John Preston - Seeking Alpha 'John Preston' Tag RSS Syndication from SeekingAlpha.com SeekingAlpha.com http://seekingalpha.com/author/john-preston Keeping an Eye on the Entire U.S. Housing Picture, Part 1 http://seekingalpha.com/article/153296-keeping-an-eye-on-the-entire-u-s-housing-picture-part-1?source=feed 153296 I read much of what is posted on the mortgage/real estate/housing section as that his my career background. When I read many of the posts, most of which tend to report and recycle the news, and present very little in the way of objective analysis and resolution, I’ll admit that I get a little perturbed by the narrowly focused mindset that tends to dominate the general tone and tenor of the commentators.
Let’s take a look at two popular obsessions: the 1890 Shiller Inflation Adjusted Index; and the foreclosure inventory issue.
First, let’s look at the infamous 1890 Shiller Inflation Adjusted Home Price Index. As I understand basic economics of this index, when the line is flat…housing matches inflation. When the trend is down, the inflation rate exceeds housing. And when the trend is up, housing values are increasing at a rate greater than inflation.
Isn’t this true of any economic statistic which is measureable and has a data history? If we take a McDonald’s hamburger, currently at $1.09….how does its inflation adjusted price display on a chart? Probably flat! Take the 1965 hamburger price (15 cents) versus the 2009 hamburger price ($1.09), graph it, and the graph will be relatively flat.
If we take the price of Gold, and graph it from 1975 ($200) to 2009 (say $960) what do we get? The rate of growth in the price of Gold was 4.62%...just about the rate of inflation (+/- 4.5%) during this period, and the graph will profile relatively flat.
So, are McDonald’s hamburgers over priced? Is gold over priced? Most goods and services will probably profile in a similar manner.
So, why the obsession with housing and inflation, when impact of inflation on other goods and services seems to be obvious as well? And, if you must be obsessed, then housing only needs to meet or exceed inflation for make financial sense. And, historically, it has. Plus, you get to stay there and enjoy it.
Let’s take a look at the second obsession, the foreclosure inventory issue. I read a great deal of how the impact of the volume of resets, and job losses, and the additional negative measureable downward pressure from impending foreclosures, will drive housing back into the dark ages, where it is supposed to belong.
I read a lot about “market driven prices”, supply and demand”, and how the “free market” that will solve all of the housing problems through the foreclosure cleansing process.
I hear about sellers not wanting to face “reality”. I read about how housing has 20%...30% or more to fall, as if the commentators were pulling data and conclusions out of their nether-brains…..
Now, I read about banks withholding foreclosed inventory from the market…not aggressively managing the default and foreclosure process with respect to current servicing problems…and, from the tone of these posts, this is somehow not fair?
First, I think our “free market” concept is awfully blurred. I my mind, a “free market” can be defined as rational and responsible interaction between market participants. We just left a period of years where the market was neither rational and responsible, at least in my opinion, and, also my opinion, we may be arriving at a more rational and responsible market…so this is good.
So, why is a seller of a home on Main Street to be so criticized by the nether-brainers for not lowering their price? Isn’t that the free market at work? Why are banks held to task for choosing just how they manage their business? Isn’t that the free market at work?
Let’s look at banks and other lenders, and foreclosure. When banks began to increase the rate of foreclosures and foreclosure sales 18+/- months ago, there is a really good chance that their BPO's and pre-foreclosure/post foreclosure valuations probably showed great promise for recovery of their mortgage investment. So, they rushed to judgment, so to speak, and crushed their own balance sheets along the balance sheets on Main Street, and sent the economy into a severe downward spiral. This was not very rational, nor very responsible.
They really didn't do the math....they didn’t take the time to fully grasp the magnitude of the problem, and in their rush to exercise their “contractual rights”, they began to shoot off their toes....and everyone else’s toes, too.
Studies have shown that foreclosures have around a 25% negative impact on local housing values. What we have seen is a rolling 25% process for 18+/- months…which has truly not helped the economy, and should not really be considered a correction, but rather a mistake or miscalculation….following an extended period of mistakes and miscalculations.
I believe that banks and lenders really missed the mark on this issue, and that, given a “do-over”, they would manage the process differently.
The cost of this problem is immense. Lost equities, both real properties and stocks; lost jobs and productivity; the use huge sums of taxpayer funds; and the unnecessary redirection of money to pay for the cleanup, is incalculable at this time. And, we may never fully comprehend the cost resulting from the psychological impact of this mess on the economy.
In the “chicken-or-egg” debate…income/jobs versus housing/foreclosure…I am in the income/jobs camp. I believe that irrational and irresponsible lending left the homeowner with no fudge factor in their monthly budget, and that even minimal cut backs in hours worked could be the tipping point that launched the whole problem.
So, when I see references to the Shiller Index discussed above, and I read about how banks are fudging on the system by not aggressively foreclosing, seemingly posted to satisfy their nether-brain formed opinions, let’s try to keep an eye on the entire picture.
