What builders are doing to the market:

From The Bakersfield Californian:

Deeply discounted new homes go on sale Saturday in two northeast Bakersfield communities, an event that has inspired stakeout tactics in some would-be homeowners and a measure of concern among those who paid full price to live in the neighborhoods.

D.R. Horton Inc. is selling homes at up to a 50 percent discount in 23 Southern California developments starting this weekend. One home plan, formerly listed for $380,000, has been reduced 48 percent to $199,990, according to a company sales flier.

Industry observers said the sale is a drastic measure, and a sign of the impact large national builders have had on the local homebuilding market. ‘They do things that we’ve never seen before,’ custom homebuilder Phil Gaskill said of his national competitors. ‘They overproduce homes when the market’s hot. And then when it’s not, they slash prices to move (inventory).’”

Jon Hess is betting on securing one of those bargains. He set up camp in front of the Contessa’s Vineyard II sales office Sunday, and was still in line Friday afternoon.

‘I think it’s a good value,’ Hess said of the model home he had in mind. Still, he was realistic about what this kind of sale might say about the health of the real estate market. ‘Who knows?’ Hess said. ‘Maybe by this time a year from now it’s going to be worth half of what I paid for it.’

At least one Lavender Trails homeowner, Billy Abney was worried Friday that the sale might further depress the value of his home, which he estimates has fallen $60,000 to $70,000 since he bought in the summer of 2006.

The 2,600-square-foot home plan he bought for $371,000 is being offered for sale at $230,000 this weekend.

Mr. Abney, your home is worth $140,000 less than when you bought it a year ago, not $60,000 or $70,000.

This is a tactic used by large home builders, especially the publicly traded ones, and is probably the thing to be most cautious about when buying a home from them. This week it's this price, but if the sales office doesn't sell everything in a timely manner, look out for the discounts. Think about it - if you could buy a brand new home for $50K less, right across the street from where a guy is selling that exact same floor plan, lived in, for which he paid $50K more, which one are you going to buy, and what is the "new appraised value" for BOTH homes. It's the lower amount. If the guy who has lived there for a year bought with little or no money down, he likely now owes more than what it will appraise for. This effectively kills the neighborhood, and will cause an upward spike in foreclosures, not abate them, as the builder will tell you.

If you owe more than it's going to appraise for, you can't sell or refinance without having to come out of pocket for the difference. Not cool.

Jingle Mail

Apparently, this is the new catch phrase among mortgage lenders. It refers to what is starting to happen with home-owners who are now simply mailing the keys to the house to the mortgage company along with a note, saying, essentially,

"Hey, remember that note you sent asking me about my last payment? Well, you actually DID receive my LAST payment, 2 months ago. And here's the keys, too. Bye."

Funny, but not really.

The nail on the head:

'The main concern today is fiduciary adequacy and not liquidity. We have already borrowed so much (total debt is near 350% of GDP) that our ability to service existing debt is more relevant than access to additional debt. The importance of the Fed to the economy is thus limited, and our fixation with what it does, or does not do, is a distraction from dealing with the real issues."

Something I've said on this site more than once in the recent months.... The fed using monetary solutions for a fiduciary problem.


link

A Collection of Non-Numbered Nothingness

When I was away for a few days, I wasn't checking email or news feeds. I had my computer with me, but I was more interested in eating, golf, hot-tubbing, and partaking of the adult beverages, not necessarily in that order.

So when I got back to work, I had this DELUGE of news feeds to get through - it took me two days to scan everything. I have several categories of stuff downloaded to me - Business, Design, Blogs, Architecture, News, Finance, etc. Usually, it's the eye-candy design stuff that catches my eye, and I have this sensory overload thing where there is so much that is cool that I just glaze over for a while....

For instance, we note this week that the US record high price for a residential property now belongs ot a property in Colorado. A hedge fund manager bought a residence/ranch there for 175 Million Bucks from the Forbes family. The previous record was held by a home in the Hamptons selling for 103 Million. tough credit markets for lenders? Apparently not for the uber-wealthy residents of Richistan.

Then there is this lamp - lamps are so cool for me - an opportunity for great design in such a small package, all they have to do to qualify is actually function. Most of the time, they accomplish this in spades.





Moving on to other really great clean design, there is this yard bench. Dang good lookin'.

Then we move along to some wonderful architectural design work. Well designed interior space actually maximizes square footage, making true the adage "less is more"...

I get a ton of this sort of thing in my feed box every day, and I often want to post tons of it all the time, but then I know most of you loyals would bail on me, making this space kind of boring... but here's a small sampling:



























And after that, check out this lovely townhome - small, and practical...




