Kenmore Undressed

A Story of “Mass Delusion” – Michael Lewis’ The Big Short

An Inability of the Media to Ask the Tough Questions

It has been hard for me to sit down and write on KenmoreUndressed this week. The main reason is that almost all the news coming out of the Media has been especially negative and of incredibly poor quality. I don’t know about you, but it is becoming perfectly obvious that the loss of over 40,000 professional journalists this last two years has created a knowledge vacuum. Today, the news has taken on an “Entertainment Tonight” quality that truly sucks.

Worse yet is this nagging sense I have that NO ONE knows how to tell the truth these days. Doubly worse is the fact that there are no longer journalists to call the liars out. It’s almost as if reporters are too “afraid” to do the homework and then ask the tough questions. But alas, this evening good old 60 Minutes managed to redeem, at least a little, my faith that there are some journalists paying attention to important stories.

The Story of the Subprime Mortgage House of Cards

Click this picture to view "Inside The Collapse"

Tonight 60 Minutes broadcast an interview with one of the most knowledgeable writers about the corrupt gambling house we know as Wall Street: Michael Lewis.

After you watch this video your perspective of the “free market,” executive compensation and the flaws in human nature will never be the same. Frankly, Lewis eviscerates the all-too-common idea that Wall Street (with all it’s elitist propaganda) is governed by some “universal truths” about the sacred “free market.” On the contrary, you’re going to learn just how deeply the “fix is in.” I sincerely hope that you all come away from this story with a more grounded and realistic perspective of how the uber-wealthy Wall Street fat cats aggrandise themselves, ruin economies and walk away unscathed. It’s a tragedy that has affected everyone in some profoundly negative ways.

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The Newest Disturbing Trend: Walking Away from a Mortgage

Is Walking Away from Your Mortgage Just a “Business Decision?”

Over 11 Million Families are "underwater" in their mortgages!

A quick disclaimer: The discussion below regarding “strategic defaults”(walking away from your mortgage) is a serious matter. This post is not to be considered legal advice in any way. Nor am I encouraging anyone to walk away from a mortgage. It is intended to help readers understand a disturbing and, I fear, growing trend in the housing market. If you or anyone you know is considering walking away from a mortgage CONSULT BOTH A CPA AND ATTORNEY FOR FINANCIAL AND LEGAL ADVICE.

Last year over 1 million home owners walked away from their mortgages. This is 4 times the number who did so in 2008 and experts believe the number of “strategic defaults” will rise as more and more families find themselves “under water” in their mortgages. According to an article entitled Underwater Mortgages Continue to Rise in The Bulletin (a Philadelphia area paper):

First American CoreLogic reported today that more than 11.3 million, or 24 percent, of all residential properties with mortgages were in negative equity at the end of the fourth quarter of 2009, up from 10.7 million and 23 percent at the end of the third quarter of 2009. An additional 2.3 million mortgages were approaching negative equity at the end of last year, meaning they had less than five percent equity. Together, negative equity and near-negative equity mortgages accounted for nearly 29 percent of all residential properties with a mortgage nationwide.

Over the last several months I have been reading quite a bit about home owners walking away from their mortgages. It’s a subject that is both disturbing and compelling given the tough times many home owners are experiencing today. And truly, if you find yourself out-of-work, paying a mortgage on a home that is “upside down” (worth less than the mortgage) what should you do?

There are a lot of  strong opinions regarding this. They stretch across a continuum of beliefs from the notion that it’s “unethical” to not pay one’s debts on the one hand to “hey, it’s just a “business decision” on the other hand. And believe me, if you read through the commentary in on-line discussions, you’ll encounter a huge amount of speculation, misinformation and many writers “practising law without a license.” One fact stands out: most people believe it’s just plain wrong to walk away from one’s debts, especially a mortgage.

Most People Agree Walking Away is Un-ethical!