]]> Mon, 03 Aug 2009 09:01:02 -0400 John Preston John Preston submits:
I read much of what is posted on the mortgage/real estate/housing section as that his my career background. When I read many of the posts, most of which tend to report and recycle the news, and present very little in the way of objective analysis and resolution, I’ll admit that I get a little perturbed by the narrowly focused mindset that tends to dominate the general tone and tenor of the commentators.
Let’s take a look at two popular obsessions: the 1890 Shiller Inflation Adjusted Index; and the foreclosure inventory issue.
First, let’s look at the infamous 1890 Shiller Inflation Adjusted Home Price Index. As I understand basic economics of this index, when the line is flat…housing matches inflation. When the trend is down, the inflation rate exceeds housing. And when the trend is up, housing values are increasing at a rate greater than inflation.
Isn’t this true of any economic statistic which is measureable and has a data history? If we take a McDonald’s hamburger, currently at $1.09….how does its inflation adjusted price display on a chart? Probably flat! Take the 1965 hamburger price (15 cents) versus the 2009 hamburger price ($1.09), graph it, and the graph will be relatively flat.
If we take the price of Gold, and graph it from 1975 ($200) to 2009 (say $960) what do we get? The rate of growth in the price of Gold was 4.62%...just about the rate of inflation (+/- 4.5%) during this period, and the graph will profile relatively flat.
So, are McDonald’s hamburgers over priced? Is gold over priced? Most goods and services will probably profile in a similar manner.
So, why the obsession with housing and inflation, when impact of inflation on other goods and services seems to be obvious as well? And, if you must be obsessed, then housing only needs to meet or exceed inflation for make financial sense. And, historically, it has. Plus, you get to stay there and enjoy it.
Let’s take a look at the second obsession, the foreclosure inventory issue. I read a great deal of how the impact of the volume of resets, and job losses, and the additional negative measureable downward pressure from impending foreclosures, will drive housing back into the dark ages, where it is supposed to belong.
I read a lot about “market driven prices”, supply and demand”, and how the “free market” that will solve all of the housing problems through the foreclosure cleansing process.
I hear about sellers not wanting to face “reality”. I read about how housing has 20%...30% or more to fall, as if the commentators were pulling data and conclusions out of their nether-brains…..
Now, I read about banks withholding foreclosed inventory from the market…not aggressively managing the default and foreclosure process with respect to current servicing problems…and, from the tone of these posts, this is somehow not fair?
First, I think our “free market” concept is awfully blurred. I my mind, a “free market” can be defined as rational and responsible interaction between market participants. We just left a period of years where the market was neither rational and responsible, at least in my opinion, and, also my opinion, we may be arriving at a more rational and responsible market…so this is good.
So, why is a seller of a home on Main Street to be so criticized by the nether-brainers for not lowering their price? Isn’t that the free market at work? Why are banks held to task for choosing just how they manage their business? Isn’t that the free market at work?
Let’s look at banks and other lenders, and foreclosure. When banks began to increase the rate of foreclosures and foreclosure sales 18+/- months ago, there is a really good chance that their BPO's and pre-foreclosure/post foreclosure valuations probably showed great promise for recovery of their mortgage investment. So, they rushed to judgment, so to speak, and crushed their own balance sheets along the balance sheets on Main Street, and sent the economy into a severe downward spiral. This was not very rational, nor very responsible.
They really didn't do the math....they didn’t take the time to fully grasp the magnitude of the problem, and in their rush to exercise their “contractual rights”, they began to shoot off their toes....and everyone else’s toes, too.
Studies have shown that foreclosures have around a 25% negative impact on local housing values. What we have seen is a rolling 25% process for 18+/- months…which has truly not helped the economy, and should not really be considered a correction, but rather a mistake or miscalculation….following an extended period of mistakes and miscalculations.
I believe that banks and lenders really missed the mark on this issue, and that, given a “do-over”, they would manage the process differently.
The cost of this problem is immense. Lost equities, both real properties and stocks; lost jobs and productivity; the use huge sums of taxpayer funds; and the unnecessary redirection of money to pay for the cleanup, is incalculable at this time. And, we may never fully comprehend the cost resulting from the psychological impact of this mess on the economy.
In the “chicken-or-egg” debate…income/jobs versus housing/foreclosure…I am in the income/jobs camp. I believe that irrational and irresponsible lending left the homeowner with no fudge factor in their monthly budget, and that even minimal cut backs in hours worked could be the tipping point that launched the whole problem.
So, when I see references to the Shiller Index discussed above, and I read about how banks are fudging on the system by not aggressively foreclosing, seemingly posted to satisfy their nether-brain formed opinions, let’s try to keep an eye on the entire picture.