And now for something completely different: I was once a missionary in my homeland country of Denmark. On one of my first days in Copenhagen, in the main train station, right there on the floor, my eyes were treated with a couple "rubbin' the nubbin".... right there in the open for anyone to see. Why do I bring this up now, about 25 years later? I was reminded of the whole thing, by seeing this story sitting in the feed box.

And that, as they say, is that.

Michael Jackson Neverland Ranch Appears in Foreclosure Report

This has been reportedly in process for some time. But its actual appearance on the report makes it pretty concrete...

All you need to bring it out of Foreclosure is the $22,000,000 to cure the default.

Liz Taylor - here's looking at you.






click it to big it.

Why Mortgage Lenders Didn't Care About a Borrower's Ability to Pay

"With defaults at record levels, people have begun to question why underwriting standards became so lax during the housing boom. The answer is relatively simple: mortgage lenders were looking at the bottom line, not the borrower."


original article

Just seeing if this widget posts:

I'll talk a little about this tomorrow - but now it's time to go home.

Obama Got it Wrong

On Monday morning, presidential candidate Barack Obama published an editorial calling on lawmakers to corral the "predatory mortgage brokers" who got all these people into trouble by closing bad loans for them."

If you ask most people, they will tell the same general story.

Here's one or two bullet-point things people (including Obama) need to understand before they start using their platform to spread fear:

Mortgage brokers are solicited by lenders. Lenders create and publish loan programs, and employ sales executives to go out and sell those programs to brokers. That's not to say all brokers are blameless, though.

Part of the process lenders use in establishing loan programs, and loan interest rates, is the potential appetite for closed loan files using a particular program. That means the lender (with the exception of a VERY few) intends to sell the loans in a pool of similar loan profiles. This is called "sale into the capital markets". The loans are then packaged into VERY large securities instruments, called MBS's, or "Mortgage Backed Securities", and shares in them are traded every day on Wall Street's bond market. The ups and downs of the bond market are what determine the prevailing interest rates on a day to day basis.

Mortgage brokers are the low man on the totem pole. Loans are never closed in the name of the broker (as the lender), but rather, the loan documents show the LENDER as the mortgagee. It was their loan program, they underwrote the file, collected specific items from the borrower, evaluated the collateral, and agreed finally to lend the money to the borrower.

Further, in MOST cases, the borrower signed a veritable RAFT of paperwork outlining every jot and tittle of the loan terms.

So there's the background information that will hopefully help make my next comment make sense to you.

Here's what Obama SHOULD have said:

There shouldn't be ANY government bailout of anyone in this case. Rather, lawmakers should be going to the lenders (the mortgagees) on these bad loans, and to the original capital market buyer/investor of the loan package, and put into place the following policy:

Foreclosure is not an option for most of the homeowners in certain loan programs, and under certain conditions. Instead, dear lender, you will identify any and all files that have fraud in them at all, and you will take the necessary steps to cure that fraud - if it was the buyer who perpetrated the fraud to take advantage of the system, they will have no recourse. Credit reporting changes will be made to be more stringent and punitive to these buyers, if there is a provable case for such.

(We will need a system whereby buyers can be classified and qualified.)

However, if it is shown that a good borrower has been stuck in a loan that is too punitive in its terms, you will have to modify the note attached to that loan, and you WILL put into place workout terms that are generally acceptable. You will carry these notes for these buyers and you will not foreclose.

Lenders who profited GREATLY from the origination and sale of that security should be forced to now rescue buyers in their program, because it is obvious there were contagious flaws in the program.

There should also be standards within the mortgage lending industry that outline what kinds of terms are allowable, and what are not. For example, a purchase transaction should not be allowed to be originated on any variable interest rate loan without a certain minimum credit score, without putting verified money down. There are lots of examples of what should be allowed and what should not.

And guess what - the MARKET is moving in this direction already. The problem is not that there are not loans to be had out there. It is that those who used to buy loan pools in the secondary market are not buying ANY pools, almost no matter what the profile of the pool. That leaves the lender without the necessary capital to pay off the old mortgage and originate a new one. Secondary buyers are even shying away from Commercial mortgage paper, not just residential.

So, the FED, in the last two weeks, did two things - first they bumped cash into that secondary marketplace, providing needed liquid capital, then they lowered their internal interest rate - the one used to lend short term money to banks. The FED has also set the table of expectations now for the third and final action they may take: the lowering of the interest rate you and I care about.

The expectation is certainly there at this point for the FED to lower that rate at their Sept 18th meeting. The volatility in the stock market over the last two days has to do with this expectation.

We shall see. I don't think interest rates are the problem, and some would even note that the foreclosure rate is not that big a problem either. The problem is enticing the secondary big-money buyers that the pools they may potentially buy will offer sufficient return through timely payments made by homeowners. They are scared kitties right now.

