Why the Toronto Raptors won’t make it past the first round

(… if they even make it to the playoffs)

I’m a Toronto born and raised basketball fan and it KILLS me to watch this goddamn team.  Thank God working late spares me from watching most of their games in its entirety.

The title of this post should not be news to anyone really, except those who over-zealously responded to the T.J. Ford – Jermaine O’Neal swap as the second coming of San Antonio’s David Robinson – Tim Duncan Two Towers tandem (in O’Neal and Chris Bosh).  Those people, of course, were idiots and probably wouldn’t admit to believing such a thing now.

What is news to me is the extent of the Raptors failings.  And this goes far beyond their disappointing record.  Quite frankly, with the pieces they have in place, the contractual terms of our players, and the viable trading pieces the Raptors have available, the Raptors will not sniff the second round for years in the future.  And this is in an Eastern Conference where the current 7th and 8th ranked teams win almost half their games.

ESPN’s Bill Simmons’ latest article brings to fore the primary reason why the Raptors are, as constructed, a dead-end team.  It’s a short article about Michael D’Antoni, but those who watch the Raptors I believe will find some relevant comments:

“D’Antoni’s Phoenix teams were wildly entertaining, consistently successful—and always heading home before the Finals. D’Antoni didn’t care that just about every NBA champ since the 1988-89 Pistons had won with defense; once teams slowed the Suns’ tempo and systematically broke them down, their lack of commitment to D always surfaced. Always. They had a fatal flaw. It took us four years to realize it.”

I would argue it took many of us only negative four years to realize it as many dismissed the idea of running and gunning to the championship from the start and did not even consider it.  I have to admit I did consider it but quickly came to the realization that a Steve Nash-led team, in a league where you cannot realistically assemble a starting five with four all-NBA defenders around him, could not win a championship.

And what are the current Toronto Raptors if not a poor man’s 2006 Phoenix Suns?  Except Jose Calderon is nowhere near as creative and forceful as Steve Nash (though comparably atrocious on defense, but achieving such a distinction through a total, but casual, disinterest in that half of the game versus Nash’s physical inability to stay in front of anybody).  Chris Bosh is no Amare Stoudamire in his ability to dominate in virtually any matchup, though he is a certainly superior defensive player and perimeter player.  But is certainly no Shawn Marion on the defensive end either.

Most clearly, even with the Sun’s notable lack of a bench and the Raptors expensive backups (I’m looking at you, the horribly used Jason Kapono), the Raptors are arguably thinner than the Suns who at least had Barbosa and Diaw providing a two-man offense even when sharing the court with spare parts.

Of course scoring can win ball games, and the Suns teams of recent years have certainly proved that.  But what happened when a fleet-footed scoring point guard met them in the playoffs?  They would be carved up.  Eventually, the Suns had their star forward, Shawn Marion, covering Tony Parker to try to cover up for Steve Nash’s inability to cover anybody.  And as Golden State proved against Dallas in the first round of the 2007 playoffs:  One atrocious defender is enough to submarine even a 67-win team.

Now what does this have to do with the Raptors?  Well, in case it wasn’t clear, our poor man’s Steve Nash (Jose Calderon) is perhaps a greater liability on the defensive end.  At least Nash, hampered with lateral mobility problems and the total lack of jumping ability, did care about defense.  You could see it bothered him when he was scored on.  Calderon exhibits no such shame.  He is a fairly explosive player on offense, young, and fairly well sized for a 2008-2009 NBA point guard.  But he could not care less if his man is 0/8 or if the man he is caught defending is cavalierly finishing a reverse alley-oop game winner.  Steve Nash would care enough to foul a guy if he was being embarassed.  Jose Calderon would not even recognize that having the opposing team go at him on every out-of-timeout play, regardless of who he is defending, is something to be ashamed of.

I cannot say this emphatically enough:  JOSE CALDERON (who is not a racist) CANNOT START FOR A SECOND ROUND PLAYOFF TEAM.

In a five to seven game series, even teams universally agreed to be weak at the point guard spot (hello, Orlando!) will be able to take advantage of Jose Calderon’s predictable nonchalance on defense and consistently shoot over 50% and average 20 points (if necessary).