But…….and it’s a big but

BUT, there’s also a growing number of economists who feel that attempting to do the right thing by paying back a mortgage (for decades) on a depreciating home is, simply put, a bad business decision not in one’s own self interest. One of the most controversial writers on this subject is Professor Brent White at the University of Arizona whose recent paper entitled ““Underwater and Not Walking Away: Fear Shame and the Social Management of the Housing Crisis,” has been creating quite a debate about the “business decision” angle of home ownership. If you click on this picture you can read it:

Click on this picture to read this paper

Dr. White is not giving advice in this academic paper but he is sending a clear message that individuals sometimes need to make hard-core decisions about paying for a home with little hope of ever making up for lost equity. Sometimes, it’s in the borrower’s best interest to put aside the morality of walking away from a mortgage and focus on one’s long-term financial interests. He suggests that taking the hit on your credit score and several years of higher interest rates may be a small price to pay compared to paying back hundreds of thousands of dollars on a depreciating home. If you want to hear an interesting interview with Dr. White go to: http://www.npr.org/templates/story/story.php?storyId=121911468 which was broadcast on NPR on December 25, 2009.

Some Consequences of “Walking Away”

I’ve had some heated “debates” with a number of writers who are quick to point out that “Wall Street” doesn’t play by the same rules that it expects of the public. Indeed, recently there were several huge corporate entities (Morgan Stanley and Tishman and Speyer Properties) that basically walked away from their multi-billion dollar mortgages. Sure, these corporations aren’t setting the best example; however, when it comes to your financial world I’d like to point out some things you must consider before walking away from a mortgage:

• First and foremost, seek the professional advice of your CPA and Attorney. There are a lot of legal and tax consequences involved in walking away
  
• Know that your credit score may drop close to 200 points by walking away from your mortgage. This is going to result in you paying higher interest rates for loans and may disqualify you from obtaining unsecured credit. Purchasing a car may become problematic
  
• If your home is in a “recourse” state, the lien holder can (and most likely will) sue you for the deficiency between what you home is worth and your mortgage. They can put a judgement on your credit report and possibly seek a garnishment of your wages and other punitive actions
• Many employers disqualify job seekers based on their credit history Worse yet, many employers terminate current employees if they file bankruptcy, experience a foreclosure or walk away from financial obligations

I hope this post has helped you understand some of the issues connected with “strategic default.” If you’re interested in learning more, here are other articles that are informative:

The Wall Street Journal – When It’s OK to Walk Away from Your Home

The Wall Street Journal – Debtor’s Dilemma: Pay the Mortgage or Walk Away

The Huffington Post – Don’t Look Back: Major Players Continue to Walk Away from Poor Mortgages

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Mr. Freeze, the Financial Curmudgeon Adores Elizabeth Warren

Mr. Freeze is In LOVE!!!♥♥♥

Sources report: "Mr. Freeze Loves Elizabeth Warren."

I, Mr. Freeze the Financial Curmudgeon am in LOVE. Yes, Cupid’s arrow hit me right in my glacially frozen heart and it (literally) melted!! Last night I was enjoying an ice cold vodka on-the-rocks (go figure) as I was watching “Real Time” with Bill Maher and THERE SHE WAS: Elizabeth Warren…..Oh baby, oh ya!

ELIZABETH WARREN IS HOT!!!!!!

Bill was actually doing a follow-up interview with “Liz” about the continuing strangle-hold the banks and credit card companies have on American families. I have to tell you, I, Mr. Freeze the Smitten Financial Curmudgeon, was enthralled by her eloquence in describing how the banks continue to invest in the same high risk “securitized instruments” that brought our economy to its knees in 2008. She also attacked Mr. Freeze’s sworn enemies THE CREDIT CARD COMPANIES, AKA SATAN. Even after the positive reforms just now going into affect to curb credit card company abuses, the companies are already finding ways to add fees, penalties and usury back into their bags of tricks.

In all seriousness, Mr. Freeze believes that there are very few people in government today who defends the interests of the American People more than Elizabeth Warren. As Chair of the Congressional Oversight Panel she has been responsible for oversight of the Department of Treasury’s administration of TARP. Over the last year she has been incredibly critical and blunt about how little has changed in the world of banking. Here’s a sample of her interview with Bill Maher last night:

Click on this picture to view the interview (Isn't she HOT!)

