Category Archives: Mann Overboard

After a 2-year hiatus, the Mann Overboard blog is back. This blog will cover anything and everything that comes to mind. There will be market forecasts. Suggestions regarding interesting web sites, books, or topics I think readers should check out. My continual diatribe on the real estate appraisal industry and all of its wrongs. My support for a new real property valuation profession, adopting Mortgage Lending Value in America, creating Real Property Risk Ratings in America, and introducing readers to the concept of Socionomics. Other topics will surely arise.

Feedback will be limited to approved site visitors. This is not to limit disagreement – different ideas are needed for us to advance any concept we discuss. I just want to keep the content professional. Replies whining about old subjects like AMCs and what banks have done to the industry and such don’t get us anywhere. And simpl

CONGRATS INDIANA! 3 DOWN, 47 TO GO

March 30, 2016 – I’ve been campaigning since 1994 to get states to pass laws that allow licensed appraisers to perform non-USPAP compliant Evaluations.  After 22 years, we finally have the third State to invoke such a law.  Congrats to Indiana and all of its appraisers that can now compete on a level playing field.

We have a long way to go.  But, hopefully, this is gaining steam and appraisers in every state will get to work on getting similar laws passed sooner than later.   I think the Tennessee law is the best, but the Indiana wording is very good, too.

The following is from the Appraisal Institute’s Appraiser News Online:

Indiana Law Allows Appraisers to Perform Evaluations

Indiana became the third state to allow state-licensed and state-certified appraisers to perform evaluations without having to comply with the Uniform Standards of Professional Appraisal Practice when Gov. Mike Pence signed SB 300 into law March 21.

Under the provisions of the bill, the requirements of Indiana’s existing appraiser licensing and certification law, including USPAP-compliance requirements, will not apply to:

“The performance of an evaluation of real property by an employee, an officer, a director, or a member of a credit or loan committee of a financial institution, or by any other person engaged by a financial institution, in a transaction for which the financial institution would not be required to use the services of a state licensed appraiser under regulations adopted under title XO of the Financial Institutions Reform, Recovery, and Enforcement Act of 1989.”

Under the new law, state-licensed and state-certified appraisers will be able compete with other providers of evaluation services, including brokers and salespersons, and will not have to comply with USPAP when performing evaluations for transactions in which a federally regulated institution is not required to obtain a USPAP-compliant appraisal.

The other two states that currently have similar allowances for state-licensed and state-certified appraisers are Tennessee and Georgia.

GOLD – MANN vs. GOLDMAN SACHS

February 20, 2016 – This past week Goldman Sachs projected gold will fall to $1100 in the next 3 months and to $1000 by next year.

My current view is gold is in Wave V of the initial up Wave 1 (for those who know the Elliott Wave Theory you understand the 5 waves up followed by 3 waves down theory).  I expect it to top out between $1280 and $1345 over the next month or so.  Most likely in the lower part of that range.

Then it should decline back to the low $1200’s where it bottomed last week.  And from there the rest of the year should see the stronger Wave 3 up which should see it advance at least $300 per ounce and likely much more.

I honestly don’t believe we will see gold below $1150 ever again.

So, little ol’ me has a totally different projection than the mighty Goldman Sachs.  Let’s see how it plays out the remainder of this year.

The Mann

 

A GUEST POSTER’S VIEW ON THE ECONOMY

February 1 – Following is my first guest post.  Bruce Cumming, Jr. is the author.  He can be reached at 941.926.0800 or bcumming@hettemasaba.com.

We would like to note that from an academic-business perspective real estate is viewed as a sub-discipline of finance, finance as a sub-discipline of economics and the classical economist such as Adam Smith and David Ricardo referred to their discipline as “political-economy” linking economies with the political mode of a country, state, county, or municipality.  The following is some economic theory and emerging issue that could impact real estate values.