I understand that the Toronto Craptors are perhaps a season away from even sliding into the Playoffs of Lowered Expectations and might happily be setting their targets realistically low and collecting high attendance with an upbeat offense (which could have been the plan, but is certainly not the reality).  I understand that this could be a very sound business decision from the owners of the perennially hand-over-fist moneymaking, non-contender Toronto Maple Leafs.  But I hope Craptor Nation understands that the point guard they rooted for (with some merit) all last year (but apparently not anymore), and has just started his 5 year $40 million contract, is not the starting point guard for even a second round playoff team now or in that fifth year when we should be seeing Chris Bosh’s prime.

Jose Calderon and the Toronto Raptors in general are known across the league as poor defenders, but he has not been revealed for what he is:  The willingly worst defender in the league.  It is time to sell semi-high and get what we can.  No team can afford to spend $8m/yr on a backup PG.  I can see no way that we could stack our line around the defensively-mediocre Bosh, and the atrocious Calderon to cover up for the vulnerability at the initiating position of the opposing team’s offense.  And we waste the luck we’ve had in drafting a sensational player in Bosh, who seemed to develop in spite of the poor coaching and often poor environment (Vince Carter-tainted, some would say) to a legitimate centerpiece and superstar.

Make up your mind, Toronto.  Are we ever going to contend?  If you want the Raptors to become a legitimate team in the NBA and award Chris Bosh with the opportunity to compete at the highest level:  Quietly demand  (if that’s even possible…) a trade of Jose Calderon for a defensively mediocre, or better, point guard.  And start building a playoff team.  A contender.  And not a offense-less Phoenix Suns.

(Full disclosure:  I am an unrepentant T.J. Ford lover through and through, but I could definitely understand the trade for O’Neal as well.  Though I was appalled by the size of his contract and the likelihood that he would miss 25 games for us this season.  Not that TJ would have played 57+ games necessarily, but I felt that the O’Neal transaction was not a step in the right direction for a team whose superstar will need soldiers to go deep into the playoffs with in two to three years, ideally)

… and the cow goes moo

NYT’s Gretchen Morgenson helps pull the curtain back on mortgage lending during the bubble

Regular readers of other financial blogs will no doubt have been directed to her two recent articles already, but I would highly recommend both articles to those who have not read them yet.

A Mortgage Paper Trail Often Leads to Nowhere (Dec 26/08) (found in Naked Capitalism’s links)

Saying Yes, WaMu Built Empire on Shaky Loans (Dec 27/08) (I opened it this morning from my NYT daily e-mail but did not read the article until reading this post about it at Naked Capitalism)

Ms. Morgenson does an exceptional job in revealing how the smaller cogs on the front line of the mortgage business were encouraged — sometimes by design — to contribute to the massive blown mortgage and real estate bubble we have just witnessed.

Ms. Morgenson tends to favour the juicy evocative quotes (naturally) and provides very little explanation as to the capacity or expertise of some of the industry employees she quotes, but that is common and rather understandable given the limitations in space and the context of the investigation (this is, after all, a New York Times article meant for a general readership and not meant for industry associates).

So one at a time now.

About the mortgage paper trail article… I was very happy to see this reported as I believe few are aware at how much of the burden of proof is shifted from the lenders to the borrowers.  I have been involved in countless collections negotiations (I never worked in mortgage collections but did interject from time to time) and I can definitely attest to a similar distribution of responsibilities between borrower and lender in my own dealings.  The lenders I have worked with and for did not show anything approaching the disdain that Wells Fargo appears to and I am shocked that the judge’s patience was not much shorter.  Ms. Morgenson’s portrayal of the lender is beyond callous.  Wells Fargo seems downright dismissive of the claim.

Some who read it might wonder why a borrower might be so easily cowed into jumping through hoops and agreeing to prove that he or she indeed made payments to their mortgagor, but this is a very common situation.  With time pressures hanging over the mortgagor’s head, as well as the threat of personal financial cataclysm (foreclosure) being constantly issued, a borrower can become surprisingly docile.  As the collections or servicing agent on the other end of the conversation has very little personal investment in whether or not a file enters foreclosure (from my experience, avoiding foreclosures is not really a goal of the occupation.  Mostly, avoiding foreclosures would just provide the benefit of avoiding a tremendous amount of paperwork on the collections’ representatives side), they can be very quick to threaten the action if a borrower seems unwilling to make an effort.

