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HomeU.S. Mortgage/Housing Market Has Split Personality
Posted by Larry Doyle on August 11th, 2009 11:52 AM |
To speak of the United States housing market in singular terms would be a huge mistake. The different regions of the country have their own housing dynamics. The strengths and weaknesses within the local economies have a huge impact on the strength or weakness of housing.
All this said, there is no doubt that the number 417 has the greatest impact on housing in the United States. Why and how? 417k is the cutoff for individuals looking to receive a conforming mortgage. Above that level, individuals enter the realm of the Jumbo market where rates are appreciably higher and credit standards are significantly tighter. Additionally, Jumbo product is not typically eligible to be underwritten or purchased by Freddie Mac or Fannie Mae. That restriction was waived and Freddie and Fannie have purchased some Jumbo product, but it has had no meaningful impact on the dynamics within the Jumbo space. Overall, the 417k level remains an enormous line of demarcation.
That line of demarcation is further defined by the ability to modify loans. Loan modifications for Jumbo mortgages are significantly more challenging to accomplish. On top of that, mortgage servicers are now under ENORMOUS pressure by Uncle Sam to produce increased numbers of mortgage modifications. Where is Uncle Sam targeting? Conforming mortgages.
While market analysts may believe housing is turning, they are not looking at the total picture. The Jumbo market remains under real pressure while the conforming market is showing signs of stability. Under the heading of ‘a picture speaks a thousand words,’ high five to our friends at 12th St. Capital (the leading mortgage broker-dealer on Wall Street) for providing an overview of the housing market in Los Angeles. One can see the ‘split personality’ based on sales volumes between the downtown neighborhoods and those in the upper incomes. Please click on the map to view year over year sales volumes in respective Los Angeles neighborhoods. A few miles makes a world of difference.
Would welcome insights and perspectives from people in other regions of the country on the split personality of their local housing markets as well.
LD
The Ponzi Scheme Run by Angelo Haligiannis
Posted by Larry Doyle on August 11th, 2009 8:44 AM |
Angelo Haligiannis
Who is Angelo Haligiannis? Aside from being another crook on Wall Street, his is a fascinating story. I had personal interaction with Mr. Haligiannis in late 2003 and for a very fleeting moment considered allocating some money to his fund Sterling Watters. I passed on the opportunity. It was a great miss. That said, let me share my interaction with him as there are lessons here for all of us.
While working at JP Morgan Chase, I was assigned a private banker within the firm to address my own banking and financial affairs. This individual, Michael Capul, was unnecessarily aggressive but I understood that he was a producer and trying to generate business.
Mr. Capul left JP Morgan in 2003, but contacted me to apprise me that he was working in a capital raising role for a hedge fund, Sterling Watters. I let him know I had no interest. He pressed me and told me that Mr. Haligiannis was an outstanding trader and that I should at least take the time to meet him. Prior to that, I informed Mr. Capul that I wanted to see Sterling Watters’ returns.
Capul shared with me a glossy brochure which highlighted some unbelievable returns, especially during the meltdown of the Nasdaq in 2001. My trading instincts wondered how Haligiannis made his money, so I agreed to a meeting.
I was more intrigued, if not somewhat amazed, when Capul informed me that Sterling Watters was housed on the top floor of the Citicorp Tower, not exactly inexpensive space. I met them on a Thursday afternoon at 5pm.
Upon entering the office, I was struck by the fact that Capul and Haligiannis were the only individuals in the office. Where was everybody? I asked Haligiannis that very question. He dismissed it as being a Thursday evening in midtown Manahattan and his analysts and trading staff had gone out for cocktails.
I inquired about Mr. Haligiannis’ background. He shared that he was a junior trader for a few years at Merrill Lynch in the mid- 90s prior to launching his fund. I was intrigued by how quickly he developed his career.
I asked him how he made his money and generated these unbelievable returns. He talked about the proprietary nature of his models along with how many mediocre traders there were in the market. He played very much the soft sell, while Capul was the hard sell.
