Hathaway Duke

The Charles W. Schneider house is on the market for $219,000. Project anyone? Image via St. Paul Pioneer Press. LocalDepartment of Duh, Volume II [The Skinny]Jeff Allen reports on the pullback in Twin Cities New Construction: “2008 new construction permit activity is down 69.4 percent from the peak year of 2004. Year to date, only 4,754 unit permits have been issued in the region. In 2004, there were 15,561 issued by this point in the year.” Radon In Granite Countertops? [WCCO]Turns out, your granite countertops can not only withstand a 500 degree La Creuset, but might also cook your lungs into a cancer souffle: “The stuff, the hot [granite] that I have, is about 10 to 50 times hotter than the stuff I measured in ‘88.” And if you think that’s bad, test your basement. Utilities See More Payments via Credit Cards [PiPress]Yet another sign that the consumer is being squeezed as the economy slows. Good news is, energy prices declined 8.6% at the consumer level in October, and experts predict further declines in prices. Zenith Condos Almost Ready [Star-Tribune]The 65 Unit Zenith Condo’s (across from Guthrie in the Mill District) is nearing completion. Have you noticed? Downtown Minneapolis is quietly one of the healthiest sectors going in real estate right now. Why? Affluent, first time buyers want to live there. Who Will Save this Old House [PiPress]Great story about a truly cool “Shingle Style 1890 home with a gambrel roof and polygonal tower.” Unfortunately, many of these period classics get the same “great to visit but I don’t want to be the one to restore it and live there” reception. Must see slideshow of the interior. Odd Fit But Welcome Neighbor in Prior Lake [Strib]VFW Commander turned restaurateur Lyaman McPherson is about to answer the question: Will a new England Style “boxcar diner” work in Prior Lake? Elsewhere & Otherwise Citi: From Bad to Worse [Portfolio]Those of you who had Citi in your financial institution dead pool may be cashing in soon. At $7 per share, it is now worth less than US Bank, and has a market cap more than 70 million dollars less than book value. CMBS: This is No Cave [Accrued Interest]Don’t look now, but the credit crisis is trying to make a comeback in the commercial mortgage backed securities market.

Deborah Solomon, writing over at the WSJ blog Real Time Economics, teases out an interesting angle on just why Treasury is reluctant to use Federal rescue funds to support a loan modification/foreclosure prevention plan in the manner being advanced by Sheila Bair at FDIC and congressional Democrats, where the government covers 50% of losses on modified loans that re-default: Mr. Paulson and others have qualms with it, in part because they believe it provides an incentive for banks to foreclose and may convince some borrowers to stop making payments in order to qualify for government aid. Within Treasury there’s a view that if the government is going to cover half the loss, banks will modify the terms of a loan for weak borrowers they know can’t make their payments, then foreclose and get the government to make up half the loss. See how that works? By modifying only those loans highly likely to default again, a program intended to benefit homeowners and slow foreclosures might actually increase foreclosures, at least in the short term. Worse yet, unlike buying shares or “troubled” assets from the banks, there’s not even the veneer of government “investment.” The egovernment is just paying directly for losses. This is why bailouts get so sticky. Once the money starts flowing, everyone involved alters their behavior to get the maximum financial benefit, with all sorts of predictably ugly results: Homeowners defaulting on purpose to get a modification, banks modifying doomed loans to halve their losses, that sort of thing. To the point where we’ve got multinational insurance companies buying up smallish savings and loans to hang a thrift charter around their neck and gain access to the Federal cookie jar.

Last Friday, we spent about 20 minutes with Jeff Horwich, host of MPR’s “In the Loop,” discussing the current state of affairs in the mortgage industry, how the latest loan modification initiatives may impact the market, and what it takes to get a mortgage these days. Here’s the segment. Our appearance is at minute 16.

Last Week:Despite a week in which the economic news could not have been more dour - a climate which normally bodes well for lower interest rates - mortgage rates were unable to make any meaningful progress lower. Beyond the poor economic picture that is taking shape, a decline in mortgage rates was arrested by lingering concerns over the level of Federal backing Fannie and Freddie have - government officials made clear that though they stand behind “Frannie” they do not enjoy a full faith and credit guarantee. That means that mortgage backed paper is less attractive than other investments, such as treasury securities and FDIC guaranteed bank deposits that carry such guarantees. Demand suffers as a result, keeping mortgage rates higher than they could be. There were also some technical factors at play here - mortgage bond pricing is up against a couple of stout resistance points - making any improvement difficult This Week:The economic calendar this week gives markets participants a full helping of data to consume and assimilate. The data is expected to reflect a weak and recessionary economy. Tuesday and Wednesday, we’ll get a reading on inflation at both the wholesale and street level via the producer and consumer price indices. Thursday’s Philadelphia Fed index will provide a measure manufacturing activity. Weakness in manufacturing and an absence of inflation would be beneficial to the cause (lower rates.) Wedensday’s report on housing starts and building permits is expected to show a construction industry in full retreat. The political/financial tides will also be in full flow this week as issues such as an automaker bailout, the growing line for government largesse, and the shape of future efforts at re-ballasting the economy are earnestly debated by politicians, industry leaders, and television’s yakker class. At any rate, a poor economy generally presents the proper conditions for rates to staw low or decline, but be aware that political/finacial events in the short term can cause mortgage rates to oscillate, so a cautious approach is warranted when considering when to lock in.—-Watching Mortgage Rates? Get multiple daily updates on mortgage rates and the events that move them, via the Web, IM, or your phone by subscribing to our Twitter feed right here.

