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Ramsey Su

Ramsey Su

Ramsey Su was a real estate broker who specialized in all aspects of foreclosures. His career started during the Volcker era in the early 1980s. In addition to acting as broker for bank owned properties, Ramsey also acted as consultant, court appointed receiver, manager for distressed properties, work outs and as a real estate investment adviser. Currently, Ramsey is an independent analyst, focused on the rapidly changing world of real estate today.

Articles by Ramsey Su

The Helicopter Mortgage

August 1, 2016

Medical vs. Financial Engineering
I broke my elbow a month ago, pretty badly as I was told.  The surgeon screwed the pieces back together, using a steel alloy bracket and six screws.  Two hours later, I left the hospital with no cast, a bandage (just to cover a very ugly scar), a prescription for painkillers and therapy started a week later.
This isn’t Ramsey’s elbow specifically, but a random post surgery elbow collection from the inter-webs, to illustrate how it’s done. The contraption in the lower right-hand corner is generally used to hold an elbow together after a complicated fracture. As you can see from the x-rays, this is then complemented with additional thingamabobs as required.
Image source:

What would have happened if I had suffered the same accident in 1975?  The surgery would probably be in-patient, requiring a couple of days in the hospital.  The broken fragments would take weeks to heal, in a cast.  Rehab would take many months while I may never regain the previous range of motion or strength again.  Medical engineering has advanced so much in the last forty years.
Before I stray too far, why 1975?  That was the year in which I entered the real estate market.  In comparison, real estate involves just simple transactions, nowhere near the complexity of cutting up a body, drilling holes and screwing some plate into human bones.

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Housing Affordability – A Dose of Reality

July 5, 2016

Restless Peasants
First, a few quick words on Brexit.  Being the always positive and optimistic person that I am (big grin), I see one very positive outcome of Brexit – it is a revolution without bloodshed.
The peasants are getting restless…
Illustration via

For once, I’m not digressing.  Brexit has a lot of parallels with housing affordability in the US.  Brexit is a clear illustration of how politicians, policy makers and the establishment have lost touch with the peasants, and the peasants are getting restless.  Allow me to elaborate.
The State of Affordability
Down-payment – Down-payment is more of an issue for entry level buyers than for trade-up buyers.  When affordability was first measured,  a 20% down-payment was very common.  Forget nothing down sub-prime loans, a 3% to 5% FHA or agency loan is the new norm for the entry level buyers.  The current trend is toward even smaller down-payments.
Mortgage payments – rates have never been lower and it looks like the Brexit will drive them even lower.  In other words, it has never been cheaper to cover debt service.  Are zero interest, or even negative interest mortgages possible?
Credit Scores – once insignificant, credit scores are now used as hurdles for qualification.  Once upon a time, young persons entering the workforce would have no credit history.

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Is it Time to Buy Real Estate? Yes and No

June 7, 2016

Is it Time to Buy Income-Producing Real Estate? 
No, No, No. Much to the dismay of my real estate buddies, who are complaining about how high prices while watching the cash flow of their portfolios bursting at the seams from a few good years of rent increases, the answer is no.
REIT cap rates (as of mid 2015, they have declined further since then)

Valuation is one big red flag.  There is so much money chasing yield that somewhat decent apartments in San Diego are asking for 3% cap rates.  The current cap rates are about as low as I have ever experienced.  It wasn’t that long ago (measured by my investment lifetime) that a 10% cap was not that rare.
This is equivalent to the S&P trading at record high PE.  The cost of debt is at record low, which has a similar effect on the stock market.  Rents are at record highs.  Where is the upside going to come from – even higher rents, even lower cap rates and/or lower debt service costs?
Valuation is not my biggest concern.  The biggest risk is income stability.  I have been trying to digest the Report on the Economic Well-Being of the US Households in 2015 since it was released by the Federal Reserve a few weeks ago.

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Why is Freddie Mac Reporting a Loss?