Needless to say, the heyday has passed where one could get a loan by simply possessing the ability to fog a mirror. Now you're going to have to prove yourself. Credit score isn't ALWAYS indicative of that. Many thought it was. Obviously that was flawed thinking, espoused by lenders eager to make as much money as possible. Time to pay the piper.

More Talk about Hedge funds/private takeovers...

So, sorry for the absence. Frankly, there isn’t too much to say for me right now - just tryin to keep my nose down and be successful. These things are tougher these days than past times. One of those things.

A while ago I mentioned the purchase of Chrysler by Cerberus Capital, a private equity fund. I also mentioned that they had significant holdings, not the least of which is the company that owns the local CBS affiliate here in the Salt Lake area.

Today, it was announced that Cerberus has also just finalized the purchase of Option One mortgage from H&R Block. The price was the total of current assets, minus $300 million. To industry insiders, this is no surprise, and we knew it had been in the works for some time. I friend of mine who worked for them told me there was motion in that direction back in February - and I imagine it had been going for a lot longer than that.

A little research turns up the information that not only do they now own Option One, a very large national subprime mortgage lender, but they also own Aegis Mortgage, which runs (ran) a subprime lending arm, and GMAC financial services, a company that started out as an industrial bank in support of General Motors. Since its inception, GMAC has grown into the mortgage lending business by starting or buying companies like WMC Mortgage, another subprime lender. With its current holdings, Cerberus owns a large chunk of the subprime mortgage origination business in the country.

This interests me for more reasons than the obvious - I work in mortgage lending, and it interests me that private fund managers are seeing the same business opportunities in the "dent & scratch" world of mortgage lending, that many other private citizens see in the foreclosure market nationally right now. There is great opportunity to pick up homes from damaged or distressed owners right now, just as there is opportunity in picking up lenders from distressed owners or monetary investors.

Yesterday on the news I listened to a story about how the traffic in these acquisitions has increased in the last 12 months - so much so that there is some concern out there over a possible collapse of hedge funds or private investment funds. It’s because some of these deals have become so large that many, or most, funds can’t afford to walk in to the closing table and slap cash on the table anymore. These deals are financed through banks and letters of credit. There is concern that in order to attract the lending business from these fund managers, some very basic and logical approval steps get overlooked. It frankly looks a lot like what the residential lending landscape looked like 24 months ago. If you had a pulse and a last name, you could pretty much get a mortgage loan. The same is true right now for these fund managers, and banks are falling all over themselves to get that private equity fund business for the bank.

The problem is that the worst loans are made in the best of times. The cycle always churns, and we may be in for a big problem in the future.

And on another note... this is a test post for a new application called ByteScout Post2Blog... from what I can see, if it posts correctly, the application has no provision for assigning or editing categories to a post... perhaps it’s there and I just don’t know it yet...

Things I called:

I called, in June, that Dirk would be voted the NBA league MVP. Last week he was named league MVP. Too bad he's sitting at home, playing solitaire, watching his buddy Steve Nash have all the fun getting body checked into the middle of next week by Robert Horry.

Actually, Dirk is probably walking down some Brazilian beach somewhere, saying to every topless girl he can find, "you know what they say about big feet..."

Whatever. Paper Dirk.

I also called, a month ago, that Chrysler would go to the private equity fund, leaving out the other bidders for the company. The fund, Cerbersus, also owns the local CBS affiliate here in Utah. I called that assets would get overhauled, and then sold to make a quick, huge profit. The managers are stating that they are not planning any layoffs, and are going to try to get things worked out with the UAW. As part of the purchase, the new owners had to agree to take on the 7-9 BILLION dollars in debt responsibility that is the AUW pension fund. The union has managed to create a "30 And Out" program, where a worker can work for 30 years, then retire under full benefits. Now the UAW has more people on the pension side than actual workers. Something is going to have to give there, mark my words.

The Market needs to regulate itself; and the consumer needs to be accountable

This isn't going to go well if the government feels the need to meddle.


From Bankrate.com. “On April 17, the House Financial Services Committee held a hearing called, ‘Possible responses to rising mortgage foreclosures.’ Of a dozen witnesses, none were mortgage servicers, the people whose companies collect mortgage payments, deal with delinquent debtors and initiate foreclosures. The committee didn’t call any lenders, either.”

“David Berenbaum, executive VP of the National Community Reinvestment Coalition, suggested a…mandated temporary halt in foreclosures.”

“A mortgage servicer might have responded by asking who would pay the accumulated interest payments during a moratorium. The servicer, the investors who own the loan, the borrower? If it’s the latter, is that fair? Or would the taxpayers pick up the tab?”