Complete Story »]]> DMM UMM John Preston Please, Shoot the Vultures, But Don’t Blame Them for Being Vultures! http://seekingalpha.com/article/150147-please-shoot-the-vultures-but-dont-blame-them-for-being-vultures?source=feed 150147 Since Bernanke's "We have a small subprime" comment, in mid-2007, mortgage delinquency is up like 300%, unemployment is up like 100%, foreclosures off the charts, and the economy is in the tank. You cannot stick your head-in-the-sand and expect problems to go away, and new ones not to appear.

The let's "ignore housing" plan, the plan by default because there was no real plan to address housing ever put into action, has not brought us to this mess. Many who comment on the housing crisis publicly think this was the best course of action. Let them fall…let them fail…and let them rot.
The rot brings out the vultures: distressed asset buyers; distressed asset managers; distressed asset REO specialists. When this is all said and done, the lack of a viable solution will come to be viewed as far worse than the original problem.
Many loan mod firms are shady, dishonest and opportunistic in all of the bad ways, unfortunately, because no one of quality, substance and vision stepped up and delivered. These guys filled the void.
So, blame the narrow minded rhetoric by many who simply believe the best plan is no plan. Blame the lenders and services and regulators who can't get their hands around this problem because they are so busy covering their tracks and trying to turn this disaster into new profit, and don't necessarily blame the vultures.
Short sales, drop-bid sales, REO specialists, bad mod firms, bulk purchases of distressed assets, all of this ilk are the result of doing nothing about this problem. They are all vultures, no better than bad mod firms.
When I first wrote "The Plan to Repair Housing", I felt that the modification process could have been completed in about 6 months. There was enough talent and technology available to accomplish this feat. Not the process that lenders use today for modifications, there is no process today but a far simpler process, more direct to the problem, and more uniform.
My process would also have eliminated all (or most) of the vultures, by eliminating much of the economic road-kill.
I have a client, who started his own modification, with my guidance in February, 2009. In May, after getting nowhere for three months, he called me back and I took over his case. It’s almost August, and there still is no lender / servicer analyst in place to speak with. By the way, this is a FNMA loan. The client has provided their personal information twice thus far… it keeps expiring, which creates delays while updated info is sent back into the lender's system.
These clients are lucky… they still have their original jobs, just not their original incomes. They’re down about 35% from their income level of 2.5 years ago. They also have a few alligators to deal with soon. The delays in the modification are going to soon lead to other issues and conflicts as other creditors seek satisfaction through legal action.
There is simply no excuse for the delays, ineffective and confused policies and procedures, and deafening silence, which have become the hallmark of the industry response to this crisis.
Similar to the concept that there are “two sides to a trade”, there are two sides to a crisis. Many of the individuals who were part of the original problem, at all levels, top-to-bottom, executive to salesman, are now part of the new problem. VULTURES can only work one way, one side of the trade, the problem side.
My original concept was “Swift, Simple and Sufficient”: Swift, in that it could have been completed in 6 months; Simple, in that it was a one-size-fits-all solution, utilizing exiting mortgage concepts; Sufficient, in that I always saw the entire problem as being very large. I saw the whole iceberg.
Properly implemented, my “Plan”, or one with similar attributes, would have eliminated the vultures. Don’t complain…do something about it… become part of the real solution.
]]> Tue, 21 Jul 2009 10:42:09 -0400 John Preston John Preston submits:

Since Bernanke's "We have a small subprime" comment, in mid-2007, mortgage delinquency is up like 300%, unemployment is up like 100%, foreclosures off the charts, and the economy is in the tank. You cannot stick your head-in-the-sand and expect problems to go away, and new ones not to appear.

The let's "ignore housing" plan, the plan by default because there was no real plan to address housing ever put into action, has not brought us to this mess. Many who comment on the housing crisis publicly think this was the best course of action. Let them fall…let them fail…and let them rot.
The rot brings out the vultures: distressed asset buyers; distressed asset managers; distressed asset REO specialists. When this is all said and done, the lack of a viable solution will come to be viewed as far worse than the original problem.
Many loan mod firms are shady, dishonest and opportunistic in all of the bad ways, unfortunately, because no one of quality, substance and vision stepped up and delivered. These guys filled the void.
So, blame the narrow minded rhetoric by many who simply believe the best plan is no plan. Blame the lenders and services and regulators who can't get their hands around this problem because they are so busy covering their tracks and trying to turn this disaster into new profit, and don't necessarily blame the vultures.
Short sales, drop-bid sales, REO specialists, bad mod firms, bulk purchases of distressed assets, all of this ilk are the result of doing nothing about this problem. They are all vultures, no better than bad mod firms.
When I first wrote "The Plan to Repair Housing", I felt that the modification process could have been completed in about 6 months. There was enough talent and technology available to accomplish this feat. Not the process that lenders use today for modifications, there is no process today but a far simpler process, more direct to the problem, and more uniform.
My process would also have eliminated all (or most) of the vultures, by eliminating much of the economic road-kill.
I have a client, who started his own modification, with my guidance in February, 2009. In May, after getting nowhere for three months, he called me back and I took over his case. It’s almost August, and there still is no lender / servicer analyst in place to speak with. By the way, this is a FNMA loan. The client has provided their personal information twice thus far… it keeps expiring, which creates delays while updated info is sent back into the lender's system.
These clients are lucky… they still have their original jobs, just not their original incomes. They’re down about 35% from their income level of 2.5 years ago. They also have a few alligators to deal with soon. The delays in the modification are going to soon lead to other issues and conflicts as other creditors seek satisfaction through legal action.
There is simply no excuse for the delays, ineffective and confused policies and procedures, and deafening silence, which have become the hallmark of the industry response to this crisis.
Similar to the concept that there are “two sides to a trade”, there are two sides to a crisis. Many of the individuals who were part of the original problem, at all levels, top-to-bottom, executive to salesman, are now part of the new problem. VULTURES can only work one way, one side of the trade, the problem side.
My original concept was “Swift, Simple and Sufficient”: Swift, in that it could have been completed in 6 months; Simple, in that it was a one-size-fits-all solution, utilizing exiting mortgage concepts; Sufficient, in that I always saw the entire problem as being very large. I saw the whole iceberg.
Properly implemented, my “Plan”, or one with similar attributes, would have eliminated the vultures. Don’t complain…do something about it… become part of the real solution.