The Wall Street Journal yesterday addressed the fact that mortgage rates have not fallen - as many expected - after Fannie and Freddie were forced into government conservatorship earlier this year. FTA: …mortgage rates aren’t declining as they should, even as interest rates fall. Now, we all know that mortgage rates are fickle critters. Especially this year, where we’ve seen rates change almost by the hour. All you have to do is scroll through our rate-focused twitter feed to see this in action. But the idea that rates should be lower is an odd one. As faithful readers will know, Mortgage rates are market based. They are not “set” by anyone, so they are always, by definition, exactly where they should be. What the article is getting at is this: At the time they were placed into conservatorship, many (this writer included) assumed that something equivalent to a “full faith and credit” guarantee of Fannie and Freddie by the Federal government was part of the bargian. But once the dust had settled, investors quickly divined that the conservatorship did NOT mean a full faith and credit guarantee, and that investment in Fannie and Freddie debt was not a “risk free” endeavor. You can see this illustrated in the graphic. The spread between Treasury and Agency paper narrowed, but is still wider than it would be if the government were fully behind Fannie and Freddie. [Quick Aside: If you find the concept of spreads confusing, it helps to think of this spread as a “risk barometer” for Fannie/Freddie. Treasury notes represent a “risk free” investment, since they are backed by Uncle Sam, so they form the baseline/x-axis.] So what gives? Simply put, investors want a guarantee, and Treasury has given little more than a handshake-and-a-wink. Again from the WSJ: Mr. Paulson says they now “operate on a stable footing.” He added that “investors can bank on” the government’s pledge to keep Fannie and Freddie from defaulting…Yet Mr. Paulson and the Treasury have proved unwilling to take further steps to address debt investors’ concerns [and offer an explicit guarantee.] Combine the Treasury’s reticence with a still-imploding housing market, and it’s easy to understand why real estate related debt is being shunned by many investors, and why mortgage rates are higher than they should, or could be. But here’s the other thing. All of this handwringing over interest rate levels is mostly a waste of time. Lets be clear. Even if we establish that 30 year fixed rates should be at 5%, rather than, say, 5.75%, that’s only a difference of $93.00 per month on a $200,000 loan. That sort of savings won’t make any but a marginal difference in demand for real estate. So let’s not pin too much hope in the lower-rates-as-the-salvation-of-the-real-estate-market, okay?

Curb Appeal Enthusiasm is a weekly feature where we scour the open house listings for the upcoming weekend and pick out a few based on our own subjective (and some say suspect) tastes. Got an open you think should be included? Have a comment on one of the picks? Drop us a line at alex [a] alexstenback.com or hit the comments link at the bottom of this post. ——–2135 Glenhurst | St. Louis Park $724.5K | Sun 1-3 | Kim PeaseNot sure why, but we are into these upper-bracket ramblers lately. This is a gem.4916 Upton Avenue | Mpls$549.9K | Sun 2-4 | Tim HydeNear-perfect Linden Hills classic, interior is REALLY well done. Bungalow baby.4353 Colfax Ave S. | Mpls$449.9K | Sat/Sun 1-3 | Steve SchmitzHuge aesthetic upside on this. Another classic Minneapolis shape.4429 York Ave S. | Mpls$339.9K | Sun 2.30-4.30 | Bill MingeAnother great Linden Hills find. Love the open porch, lead glass.3311 York Ave N. | Robbinsdale$269.9K | Sun 12-2 | Brad Palecek/Andy GroverVery authentic looking Dutch Colonial. Brickwork makes this one. 4847 Portland Ave S | Mpls$254.9K | Sun 1-3 | Melissa/Conal GarrityHard to imagine this one looking any better from the curb.8501 Meadow Lake Place | New Hope$209.9K | Sun 11-1 | Cassie Frick/Kathy MurphySuper clean lines inside and out of this starter rambler.