“George Miller, executive director of the American Securitization Forum, warned that ‘policies designed to further regulate subprime lending or provide relief to borrowers’ could cause investors ‘to shun the market altogether and cut off mortgage credit for worthy subprime borrowers.’”

Fannie/Freddie to rescue the "Lending Crisis" (?)

Yahoo News yesterday reported that FannieMae and FreddieMac are stepping up and proposing to make some changes to the subprime loans they are holding.

For those who need it, a little background:

Fannie Mae, and Freddie Mac are acronyms for large corporations that are generally sponsored by the federal government to provide stability in the mortgage lending marketplace. They were originally started in the early part of the 20th century as wholly owned government agencies designed to provide affordable home loans for returning servicemen, etc.

They've since been privatized but retain a government sponsorship, in order for the government to have a modicum of control over the nation's lending practices.

Both companies are MASSIVE secondary-market purchasers of already-originated mortgage loans, competing with the other typical Wall Street buyers in that marketplace. Fannie Mae has been beset with management problems and financial reporting errors in the recent past, but they remain a huge purchaser of loans that meet certain criteria.

(Fannie Mae, just this week has entered an agreement to be purchased by, you guessed it, a private equity firm who has garnered a coalition of groups, two of whom are CITI Bank, and Chase bank. The equity fund will retain majority control, while the two banks will have a minority interest. The group says it will continue to report publicly, and seeks to retain the government sponsorship, helping it retain its power and stability in the marketplace.)

Fannie Mae owns and services a large percentage of the subprime loans in the US right now. There is a morass of foreclosure looming on the not-too-distant horizon for the borrowers in this type of loan.

Typically they are called "2/28's" which means that the loan has an amortization of 30 years, and a fixed period of only two years on the front of the loan. The remainder of the loan is adjustable, according to the lenders program at the time of closing. The amount of adjustment depends upon the "caps" that were in place at the time of closing.

Most caps are typically expressed as a three-number combination that most people fail to understand, usually 6-2-6. The first number represents the amount of increased interest rate the lender is allowed to charge upon the first opportunity, the 25th month of the loan. If you have a loan at 7% on a 2/28, and your caps are 626, that means that in the 24th month your interest rate is 7%, and in the 25th month, your rate can be legally moved to 13% under this program. The second number in the combination, (2) represents the number of adjustments per year the lender is allowed to make to your loan - i.e. every six months. The third number (6) is the lifetime cap on interest rate rise for the life of the loan. This is the "safety net". Under this program, the interest rate may NEVER go above the 7% (original rate) plus 6% (the cap number), in this case 13%.

You can imagine how distressing this type of loan would be to a person who borrowed 100% of their home's value in order to get the purchase done. They have NO equity. When the loan gets ready to adjust that first painful time, they have no ability to get a refinance done, especially if home prices are in a general state of decline - which they are right now, nationally. They are poor-credit borrowers in the first place, and have no savings, no extra income, and negative home equity from which to borrow.

The borrower becomes stuck in a loan they can't get out of, with the possibility of it adjusting WILDLY at the 25th month.

Sucks to be them. Anecdotally, 900 Californians PER WEEK are losing their homes to foreclosure right now, due to this very problem. Per week.

So, as you can imagine, this situation has the industry on its ear, and everybody in a regulatory position is seeking ways to mitigate the massive losses. You've heard about lenders like New Century, Novastar, etc... the list is LONG, of lenders in trouble for having originated these types of loans, and now the Wall Street buyers are asking the lenders to buy them back, because they aren't performing. This is how lenders go out of business.

Congress is hurrying to weigh in the situation, and the Banking Committees of both houses are holding hearings to see if there is something they can do. (I hope they stay out of it, and wait for the industry to self-regulate, because they don't even understand what an "exotic hybrid mortgage" is... they will make a mess, mark my words...)

So before lawmakers can wade into the fray, the industry's biggest players are taking steps to make things better. Fannie is proposing to make adjustments to these loans for deserving borrowers. They are offering to fix the caps issue related to that first nasty adjustment, and they are also going to move the amortization out to 40 years, instead of 30 years. This will have the effect of lowering the borrower's PAYMENT by up to five percent per month. Not the interest rate, but the payment.

Sounds like a pretty good deal to me, and just in time, before lawmakers can make a lovely mess of things. It's always best to let a free market regulate and correct itself - after all, they still need to lend money, and the money still needs to perform, or the owner of the money goes out of business - that's the best motivator for change there is. Lawmaker posturing and puffing is useless, and will only have a detrimental effect on the situation.

Real Estate (Finance) information clearing house of information

I've been meaning to post a bit about what is going on in the real estate finance world these days, but really, things are moving so fast that anything I would post here would be outdated in a matter of only a few days...