In defense of the collections or servicing agents that can be found on the other sides of these negotiations: they are dubious for a reason.  The volume of lies and excuses they hear on a daily basis as to why a mortgage payment wasn’t made is shocking.  It would numb the most trusting of us, I assure you.

The second article, specifically focused on Washington Mutual, was even more interesting.  The stories revealing Washington Mutual’s shocking loan factory culture were interesting, but no surprise to me personally.  I believe since WM’s collapse, few would be surprised by the revelations in the story.  And many of the most notorious players in the grand scheme are no longer at WM, as the article indicates.  Frighteningly, many have moved on to larger entities.  We can only hope thatthese WM transplants performed in the manner they did not due to their own proclivities, but simply due to their filialty to the pressures from their superiors at WM, lest the practices at WM spread to their slightly-better-reputed new host.

What the article helps to reveal that is still a major concern is the role brokers played in the uncontrolled expansion of the real estate and mortgage lending bubbles.  From my vantage point (I was recently employed at a private mortgage lender), brokers were largely little more qualified to sell mortgages as a retail cashier.  The lack of enforcement and training for these privateers of the mortgage industry is striking and is best exemplified in the article’s anecdotes about brokers (and real estate agents) who steered immigrant home owners, with poor English comprehension, towards subprime products replete with false representation.

Even in Canada, it became very clear to me very early on the one overriding characteristic of the majority of subprime borrowers, beyond the self-employed: immigrants.  Shows like The Daily Show have joked about the propensity of African-Americans to be found in subprime mortgages, and I have no doubt that that is true in the US.  More or less by definition, a subprime mortgage is going to be given to those with poor credit, and poor credit is likely more prevalent in communities with high poverty.  But those who are targetted and most vulnerable to being taken advantage of are new immigrants with little English comprehension (and even worse Contract-English comprehension) who, in order to purchase a house, have to rely almost totally on the spoken-and-not-contractually-stated promises of a trusted bilingual broker or real estate agent.

I have personally seen a great deal of borrowers who, under a quick review, might seem to qualify for a prime product but end up in a subprime product, likely due to the incentivization for brokers to offer subprime products that rewards brokers with higher fees.  As they have few options available to them (there can be very few brokers who speak their language or are willing to spend their time with someone who does not speak English well), they are unlikely to compare the offered product among competitors.  As they have little understanding of the contract given to them, they rely entirely on the spoken commitments, unrecorded and entirely unaccountable, made by their friendly broker even in the face of contrary figures and statements in the contracts.

This sort of predation upon contract-naive immigrants is widespread, well beyond the boom areas and the areas most densely populated with immigrants.  It is difficult to imagine a solution or any reason why this will not continue long after this economis crisis ends.  Immigrants will likely never enter North America fully savvy in the intricacies of contract terms, nor can charitable groups or niche lenders likely spring up to to service each community in the written language of their choosing.  Quite frankly, it doesn’t take a heartless mortgage broker or a meth-addled mortgage processing supervisor to make a target out of a new immigrant.  What is saddest is those who already have the most barriers to success in this country — immigrants who do not have a large number of already-assimilated kinsmen in North America — are those most vulnerable to this predation and will continue to be targeted.

… and the cow goes moo

Mikheil Saakashvili is a bigger bitch than Naomi Campbell

… According to this Telegraph article (found on Exiled Online’s ticker), President of ‘peaceful and democratic and totally innocent’ Georgia, Mikheil Saakashvili “allegedly punched his prime minister in the face before throwing a telephone at him.”

This would make him the second most famous person to go all diva and throw a phone at their underling (from an early 2006 ‘report’ in People):

“Naomi Campbell was arraigned Thursday evening on second-degree assault charges for allegedly hitting her housekeeper with a phone.