I will admit that for a fleeting moment I seriously considered making the minimum investment in his fund. Why didn’t I? I could not come to grips with how and why his trading operation was literally empty at 5:15pm on a Thursday. I also wondered how an individual with limited experience could grow so quickly.
Fast forward 2 years and I read on my Bloomberg terminal how Mr. Haligiannis had been arrested for operating a Ponzi scheme. I tried to contact Capul but had no success. His scheme, not unlike Mr. Madoff’s, preyed upon a host of family, friends, and close personal relationships. I immediately thought of my train ride home after my meeting when I considered allocating money to Sterling Watters.
This New York magazine article from October 2006, Take the Hedge Fund Money and Run, is a fascinating read about the life story and Ponzi scheme run by Angelo Haligiannis.
I think you will find it most interesting.
This story did have an appropriate ending as Mr. Haligiannis was apprehended in Greece in August 2007.
LD
Board Accountability
Posted by Larry Doyle on August 10th, 2009 6:00 PM |
With a few recent exceptions (Citigroup and BofA), it strikes me that we have witnessed very few questions of accountability directed at the boards of many companies in our country.
Board positions are not supposed to be purely cushy, figurehead type positions for friends of executives; serious corporate governance at the board level is a critically important role in a robust capitalistic system.
Where are the checks and balances at this level?
I am reminded of the neglect, if not malfeasance, of corporate boards in reviewing The SEC Robbed Shareholders, written by Michael Maiello of Forbes.
Maiello addresses recent fines imposed by the SEC against Bank of America and General Electric. He writes:
The Securities and Exchange Commission is supposed to see to it that corporate managers don’t take advantage of the shareholders they’re supposed to represent.
While I have limited confidence in corporate managers, I would only hope that those overseeing these managers, that being the boards of directors, may be more accountable. When will shareholders truly be able to get a fair say in the election of board members? When will our regulatory bodies truly hold these individuals accountable? When will the media expose the closed, if not incestuous, nature of the relationship between senior management and the board?
Maiello does yeoman work in highlighting the travesty imposed upon the shareholders of BofA and GE. He asserts:
The SEC has made a real mess of things. In both cases, the commission settled for amounts so small that they can’t be said to deter executives from using SEC filings to mislead investors.
The other problem is that small as the fines are relative to the violations that the SEC alleged, they are also borne by the wrong people. Corporate executives, not shareholders, are responsible for the content of SEC filings and they should be the ones who pay for lapses, inaccuracies and omissions.
While the SEC is remiss in these specific cases, the fact is before situations such as these get to the SEC, they should be addressed at the board level. The board should be fully aware of potential legal issues and address them forthwith. In the process, board members will have to extract themselves from the pocket of management and represent the rights and interests of shareholders. If they don’t, then they should be exposed for neglect of duty.
LD
‘Cash for Clunkers’ Misrepresentations Lay Groundwork for Fraud
Posted by Larry Doyle on August 10th, 2009 3:12 PM |
Fraud begins with intentional misrepresentation. From there, revenues generated become captivating, the fraud grows, and society suffers.
The potential for fraud is my greatest concern with the ‘Cash for Clunkers’ program. Why?
With the economic tide having gone out, no surprise that more frauds have been exposed. Additionally, given the challenging economic times, we should not be surprised to see intentional misrepresentations laying the groundwork for more frauds in the future. Against this backdrop, I am not surprised by a Bloomberg report, Cuomo Tells Dealers to Stop Deceptive Clunkers Ads:
New York Attorney General Andrew Cuomo today told 40 auto dealers across the state to stop issuing misleading advertisements for the Federal Car Allowance Rebate System, known as “cash for clunkers.”
The government-funded clunkers program, which seeks to boost the economy, allows dealers to credit $3,500 or $4,500 for trade-ins that may be worth less. Dealers’ ads mislead consumers into believing that their trade-in vehicle qualifies for the program when it does not or that they are eligible for a several-thousand-dollar rebate, Cuomo said in a statement today.