Mr. Freeze simply can’t get enough of “Liz.” Oh, I LOVE that gal!!!

Mr. Freeze courtesy of flicker.com and is the creation of ElDave.

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Kenmore Village or Kenmore Twilight Zone?

AND THEN THERE WERE TWO!

Last October I wrote a post entitled “Kenmore Village – Squandering a Chance to Create a 21st Century City” in which I expressed my frustration about the way in which the Kenmore City Council and city leadership have essentially allowed Kenmore Village to become a ghost-town. Pardon me for being so blunt, but it’s a disgrace to see business after business vacate Kenmore Village whilst the City Council clings to the false hope that Urban Partners LLC will someday be developing this site.  To add insult to injury the City of Kenmore is simultaneously building a new City Hall right across the street at great expense.

Kenmore Village is Down to Two Businesses!

On February 10th  the owner of Grocery Outlet told me, officially, that she is moving her store to Kenmore Square at the beginning of April. This means that there will be two businesses left in the square: European Deli and Kenmore Fitness.

So What’s Next?

I’ve got to tell you, I drive past the new City Hall and the almost-empty twilight zone “formerly-known-as-the-Kenmore-Village” every day and I can’t help but wonder why it is that the citizens of Kenmore can’t see the uber-irony in all this.

I can tell you that there are a lot of business owners in Kenmore who feel that the City Council doesn’t care about business development. Some have pointed to their own dealings with the City and many have also pointed to the Kenmore Village as emblematic of a City Leadership that is unresponsive to the realities facing the business community. Everyone wants to know why the City is holding on to Urban Partners LLC WITHOUT A PLAN B!

The Kenmore City Council, Mayor and City Managers owe us an explanation regarding the current status of the Kenmore Village. I don’t think the City of Kenmore can afford to allow the structures in the village to sit empty. When will the City Council tell us what they’re going to do with this important asset? I highly recommend you all get on the phone, call the Mayor and council members and tell them that we want answers regarding the Kenmore Village.

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A Snap-Shot of the Kenmore City Council Retreat

Some Excellent Priorities Identified

Last Wednesday I posted the first “official poll” on Kenmore Undressed in anticipation of the Kenmore City Council Retreat that convened this last weekend. I asked what the most important priorities are for the City of Kenmore in 2010. So far I’m pleased with the number of votes and the poll is still active for those of you who would like to add your two cents! Here’s what it looks like so far:

Click this picture to answer the poll!

Today I received a quick summary of the City Council’s retreat from Councilman Bob Hensel. It’s interesting to compare those priorities identified by the council and some of the issues I raised in the poll. Here’s Bob’s summary:

The top 5 are as follows,

1. The completion of the 522 project which will assist in attracting new businesses.
2. Working to reopen the CAWM pool at St Edwards as the council realizes the longer the pool stays closed the the more difficult it will be to reopen.
3. Economic development which includes implementing the plan put forward by the Citizens Advisory Committee and approved by the council last summer. Note that plan includes attracting new businesses, downtown,lakepoint, and more.
4. Completing a parks plan which provides for more active park space and and financing options.
5. Review of current police services and the contract with King County. The annexation of Finn Hill (unincorporated King County) to the city of Kirkland and other changes to services provided by King County in 2012 need to be addressed now.
This is only a brief synopsis of each priority, a lot of discussion went into getting to this point and there is a lot more meat on the bones of each priority.

I’d like to thank the City Council for some good brainstorming at their retreat. As a resident of Kenmore and a Real Estate Agent, I’m encouraged by the Council’s focus on business development while at the same time working to preserve Kenmore’s landmarks and natural resources. 2010 is going to be a challenging year. I sincerely hope some of you out there get involved in making Kenmore a 21st Century City.

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The Great Recession – Are We Out of the Woods?