At Manhattan criminal court, prosecutors charged that Campbell, 35, was preparing for an appearance on The Oprah Winfrey Show when she accused her housekeeper of taking a pair of jeans. Campbell then allegedly threw a cell phone at the woman’s head, causing lacerations that required four stitches.”

Of course Mishi is a bigger bitch in my mind since Naomi thought she had a reason (stealing someone’s jeans just before she is to appear on Oprah?  That’s a cellphone-to-the-face-warranting offense) and because he had the cherry-on-top punch to the face before the phone throwing.  I guess refusing his Prime Minister’s resignation after the fist-phone-face event would be the chocolate sauce on the sundae?

Besides the hilariousness of this story, what was very interesting to me is what is described clearly as unsubstantiated and a rumour in the Telegraph’s first paragraph is phrased as a certain event in the timeline in the final paragraph describing the refused resignation.  I’m not saying it didn’t happen (how the hell would I know?) but the Telegraph seems to be equivocating a bit too much for a paper of some repute.

And my other beef?  Why mention the punch in the headline without the phone throwing?  The phone throwing is way funnier in its pugnacious cattiness.

… and the cow goes moo

Mark Ames’ One-Man Mission to Get an Apology from the NYT

Mark Ames of Exiled Online and The Nation, not satisfied with his previous screed (that I posted about here), is continuing his assault upon the New York Times’ reporting on Georgia’s role in the South Ossetian conflict.  He is one of the primary resources I have been utilizing for my own understanding of the Georgian/South Ossetian war.  As a longtime Moscow resident and journalist in Russia, as well as an American citizen, I consider him exceptionally well situated to provide insight on the crisis that American reporting tends to miss.

Though I do not share the degree of his ire for the New York Times (still my morning paper), he correctly lambastes their lack of journalistic inquisitiveness and either docile manipulation by those who wish to continue painting Russia as the boogeyman or capitulation to the storyline easiest for its readership to digest (big bad Russia vs. little innocent Georgia).  I actually believe the New York Times was far quicker (which is still extremely slow) to question the dominant narrative and did so under very little pressure or duress that I noticed.  Very few in America were demanding a correction or review of the ‘facts’ in those early weeks of the war, and by the time questions were raised, the war had fallen off the American news platter to be replaced by the late innings of the US Elections.

His last article, doubly linked to above, chronicles his attacks on the New York Times (seemingly not targeted for the extent of its poor reporting, but for its importance as the paper of record), contrasting it to some far superior reporting from European news sources such as Der Spiegel (I link to that article, among others, in a post providing a situational update three months ago).  More importantly, Ames provides an insider’s look (sadly, with scant real evidence beyond his conjecture and assumptions) into the nuts and bolts of how an incorrect narrative and misrepresentation is created and fostered in the face of contrary evidence.  As a member of the press pool, traveling with other Western journalists who largely report in terms in exact opposition to his own reporting, he provides an insider’s perspective of the top-down content control that he believes trumped actual investigation in the dominant reporting on Georgia-South Ossetia.

Ames makes the valid comparisons — putting the New York Times’ feet to the fire — between their failed coverage in this war to their failed — and recanted — coverage leading up to the Iraq War.  I think he misses one notable point though:  The New York Times authored their mea culpa about the Iraq War long after a firestorm of outrage from those who felt the media failed.  In contrast, the New York Times has began to disseminate articles doubting Georgia’s claims of innocence, and the purity of their ruling government, long before any demands for that reporting came to my notice in America.  And they have continued to issue their subtle correction (not expressed in NYT standards editor Craig Whitney’s reply to Mark Ames, quoted at the end of Ames’ article) long after the crisis has fallen off America’s radar.

Perhaps my expectations for the New York Times and the American news media in general is too low, but I am frankly surprised that the New York Times has, in my view, voluntarily issued a correction on their reporting, albeit rather quietly.

… and the cow goes moo

Government Incompetence Scandal of the Day: OTS’ Darrel Dochow

I’m sure readers of econ blogs or papers will have heard the news by now of Office of Thrift Supervision official Darrel Dochow’s choice to allow IndyMac Bancorp to backdate a capital infusion a few months before it’s collapse that allowed IndyMac to maintain it’s “well capitalized” rating as opposed to “adequately capitalized”.