Letters by Cuomo order the dealers “to immediately modify promotions and advertisements to clearly explain how the program works,” he said. Included on his list were dealers for General Motors Co., Chrysler Group LLC, and Ford Motor Co., as well as foreign car companies.
In metropolitan New York, Cuomo named Plaza Hyundai Ltd., City World Toyota and City World Hyundai, while in Westchester he cited Smith Cairns Ford Inc. of White Plains and Central Avenue Chrysler Jeep Dodge.
One would have to be quite naive to think intentionally deceptive ads are not widespread in our country. Are car dealerships hoping to target these ads to those who may be less financially savvy? If so, these misrepresentations are particularly heinous.
I would encourage AG Cuomo and other attorneys general to be intentionally aggressive in meting out penalties and punishments for those involved. As word of mouth is the best form of advertising and publicity, I only hope that this post is widely disseminated.
The need for honesty and integrity never takes a vacation.
Please share all thoughts and comments.
LD
FYI: Addendum to my August 5th post “Fair and Fraudulent Mortgage Lending.” Bloomberg is now reporting Freddie Mac Says Its Loss from Taylor Bean May Be ‘Significant.’
There is a reason why it smells so bad at low tide!!
Be Careful of Fraud with Reverse Mortgages
Posted by Larry Doyle on August 10th, 2009 12:35 PM |
Given the current state of our economy, opportunities to access credit are diminishing. Where are more and more people going to gain credit? Their homes. What? With home values down so much and banks tightening credit standards, how are people utilizing their homes to get money? Welcome to the arcane world of reverse mortgages. In this world, people need to be EXTREMELY careful to avoid being taken. Let’s navigate.
From the website of The U.S. Department of Housing and Urban Development, we learn the Top Ten Things to Know if You’re Interested in a Reverse Mortgage. I will provide an overview and point out potential pitfalls where fraudulent activity may develop. That said, for anybody interested in a reverse mortgage, I strongly encourage you to fully review all of the details provided at the HUD site and work with a highly qualified and recommended lender. Additionally, a further resource can be found via Reverse Mortgage Alert. Let’s continue.
1. Definition: “A reverse mortgage is a special type of home loan that lets you convert a portion of the equity in your home into cash. The equity that built up over years of home mortgage payments can be paid to you. But unlike a traditional home equity loan or second mortgage, no repayment is required until the borrower(s) no longer use the home as their principal residence.”
2. Qualifications: “To be eligible for a FHA HECM (Home Equity Conversion Mortgage otherwise known as a reverse mortgage), the FHA (Federal Housing Administration) requires that you be a homeowner 62 years of age or older, own your home outright, or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan, and you must live in the home.”
3. Eligibility: “your home must be a single family home or a 1-4 unit home with one unit occupied by the borrower. HUD-approved condominiums and manufactured homes that meet FHA requirements are also eligible.”
4. Difference between a Reverse Mortgage and Home Equity Loan: “With a traditional second mortgage, or a home equity line of credit, you must have sufficient income versus debt ratio to qualify for the loan, and you are required to make monthly mortgage payments. The reverse mortgage is different in that it pays you, and is available regardless of your current income. The amount you can borrow depends on your age, the current interest rate, and the appraised value of your home or FHA’s mortgage limits for your area, whichever is less. Generally, the more valuable your home is, the older you are, the lower the interest, the more you can borrow.”
Sense on Cents RED FLAG: within these details lie the potential for true abusive, if not fraudulent, lending practices. How do you keep a mortgage lender honest? How do you make sure he is quoting competitive terms across all these variables (age, the effective interest rate of the reverse mortgage, the home appraisal, FHA-limits)? Never make a deal without getting a few competitive proposals. From there, check with a HUD-approved mortgage counselor. How? Contact the Housing Counseling Clearinghouse.
Other important information regarding the life of the loan, impact on your estate, total mortgage proceeds, and how to receive payments are also available at the HUD site.
