracking the Valley's housing market has grown with the amount of money made and lost in the industry recently.
Demand for unreasonably priced homes or homes far from jobs is "abysmal" now. That's what national real estate analyst John Burns writes in his recent newsletter.
As opposed to what, Einstein?
Demand for unreasonably priced homes should soar? Have a meteoric rise?
You should ask for a refund on your college tuition!
The number of local and national real estate gurus tracking the Valley's housing market has grown with the amount of money made and lost in the industry recently.
Demand for unreasonably priced homes or homes far from jobs is "abysmal" now. That's what national real estate analyst John Burns writes in his recent newsletter.
As opposed to what, Einstein?
Demand for unreasonably priced homes should soar? Have a meteoric rise?
You should ask for a refund on your college tuition!
Ghost Towns
Perhaps more appropriate for Halloween, but here's a report from In Business, Las Vegas: Las Vegas growth and location will lure plants.
Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar.
Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.
Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there's nothing wrong with having so many homes vacant.
Yep, what's wrong with having so many homes vacant?
While we're at it, why don't we build some factories. We'll leave those vacant too. After that we'll build vacant ports, vacant parking lots. In fact, we'll build an entire city which we will leave vacant too, and there's really no problem with all of that. Just build, build, build, and we'll leave it all vacant.
The really vacant part is the space inside your cranium!
Larry Murphy of SalesTraq and Steve Bottfeld, who monitor housing trends in the Las Vegas Valley, handed out their latest predictions at their quarterly Crystal Ball seminar.
Bottfeld and Murphy used the presentation to debunk what they said are myths about the Las Vegas housing industry.
Bottfeld criticized national media publications for its portrayal of the Las Vegas housing industry as having falling prices and resembling a ghost town. He said there's nothing wrong with having so many homes vacant.
Yep, what's wrong with having so many homes vacant?
While we're at it, why don't we build some factories. We'll leave those vacant too. After that we'll build vacant ports, vacant parking lots. In fact, we'll build an entire city which we will leave vacant too, and there's really no problem with all of that. Just build, build, build, and we'll leave it all vacant.
The really vacant part is the space inside your cranium!
Monday, November 06, 2006
Realtor Rubbish
From the Baltimore Sun, we have Lorraine Mirabella writing about Realtor ads for slower market.
That's the point of a more than $40 million advertising blitz launched yesterday by the National Association of Realtors.
Market conditions have never aligned so perfectly as they are right now, the trade group says in full-page newspaper ads running the next two weekends.
"It's a great time to buy or sell a home," proclaim the ads.
Wow! This is priceless.
It's a great time to buy, AND a great time to sell?
That's mathematically impossible. All transactions are zero-sum. One party must lose financially because in the outcome following the transaction either prices go up or down.
In fact it's worse. It's actually negative-sum because of transaction costs. (Think brokerage fee for stocks, or realtors commissions for real-estate.)
And, since Realtors(TM) survive on transactions, it's in their interest to have as many as possible. What's more they are experiencing extreme competition from online sources, and just like travel agents (remember them?) they are going to go the way of the dodo.
No wonder they're urging on the Greatest Fools.
If you want to see the stupid AD, here it is: link. (Warning: Large PDF.)
This is a flat out sign of extreme desperation!
That's the point of a more than $40 million advertising blitz launched yesterday by the National Association of Realtors.
Market conditions have never aligned so perfectly as they are right now, the trade group says in full-page newspaper ads running the next two weekends.
"It's a great time to buy or sell a home," proclaim the ads.
Wow! This is priceless.
It's a great time to buy, AND a great time to sell?
That's mathematically impossible. All transactions are zero-sum. One party must lose financially because in the outcome following the transaction either prices go up or down.
In fact it's worse. It's actually negative-sum because of transaction costs. (Think brokerage fee for stocks, or realtors commissions for real-estate.)