NO, In Fact Don’t Get Comfortable

The "American Way" has some serious systemic problems

This Great Recession in which we find ourselves has had an enormous impact on many facets of our lives. If you’re paying attention, you know that the “American Way” may not have been as affluent as it appeared. Certainly, we know just how over-inflated the housing market became. As a Realtor® I believe it’s imperative that we understand the underlying causes of this recession and, more importantly, we need to consider what’s going to happen in the coming years. Should we be optimistic given the rise in the Stock Market this last year? Should we expect home prices to rise? Will the job market improve?

7 “Inconvenient” Economic Realities to Ponder

Pondering the Future!

Dan Froomkin of the Huffington Post has written a powerful summary of a series of articles from the Nieman Watchdog website which highlight 7 things about the economy that we should be worried about. He writes:

“A common theme underlying them all is that while our leaders — and the voices of conventional wisdom — treat our current recession as cyclical in nature, and are essentially mostly just waiting around for growth to pick up again, there is plenty of reason to believe that this crisis was instead an expression of structural problems. And if that is so, and we don’t take the proper action, then the wait could be a long one.“

I highly recommend you read the article entitled: Seven Things about the Economy that Everyone Should Be More Worried About than They Are.

Here is a summary of the 7 ideas:

1. The middle class may never be the same again – Lost wealth + high debt
2. The recovery could take a really long time – The recovery has been largely government funded and this won’t last
3. The recovery could only be temporary – What will spur new growth?
4. Then what? We don’t have the tools to get out of a recession – we can’t keep borrowing forever or lower interest rats any lower
5. The “very real” people in Washington are still obsessed about the deficit – let’s not make the same mistake made during the Great Depression
6. Whatever is making the stock market go up could go away – where’s all the money coming from to fuel the current rise in the market?
7. The hugely irresponsible financial sector remains unchastened – the banks, so far, have been successful in dodging regulation

Why is this important to talk about on a real estate blog? Well, it was irrational speculation that drove the housing bubble that helped bring our economy to its knees. As we face the future, I think it’s important for anyone buying or selling property to think carefully about what long-term consequences there are in being in this difficult market.

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The Great Recession – Let’s Review How We Got Here

This Investment (of 15 minutes) Will Pay Off

The populist anger that has been so much in the news lately is certainly justified. It seems as if our elected officials (all of them) have been pussy-footing around with Wall Street far too long and now the public is out for blood. Yes! A revolution is on the way, right? Well, not exactly. Don’t get out your pitch forks and machetes yet.

When the Glass-Steagall of 1933 was repealed in 1999 and investment banks were allowed to speculate (gamble) with your money and mine, these emblematic institutions of capitalism threw caution (and our money) to the wind. In the last several days, there’s been a lot of fighting talk coming out of Washington DC and from the public about reinstituting Glass-Steagall-like legislation and holding the “fat-cats” of Wall Street accountable for their recklessness. Well, I’m not holding my breath.

Now that this issue is back on everyone’s mind, I thought you might benefit by reviewing the Vimeo video entitled Financial Crisis – Meltdown what brought about our current financial crisis. I think it’s important for us to be clear about the fundamentals so that when the politicians, pundits and pseudo-experts talk about the problem, you’ll be prepared to agree or challenge their arguments for yourself.

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What Are The Most Important Challenges Facing Kenmore in 2010?

I recently sat down with Bob Hensel, one of our new City Council members. He had invited me to have a cup of coffee and talk about “our fair city” Kenmore, WA. He was sincerely interested in discovering what sort of issues were on my mind regarding Kenmore, its current challenges and its future. I must say, it was nice to “think out-loud” with Bob as he was a good (and patient) listener!!! So I thought I’d give you an opportunity to vote on what you believe are the important challenges facing Kenmore in 2010. Please answer the poll below and, if I didn’t mention something you consider worthy of note, by all means, tell us what you think in the “comments” section.

You may vote for two items!