There have been a number of responses to the news on my favorite blogs.  Esteemed Fusion IQ CEO, Barry Ritholtz, voiced his anger and disgu(see the post title) at The Big Picture:

“How this idiot ever ended up in a position of responsibility in any regulatory agency again is beyond my comprehension. There are some who would point to all government regulation as the root cause, but crony capitalism and the disbelief in and and all regulations is what leads to putting someone so unsuitable in this position of authority.

Second, you have to wonder about just how frickin’ dumb the idiots who run the office of Thrift Supervision have been the past 8 years. These were the clowns that blamed Schumer for the collapse of Indy Mac, after backdating their capital levels.  As you will see below, if the OTS weren’t incompetant boobs, Indy Mac should have been shut down months before their run!”

You will find no disagreement from me on any of the points he makes in that caption.  But his rage seems a bit too focused upon Darrel Dochow’s spectacular malfeasance for my liking.  I am inclined to believe that anyone who possesses such sycophancy to the industry he is purportedly regulating must be showing a desired trait to survive and ascend the ranks at the OTS.

One of my favorite not-really-finance-blogger-but-sometimes, Bob Morris, at Polizeros had this to say:

“Darrel Dochow, Western regional director of the Office of Thrift Supervision allowed Indymac Bank to backdate $50 million transaction so as to falsify its health. It failed two months later. He’s been relieved of duties pending an investigation. The cover story, the pretend explanation, here is that he did this because he din’t want to lose control of the bank to the FDIC. But given Madoff, now this, the corruption in DC among federal financial regulators now seems pervasive.”

Mr. Morris’ suspicion of corrption within the OTS (or the financial regulation system in general) is certainly valid.  I am not sure if he means corruption in the traditional sense of greased palms and kickbacks, but I can certainly agree with the lesser claim that the regulators have allowed those they are to regulate and the interests of those to-be-regulated to dominate their own thinking (if they were not disposed towards that thinking from the start).

But Calculated Risk expands on the most interesting aspect of Bob Morris’ post and, I believe, brings the most important (and, seemingly, pervasive) aspect of the financial system’s failings to the fore:

“This was the culture at the OTS – anything to help the “customers”. The OTS competed with other regulators for “customers” (aka banks), and the OTS offered more “flexible” supervision – perhaps even backdating capital infusions!”

The picture CR chooses to end the post with says it all really.  Considering the role that ratings agencies have played in our recently blown bubble, and the similar forces at play that replaced sound analysis with aggressive ‘market expansion’, I shudder to think of the coming revelations of other major sectors in our financial (any non-financial) regulation system, made necessary but largely existing without scrutiny, that have traded their responsibilities for the public good for the goals of expansion and obsequious service to the institutions they were meant to criticize and monitor.

… and the cow goes moo

Mish on the effect of the recession at home

I’m a big fan of Mish’s Global Economic Trend Analysis and count it among the sites I read on a daily basis, without exception.  He provides a very somber (or, at times, very pessimistic) view of our current economic situation as well as the ability of those in power as well as technical economic and market analysis.  It is very rare to see him touch on the social and, dare I say, emotional aspects of economics.

He makes a welcome departure with this recent post about the effect the failing economy has on those contemplating the expensive act of divorce, and those faced with choosing between the necessities of modern life and caring for their pets.

The stories he cites make for interesting news, and are very sad to hear, but the impact comes when he ties the small tragedies together at the end.  These are certainly hard times for families, forced to come to terms with the unrealistic expectations of America, where everyone can be rich (or, if they’re not yet, should at least should spend like they will be soon).  When millions more are ending up unemployed, we must remember that there are millions of families, and millions of children, and millions of marriages, and millions of once loved, but now burdensome pets that will be the first to suffer the full brunt of the economic downturn.

… and the cow goes moo

The Big Picture: Not All Bush’s Fault

I’ve been saying this for quite some time, but I’m glad to see Barry Ritholtz at his updated blog, The Big Picture, continue to make this point there as well as, apparently, in his upcoming book.