Rest assured, there are plenty of quality mortgage brokers willing to help you with reverse mortgages. There are also plenty of unscrupulous mortgage brokers. Like who? The crowd at Taylor, Bean, and Whitaker.
Be careful and good luck!!
LD
Related Sense on Cents Commentary:
Fair and Fraudulent Mortgage Lending (August 5, 2009)
Robert Reich Assails Obama Deal with Big Pharma as ‘Assault on Democracy’
Posted by Larry Doyle on August 10th, 2009 7:54 AM |
Likened to extortion. Assault on democracy.
Strong charges put forth by Clinton Labor Secretary Robert Reich in regard to a deal cut by the Obama administration with Big Pharma (major pharmaceutical companies) to support his proposed health-care reform.
If you start to see a major advertising blitz by the pharmaceutical companies in support of Obamacare (and you will) and wonder how it happened, I strongly recommend How the White House’s Deal with Big Pharma Undermines Democracy, recently posted at Wall Street Pit.
Reich weighs in:
I want universal health insurance. And having had a front-row seat in 1994 when Big Pharma and the rest of the health-industry complex went to battle against it, I can tell you first hand how big and effective the onslaught can be. So I appreciate Big Pharma’s support this time around, and I like it that the industry is doing the reverse of what it did last time, and airing ads to persuade the public of the rightness of the White House’s effort.
But I also care about democracy, and the deal between Big Pharma and the White House frankly worries me. It’s bad enough when industry lobbyists extract concessions from members of Congress, which happens all the time. But when an industry gets secret concessions out of the White House in return for a promise to lend the industry’s support to a key piece of legislation, we’re in big trouble. That’s called extortion: An industry is using its capacity to threaten or prevent legislation as a means of altering that legislation for its own benefit. And it’s doing so at the highest reaches of our government, in the office of the President.
When the industry support comes with an industry-sponsored ad campaign in favor of that legislation, the threat to democracy is even greater.
We’re on a precarious road — and wherever it leads, it’s not toward democracy.
Do yourself the favor and read this entire piece by Reich and then share it with friends and colleagues. I know that Washington is bought and sold many times over, but this deal strikes more deeply at the heart of the democratic process.
Those aren’t my words, but those of Robert Reich!! I concur.
What do you think?
LD
Madoff CFO, Frank DiPascali, Singing Like a Canary
Posted by Larry Doyle on August 9th, 2009 11:54 AM |
Frank DiPascali, CFO for Bernie Madoff, is widely expected to plead guilty this Tuesday. DiPascali has waived his right to be indicted by a grand jury in a sign that he is looking to cut the best deal possible.
How high a pitch and how many tunes will investigators receive from the canary known as Frank DiPascali? Do you think there are a whole host of people not sleeping very well lately wondering what notes Mr. DiPascali may reach?
Who might some of these people be?
1. Walter Noel: head of Madoff’s largest feeder fund, Fairfield Greenwich.
2. Sandra Manzke: formerly headed Tremont Advisors, another large feeder fund. Manzke left Tremont in 2006 and launched a money management firm Maxam.
3. Andrew and Mark Madoff: Bernie’s sons ran the Madoff broker-dealer operation.
4. Peter Madoff: Bernie’s brother and general counsel.
5. Shana Madoff and husband Eric Swanson: Shana, Bernie’s niece, married former SEC lawyer Swanson in 2007. Swanson was with the SEC for ten years prior to departing in 2006. Ms. Madoff served on a committee at the Wall Street regulator FINRA.
6. Robert Jaffe: vice-president of Cohmad Securities. Jaffe was instrumental in signing up a multitude of investors with Madoff.
7. Sonny and Marcia Cohn: this father-daughter team owned Cohmad Securities, which was physically located within the same space as Madoff’s operations.
8. Certain large Madoff investors with whom DiPascali had regular contact. How much did they know?
9. Who were the regulators from FINRA and the SEC responsible for monitoring the Madoff operation? Are they nervous as well? Will investigators dare to pursue this angle?
Obviously, if any of these individuals (and any others) are implicated by DiPascali, they are entitled to due process.