May 9, 2016

A Sudden Turn for the Worse
Freddie Mac posted a loss of $354 million this quarter, versus a $2.16 billion gain the previous quarter.  Fannie Mae did slightly better with net earnings of $1.1 billion, which were still substantially down from $2.5 billion the previous quarter though.
Freddie Mac HQ – a strange time for posting losses
Photo via

Instead of delving into the entrails of the financial statements, I would like to ask a broader question:  Why is Freddie reporting a loss at all (and why is Fannie  barely profitable)?
Using September 2008 as a starting point, what kind of business climate have they been operating under since the Treasury took over as conservator?
Monopolistic Dominance.  The agencies are now over 70% of the residential mortgage market, and increasing, with no competition in sight.
Price Appreciation.  Per Case Shiller, housing price has been appreciating steadily for the last 4-5 years.  In other words, loan to value ratios should be decreasing, reducing the risk of loan losses in the event of a default.
Historical performance of Case-Shiller US Home Price Indexes – click to enlarge.
Defaults, foreclosures and REO inventory.

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Good Times, Bad Times – Real Estate and Aging

March 11, 2016

A Mountain of Debt – But at Least We Have an iPhone
Whenever I encounter someone from the younger generation (40 years or younger), I make it a point to apologize for leaving them a country in far worse shape than the one I enjoyed.  Surprisingly, none of them believe that apologies are necessary, as most have no clue what I am talking about.


They seem to be totally happy that the national debt has quadrupled under the last two presidents.  They do not mind that their education was paid for not by their parents but by an ever rising $1.3 trillion debt that they are responsible for themselves.
They seem to be very grateful that we gave them the iPhone, iPad and similar devices so they can now post their photos and other personal data for the world to see.
The moral of the story:  When you have never seen the good times, you won’t know you are living in bad times.
Anyway, I digress, this post is actually supposed to be about real estate and aging.
A Very Different Real Estate Market
Should you buy a house?  Try thinking like a 30 year old.
Allow me to use an oversimplified example.  Say you bought a house at 30, financed with whatever down-payment you could afford.  You held it for 30 years.  You never refinanced (cash-out), never traded and never moved.  What you had was a roof over your head for 30 years.

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Black Knight – One of the Best Real Estate Indicators

February 23, 2016

An Ominous Jump in Delinquent Mortgages
Black Knight Financial Services used to be LPS.  The name was changed after the sale to Fidelity.
Image via

For non-paying customers, BK offers a “first look” into the state of mortgage markets.  I pay specific attention to one piece of data, namely the “total US loan delinquency rate (loans 30 or more days past due, but not in foreclosure)“.
US mortgage statistics published by Black Knight, delinquencies and foreclosures – click to enlarge.
In January 2016, 30 days past due mortgages increased by 167,000 properties, or 6.6%, from the previous month.  This data reflects the earliest stage of non-payment and is not molested by Government intervention, nor seasonally adjusted.
We heard real estate bulls, or novices like Ms. Yellen, mouth the mantra that real estate lending is unreasonably tight.  If defaults reverse course in the next few months, it can only suggests that real estate lending has not been tight enough.
Think of the various reasons why borrowers may default, in no particular order of importance:
Mortgage rate too high?  Nope, mortgage rates have been low and declining during the last few years.
Sudden reset?  Nope, there are no special events that would have set off triggers that result in higher payments.

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The Negative Mortgage Rate Program (NMRP)

February 12, 2016

Something Needs to be Done – A Glimpse of the Future
In the summer of 2016, US and global economic growth rates are nowhere close to estimates.  In fact, a global recession, or worse, is imminent.  At home, student loan defaults are now close to 100%.  The unemployment rate is climbing, as minimum wage workers finally realize that the financial pain of working or not working is identical.  In Euro-land, as the weather warms up, the never-ending flotillas from Northern Africa resume swamping the Southern shores.
A black hole opens up in the world of centrally planned money
Illustration by Denis Cristo

By now, the Treasury has long given up on the idea of privatizing the agencies.  Freddie and Fannie will soon be part of HUD, surviving for the sole purpose of providing affordable housing for all – whatever that is supposed to mean.  Policymakers have determined that the real estate market is stalling.  Desperate times require desperate measures.  Something needs to be done.
After an intense pow-wow between the administration, Congressional leaders and the Federal Reserve, the Negative Mortgage Rate Program (NMRP) is born. The program is simple.  Homeowners will be paid to borrow.  The Federal Reserve declares that the NMRP is a brilliant extension of NIRP (negative interest rate policy), because it will benefit everyone, not just the 1%ers.