The post and excerpts provide very little in terms of details but emphasizes some clear points:  Ascendant home ownership rates were in place long before G.W. Bush took office; much of the regulation-limiting, bubble blowing behaviour began with Reagan and continued through Clinton and the Bushes; but George H.W. Bush is actually the least responsible of the bunch for our current predicament.

George W. Bush did absolutely nothing to avoid this crisis and everything to ensure our arrival to our current state.  But he did not do it by himself and it cannot be placed at the foot of one President (or one party).  A collapse this big was decades in the making and required the cooperation of both parties and all levels of government.

… and the cow goes moo

Sexiest Insider Trading Scandal Ever!

Found originally via Exiled Online, here’s the NYPost’s take on it.

In a nutshell:

A Lehman’s Bros.’ broker is married to a publicist who happens to get information about pending mergers and acquisitions.  Being an investment-savvy individual, but aware of SEC insider trading rules, he knows this is very profitable information for investors as long as they can’t be directly linked to receiving information about the deals before the public is made aware.

So he passes on the information to his buddies who, I guess, made about $4.8 million out of it and kicked back some gifts to the the broker.

All boring stuff.  La de da.  Happens every day and I’m surprised when it’s even prosecuted.  But the story takes a sexy turn when it’s revealed that lusty latin lady (NSFW!) Playboy’s Miss August, 1994, Maria Checa (better known as the naked ‘Lupe’ in From Dusk Til Dawn 2) is among those ‘friends’ who profited from the information.

Why is this interesting?

1. Ms. Checa looks fantastic in that surprisingly tasteful (considering her claim to fame and the Post’s usual proclivities) photo in that NY Post article.
2. I always wondered why attractive women choose to go into porn – and permanently disgrace their families – as opposed to just finding some Wall Street big shot / doctor / dentist / lawyer / whatever sugar daddy.  Now I know: In porn, you don’t get busted for insider trading.

And the best part?  Ms. Checa is apparently not even going to be charged.  And I can already foresee a career resurgence.  The people are itching for Wall Street-collapse themed pornography.

Inside-Her Trading?

And SEC chairman Christopher Cox wouldn’t even need to change his name if he decided to make a cameo.

… and the cow goes moo

Naked Capitalism Reviewer Performs Triage on GM Models and Plants

I’ve been wanting to (but not quite meaning to) do something similar to what this intrepid Naked Capitalism reader has done for a while, but was a bit intimidated by the work involved (just going down the list of GM’s models would be a chore).  And then sourcing them to their production facilities?

Thank God some people are more industrious than I.

Key quote (please read the post for details):

“Eyeballing it, it looks as we can expect GM to shut down 3/4 of their plants in the US.

That is massive hurt to suppliers, dealers, etc.

Remove the Pickups, and it is even worse.”

Yves Smith, of course, also has her own invaluable contribution to make:

“… With that as context, the proponents of Chapter 11 focus on the potential (in their view) upside, mainly gutting UAW contracts, but also dealer agreements and (in theory) cramming down bondholders. But the flip side is that once a company files, the process is irreversible. And if things do not work out as expected, there is no way to go back.”

If the automakers are not bailed out, they will declare bankruptcy and still require substantial Federal support for debtor-in-possession financing if they declare chapter 11 and continue operating, as opposed to liquidate through chapter 7.  And there is a reasonable chance that the Big Three will come out of their various filings broken up and damaged to the point that they are no longer international players.  Or perhaps a few years away from disappearing entirely.

If they are bailed out, we would be looking at perhaps $5 billion per month in costs for all three (just an estimate based on the early talk of a $14 billion bailout to get them through until March, though I repeatedly see the estimate that GM is bleeding $2b per year), totaling perhaps $60 billion per year that would go towards salaries, pensions, health insurance coverage, and building cars that some consumers still might buy.