And, since Realtors(TM) survive on transactions, it's in their interest to have as many as possible. What's more they are experiencing extreme competition from online sources, and just like travel agents (remember them?) they are going to go the way of the dodo.
No wonder they're urging on the Greatest Fools.
If you want to see the stupid AD, here it is: link. (Warning: Large PDF.)
This is a flat out sign of extreme desperation!
Sunday, November 05, 2006
Not too bright
From the Tribune in Colorado, we have Maria St. Louis-Sanchez writing about The soft housing market affects everyone.
"A soft housing market it not good for anybody," said Matt Revitte, a broker associate with Pro Realty Inc. in Greeley. "I would say a lot of people will be affected by this slow down."
Oy!
"Not good for anybody"?!?
It's definitely good for the buyers.
Matt must be a product of the public school system!
"A soft housing market it not good for anybody," said Matt Revitte, a broker associate with Pro Realty Inc. in Greeley. "I would say a lot of people will be affected by this slow down."
Oy!
"Not good for anybody"?!?
It's definitely good for the buyers.
Matt must be a product of the public school system!
Friday, November 03, 2006
A Bucketful of Stupid
From CNN Money, we have Slow-market crisis: Stuck with two homes.
When Chicagoans John and Judy Peeler decided to move to Philadelphia last spring, they blithely assumed they'd get more space for their money. Indeed, the couple quickly found a 2,500-square-foot, four-bedroom colonial in a well-regarded school district for $440,000, just about what they figured their 2,000-square-foot Windy City condo would fetch.
Perfect. Or so they thought.
Since then the seemingly ideal move has devastated their finances. The Peelers' Chicago condo has generated little interest, even after they dropped the price - twice - to its current $389,000. And it has been four months since they relocated, which means they've been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.
Having depleted their savings to pay for this, they've had to seriously cut back on spending. They went without air conditioning this past summer, despite sweltering heat and the fact that Judy was eight months pregnant.
They've also put off fixing the brakes of their second car, which the mechanic says should be replaced soon. "We don't spend money on anything that isn't critical," says Judy. "Everything goes toward the mortgages."
No air-conditioning while being pregnant. No brakes. "Everything goes towards the mortgages".
WTF?!?
Do you own the houses, or do the houses own you?
FB? You bet!
When Chicagoans John and Judy Peeler decided to move to Philadelphia last spring, they blithely assumed they'd get more space for their money. Indeed, the couple quickly found a 2,500-square-foot, four-bedroom colonial in a well-regarded school district for $440,000, just about what they figured their 2,000-square-foot Windy City condo would fetch.
Perfect. Or so they thought.
Since then the seemingly ideal move has devastated their finances. The Peelers' Chicago condo has generated little interest, even after they dropped the price - twice - to its current $389,000. And it has been four months since they relocated, which means they've been carrying two mortgages and a home-equity line of credit at a cost of $4,000 a month.
Having depleted their savings to pay for this, they've had to seriously cut back on spending. They went without air conditioning this past summer, despite sweltering heat and the fact that Judy was eight months pregnant.
They've also put off fixing the brakes of their second car, which the mechanic says should be replaced soon. "We don't spend money on anything that isn't critical," says Judy. "Everything goes toward the mortgages."
No air-conditioning while being pregnant. No brakes. "Everything goes towards the mortgages".
WTF?!?
Do you own the houses, or do the houses own you?
FB? You bet!
Thursday, November 02, 2006
Tossing Coins
From the OC Register, we have Mathew Padilla talking about As buyers balk, builders carry on.
There's a 50-50 chance the market will still be in the doldrums in 2008, said Edward Leamer, director of the UCLA Anderson School of Management's annual economic and housing-market forecast.
50-50?
You might as well have shut your fucking pie-hole, and said nothing, O Fucktard of an Economist!
I should explain further since this is something I do for a living.
It's not enough to get something 50% right for events with a binary outcome. Even a random coin toss can achieve that.