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Fed Action and the Real Estate Market

January 4, 2016

Rate Hikes and the Fed’s Goals
Finally, a 1/4% increase in Federal Funds rate. The immediate response from the banks was 1/4% hike in the prime rate to 3.5%.  This may have some effect on HELOCs.  Adjustable mortgages facing reset may also see some changes.  These minor adjustments should however have no direct impact on the real estate market.
As for the 30 year mortgage rate, so far the reaction has been nothing more than normal daily fluctuations.  Even if mortgage rates eventually settle at a 1/4% higher level, that is only $30 a month for a $200,000 mortgage, or $60 to $70 a month extra in household income to qualify for the same mortgage. A quarter point should not make much of a difference but what about half a percent or more?
This mansion in Pacific Heights, San Francisco was sold for a record price of $31 m. in 2015 – it netted its owners a $4 m. profit in less than two years. Reportedly no improvements were made to the property. SF is one of the regions in which bubble conditions are not merely noticeable, but are better described as “raging”.
Photo credit: Zilov / MLS

Richmond Fed president Lacker said that four rate hikes in 2016 would be considered gradual. Assuming that each hike amounts to a quarter percent and long rates move up in unison, we may see mortgage rates in the 5% range.

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The GSEs: A Ticking Time Bomb

December 14, 2015

Government Handouts Galore
Time flies.  It has been over seven years since the agencies, Freddie and Fannie, were placed under the conservatorship of the Treasury.  Think of it as a bankruptcy filing.   The difference being that there has been no reorganization plan, nor a liquidation plan.  In fact, there has been no plan at all, aside from letting the hole be dug deeper and deeper.
Fannie Mae’s headquarters in Washington – not bad for a technically insolvent company
Photo credit: Picture Alliance / DPA / EPA

The fixed income market has come to accept the agencies as government-owned agencies.  All losses will be backstopped by the Treasury, or rather taxpayers, while rates will be manipulated by the Federal Reserve via what they are labeling monetary policy.
Fannie Mae’s common stock since 2006. It has become a plaything of short term speculators in recent years, as a handful of hedge fund managers began to bet in 2013 that they could squeeze some reimbursement for shareholders of the bankrupt company from Washington – click to enlarge.
The real estate market has also accepted that the agencies in their current form as the new normal. The agencies will be there to provide easy financing when times are good, and even easier financing when times are bad.

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Is Judgment Day At Hand?

November 11, 2015

What is Judgment Day?
It is like ancient times that the Feds, under Greenspan, somehow decided that US needed to follow a zero interest rate policy, a policy now known as the ZIRP.  It was 2008 when Bernanke gave birth to the term Quantitative Easing, QE. QE was followed by Operation Twist, and its sequels – QE2 and QE3.
The new buzzword is “normalization”.  Normalization is the reversal of the QE operations and the raising of interest rates to above zero.  Whether we agree or disagree is irrelevant.  The fact is that the BLS just declared the unemployment rate is at 5%, a level that should justify initiating the normalization process starting with the next FOMC meeting in December. In other words, judgment day is at hand.
Batten down the hatches, judgment day approacheth
Image credit: World Wrestling Entertainment (WWE)

The following two charts summarize the Fed’s policies nicely.  The first shows the Federal Funds rate. It dropped from over 5% in 2007 to zero today.  So we are making a big deal over a possible 25 basis points hike?  I will leave that question for later.
Effective Federal Funds rate. It may be hiked from nothing to almost nothing soon, but what difference would it really make? – click to enlarge.
The second chart shows the Fed Balance Sheet, also starting in 2007.  It went from $875 billion in 2007 to $4.5 trillion today, an increase of $3.

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