1. However, one of the places I DO look for information would be good for you too. Although you should view it with a grain of salt - it's pretty doom and gloom. The Housing Bubble Blog is a macro engine for gathering nation-wide news reports on all things real estate. It's been around for a while, and therefore you can search on a city name, like PONTE VEDRA BEACH, FLORIDA and get a listing of local news reports that are all compiled in one place. They don't post any positive news though. For example, everyone around here knows that our local real estate market has been moving ahead with fervor, for all the right reasons, but that's not stuff they are listing. It's all about the bubble phenomenon...

2. I noticed over at the Blue Roof (as opposed to the Red Door) that CNNMoney has come out with a couple of interesting lists:

First is a listing of the top ten houses in the USA... four of them are Frank Lloyd Wright houses.

Next is a listing of the top 150 architectural landmarks in the USA. Salt Lake makes the list at #69, but not for what you'd think...

And by the way, if you have an interest in real estate at all, whether an ongoing general interest, or an immediate interest because of a personal transaction you are involved in, you should be reading this blog, and using the Blue Roof site. Greg knows his stuff, and if you're looking for a good real estate experience, he'll take care of you.

3. A general article about Real Estate Agents that I found particularly interesting, and another from MarketWatch that was posted today, about the subprime lending crisis, also very interesting... It makes me realize I'm glad that I pretty much throw all the cards on the table and tell people how I get paid, and by whom, when I do a loan for them...

Just sayin'.

Honey, I put the Chrysler (Corporation) up for sale this afternoon...

I have spoken from time to time, most recently here, about how struggling publicly traded companies are becoming easy targets for large hedge fund operators, who buy them up, take them PRIVATE, strip the value by (usually) selling all the valued assets, and leaving the carcass of the old company by the side of the road.

Hedge funds are MASSIVE new-power money in the corporate game. They are privately held, and therefore have no reporting or regulation on activities, etc. These are the New Entrepreneurs. They usually seek to return at least 20% interest on their activities, depending on their fund, and the investors in the fund, which can be corporate retirement fund managers, insurance companies, etc. Big Money.

Struggling public corporations are some of their favorite targets, especially those who are bogged down with union labor troubles.

And it seems that the Chrysler division of Daimler-Chrysler is set to be the next victim.

Mr. Mustache has apparently decided that the Daimler-Benz purchase of Chrysler, only a few short years ago, was a bad idea. Duh.

So now they want out. Chrysler is up for sale and there are three bidders. The first two are hedge funds, and the third is an auto parts maker from Canada.

Here's how this will work:

One of the two hedge funds will will the bidding war, and Dieter will get his money back on a bad decision. The United Auto Worker's Union will come unglued, because they wanted the auto parts manufacturer to win the bid, they won't have enough money. The new ownership will be private, not public, and trading in the stock will cease, and any further public financial reporting will cease.

Then, the new owner will look at the assets, and begin to parcel them up for sale.

First on the block will be JEEP. The new owner will separate JEEP from the Chrysler flock like a well trained sheep dog separates a weak lamb from its mommy. It will be packaged up all pretty and sold to the highest bidder. Other bits will be sold off as well. The fund will realize its return, the major players in the transaction will get massive paydays, and Chrysler will cease to exist as it is presently constituted...

And then it's on to the next payday.

Come on, isn't it time for a Utah State Lottery?

I mean, REALLY, people.

Can you name the biggest source in Utah that subsidizes our schools' free and reduced-fee lunch programs? Can you? I'll give you a minute, because I bet you can't.

zzzzz.......

Well? Okay, I'll tell you. It's TAX REVENUE FROM THE UTAH STATE LIQUOR STORES.

Your kids get free or reduced-fee lunches because I buy wine. You don't buy wine, but I do.

You should thank me.

It's odd to me that the predominant religion here has the worldwide reputation of producing offspring like rabbits, often in financial circumstances that don't allow for the best possible outcomes, and when the little darlings are sent off to school, their lunches are subsidized by those buying liquor, and who, therefore, by definition, are not members of the dominant religion, and who, therefore, likely have fewer children. That's a guess, but I doubt it could be proven incorrect.

I heard this quite some time ago, and I have just been sitting here, letting that little tidbit of information brew for a while. Until now. I've said for a long time that Utah could solve a lot of its woes by doing a state-sanctioned lottery. Everybody gets all up in arms about it, and there is obviously no way on earth our churchislature would pass such a forward thinking liberal idea.

Frankly, if there is ANY state that SHOULD have a lottery, it's Utah. Already our schools have the smallest student to tax base ratio because of the "full quiver" theory. So, we're already behind. How do other states manage the education of their children, among many other things? They have a state lottery.