I would love to see Mr. Harry Markopolos reintroduced into this equation. Mr. Markopolos clearly knew the inner workings of the Madoff operation. Will investigators have the courage to engage him and expose the shortcomings in our regulatory oversight?
No stone should be left unturned!!
LD
NoQuarter Radio’s Sense on Cents with Larry Doyle
Posted by Larry Doyle on August 8th, 2009 4:33 PM |
UPDATE: The show has concluded, but you can listen to a recording in its entirety by clicking the Play button on the audio player below. Once the playback has started, you can forward or rewind to any portion of the show by clicking at any point along the play bar.
*********************
As the markets rebound and the economy seems to recover, please join me this Sunday evening August 9th on NQR’s Sense on Cents with Larry Doyle as we dig deeper and work harder in navigating the economic landscape. Is the market and economy truly rebounding as quickly as it may appear? Is Wall Street back to ‘business as usual?’ What is the true nature of Goldman Sachs? Is the banking system properly portraying its overall health? What about Freddie and Fannie?
I am thrilled to have a longstanding veteran within the financial markets as my guest on this week’s show. Smriti Popenoe has extensive financial experience and is uniquely qualified to comment on all these topics and more.
Ms. Popenoe held senior positions within the Mortgage Portfolio Management group at Freddie Mac from 1994-2003. She was involved in the successful launch of a mortgage REIT, Sunset Financial (2004-2006). Ms. Popenoe then moved to Wachovia Bank where until this past April, she held a senior position within the Portfolio and Balance Sheet Management group.
Throughout her career, Ms. Popenoe has honed skills and insights which are at the core of our current economic debate. I have no doubt my conversation with her this Sunday evening will be nothing short of riveting. Call the show to share your thoughts or ask questions at (347) 677-0792.
Don’t miss it. Please share with friends and colleagues.
LD
Barack Obama’s Arrogance vs. Honest Debate
Posted by Larry Doyle on August 8th, 2009 11:24 AM |
There is no doubt that of all the items on Barack Obama’s agenda, his desire to revolutionize our system of health care is of highest priority. His problem right now is the fact that he is losing the debate across all public opinion polls. He knows it and his Democratic colleagues know it.
Obama and his Democratic constituents are faced with the political predicament of whether they want to risk their political futures by ramming health care legislation against the will of the American people.
Prior to making that decision, Obama and the Democratic leadership are trying to reframe the debate in an attempt to sway public opinion. They are entitled to elevate the debate in any manner which they choose. Debate is the essence of democracy.
The public is also entitled to their voice. The public is sending strong and vocal messages to Washington on this topic.
Against this backdrop, I was more than a little surprised to view a vdeo clip of President Obama at a recent rally in Mclean, VA.
Not that Barack Obama needs my advice, but his tact in this forum will not resonate with those currently unsupportive of his health care proposition. In short, I know arrogance when I see it. Our President displays tremendous arrogance in his demeanor and delivery at this rally. In fact, he is not very Presidential. Please review President Obama stating, “Don’t Want The Folks Who Created the Mess to Do a Lot of Talking.”
Leaders welcome debate. They don’t shy away from it. In fact, if we were to silence those who created messes in our political and economic system, Washington would be a very quiet town.
Thoughts, comments welcome and appreciated.
LD
Wall Street Wisdom: Andrew Lanyi
Posted by Larry Doyle on August 7th, 2009 4:23 PM |
Wall Street as an industry is very easily vilified. I panned it myself the other day. That said, there are a lot of great people on Wall Street just as there are great people in every industry.
On that note, I was moved by a story in this morning’s Wall Street Journal: A Survivor of Nazi Brutality Who Ascended Wall Street.
The individual profiled, Andrew Lanyi, clearly had a unique outlook on life and Wall Street. I am particularly impressed by his discipline, mentoring, and wisdom.
Do yourself the favor of reading this piece. Savor Mr. Lanyi’s life story like a fine wine. There are rich lessons here for all of us.
LD