And if, over a year’s time (or perhaps more), it becomes clear that negotiations cannot be conducted to make the US automakers more competitive and more environmentally-conscious, then bankruptcy is still an option.  The $5 billion per month would not have been pissed away: most of it would have been injected back into the US economy (and, as the NYT article quoted by Yves Smith notes, “both G.M. and the Ford Motor Company were profitable in Europe last year and in the first half of 2008″, so they might be bringing in some money to America as well).  Consider it a stimulus package.  And, should the ‘trial’ last long enough, the timing would certainly be better to absorb the loss of one (or all) of the Big Three than now.  If we’re dead-set on further stimulus packages and public works projects as the Bush administration and the incoming Obama administration claim to be, why not do so in a manner that also mitigates one potentially disastrous catastrophe or at least delays it for a time when we can better control and estimate it’s fallout?

And, for those committed to this goal, the UAW can still be humbled with the threat of a bankruptcy filing should negotiations not bring the US automakers to a competitive position with the foreign automakers.

Now is not the time to be setting off economic bombs, and there is very little reason to count our pennies (okay, hundreds of billions of pennies) if the economic stimulus chatter is already tossing around the big one-tee.

And if that doesn’t work, we’ll have a post-recession (depression?) liquidation of the automakers.  Is that so much worse than allowing GM to declare bankruptcy at the start of 2009, with Chrysler following shortly after and (I would bet) a Ford bankruptcy by the end of next year?

… and the cow goes moo

Fannie Mae to allow renters to continue living in foreclosed properties

Some good news for a change (The New York Times):

“Last month, both Fannie Mae and Freddie Mac, the other government-controlled mortgage giant, temporarily suspended foreclosures and evictions until early January. Fannie Mae will now offer renters in foreclosed properties month-to-month leases until the property is resold. A company representative said program details were still being worked out.”

An overlooked victim of this housing crisis, driven heavily by real estate investors, is the good tenant with a bad landlord.  In the common scenario where a landlord has multiple properties, with multiple renters, and is having trouble making the mortgage payments for his own residence or any of his investment properties, he may siphon rent payments from one property to make whole payments on another (the landlord might be compelled to protect his investment in a more desirable property or his own private residence over a less-promising rental property).

So the renter can make their full payment to their landlord every month, but have no way of realizing that the mortgage on their property is deeply in arrears.  They can inquire with their landlord, and perhaps demand a statement confirming that the mortgage is up-to-date, but there is limited evidence that would come to a renter’s attention to spur such vigilence.

The only evidence that might arise is a sudden increase in mortgage company correspondence (often cases collections departments will attempt to contact the property as opposed to the address for the mortgage payer, and will likely send someone to check on the property to insure it is occupied).  And unless the tenant is in the habit of opening their landlord’s mail, or happens to strike a conversation with the mortgage company’s inspector, this evidence is equivocal at best.

In the case of a upstanding tenant being evicted due to a duplicitious landlord, the tenant is certainly worth of sympathy and I’m glad to see something being done to mitigate their loss.

Furthermore, this should be seen as a major boon for the foreclosing bank (in this case, Fannie Mae) as well.  Not only do they receive rental income while they seek out a buyer, but the renters who remain in the property are likely to maintain it and thereby increase the eventual resale value.  As opposed to a foreclosed homeowner who, angry at their mortgage company, tears apart the home, a renter who is offered an opportunity to remain in the house would be grateful and have no reason to destroy the home they intend to continue living in for some time.

This is one of the few natural and beneficial-to-everyone solutions that have come about during this crisis.  The only potential loser would be landlords that are now faced with stiffer rental competition.  Let’s hope there are more solutions like these.

My greatest hope is that Fannie, Freddie, and private lenders will come to terms with the likely length of this crisis and setup rental management divisions within their companies to keep renters in foreclosed homes as long as they wish to stay.  Most would prefer not to move and would likely prefer to stay with a financial institution as a landlord given their prior experience with individual landlords.  Beyond the benefits mentioned above (income for the lenders and preservation of the property), this would also help reduce the crushing flow of foreclosure properties on the market that are helping to bring down real estate prices farther and faster than they might otherwise which, in turn, encourages more homeowners to abandon their investment or limits their options to refinance.

Considering how much money has been thrown at non-solutions, I think a small investment into property management would be very worthwhile.  I’d imagine it would be very profitable, even, considering the likely losses that would be taken in foreclosure sales in this market.  And demand for rental properties — and supply of foreclosed properties — will certainly be high for a few years to come

… and the cow goes moo