Like Mao Said, Real Estate isn’t a Dinner Party

by Carola Von Hoffmannstahl-Solomonoff

Mao as realtor

Ho ho ho! On December 21st, the National Association of Realtors (NAR) will gift the nation with the true number of existing home sales between 2007 and 2010. The NAR’s inflated numbers were flagged earlier this year by CoreLogic, a California based data firm. When confronted, the NAR grumped they’d look into it. Sounding more like dwarfs caught mining fool’s gold than housing helpful elves. Several seasons have passed. Now, a few days before Christmas, when most people pay scant attention to news, the NAR will be giving us a wee bit of truth. How holiday special is that? Scrooge’s transformation pales by comparison.

Like Scrooge, the NAR (rhymes with guar, which when partially hydrolyzed is fully fermentable in the large bowel) had to be coerced into transformation. With CoreLogic its Ghost of Christmas Past.

Speaking of the past, though the Washington/Wall Street nexus (On Fannie, on Freddie, on Banksters and Brokers!) financially powered the housing bubble that led to the economic crash, Realtors were the relentless boots on the ground. Threatening folks that if they didn’t buy now they’d be forever priced out of the housing market. Evoking an eternity of rental serfdom under Landlord Potter. As opposed to an eternity of low or no equity mortgage serfdom under Banker Potter.

Then there were NAR TV ads. Such as the 2007 gem claiming “when you have a family it’s always a good time to buy“. Underwater families are yukking over that one. Or how about the 2008 tout for Uncle Sam’s $8,000 first-time homebuyer tax credit? The break that suckered the last clueless buyers into paying still-inflated housing prices, jacked mortgage fraudsters posing as first-time buyers, and according to many Realtors (now) prolonged the housing crash. And the ads keep coming…

During 2011, reforms limiting government backed housing programs that leave taxpayers holding the bag for mortgage failures and related bailouts have been kicking around Washington. At the same time, the NAR has been blitzing the airwaves with a fear monger pitch featuring a Norman Rockwell grandpa fretting about “the dream of home ownership being threatened“.  Then there’s their “Public Awareness” campaign which champions the housing industry as job creator. What pol with elections looming could resist that?

Not that many pols ever resist the NAR. Its lobbying clout makes pols go all wobbly in the large bowel. For years, the NAR has beat back wave after wave of legislative reforms that threatened to reduce taxpayer exposure to housing-related risk.

Still, NAR concern re job creation is admirable. Many of the jobs that flow from housing are in the unionized construction trades, the last bastions of middle class wages for America’s blue collar workers. The worker-friendly NAR recently made Bill Malkasian, former head of the Wisconsin Realtors Association (WRA), their Vice President of Political Strategic Planning. When head of the WRA, Malkasian threw the group’s full weight behind union-busting Governor Scott Walker. The Koch brothers gave big to Walker, but the Wisconsin Realtors Association gave more. In his new position Bill Malkasian will be in the NAR field, leading political strategic efforts at state and local levels all over the nation.

By the buy, Bill’s new job is part of the NAR’s atta-boy response to the U.S. Supreme Court ruling that corporations and other entities have the same political speech rights as individuals and can spend as much campaign cash as they wish.

The NAR has other reasons to be cheerful. As 2012 draws nigh, its leaders are making their annual Happy Days Are Almost Here Again predictions. Plus, the NAR is based in the USA not the Peoples Republic of China.

In China, underwater homeowners are doing more than seeking interest write downs or living rent free while awaiting foreclosure. The “fang nu” (housing slaves) of China’s housing bubble are storming the gates of real estate heaven.

The Los Angeles Times, in its December 13th article China’s housing bubble is losing air, describes a revolt of the fang nu in Shanghai. Condo buyers who’d been told by salespeople that “prices wouldn’t go down” became enraged when the project’s developer (China Vanke Co.) slashed purchase prices by 25% for later buyers. The condo cadre trashed the sales office and tussled with employees. It took the police three days to quell the protest. Cities including Shanghai and Beijing have had at least seven similar uprisings in three months, in which mobs “destroyed real estate offices and demanded refunds of up to 40%”.

According to the New York Times (Village Revolts Over Inequities of Chinese Life, 12/15/11) as many as 180,000 “mass incidents” have taken place in China over the last year. There are numerous reasons for the uprisings. But a prime cause is another twist on the real estate game–

“…the seizure of land by well-connected private developers or government officials, which invariably involves forced evictions for meager compensation….these seizures are supported by local governments that have come to rely on proceeds of land sales and development to pay for day-to-day operations.”