Local:Home Sales Stubbornly Continue to Increas Through October [MAAR]October stats are in. High points: YOY Pending sales and closed sales up 6.9% and 12.0% respectively. 40% (!!) of pendings are under $150k in price, pushing median sales price down 18% to $180k. WOW: 48% of all sales lender mediated (foreclsoure, short sale, etc.) Minneapolis Downtown Condo Update [Jennifer Kirby]Excellent breakdown points out that Downtown Minneapolis has more for sale listings than any other district, almost all condos. Other highlights: Avg. 108 days on market, inventory down 28%, average price UP 5.6%, only 8% of sales foreclosures/short. Have Home Sellers Given Up? [Boardman]Did you know that St. Paul has had 3,333 canceled listings this year? Teresa Boardman tells us what this might mean. Foreclosures not Dwindling; Prices Still Falling [Buchta/Strib]Read closely and you might see a quote in here from someone you know… Strip and Steal Hurting Minneapolis [Minnpost]When a Meth addict has taste: Architectural theft is a huge problem in vacant period homes in Minneapolis. Copper theft is SOOOO last year. Elsewhere & Otherwise:Appraiser Should Use Recent Comps [Matrix]If you don’t understand where appraisers fit into a real estate transaction, read this right now. “Investing” in AIG et al [Steven Randy Waldman]An excellent rant: “What kind of society is compatible with an economy managed by a cadre of large, politically connected firms whose operations and those of the state are intimately connected, and which cannot be permitted to fail since that would bring “chaos”? TARP Update: Remember that $700 Billion Dollar bailout thing? The one where Treasury was to spend the money buying toxic assets from banks, and thereby save the financial system? Yeah, um, they aren’t doing that anymore.

If you thought that Mezzanine CDO’s and other “structured finance” vehicles behind the Wall Street/mortgage mess involved some sort of sophisticated financial geometry conceived in the minds of rare genius incubated in places like MIT, and beyond the grasp of those with state university credentials, forget about it. It was all just a con game, and not even a very sophisticated one at that. From Michael Lewis’ most recent, most excellent piece on the subprime mortgage securitization debacle: “This was the engine of doom.” Then he draws a picture of several towers of debt. The first tower is made of the original subprime loans that had been piled together. At the top of this tower is the AAA tranche, just below it the AA tranche, and so on down to the riskiest, the BBB tranche—the bonds Eisman had shorted. But Wall Street had used these BBB tranches—the worst of the worst—to build yet another tower of bonds: a “particularly egregious” C.D.O. The reason they did this was that the rating agencies, presented with the pile of bonds backed by dubious loans, would pronounce most of them AAA. These bonds could then be sold to investors—pension funds, insurance companies—who were allowed to invest only in highly rated securities. Got that? Send a stack of mortgage bonds to a rating agency, and no matter how crappy and likely to fail they were, they’d be graded on a curve, the best of the worst would become AAA. All of this. ALL OF IT, of course was built upon individual borrowers naive enough to fill out a loan application and sign the papers for a sub-prime loan that they had no hope of understanding or affording, and the sketchball lenders who pushed this trash upon their customers. And those of us who did not participate? Those that bought a home they could afford, or never trucked in sub-prime garbage? We are the suckers at the table in a game we never knew we were playing. Welcome to the bailout folks.

If you follow our twitter feed, you’ll know that conforming mortgage limits will remain at $417,000 for 2009 in the Twin Cities. As for FHA limits in the Twin Cities area, they are going down, from $364,000 to $318,500 in most of what we’d consider metro area counties. Here’s a chart: Due the the lower down payment requirements and more liberal credit standards, FHA is rapidly becoming the default option for many borrowers. Accordingly, the 2009 limits will put marginal pressure on home prices above the limit, since the pool of eligible buyers for those properties will be limited to only those that qualify for conventional financing, which requires at least 5% down and has tougher credit standards. New limits go into effect Jan 1st, 2009.

Two bits of news related to Fannie Mae. First, they are still losing money, but fast, and may need more government largess to survive. From bloomberg: Fannie Mae may need more than the $100 billion in funding pledged by the U.S. Treasury to stay afloat after reporting a record $29 billion loss and confronting more difficulty in issuing and refinancing debt. “This commitment may not be sufficient to keep us in solvent condition or from being placed into receivership,” Second, at 2PM today they are announcing a new loan modification initiative, from the WSJ: Fannie Mae, Freddie Mac and U.S. officials are expected to announce plans Tuesday to speed up the modification of hundreds of thousands of loans held by the housing finance giants… The streamlined effort will target certain loans that are 90 days or more past due, these people said. The program will aim to bring the ratio of mortgage payments for these homeowners to 38% of their income by modifying interest rates and in some cases forgiving portions of principal debt, these people said. File this under the economic theory of “Some money is better than no money.” In other words if they can convince a few of these delinquent borrowers to make payments at reduced interest rates and/or principal amounts, they might have a prayer of staying solvent and preventing the economic carnage that would ensue if they just foreclosed on everyone. Of course, the cynical take on this is we are rewarding the risk takers (overextended homeowners) at the expense of those who did not overextend themselves. Also a totally true statement.