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City of Kenmore Winter Newsletter -2010

A Good Recap of 2009 in Kenmore

Click on this picture to view the whole newsletter

The current City of Kenmore Newsletter contains a number of interesting articles about the various projects and accomplishments of the City this last year. Of particular interest are:

• Improvements to SR522
• City Budget and Property Tax Levy Information
• The City Manager’s 2009 Review
• An Update on the new Kenmore City Hall
• Swamp Creek Park Master Plan

I encourage you to read through this newsletter. The sections regarding the budget and property taxes are quite interesting.

Also, if you want to become more involved in the planning of “our fair city,” check out the section regarding the Planning Commission and Downtown Task Force. I think this would be a good opportunity for residents to help shape the future of Kenmore.

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Why Buy a Home? It’s a Good Investment, Right?

Buying a Home for the Right Reasons

I am writing this post as a follow-up to my comments back in November of 2008 (Readjusting or Priorities: What’s a House For?) in which I explored the importance of having the proper perspective when buying or owning a home. At that time my neighbors were coming to me concerned about the drop in real estate values. I recall the distinct feeling that instead of speaking with me as a neighborhood Realtor®, they were questioning me as if I was a stock broker!

I’ve been a Realtor® going on 9 years and many people are shocked when I tell them that A HOME IS NOT AN INVESTMENT°. Quite the contrary. In the current market a huge number of homes homes have losing value since 2007 and the most current reports show that almost 25% of home mortgages are “underwater” which is a nice way of saying that the owners owe more than the mortgage is worth. Not exactly what I’d call a good “investment” and I’m not even a stock broker. So for those of you who are planning to buy a home this year, I’d like you to repeat the following:

My 2010 Resolution: I will not buy a home as an investment!

Here’s why: In a recent Wall Street Journal article by Karen Pence, Chief Federal Reserve Economist in charge of the Household and Real Estate Finance Section, summarizes why homes are a lousy investment:

1. It is an indivisible asset. If you own stocks and bonds and suddenly need a little cash, you can sell some of your stocks or bonds but not all. With a home, on the other hand, “you can’t just slice off your bathroom and sell it on the market.”
2. It is undiversified. You can buy stocks or bonds in industries or countries all over the world. A home is a bet on one single neighborhood.
3. Transaction costs are very high when you buy or sell a home because of real estate agent fees, mortgage fees and moving costs.
4. It is asymmetrically liquid, meaning it’s easy to get money out when home prices are going up. (You just take out a bigger mortgage.) But it’s hard to take money out when prices are going down because refinancing becomes more difficult. Put another way, the leverage that you have in your house with a large mortgage means your investment does well in good times but could be lousy in bad times.
5. It is highly correlated to the job market, meaning that home prices in a neighborhood tend to rise when the job market is improving in the area and fall when the job market is worsening. This means that your main financial asset provides the smallest cushion to you when you might need it most.

So Why Buy a House?

Please allow me to revisit an important idea expressed by Steve Kerch, the award winning real estate journalist of Market Watch. This persistent drop in home values should remind us that houses aren’t really “investments.” In his article, entitled Core Values, Mr. Kerch asks us to consider the following:

“At its core, a house is a shelter. Unless the roof caves in, there is always some economic value in that. But most people when they dream about a house or start looking for a house or actually buy one think about value in a whole different way: they think about the fireplace they can gather around with their families, the kitchen where they can show off their culinary skills, the bathroom that they won’t have to share, the schools they will be able to send their kids to, the neighbors they will be able to entertain in the backyard, the parks they can bike and hike and the community events they will be able to attend.”

I believe most people hope that their homes will gain value over a number of years. We all want to believe that it’s “worth it” to buy a house. I also believe that we are connected to our homes by values and emotions that transcend monetary gain. For all of you “bean counters” this may be too foofy a concept so you would do better to continue renting or living with your mother. Just remember that when you’re ready to march out and buy a home, do it for the right reasons. Oh, and get a good Real Estate Professional to help you.

°A home is technically an “investment” when it is revenue positive; that is, one is actually making a profit at the end of the month. This basically means it’s a rental property.

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