New search engine

Why is it that all these property search engines gotta have such weird ass names, nestoria, trulia, zoomf, zillow, globrix, the list goes on and on; and now we can add a new name to the list ... Hacienda.
Well at least the word hacienda means something, unlike most or all the others. The Oxford dictionary defines 'hacienda' as a "large estate with a house", originating from the Latin word 'facienda' which supposedly means ‘things to be done’. I guess if you have a large estate with a house a lot of things need to be done - hence the connection.
Anyway Hacienda apparently solicit listings direct from agents by traveling 'extensively' around the UK meeting agents, "listening and learning from them"; how sweet, but lets hope they don't run into this guy; seems like the credit crunch is taking a serious bite out of some people.
Unfortunately however Hacienda doesn't seem to offer anything that makes it stand out from the crowd and they're getting into the market at a really bad time. And unless somebody's got a proven track record, or seriously deep pockets, it's doubtful they're going to make it through this downturn, since the consensus now seems to be that we got at least another 18 months to go before anything changes, for the better or the worse, we still don't know.

Silverjet goes bust, why we should worry

The luxury, business class airline has ceased trading effective this morning. Industry analysts cite high oil prices as one reason they went bust. More worrying however is that they were supposed have raised funding from Viceroy a mysterious Dubai based VC, who were unable to deliver a $5 million loan promised to the airline earlier this year. A $5 million loan? Unable to deliver? A Dubai company? Very Very worrying.

ANOTHER UK LENDER GONE BUST

Rooftop, the UK sub-prime lender owned by Bear Stearns is closing down with immediate effect. Its entire range will be withdrawn tomorrow according to Mortgage Strategy.

“Market conditions have continued to deteriorate and with no signs of recovery in the securitisation and whole loan trading markets, which underpin our strategy, Rooftop’s origination business has become unsustainable,”

claims Ginny Darrow, Rooftop CEO.

The company will operate a "pipeline business" with a view towards closing all operations in July.

Is GMAC next?

They've laid off over half of their staff since October last year, with a further 300 jobs set to go this week.

LEHMAN BROTHERS SHUTS DOWN UK MORTGAGE LENDING

Lehman Brothers, the troubled US banker, currently fighting a ¥35.2bn fraud case in Japan is facing further troubles closer to home and is set announce a withdrawal from the UK mortgage market effective April 1st.
Mortgage Solutions is claiming that Southern Pacific Mortgage Limited (SMPL) and Preferred Mortgages - both devisions of Lehman, have indicated they would effectively close their doors on Tuesday.

Alan Greenspan, Money Honey and the credit crunch

This morning's FT has an informative article written by former Federal Reserve governor Alan Greenspan, where he describes the current crisis in financial markets as "the most wrenching since the end of the second world war" Greenspan feels that the crisis will end only when home prices stabilise and the equity value in homes supporting troubled mortgage securities also begin to stabalise. That could and most probably will take years, a process he describes as "inventory overhang".

Home prices have been receding rapidly under the weight of this inventory overhang. Single-family housing starts have declined by 60 per cent since early 2006, but have only recently fallen below single-family home demand. Indeed, this sharply lower level of pending housing additions, together with the expected 1m increase in the number of US households this year as well as underlying demand for second homes and replacement homes, together imply a decline in the stock of vacant single-family homes for sale of approximately 400,000 over the course of 2008.
The pace of liquidation is likely to pick up even more as new-home construction falls further. The level of home prices will probably stabilise as soon as the rate of inventory liquidation reaches its maximum, well before the ultimate elimination of inventory excess. That point, however, is still an indeterminate number of months in the future. [my emphasis]

Ironically, in a video interview with FT.com, Maria 'Money Honey' Bartiromo, the controversial CNBC journalist doesn't seem to think that things are so bad as they may appear and that we may be 'talking ourselves into a recession'. While admitting that she has 'never seen as tight a credit market' as this one, Money Honey claims that she is getting a 'mixed story' in off record discussions and that there are 'optimists' amid the gloom.
On Greenspan, Money Honey indirectly takes a swipe, by claiming current fed chairman Ben Bernanke was 'handed a situation' that he had to deal with, but 'had nothing to do with'. She wouldn't go as far as to say the crisis was 'created by Greenspan', but claimed that Bernanke had brought 'transparency' to the fed.