And before you get all hoity toity on crime and other civil woes, a 1998 study conducted for the National Gambling Impact Study Commission found no correlation between gambling problems and lotteries. "It does not appear that the availability of a lottery has an impact on (problem gambling) prevalence rates," it reports. the study also notes that those who are "gamblers" are also likely to purchase lottery tickets.

And here's something interesting - 53% of Utahns state that gambling is an acceptable form of entertainment. In a 2004 survey by Harrah's, a casino company, estimated that 402,000 Utahns visited casinos during 2003 — or 27 percent of the population over age 21. It said they made nearly 1.5 million trips out of state to casinos that year. That was high enough for the Salt Lake metro area to rank No. 44 among the nation's cities for generating casino trips.

Let's look at some neighboring states:

IDAHO
Idaho has nearly 1,200 stores that sell lottery tickets. The top six locations are all on the Utah border in tiny towns, according to computer-assisted analysis of data obtained through public documents laws. The top-selling location in all of Idaho is the Kwik Stop in Malad on I-15 just north of the border. It sold $2.54 million worth of tickets in fiscal 2004. That is 27 times more than the $92,000 average for all Idaho lottery sales locations.

"About 90 percent of our business is from Utahns," estimates Bobby Green, the assistant manager of the Kwik Stop. Polls show that 33 percent of Utahns surveyed say they have played the Idaho lottery sometime in their lives — including 12 percent who played it within the past year. Another 14 percent have played lotteries in other surrounding states, including 7 percent who did so within the past year.

The Idaho Lottery says it has provided more than $275 million to that state since it began in 1989. Half goes to its public schools, and half goes to the Permanent Building Fund. Based on last year's data about border sales, it appears Utahns contributed possibly 8.5 percent of that profit — or about $23 million. Only 22 percent of the total amount gambled ends up going to the state as profit — so Utahns may have spent more than $106 million on the Idaho lottery since it began in 1989.

Way to go Utah.

COLORADO
Colorado also offers a lottery, with sales sites just over the border. Colorado sold $409.9 million in lottery products in 2004, a 6 percent increase over 2003. The state says $101.6 million of that went to state schools, parks and building funds.

ARIZONA
Arizona has a state lottery, with some sales locations not far over the Utah border — but all are far from Utah urban centers. Gamblers wagered $366.5 million on the Arizona lottery in 2004. The state received $107.8 million from that, which it divided among its general fund, health funds, mass transit, health funds and other programs.

NEW MEXICO
The New Mexico lottery, with some sales locations near the Utah border, sold $148.7 million in tickets last year. Of that, $35.9 million went to state education programs and scholarships.

WYOMING
Wyoming tried to pass legislation for a state lottery, but the measure failed on a tie vote on the House of Representatives floor.

The thing is this: State lotteriess benefit local education in almost every instance. And Utahns have shown that they will travel to places that DO have lotteries, because they enjoy playing. Their money goes to educate other states' children.

Note that "gambling" activities in other states, other than lotteries, also collect massive amounts of money from Utahns. The City Manager of Wendover, NV, states that his city would not exist without money from Utahns. Wyoming Downs racetrack attracts 85% of its patrons from Utah. That also includes jockeys and horses.

If Utahns are so interested in going elsewhere to drop a few quarters or buy a lottery ticket, let's just do it here, leave the money in the state, and educate our children without charging me through the nose for an already paltry selection of wines - which is another gripe entirely.

(source)

In Which I'm Forced Out Of Hiding:

Yeah, so, here it is... (sorry, no pictures this time.)

A LOT (or for those from Utah County: ALOT) of people have sent me email, usually attaching a web article, axing me if it's true. Before you think that I am some sort of Dear Abby for the innerwebs, these articles all have had something to do with the new press attention on the mortgage industry and what's going on in the economy as a result.

Invariably, my response is, yes, it's all true, and very bad right now.

Articles like these:
Downpayments will soon be the only way to buy a home.
Subprime housing game is OVER.

In the last week, articles like this have proliferated across the web, and in national and local newspapers.

To those who are IN this industry, this is no news at all... This train has been coming down the tracks for about a year now, maybe more. But for others, like people who blindly INVEST money in companies like NOVAstar Financial, New Century, and now Accredited Home Lenders, the news apparently is hitting them broadside.

About 6-8 weeks ago, Novastar just up and WENT AWAY, leaving investors in the company holding empty plastic Walmart bags, instead of bags full of money. Then about 2 weeks ago, New Century announced it had been asked to IMMEDIATELY buy back 900 million in bad loans for THIS QUARTER ALONE. At the same time, they also announced they were under federal investigation, and their stock plummeted more than 50% in one day, because they now need to RESTATE EARNINGS from several previous quarters. When companies say this, they really mean to say, "we lied earlier, and now we can't sleep, so we're going to go back to retell the story - right after all our top execs get done selling their shares." Trading in the stock has been halted, and they also face delisting procedures.