Either a stock will go up or down. Either the economy will have a recession in 2008 or it won't.
Your models need to have a slight edge, say being right 51% of the time.
(Mathematicians call it being right "1/2 + epsilon" of the time, and gamblers call it the "edge".)
In short, an inanimate coin can and probably should do this loser's job!
There's a 50-50 chance the market will still be in the doldrums in 2008, said Edward Leamer, director of the UCLA Anderson School of Management's annual economic and housing-market forecast.
50-50?
You might as well have shut your fucking pie-hole, and said nothing, O Fucktard of an Economist!
I should explain further since this is something I do for a living.
It's not enough to get something 50% right for events with a binary outcome. Even a random coin toss can achieve that.
Either a stock will go up or down. Either the economy will have a recession in 2008 or it won't.
Your models need to have a slight edge, say being right 51% of the time.
(Mathematicians call it being right "1/2 + epsilon" of the time, and gamblers call it the "edge".)
In short, an inanimate coin can and probably should do this loser's job!
Stick a fork in it!
From the Bend Bulletin, we have David Fisher writing about Signs of a slowdown.
The market looked great when he sunk his life's savings into his brand-new company, Yelas Developments Inc., in December, after 10 years of doing project management for larger production developers in Portland and then Bend.
The company's first few homes sold easily in the spring, Yelas said, so he quickly plowed the money into new in-fill lots around Bend, paying $145,000 to $220,000 per lot just for the dirt - about the top of the market.
Suddenly, sometime in May, the lights went out on rapid real estate sales "just like someone flipped a switch," he said. Now he's sitting on the three finished east Bend homes off Boyd Acres Road while he and his subcontractors work to complete more in various locations on the west and east sides.
Yelas said he's gotten to the point where he'd be happy to break even on the east Bend homes, just to free up some cash flow and cut some holding costs before winter arrives in earnest. Next spring, he's counting on sales as a whole to loosen up.
"The market has bottomed," he said, pointing out the maple flooring, the knotty alder cabinets, and the view from his Freedom Place house. "This is as bottom as it's gonna get. I mean, look at our stupid signs on the fence.
Yep, look at your stupid signs! And what do your stupid signs have to do with the market bottoming?
Let's look at the fundamentals. You paid roughly $200K for just the parcel of land. Chances are your building costs were roughly $200K which brings the price of the product up to $400K.
The median income in Bend, OR is roughly $40K. Who the fuck can afford to pay you $400K when they're making $40K? (The rule of thumb is 3X your income.)
Who's looking stupid now?
The market looked great when he sunk his life's savings into his brand-new company, Yelas Developments Inc., in December, after 10 years of doing project management for larger production developers in Portland and then Bend.
The company's first few homes sold easily in the spring, Yelas said, so he quickly plowed the money into new in-fill lots around Bend, paying $145,000 to $220,000 per lot just for the dirt - about the top of the market.
Suddenly, sometime in May, the lights went out on rapid real estate sales "just like someone flipped a switch," he said. Now he's sitting on the three finished east Bend homes off Boyd Acres Road while he and his subcontractors work to complete more in various locations on the west and east sides.
Yelas said he's gotten to the point where he'd be happy to break even on the east Bend homes, just to free up some cash flow and cut some holding costs before winter arrives in earnest. Next spring, he's counting on sales as a whole to loosen up.
"The market has bottomed," he said, pointing out the maple flooring, the knotty alder cabinets, and the view from his Freedom Place house. "This is as bottom as it's gonna get. I mean, look at our stupid signs on the fence.
Yep, look at your stupid signs! And what do your stupid signs have to do with the market bottoming?
Let's look at the fundamentals. You paid roughly $200K for just the parcel of land. Chances are your building costs were roughly $200K which brings the price of the product up to $400K.
The median income in Bend, OR is roughly $40K. Who the fuck can afford to pay you $400K when they're making $40K? (The rule of thumb is 3X your income.)
Who's looking stupid now?
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