[Buzz123]

Ok -- this is a long one -- but is the best explanation I've read on the "mortgage mess" -- and explains simply how financial markets work. It's an article from today's Salon.com


Panic on Wall Street
You've heard about the home-loan bust, but do you know your derivatives from your tranches? Read Salon's easy guide to understanding the current market freakout.

mod cut: text removed and link inserted


http://www.salon.com/tech/feature/20..._street_panic/

[gulfer]

Wow...they certainly didn't cover this is ECON 201 or even 202. I want my tuition back!!

[Buzz123]

Originally Posted by gulfer

Wow...they certainly didn't cover this is ECON 201 or even 202. I want my tuition back!!

PFI huh? Interesting that is...

[SHEPNYC]

#1
Stockton, Detroit, Las Vegas document highest metro foreclosure rates.

With one foreclosure filing for every 27 households, Stockton, Calif., reported the highest foreclosure rate among the nation’s 100 largest metro areas during the first half of 2007. The metro area, comprised of San Joaquin County, reported a total of 8,169 foreclosure filings on 4,239 properties, more than twice the number of properties reported in the previous six-month period and more than triple the number reported in the first six months of 2006.

Detroit documented the second highest foreclosure rate among the nation’s 100 largest metropolitan areas — one foreclosure filing for every 29 households. The metro area, comprised of Wayne County, reported 28,705 foreclosure filings on 20,231 properties, a 26 percent increase from the previous six-month period and nearly double the number reported in the first six months of 2006.

Las Vegas documented the third highest foreclosure rate among the nation’s 100 largest metropolitan areas, with one foreclosure filing for every 31 households during the first half of 2007. The metro area, which comprises Clark County, reported 22,928 foreclosure filings on 13,028 properties, a 72 percent increase from the previous six-month period and more than twice the number reported in the first six months of 2006.

#2
Nevada Unemployment Hits 4.9 Percent in July.

Nevada's unemployment rate rose for the fourth consecutive month, hitting 4.9 percent in July as a housing slump continued and private-sector employers weren't able to provide a lot of temporary summer jobs.

The state Department of Employment, Training and Rehabilitation reported Friday that the seasonally adjusted rate was the highest
since January 2004, and exceeded the national rate of 4.6 percent.

[TerpsandHorns]

Some Random Positive News

I started this thread that has deteriorated into a "sky is falling" negative tailspin.

And rightfully so, It will get worse before it gets better...but...

In the true long run, Las Vegas real estate should be a big winner.

Unless the federal government sells off some of its 97% of state land, the available private land to be developed is all but gone.

If you are able to hold for another 10-15 years, the shortage of land spike will occur...of course it might be horrific ride to get to that 10-15 years...

...

Hold your primary residence in Vegas for this likelyhood..but get cashflow elsewhere..

I would buy investment properties in the SouthEast USA not Las Vegas. Vegas simply doesn't generate rents to cover mortgage costs. Cities like Charlotte have similar rents with half the home costs.

[ParkTwain]

Buzz, that long article doesn't mention Section 1031 swaps. This means that the author doesn't believe that those transactions artificially fed the boom in RE transactions by investors? I believe that this was especially in Las Vegas. I also believe that the high rate of foreclosure filings (not all of which are actual foreclosures, yet) in the LV market is the result of relatively few investors each of whom were engaging in large numbers of Section 1031 swap transactions. Look at what happened to Southwest 1031 Exchange that went belly-up. A Mr. McGhan was running that company fraudenlently before any state regulator got involved. One attorney for one of the plaintiffs in the new lawsuits against McGhan stated that the business model for Southwest 1031 Exchange was illegal on its face.

[olecapt]

I don't see why you would expect 1031s to be prominent in any foreclosure problem. 1031 is a mechanism to move equity. It is sometimes involved in increasing the leverage of RE investments but the mortgage involved would be a much bigger deal than the 1031...it is mortgages terms that limited the leverage available...the 1031 provides the down payment.

The short sellers in Las Vegas are about 90% local and 60% owner occupied. This tends to indicate a local thing. Basically over-reaching.

Looking at first half of August single family sales we still see a weak market with relatively stable pricing...up from last month at the moment by a couple of percent. Inventory still growing slowly. It can't continue but it does.

[ParkTwain]

Originally Posted by olecapt

I don't see why you would expect 1031s to be prominent in any foreclosure problem. 1031 is a mechanism to move equity. It is sometimes involved in increasing the leverage of RE investments but the mortgage involved would be a much bigger deal than the 1031...it is mortgages terms that limited the leverage available...the 1031 provides the down payment.

I just looked up Section 1031 exchange again. The equity (including any capital gain) from a given sale can be moved to up to three other propertes in a swap. Unless a highly capitalized buyer is involved, each of those three properties would need to have its own mortgage. I believe that these one-to-three transactions were taking place on a large scale. It could easily be expected to feed the speculatory environment for RE "investors." The investor can split the capital gain taken on any property and apply it to up to three other properties, then sell those three and do it again for each sold property. Pyramiding. Until the demand went away and the bubble burst.

[olecapt]

Originally Posted by ParkTwain

I just looked up Section 1031 exchange again. The equity (including any capital gain) from a given sale can be moved to up to three other propertes in a swap. Unless a highly capitalized buyer is involved, each of those three properties would need to have its own mortgage. I believe that these one-to-three transactions were taking place on a large scale. It could easily be expected to feed the speculatory environment for RE "investors." The investor can split the capital gain taken on any property and apply it to up to three other properties, then sell those three and do it again for each sold property. Pyramiding. Until the demand went away and the bubble burst.

Of course. But the standard mortgage in these cases involves 20% or more down. You generally had to claim owner occupied to leverage to 90% or more. With 20% or more equity they can simple sell out. In fact I suspect that is what many did.

I really don't see what appear to be 1031 exchanges in the foreclosure mix. I am sure there are some but not many. They would show as common ownership of foreclosed properties. In fact I would expect to see them grouped in a geographic area. I would also expect many to be none locally owned.

[ParkTwain]

Originally Posted by olecapt

Of course. But the standard mortgage in these cases involves 20% or more down. You generally had to claim owner occupied to leverage to 90% or more.

Come on, they called them (i.e., Alt-A mortgages) "liar loans" for a reason, and it seems that the mortgage origination system doesn't call for anyone in that system to do the checking for a lie about which property of the buyer's is owner occupied. Please educate me to the contrary.