And these are only the publicly traded companies. They're the ones that are supposed to have sufficient market capitalization and the management resources to weather the storm. But in addition to these, I get emails EVERY SINGLE DAY notifying me that one of our lenders is now out of business. Recently those companies include Secured Funding, Fremont Investment and Loan, Ameritrust, Popular Financial, First Capital Mortgage, Irwin Mortgage, Silver State, OwnIt Mortgage, Mortgage Lenders Network, ResMae, Lenders Direct Capital,... these are only the most recent ones.

In a recent earnings conference call with investors, CountryWide's CEO noted that while numbers of lenders going out of business everyday is published to be between 5-20 (per day), the number really is MUCH higher. DR Horton, one of the nation's biggest home builders, says that "2007 is going to suck, every single month of it."

Pretty doom and gloom reporting, huh?

But remember one thing - the currency that market news trades in is always FEAR. These are the stories that are garnering attention, and so editors are asking their writers, why haven't YOU written about this yet, are you asleep at the wheel?" And so that next story gets written. The one that reports that more subprime mortgages are in default now than last quarter, etc.

Is it all bad though? Interesting to note that Warren Buffet recently quadrupled his stake in US Bank, a lending institution, as well as Wells Fargo. Warren Buffet is seen by many as Jesus Christ Himself in financial circles. Also interesting to note that many ratings services like Fitch have upgraded Countrywide's stock for the near term, calling for a $50 share price in the next two years. That stock is currently at $34 and change. There are also rumors that Bank of America has a woody for Countywide, and would like nothing more than to jump its bones with Luther (Loofa) Vandross playing softly in the background.

So this is enough for now... I'll write more on this in the near future, because I think it bears discussion, or at least it's something I find interesting.

And I'll call it here first - I'll bet the FED LOWERS its interest rate tomorrow for the first time in a very long time... and it will send ripples through the economy as a result.

Just sayin'.

Wolves, with 100% pure sheepskin seat covers

Something popping up on my radar recently:

The disturbing trend of massive hedge funds and private equity firms using their massive amounts of free cash and buying up struggling large public companies for pennies on the dollar, taking them private, and "refinancing" the debt structure (without any public oversight - because they're now privately owned), and taking GOBS of money out of the business to pay for hefty bonuses and salaries for the managers, or securing more money for other acquisitions, and then summarily managing the business into the toilet.

This has been a trend for more than a year now, and nobody's really talking about it at all yet.

But they will.

Look for me to say more in the future here, with links and examples.

This will be the next "insider-trading" or "stock market" or "whatever" scandal to be outed publicly. It's extremely damaging to the companies, their employees, and to the economy in general, and I'll provide some interesting information on it in the near future.

Utah home prices are on fire

From this morning's Salt Lake Tribune:


Utah's home price appreciation, the worst in the country just three years ago, is now the best nationwide.

Home prices statewide rose 17.6 percent from the fourth quarter of 2005 to the same quarter of 2006, according to a report released Tuesday by the Office of Federal Housing Enterprise Oversight, a government agency that tracks housing values.

Nationally, home prices rose only 5.9 percent during that time period, reflecting the downturn seen in cities that have experienced a rapid run-up in prices in recent years. Meanwhile, housing prices in all of Utah's major metropolitan areas posted major gains in the past year.

The Provo-Orem metropolitan area had the third-highest appreciation among 282 cities in the survey, with a 19.9 percent increase in home values. Salt Lake City was No. 4, with a 19.8 percent increase. Ogden-Clearfield was No. 14, with a 15.3 percent increase. St. George was No. 28, with appreciation of 12.3 percent, with Logan a distant No. 94, with an increase of 7.3 percent.

The increases over the past year alone have made it increasingly difficult to find homes - or condominiums - in the Salt Lake Valley that sell for less than $200,000.

In Salt Lake County, median selling prices are $225,000, according to 2006 data from the Salt Lake Board of Realtors. Utah County's median is $212,900, followed by Davis County ($197,500.)

The most affordable areas are Weber County, where the median selling price is $144,975, and Tooele County ($161,000.)

Strong home value gains in Utah undoubtedly have made it more difficult for some families, especially those with low and moderate incomes, to buy their first home now. But many other families have benefited from the home-price increases - especially those who purchased their properties several years ago.

Carine Henderson, of Salt Lake City, is one who plans to profit from her good timing. She and her husband purchased a three-bedroom, two-bath condominium in downtown Salt Lake City for $117,000 three years ago. "A neighbor of mine just sold a unit like ours for $220,000," said Henderson.

