Citigroup Real Estate CEO Sees Big Trouble Ahead For Banks
When you're inflicted enough to read several hundred economic articles every week, it's nice occasionally to hear some honest discussion from an insider that doesn't sound like nauseating optimism. Roger Orf, CEO of Citigroup's Property Investments, delivered in that regard yesterday, as he addressed the Reuters Global Real Estate Summit. Orf manages $13 billion in real estate property for Citi.
From Reuters:
"Toxic real estate mortgages are holding the global economy to ransom and the banking sector will not return to health without a purge of its distressed property assets."
"The burgeoning economic rally could fizzle out by the end of the year unless governments take more affirmative action to protect it, by forcing bailed-out banks to sell off distressed property."
"Any time that you have got clouds on the horizon, it means there is not clear sailing ahead. And these are thunderclouds, maybe even a cyclone."
"I personally feel the best way to do that is through creative destruction as opposed to a malaise where you let the air out of the tire over a number of few years."
"Regrettably, governments are not forcing banks to sell assets and that's one of the fundamental things needed to restore equilibrium to property markets."
Orf said he did not expect fully functioning property lending markets to return before 2011, by when he hoped banks will have completed repair of their capital bases through a wave of real estate sales.
"I don't think there are any greenshoots. These greenshoots are weeds."
"We are all going to wake up in 6 or 12 months time and discover we're back where we started. I'm wary that we could relapse into a significant downturn by end of the year."
Steve here. He's being too optimistic in his hope for a property-market turnaround in 2011. Examine the charts below, and read how the problem is now moving to Jumbo Prime. We have still yet to see the worst of the foreclosures. Alt-A, Option-ARM and Jumbo Prime will make the sub-prime meltdown look like a child's diversion.
Click to enlarge chart.
Below is a chart for Option-ARM resets (no click).
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Jun 23, 2009 at 11:49 PM
Reader Comments (15)
http://www.propublica.org/feature/madoff-client-jeffry-picower-netted-5-billion
S&P downgrades prime jumbo mortgage securities The contagion is spreading.
http://www.marketwatch.com/story/sp-downgrades-prime-jumbo-mbs
Red Roof Inn Defaults. Another one bites the dust.
http://online.wsj.com/article/SB124578596153843175.html
WSJ journal stories from 1930. Daily tracking of 1930. Extremely Cool.
http://newsfrom1930.blogspot.com/
Federal Reserve Chairman Ben S. Bernanke will defend his unprecedented actions to prevent a financial collapse as debate on whether he should be reappointed begins.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aUBTI6OxeEVA
http://www.truthout.org/050609C
Slightly older but extremely relevant.
The problem is, the interbank rate is low largely because the government is propping up the industry. When it rises to a market level that reflects banks’ true state, it could crimp their earnings.
http://www.telegraph.co.uk/finance/breakingviewscom/5365880/Libors-plunge-could-trap-banks.html
Picture of Downtown LA's largest landowner washing his own windows. LOL to the max.
Enjoy!!
http://la.curbed.com/archives/2009/05/downtowns_biggest_landlord_does_his_own_windows.php
I am an appraiser and I will defend our profession. The honest appraisers were "Black Listed" years ago. Not for being bad appraisers but because WE ARE HONEST. The banks and lenders wanted appraisers who would "make the deal work". We are not coming in low today on purpose. It is the market....we only report. Our opinions are based on stats and data. The lenders wanted shitty appraisals and got them. The crooks made their money and are GONE. THE HVCC MANDATES lenders order through a 3rd party. When this 1st passed the lenders COULD NOT hold ownership interest in these Appraiser Management Companies. When it finally went through....THAT WAS STRUCK FROM THE AGREEMENT. The 3rd party management companies have in no uncertain terms told us the appraisers that if we want to work...the fee is $150-200. We used to make $300-500. Costs to appraisers for data and other essential items has RISEN...fees are cut in 1/2....and frankly...I could give a crap where your value comes in at. How hard will you work for 1/2 of your salary. It is a disgrace that your biggest asset will be evaluated by a guy making $8 bucks an hour. A honest and ethical appraiser can only do 1 House per day. We spend 20-30 minutes doing the inspection and HOURS compiling data and typing up the report. EVERY GOOD appraiser I know has had enough...What other profession has seen it's fees decrease on average for the past 2 DECADES? You think it's bad now...wait til' the gov't steps into YOUR line of work. It's coming...get ready. Might as well bend over and don't scream or otherwise they will make it hurt WORSE!
http://www.thetruthaboutmortgage.com/builders-want-guidelines-for-appraising-distressed-properties/
builders want guidelines for appraising distressed properties 23jun09
Home values are being pushed lower thanks to an increased number of previously foreclosed and distressed comparable sales showing up on appraisals, according to the National Association of Home Builders.
The group argues that many appraisals aren’t taking into account differences in condition between well maintained homes and those that are distressed; one reason being appraisers often aren’t able to enter the foreclosed homes to examine their interiors, which could be badly damaged. "However, most are 100% complete and never lived in and BUILDER/BANK Owned"...AB
“Any home buyer can recognize the difference between a well-kept home and a distressed property that is damaged or not properly maintained,” said NAHB Chairman Joe Robson.
“So it only makes sense that an appraiser should be required to consider the overall condition of a property and the specific factors related to a foreclosure or distressed property sale when selecting and adjusting the value of comparables.”
The builders have suggested that appraisers be given an expanded geographical area and/or an extended time frame for recent sales to assess home values in areas riddled with foreclosures. " Would you prefer we ignore the ones NEXT DOOR?"....AB
“Currently, improper or insufficient adjustments to the comparable values of foreclosed and/or distressed homes often results in the undervaluation of new sales transactions,” the group said in a release.
“This practice must be corrected because it contributes to the continuing downward spiral in home prices, forestalling the economic recovery,” said Robson. "How about... you f-ked up and created OVER SUPPLY.....MORON"...AB
It also makes it more difficult to sell homes, or allow current homeowners to refinance, as appraisers aren’t coming up with that “right” value as often. "I will make a note on that and comply IMMEDIATELY"...AB
The NAHB believes there should be proper regulatory guidelines in place for appraisers who use distressed or foreclosed properties as sales comparables when determining home values.
Funnily enough, most of the neighborhoods riddled with foreclosures are new developments owned by the nation’s top home builders… "Got to be the appraisers fault".....AB
I wish every appraiser was honet like you, but a lot of them were pressured by the realtors, lenders, buyers and sellers to come in at inflated prices. If you didnt come in at inflated prices, then you were seen as a not capable appraiser. I dont think appraisers should take too much blame, even the over inflated ones were pressured by people around them.
Although you may have lost deals, you should feel great about yourself. Being honest is the best satisfaction you could have. Money comes and goes, but how you feel about yourself stay forever.
all in my opinion.
The problem is that the media doesn't understand it and so nothing gets told to the American people. That's why sites like this one exist.
You said >>>but it is NOT what this eCONomy was built on. Having honesty and integrity surely doesn't keep the bills and mortgage up to date.<<<
Its sad, but thats very true. I'm in the business of providing advice for clients for investments. I see a lot of people in the same business that only care about themselves and how much money they make. The last thing they care is the client's interest. Yeah, they may have extra 2,000 sqFt of home, extra toys, cars, ect...they will never have the same peace of mind as I do. I make much less money, but I'm happy. I put my client's interest first. Their money is more important than my money. And I'm happy with my modest life and dont want all the problems and headaches.:)
Good to know there's integrity left at the bigger firms.