Complete Story »]]> John Preston Why Mortgage Modifications Have Failed http://seekingalpha.com/article/148077-why-mortgage-modifications-have-failed?source=feed 148077 The current crisis in housing has become a laughable tragedy. Many weakly formed opinions, very little constructive thought and almost no offering of workable solutions.

We’ve tried the “let housing values fall’ plan, and as housing values fell…defaults, walk-a-ways, and foreclosures increased…consumer spending dried up…and unemployment jumped 100%. So that plan has failed.

]]> Fri, 10 Jul 2009 09:06:38 -0400 John Preston John Preston submits:

The current crisis in housing has become a laughable tragedy. Many weakly formed opinions, very little constructive thought and almost no offering of workable solutions.

We’ve tried the “let housing values fall’ plan, and as housing values fell…defaults, walk-a-ways, and foreclosures increased…consumer spending dried up…and unemployment jumped 100%. So that plan has failed.


Complete Story »]]> DIA SPY John Preston Mortgage Defaults and Skin-in-the-Game: Why This Correlation Is Wrong http://seekingalpha.com/article/147818-mortgage-defaults-and-skin-in-the-game-why-this-correlation-is-wrong?source=feed 147818 This is the first of a series that I will be posting to respond to inaccuracies, falsehoods and fabrications which permeate much of the discussion as it relates to housing and mortgage lending.

There is a significant amount of chatter, even on a strong site such as Seeking Alpha, regarding the issue of down payments… the skin-in-the-game concept…and the housing/foreclosure problem. There are repeated attempts to correlate the crisis and leveraging on the part of borrowers and buyers…and, the evidence does not pass scrutiny. It is simply kool-aid served to willing readers. There is a lot of extrapolation…a nice word for an educated guess…and a lot of “bobble-head” nodding…but no real evidence.

]]> Thu, 09 Jul 2009 06:57:08 -0400 John Preston John Preston submits:

This is the first of a series that I will be posting to respond to inaccuracies, falsehoods and fabrications which permeate much of the discussion as it relates to housing and mortgage lending.

There is a significant amount of chatter, even on a strong site such as Seeking Alpha, regarding the issue of down payments… the skin-in-the-game concept…and the housing/foreclosure problem. There are repeated attempts to correlate the crisis and leveraging on the part of borrowers and buyers…and, the evidence does not pass scrutiny. It is simply kool-aid served to willing readers. There is a lot of extrapolation…a nice word for an educated guess…and a lot of “bobble-head” nodding…but no real evidence.


Complete Story »]]> John Preston My Three Point Plan to Improve Housing: Modification Is Not Enough http://seekingalpha.com/article/113495-my-three-point-plan-to-improve-housing-modification-is-not-enough?source=feed 113495 In 1968, Paul Ehrlich wrote "The Population Bomb," a narrative predicting dire consequences to the world from uncontrolled population growth.

I had the opportunity to hear him speak in 1971 at the University of Wisconsin. In his stock speech, he hid humor and wisdom in the phrase, "Never use a condom alone." Most of the audience chuckled at the obvious duality of the comment. Beyond chuckles, the point was that "multiple options" worked better than a single course of action.

]]> Tue, 06 Jan 2009 12:55:49 -0500 John Preston John Preston submits:

In 1968, Paul Ehrlich wrote "The Population Bomb," a narrative predicting dire consequences to the world from uncontrolled population growth.

I had the opportunity to hear him speak in 1971 at the University of Wisconsin. In his stock speech, he hid humor and wisdom in the phrase, "Never use a condom alone." Most of the audience chuckled at the obvious duality of the comment. Beyond chuckles, the point was that "multiple options" worked better than a single course of action.