A familiar scenario to anyone who followed the rise of eminent domain abuse during the U.S. housing bubble daze. When moderate and low income property owners discovered their neighborhoods had become land-grab goldmines for pols, planners, and developers. Justification? Revitalization by any means necessary.

Like Mao once said, “Real estate is not a dinner party”.

OK. Mao Zedong aka Mao Tse-tung aka the Great Helmsman of the Peoples Republic of China till 1976, didn’t really say that. He said this:

“A revolution is not a dinner party, or writing an essay, or painting a picture, or doing embroidery; it cannot be so refined, so leisurely and gentle, so temperate, kind, courteous, restrained and magnanimous.”*

If you substitute “real estate” for “revolution” Mao’s words could come from a sales motivational speech. One which would wrap with the threat that coffee (or tea) is only for closers.

*From Report on an Investigation of the Peasant Movement in Hunan

 

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Mortgage Fraud! Mollusks! Taxpayers Rush to Invest

by Carola Von Hoffmannstahl-Solomonoff

Ah, mortgage fraud. The unsung power tool of the housing bubble. Starting around 1999, the FBI issued repeated warnings that mortgage fraud was surging. Few in government listened. Fraudsters ranged from organized cross-country rings of real estate, banking, and investment professionals, to non-profit profiteers and Joe and Joan Doakes lying on mortgage aps ’cause they just had to have that house. Feeling nostalgic about the big grift that sent no major players to jail but left taxpayers holding the Hefty and the landscape blotted with foreclosures? No need. Boom or bust, the impetus for mortgage fraud is a constant. When housing is hot there’s pressure to keep the market booming, in bust mode there’s pressure to jack it back up.

According to Core Logic (a leading provider of business information), after taking a breather in 2009 mortgage fraud increased more than 20% in 2010. (The Mortgage Asset Research Institute reports that Florida and New York lead the nation at number one and two respectively.) With government now owning or insuring 97% of mortgage bonds via Fannie Mae, Freddie Mac, and the Federal Housing Administration (FHA), taxpayers are on the hook more than ever. And they’re paying for new twists. Quoting* mortgage fraud attorney L. T. Lafferty, a former federal prosecutor specializing in white collar crime, “fraud is… perpetrated differently when there are different opportunities”.

When one door closes, another opens…

Loan origination fraud, a mortgage fraud staple, is seeing new emphasis on hiding debt and liabilities. (Prior mortgage defaults? No problem.) Due to increased requirements for proof of income, credit, etc., mortgage fraud rings increasingly rely on identity theft rather than fake documents– thereby involving a wider circle of victims. Then there are the homebuilders with a glut of houses or condos who offer buyers financial incentives that aren’t disclosed to lenders. After buyers obtain loans, builders welch on the incentives. Oops, more underwater mortgages. Faked occupancy is on the rise. (Loans for second homes, and for rental properties without an owner in residence require larger down-payments and higher interest rates.) And hey– foreclosure rescue scams are on fire! Loan modification, refinancing, short sales, real estate owned (REO) sales, and government sponsored programs are being mined big time. Of course, almost the entire housing market might now be called a government sponsored program…

To date, taxpayers have kicked in $153 billion just to prop up Fannie Mae and Freddie Mac. Fan and Fred’s oversight agency (an organ of the FHA) estimates that the agencies’ losses through 2013 will require another infusion of between $68 billion to $210 billion. In government speak, a massive transfer of wealth from the general public (roughly one third of whom are renters) to cover a mountain of bad private assets is called an “investment”.

In Washington, the Obama administration and Congress are trying to hammer out a plan for “weaning the $11 trillion mortgage market from its dependence on government”**. The weaning, which will allegedly include the waning of Fannie Mae and Freddie Mac, must be done carefully and slowly so as not to damage the fragile housing market. (When the market was robust, reform was rejected ’cause it might damage the boom.) A time frame of five to sevens years has been mentioned. By then the full wean will be in the hands of the next administration. In the meantime, the real estate lobby is beating down doors in DC, to make sure that nothing (untoward) is accomplished. The National Association of Realtors, the American Bankers Association, the National Association of Home Builders, the National Council of State Housing Agencies, and the National Fair Housing Alliance are united by their determination to protect folks from being cheated out of the American Dream of Home Ownership.