Is the banking crisis a housing crisis?

I think I shocked a few people when I spoke last month at Zoomf's 'Searching for Profits' seminar. In the midst of my shambolic presentation (compared with the other magnificent presenters) I blurted out that the current banking crisis was not necessarily reflective of a housing downturn - certainly not in the London market.
People seem to mix the two issues together and it can be quite easy to do so. The banks supported 'sub-prime' borrowing and got done for it. Sub-prime is automatically equated with housing mortgages, but the true definition of a sub-prime borrower is a lot broader than that. Anybody who doesn't have a prime credit rating is considered sub-prime. So you can still get a mastercard, just at a higher interest rate. You can still buy that car, it'll just cost you more money, and yes you can get financing, just at a higher interest and you will most certainly have to pay a bigger deposit than your prime rated counterpart and so on and so forth. The same principle applies to housing and the mortgage markets. This is not the first time we have suffered a 'credit crunch', there were very famous 'crunches' in the 1960's, 70's, and 80's

Rightmove hit by credit crunch?

Not sure what to make of this, but the company's shares are trading relatively stable today which would seem to indicate that it's really no big deal - at least to the City. But according to the just released investor note, Rightmove PLC is planning to form a new parent company in order to reduce "the nominal value of the share capital" and to "increase the Group's distributable reserves." These reserves will be available for "the declaration of future dividends and other returns of capital including share buybacks."
Now I really don't know the ins and outs of the above statement, but any reduction of 'nominal share value' for whatever reason would make me nervous or at least slightly edgy if I were an investor or stakeholder. The question is timing. Why now? Why the need for a new company or corporate structure now? The proposed changes are subject to Court and Shareholder approval. Hopefully these questions and a lot more will be answered at that time

Is Darling guilty of criminal negligence?

Certainly somebody in his department is guilty of something. As the head honcho, Darling ultimately has to take full responsibility. His gross mismanagement of the Northern Rock situation and now his department puts at risk 25 million members of the general public?
Brown needs to act quickly and decisively. If not he will prove himself to be an even worse prime-minister than Tony Blair. At a time like this, when the global economy is so unstable, we need competent political leaders at the helm to guide us through the storm.

Has Merv lost the plot?

Word on the street is that BoE Governor Mervyn King may be 'loosing the plot'.
In a stunning and uncharacteristic reversal on his word, King agreed with the FSA and other government regulatory bodies to do almost exactly what he said he wouldn't do and that is to use BoE resources and bail out 'unwise lenders'.
Surely 'unwise' is relatively tame to describe what the Rock has done - actually increasing the amount of loans on their books for the first half of this year, when all indications were that the market was going south, coupled with steadily rising interest rates, high inflation, the summer floods and decreased consumer spending:

In the first six months of 2007, its net lending rose 47 per cent to just under £11bn. And at June 30, it had a further £6.2bn pipeline of loans that had been agreed with customers but not yet delivered ... [w]hat’s perhaps even more embarrassing for Northern is that in its interim statement made earlier this summer, it was explicit that it continued to lend even as the interest rate environment turned against it.
[Peston]

Clearly that decision was unwise, but is Merv's decision any unwiser? Is he now under political duress to bail out banks?
Check the Northern Rock statement released today concerning the bailout:

...Northern Rock has agreed with the Bank of England that it can raise such amounts of liquidity as may be necessary by either borrowing on a secured basis from the Bank of England or entering into repurchase facilities with the Bank of England. Such repurchase facilities would include securities that have prime residential mortgage assets as underlying collateral. The collateral that can be used under this 'Repo' facility is similar in nature to the collateral currently utilised by many Eurozone banks with the ECB. This additional source of funding will enable Northern Rock to adapt its business model in line with the developing market conditions.