The condo is just blocks away from Howa Capital's planned mixed-use development along 300 West between 500 North and 600 North that will include an 80-unit condo and town-home development with prices in the $300,000s to high $600,000s. And Henderson expects the relatively high prices in that development to boost hers.

The Wasatch Front housing market last peaked in the early to mid-1990s, when home sales, buoyed by the state's strong economy and job growth, rose dramatically and values increased by a larger margin than any other state. By the late-1990s, though, the market had slowed considerably, and in the years that followed, housing values in many areas of the state barely budged or increased only slightly.

By 2005, home prices began to climb once again as Utah's economy began to boom. Much of Utah's current real estate boom has to do with the state's strong job market, said Andrew Leventis, economist with Office of Federal Housing Enterprise Oversight. Job growth in the state, among the highest nationally, is expected to continue strong through this year and next.

"Employment and house prices are closely linked," Leventis said.

Another factor in Utah's favor is affordability.

Utahns struggling to afford a home may think otherwise, but Utah still has "fairly affordable housing," Leventis said.

Go see Blueroof.com - seriously.

I've been watching this little company for a long time now - I noticed the billboards shortly after they went up, and the web site ROCKS. Go see for yourself. And read the blog too.

It's no secret that I am no real fan of real estate agents. My general problem with them is that they offer no VALUE for their services, and only exist in a transaction because of some autonomous hold they have over the MLS, and because Utah is a nondisclosure state, the MLS is about the only resource for home sales data. But you and I don't have access to it. Enter the prick real estate agent. But anyway.... don't get me started.

However, Greg Tracy is different. He believes that a consumer (a buyer or seller) should have access to as much information and education as possible, and that an agent's presence in a transaction should add VALUE, not just access to tightly-held information. If you read here often, you'll know that those are the guiding principles to MY business as well, and I value anyone who takes the same bent.

I've worked with A LOT of real estate agents. I would only recommend one - Greg Tracy.

One thing about Greg, his drink of choice is Jack and Coke, and I don't like Jack and Coke. My drink is a three-cherry Manhattan. But that's not to say that we couldn't co-exist, we just couldn't share drinks. Not that I would want to. Just sayin'. He also likes french-cuff shirts - as I do. I know, it's eerie.

And while we're on real estate - here's something for you: the most recent data is out in Utah regarding home price valuations... being a non-disclosure state as we are, this is about the only data available to the public here that isn't controlled by the Board of Realtors. It offers a nice snap-shot of home price movement, quarter by quarter, year over year.

New Lender: You

First you were Time Magazine's Person of the Year, now you're a leader in a new online person to person finance system - you're now a lender. Let me explain.

A friend of mine sent me a link a while back about a site called prosper.com. He noted that it sounded like a good idea, but that I, as a mortgage lender, wouldn't be too happy about it. Here's the thing in a nutshell: It's eBay for money.

If you are looking to borrow money, but want more favorable terms than would otherwise be available to you, or if you want the money for something for which you could not obtain financing in other venues, you go to Prosper.com and enter your details, and what terms you are willing to live by. Sounds easy, right? Well, it is.

The site is driven by people who are willing to lend you money from their private funds. You "compete" for these funds by writing a profile or your need, and the (thousands of) lenders agree to contribute money to your project. For any one borrower's project, there may be several individuals who agree to give you money. Say you wanted $10,000 to start a business - you outline your plan, make your case, and people can contribute as little as $50 to your cause. Once you have garnered enough "bids" to fund your request, the loan is made to you, and you close. You are then expected to make the agreed upon regular monthly payments on that debt until it is paid, just like any other loan.

But here's where it gets interesting. As a lender, if you have say, $5000 at your disposal, you could do lots of things with it. You could put it in a 12 month Certificate of Deposit, making about 4% upon its maturity. Or you could put it in your savings account, and make 2-4% for the year. Or you could go to Prosper, and spread your money (and your risk) across perhaps 100 different little loans, some of them conservative, with a return of 5% or so, and some with a much higher rate of return, say 10-13%. Because you spread your risk among several borrowers, your aggregate rate of return will be much higher than other things you might choose to do.

Prosper is structured just like any other lending institution - the confirm the borrower's identity, his credit score, assign risk factors, and disclose them to you, the ultimate lender. They report payments to credit bureaus, just like banks and credit card companies, and bad debt is assigned to collectors as well, just like other lenders. Because your risk is spread across as many borrowers as you choose, the loss of your money is minimized, and generally offset by the rates of return paid by borrowers. Borrowers like it because the program can help them build a credit score, with credit terms better than high-risk specialty credit card lenders, whose rates are astronomical.

They've been going for almost a year, and they had a nice spot on NPR yesterday as well. Microlending goes tech - freakin' brilliant.