Do Mollusks Dream of Electric Drills?

Mortgage fraud isn’t the only real estate product backed by taxpayer investment. There’s always (forever and ever) urban revitalization. Point of info: investment in urban revitalization does not put the truly needy in safe, clean public housing and bring industry back to fading blue collar cities. Instead it pumps luxury condo enclaves, twee art and restaurant districts, and political corruption. Perhaps no place exemplifies this type of urban revitalization better than Hoboken, New Jersey. A small (one mile square) waterfront town across the Hudson River from Manhattan, which after biting post-industrial dust was reborn as the jewel of government-backed new urbanism. That almost all of Hoboken’s blue collar residents were pushed out of town in favor of wealthier professionals largely employed by Wall Street mattered not. Gazillion urban planners saw the future and it was Hoboken.

What they didn’t see were the mollusks. More about them in a minute. First, the corruption. Everyone saw the corruption. Over the roughly three decades in which Hoboken became the revitalized gem of Jersey’s “Gold Coast”, developers and public officials from Hoboken and its parent entity Hudson County, went down like nine pins; bowled over by federal and state investigations frequently targeting corruption related to government-backed development projects. The U.S. Department of Housing and Urban Development (HUD) and U.S. Department of Transportation were soaked again and again. As were assorted state agencies. Tax breaks were/are crony candy. Hudson County’s other cities revitalized their historic corruption with equal fervor, inspired by Hoboken’s new urban success.

Hoboken eventually became one of the most valuable chunks of real estate in the country. Yet taxpayers have never stopped investing in its revitalization. The promenade that stretches along the city’s condo-lined waterfront was a mega investment. The walkway and its park areas are open to the public. Hoboken’s master builders would have preferred waterfront access to be restricted to condo dwellers but local green space activists fought not only to keep it open, but to expand the walkway into an unbroken strip running along the entire Gold Coast. Since public largess was powering waterfront development, developers had to bend. Pols scrambled to speed their plow, cutting government red tape re construction. In Hoboken the promenade was largely in place by the 1990’s. New Jersey’s Department of Environmental Protection signed off on it every step of the way.

Now we get to the mollusks.

The first cave-in on Hoboken’s promenade occurred in 2007, at Castle Point Park in mid Hoboken. Just a small collapse. No cause for alarm. But two years later, part of a sports field that had been built atop a pier slid into the Hudson. When the field was developed in the 90’s engineers warned that the pier’s pilings were infested with shipworms, a type of mollusk. Shipworms eat wood. Suggestions were made that the pilings be replaced with something less tasty. The suggestion went into the memory hole.

In early 2010, a section of the walkway in the north, near a cove between Hoboken and Weehawken collapsed. Last October, a fifty foot sinkhole opened on Frank Sinatra Drive. (Sinatra was a Hoboken boy.) The drive, which is 13 years old, runs along the river in front of a strip of luxury condo towers– including one which houses former NJ governor and ex Goldman Sachs boss Jon Corzine. The sinkhole, which was also allegedly caused by mollusks, followed two smaller collapses on Sinatra. Recently, engineers determined that the steel beams supporting Pier A, a popular park on the south end of the promenade near Hoboken’s train and ferry stations, need a makeover. Seems the concrete jackets on the beams aren’t covering all they should. No danger from salt water corrosion yet. Just being proactive. Pier A is like, totally safe.

Despite all the wealth that hangs in Hoboken, the city has severe financial problems. Hoboken isn’t the only entity responsible for repairing the collapsing waterfront (as example, Sinatra Drive was a county project) but the city will have to cover much of the rehab. The cost will be more than the entire city budget. Massive debt will be assumed via bonding. According to the New York Times***, Mayor Dawn Zimmer (elected in 2009) is holding out “hope for state and federal aid”. And Hudson County is hoping to obtain federal grants to repair the Sinatra sinkhole. As for the mollusks, they have high hopes for more wood.

*Mortgage Fraud: Worse Before Better, Expect More Schemes and More Regulatory Oversight in 2011, Tracy Kitten, Managing Editor, Bank Info Security, 02/04/11

**Obama Administration Calls for Winding Down Fannie, Freddie, Lorraine Woellert and Rebecca Christie, Bloomberg News, 02/11/11

***As Hoboken’s Riverfront Crumbles, the Cost for Repairs Soars, Richard Perez-Pena, New York Times, 02/08/11

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