OK so get this, what Merv has actually done is collateralize the bailout using - guess what- "prime [read sub-prime - 'cause that's NR's main business] residential mortgage assets."
So the BoE - yes the Central Bank of England, Wales and Scotland - has now become a prime/sub-prime mortgage lender. But that's not the worse of it; now NR decides to adapt a business model in line with 'developing market conditions'; and King supports this?
To give yourself an idea of just what those conditions are, read what Rightmove had to say this afternoon about developing market conditions, then decide for yourself whether or not King is indeed - losing the plot.

"NO NEED TO PANIC !" as Northern Rock effectively goes bust

The writing's on the wall for UK sub-prime industry as Northern Rock arguably the biggest sub-prime mortgage bank in the UK effectively goes bust, were it not for another Bank of England bailout; yet some politicians feel that there is 'no need to panic'.
However, there certainly is need for concern in Northern Rock's situation because the cash crunch problem affecting UK lending institutions, is being caused mainly by irresponsible lending in US housing, particularly the sub-prime market.
Northern Rock, solely a UK lender, brings the problem close to home.
The actions by the UK central bank appear in some way to contradict the policy Mervin King outlined a few weeks ago, when he stated that the Bank of England would not support 'unwise lenders', although his comments were with regards to interest rate policy. However, today's bailout indicates he may be having a problem sticking to his words

RELATED : HAS MERV LOST THE PLOT

Central banks pause, but Libor keeps on rising

Bank of England at 5.75%, ECB at 4%
but the Libor keeps on rising

The Bush initiative may actually save US housing

Seattle based Jillayne Schlicke, winner of this weeks 'Odysseus Medal'; highlights in her post what she believes to be the hypocrisy in President Bush's Homeownership Financing initiative, which is supposedly a 'common-sense, risk-based pricing structure' scheduled to begin January 1st 2008.
The main aim of the initiative appears to be a modernization program aimed at the Washington based Federal Housing Administration (FHA), a government agency that provides mortgage insurance to borrowers through a network of private sector lenders.

"In the coming days, the FHA will launch a new program called FHA-Secure. This program will allow American homeowners who have got good credit history but cannot afford their current payments to refinance into FHA-insured mortgages. This means that many families who are struggling now will be able to refinance their loans, meet their monthly payments and keep their homes. In other words, we're going to start reaching out and making sure people know that this option is available to them so they can stay in their homes" according to the president.

The problem with the above statement is that homeowners with good credit history aren't usually the ones with sub-prime loans and are therefore less likely to be the ones feeling the effects of the current crises. Furthermore current indications in the prime mortgage market appear stable; but that may change as the credit crunch continues to bite.
Schlicke's argument also suggests that it takes an enormous amount of effort for a mortgage broker to become FHA-approved, and that it's really not worth it because of the 'small details'; including net worth requirements, audited financial statements, quality control and compliance issues, plus a rigorous employee payment requirement.
According to Ms Schlicke, for some small to medium sized broker firms, it was:

"a business decision: make more money selling subprime and leave the hassle of originating FHA loans to the banks. “See ya, wouldn’t want to be ya” was the motto when bank [loan officers] left to work for a brokerage firm where all the women and men were hotties, yield spread rapes were encouraged and celebrated and the underwriters gave unconditional loan approvals because the underwriters reported to the sales manager or were threatened with baseball bats."

Bush also claimed in his statement that if a mortgage broker was 'cheating somebody', his administration would 'find you and hold you to account', reminiscent of the 'with us or against us' war on terror rhetoric, which - if history is our best teacher, well, need I say more?
Needless to say, any Bush initiative at this stage of his presidency will most likely be dismissed as hogwash by most people as its become way too easy to dismiss the man as a buffoon.
Truthfully, at the moment his words appear to be shallow political rhetoric, but if the credit crunch hits the prime mortgage industry, they may prove to be a little deeper than first imagined. And if the US economy recedes because of housing, his words may actually resonate further than we would all like to hear. If it gets to that stage, the program may not appear to be so useless after all.