Complete Story »]]> John Preston Will FDIC's Bair Get It Right? http://seekingalpha.com/article/101941-will-fdic-s-bair-get-it-right?source=feed 101941 Every commentary regarding the dire straits the general economy finds itself in always makes reference to housing and mortgage issues. Why then, have not more thoughtful efforts come forth the resolve these twin problems?

Sheila Bair appears to have taken the point position within the mainstream media for the current agency heads. I really hope that she get it right, as there are not many bullets left to fire.

]]> Sun, 26 Oct 2008 07:44:05 -0400 John Preston John Preston submits:

Every commentary regarding the dire straits the general economy finds itself in always makes reference to housing and mortgage issues. Why then, have not more thoughtful efforts come forth the resolve these twin problems?

Sheila Bair appears to have taken the point position within the mainstream media for the current agency heads. I really hope that she get it right, as there are not many bullets left to fire.


Complete Story »]]> XHB John Preston My Plan to Repair Housing in America http://seekingalpha.com/article/99987-my-plan-to-repair-housing-in-america?source=feed 99987 Q1. Simply speaking, what is The Plan to Repair Housing in America?

The "Plan" is a program designed to address the current situation in the general economy by specifically targeting the housing market and mortgage payment issues. The "Plan" assumes that the "burden of the debt", and, secondarily, the "cost of the debt", are the problems in housing today. At this time, the plan does not consider the impact of the "amount of debt". By burden, I mean monthly payment rates. By cost, I am referring to the interest rate. Payment rates and interest rates are somewhat related, but there are differences. Based on my real world experience, the homeowners who are having trouble with their mortgage payments have seen their monthly income drop by 20-40%, or more. We need to reduce mortgage payments in a dramatic fashion, without dramatically discounting the value of the mortgage asset. My plan does this.

]]> Wed, 15 Oct 2008 10:16:08 -0400 John Preston John Preston submits:

Q1. Simply speaking, what is The Plan to Repair Housing in America?

The "Plan" is a program designed to address the current situation in the general economy by specifically targeting the housing market and mortgage payment issues. The "Plan" assumes that the "burden of the debt", and, secondarily, the "cost of the debt", are the problems in housing today. At this time, the plan does not consider the impact of the "amount of debt". By burden, I mean monthly payment rates. By cost, I am referring to the interest rate. Payment rates and interest rates are somewhat related, but there are differences. Based on my real world experience, the homeowners who are having trouble with their mortgage payments have seen their monthly income drop by 20-40%, or more. We need to reduce mortgage payments in a dramatic fashion, without dramatically discounting the value of the mortgage asset. My plan does this.


Complete Story »]]> John Preston The Reality of Real Estate and the Economy http://seekingalpha.com/article/94038-the-reality-of-real-estate-and-the-economy?source=feed 94038 Many of the readers here have heard of Robert Shiller, mostly due to the many, many references to the Case-Shiller Home Price Index. In my opinion, the Index is at best a trend indicator, not a measure of absolute accuracy. It is, however, widely referenced.

My point is that, a few years back, in 2004, the same Robert Shiller published a paper entitled “Household Reaction to Changes in Housing Wealth”. In this paper, he reported his conclusions resulting from a multi-national study relating the “wealth effect” on household attitudes and consumption from stock market growth versus housing appreciation.

]]> Fri, 05 Sep 2008 03:36:04 -0400 John Preston John Preston submits:

Many of the readers here have heard of Robert Shiller, mostly due to the many, many references to the Case-Shiller Home Price Index. In my opinion, the Index is at best a trend indicator, not a measure of absolute accuracy. It is, however, widely referenced.

My point is that, a few years back, in 2004, the same Robert Shiller published a paper entitled “Household Reaction to Changes in Housing Wealth”. In this paper, he reported his conclusions resulting from a multi-national study relating the “wealth effect” on household attitudes and consumption from stock market growth versus housing appreciation.


Complete Story »]]> John Preston