London mortgage fraud (update 1)

After a telephone conversation with Detective Superintendent Oliver Shaw of City of London police, we can further reveal some of the issues surrounding the current London mortgage fraud investigation.
Firstly, Detective Shaw highlighted that the investigation is not just limited to London, but part of a UK wide program, being run by the Serious Fraud Office. He explained that the police led review will ascertain the fraud geographic hotspots and will also investigate agents, valuers and mortgage brokers. The police are also working closely with the FSA and other government bodies, which hold data on dubious finance brokers and companies which have been prosecuted or struck off their registrar.
So far, the investigation has revealed no complicity from lending institutions. In the past, some bank employees have been known to either sell institutional data to criminals, or to overlook due diligence procedures, presumably for an 'under the table' reward. So far the investigation has highlighted no such activity, focusing mainly on exaggerated mortgage valuations and fraudulent ID documents.
The investigation is likely to conclude 'around Christmas' after which further action will take place. The police are intent on minimizing the problems and putting mechanisms in place to prevent future exploitations. They are also looking to identify the most successful criminal gangs and prosecute them.
Detective Shaw acknowledged that the police are 'well aware' of the economic dangers of potentially flooding an already cooling market with property that were obtained fraudulently. In the early 90's property recession, a similar problem occurred and the property crash forced banks to review their loan books after defaults and repossessions.
When the banks remarketed repossessed properties they achieved prices way under valuations which were originally suggested when the loan was processed. In today's cooling market, the same problem is likely to occur and the banks are currently doing everything they can and looking at every angle in order to mitigate their losses.

London mortgage fraud investigation

City of London Police have launched an investigation into allegations of commercial and residential mortgage fraud in London. Reports have led police to believe that criminal gangs, working with corrupt valuers and solicitors, are obtaining fraudulent mortgages, enabling them to build multi-million pound commercial and buy-to-let property portfolios worth millions of pounds. The investigation was launched after a rise in the number of complaints about the use of fake self-cert documents and fraudulent papers by individuals to inflate their earnings according to The Times:

Fake P60 forms, used to illustrate earnings, are widely available online. The Council of Mortgage Lenders (CML) yesterday confirmed that lenders face serious risks from fake documentation rackets ... Detective Chief Inspector Oliver Shaw, of the City of London fraud squad, said: “We have identified criminal networks that have obtained very large commercial and residential portfolios by working with corrupt valuers and solicitors. ... James Cotton, from London & Country, a broker, said yesterday that lenders also faced risks from self-certification mortgages: “We have seen the impact of people lying in America. It is the same here. It’s just difficult to know the extent to which borrowers have lied about their income because the point of self-certification deals is that lenders don’t check.”
The first stage of the police investigation - establishing the lenders’ potential liability over defaults from fraudulent loans - is expected to be completed by the end of the year.

So far, City Police have released no details on the extent of the alleged fraud, or names of companies or individuals who are being investigated or arrested.

CLICK HERE FOR UPDATE AND EXCLUSIVE INTERVIEW WITH CITY OF LONDON POLICE

Bailey gets it wrong on London real estate

I'm going out on a limb and publicly challenge Liam Bailey [pictured], head of Knight Frank residential research and one of the most respected and influential real estate analysts anywhere in the world.
This past weekend, in a front page FT article on the subprime fallout and London property, Bailey is quoted, claiming that if there is an expected and highly probable "downturn in City profits and employment levels, [read: smaller bonuses] you couldn't be surprised if central London prices fall". The article also paraphrases Liam claiming "a correlation between the health of the City and London residential prices' and that prime London property "suffered badly in 2002 and 2003 after prices of technology and telecommunications shares crashed."
What makes the 2007 property market different to 2002, and what Liam (and the FT) failed to highlight in this weekends article is the growing influx of foreign property ownership in central London and its impact on the property market. Bailey and the FT writer failed also to highlight Bank of England interest rate policy, which towards the end of 2003 was on the rise and may also have had an impact on the percieved slowdown in prime London real estate.
Again, another article writen by the same FT writer (Jim Pickard) in June 2007 and also quoting Liam Bailey:

The central London market has been propelled as never before by a surge of buyers from overseas, in particular the Middle East, Russia, India and China but also from European countries. The price of a top-end house in London has risen 46 per cent in the past two years, a rate of inflation four times the national average, according to research by the FT.
Liam Bailey, Knight Frank research head, says price rises in parts of London - Belgravia and Knightsbridge - have hit 45 per cent. But he predicts: "We believe that by the late summer price growth will begin to become much more subdued."
In 2004 and 2005, Knight Frank had 16 applicants per top-end property. This rose to 32 per property during 2006 - but has since dropped to 18.

The article highlights 271 central London homes sales closing at over a million pounds in February of this year, a 33% increase over last years figures. So what are we supposed to believe?
Montreal based Rodrigue Tremblay, the noted political economist, claims that the practice of sub-prime loans and the creation of "derivative financial products" is much more widespread in the USA than in other countries. High risk loans represent 20% of mortgage loans in the U.S., compared to 5% in Canada according to Tremblay. Of the $10 trillion mortgage market, about $2 trillion constitute the sub-prime mortgage market, which is a sh*tload amount of money.
But back to London, have you seen the number of '07 Lambo's and Ferrari's cruising Knightsbridge this summer? Well expensive sport cars in Knightsbridge is nothing new you say; but have you seen the increasing foreign registration, mostly Dubai licence plates? That my friend certainly is something new and something to think about

Is this a good time to buy US property (part 1)

With all the sub-prime turmoil that's happening stateside and the fact that house prices are dropping - even in Manhattan; plus the dropping US dollar, the question has to be asked, is it the right time to buy?
[update - I don't have the answer to this question, I'm hoping you could help me by dropping a comment, or sending an email. If you're in the States and know any great investment opportunities, feel free to share them with us]

Comments on Wall Street jitters and UK housing

Reputable economist Fionnuala Earley of Nationwide Building Society this afternoon released the following statement on the Wall Street selloff and its potential impact on the UK housing sector:

the implications for the UK housing market ... could mean that wholesale funding costs will increase and that lenders tighten up their own criteria, particularly those that are very dependent on wholesale funding. However, if the Bank of England see these current developments as a real threat to the City, this is likely to reduce the risk of further increases in interest rates, counteracting some of that effect.” [emphasis added]

Earley's comments are somewhat contradictory in nature to the tone Mervyn King and the BoE set in his press conference 2 days ago. Paul Tucker, the banks Executive Director for Markets stated that the fundamental pressures in the financial markets - driven mainly by the subprime crises - was isolated.
King said that he doesn't make any predictions on the housing market, but that he was 'surprised' by housing's resilience. He adamantly stated he would not use interest rate policy to bail out 'unwise lenders' and claimed to find no real challenge to the global 'macro-economic outlook'.
However, it appears central banks around the world beg to differ with King's analysis. In response to the crises, Japan's central bank injected one trillion yen (£4.2bn) into the Tokyo market, The European Central Bank pumped €61bn (£41bn) into European markets; Bernanke's Fed added $24bn (£12bn) to the US banking system and the Australian central bank took similar action.

What prompted the interventions from the central banks was that overnight money interest rates shot up this week because cash was scarce. In other words, the price of money rose because it was in short supply.
As of late today, it appeared that the huge injections of funds in the US, Europe and beyond had had the effect of pushing those overnight rates back down again, relieving the pressure on the banking system, for now at least.
[guardian emphasis added]

With the price of money rising, no doubt consumer banks will pass those rising cost onto consumers. Yet King remains silent, even though the FTSE's crumbling.
Will or will not his actions prove beneficial to UK consumers is the 64 billion dollar question du jour.