According to the Austrian business cycle theory, central banks (such as the US Federal Reserve System and specifically its Federal Open Markets Committee) can set interest rates too low for too long, which can create an artificial boom and distort the accuracy of data on a trend line basis, often causing what is termed “malinvestment.”  According to an article by Mauldin Economics, based upon a graph of the US 10-Year Treasury Rates going back to 1790, 10-Year Treasury Rates over the long-term averaged just less than 6% and the average over the last 50 years was 6.58%.  The current 10-Year Treasury rate according to the US Department of the Treasury is 2.06%, or about 394 basis points below the 200-plus year average rate and 452 basis points below the 50-plus year average rate.  The Federal Open Markets Committee just increased its rate for the first time since December 16, 2008, on December 17, 2015.  The Federal Funds Rate has been between 0% and 0.25% for 7 years.  The Federal Funds Rate is now between 0.25% and 0.50%.  The US stock market has been in rapid decline so far in January of 2016.

The McKinsey Global Institute’s report, Debt and (Not Much) Deleveraging, dated February 2015, reports that between 2007:Q7 and 2014 worldwide debt have increased from $142 trillion to $199 trillion, an increase of $57 trillion, or 40.14%.  Debt has not been liquidated during the so called Great Recession, but has been increased, thereby potentially distorting asset values.

It should be noted that the Green Street CPPI:  All-Property Index (which was started in December of 1997) was 22.7% higher in December of 2015 than in December of 2007, its previous peak.  Green Street tends to focus on investment grade real estate and is tightly tied to the capital markets.  The Moody’s/RCA CPPI, which focuses on repeat sales of properties greater than $2,500,000 in value, saw its last peak in 2007:Q3 (165) and reached that same level in 2015:Q3 (165).  The trough reported by this index was in 2009:Q4/2010:Q1 (96), so the index has increased 71.88% from trough to peak.

Austrian economists theorize that the artificial monetary boom ends when bank credit expansion finally stops, which is when no further investments can be found which provide adequate returns for speculative, or “Ponzi” borrowers.  The Austrian business cycle theory asserts that the longer the artificial monetary boom goes on, the more speculative and “Ponzi” the borrowing occurs, the more errors and waste committed, the longer and more severe the workout period (e.g., bankruptcies, foreclosures, and short-sales) until equilibrium is achieved through market-based price discovery.

The Austrian business cycle theory is one of the precursors to the modern credit cycle theory, which is emphasized by Post-Keynesian economists at the Bank for International Settlements and by mainstream academic economists such as the late Hyman Minsky (PhD/economics, Harvard).  Post-Keynesian Minsky taught at Brown University and the University of California at Berkeley among others.  Minsky’s financial instability hypothesis is translated to real estate markets by borrower type.

Minsky theorized that a key mechanism that pushes an economy toward a financial crisis is debt accumulation by the private sector.  He identified three types of borrowers:  hedge borrowers, speculative borrowers, and “Ponzi” borrowers.

„      Hedge borrowers:  can pay both interest and principal loan payments from current cash flows (e.g., traditional mortgage).

„      Speculative borrowers: can pay interest only loan payments, but must regularly roll over the principal (e.g., interest-only loan).

„      “Ponzi” borrowers:  cannot pay interest or principal, and depend upon asset price appreciation sufficient to refinance the debt (e.g., negative-amortization loan), only asset price appreciation keeps the “Ponzi” borrower afloat.

If “Ponzi” borrowing is widespread enough during a credit boom when asset prices stop raising rapidly the “Ponzi” borrower can no longer operate profitably (or at all) and once asset prices start to decline the speculative borrower may not be able to roll over their loan principal and could face a technical, if not a real default.  The final financial domino is the hedge borrowers who are unable to find loans despite the apparent soundness of the underlying assets.  The market begins to unravel, that is to say, a “Minsky Moment” occurs.

Former PIMCO managing director Paul McCulley (MBA, Columbia) is credited with coining the phrase, “Minsky Moment,” when referring to the point in any credit cycle, or business cycle when investors begin having cash flow problems due to the spiraling debt incurred in financing speculative assets.  At this point, a major sell off begins because no counterparty can be found to bid at the high asking prices previously quoted, leading to a sudden and precipitous collapse in prices driving market clearing asset prices down as well as a sharp drop in market liquidity.  The “Minsky Moment” comes after a long period of prosperity and increasing asset values, which has encouraged increasing amounts of speculation using borrowed money.

Austrian economist Ludwig von Mises (PhD, University of Vienna) who taught at New York University theorized that a financial crisis emerges when consumers seek to reestablish their desired allocation of saving and consumption at the prevailing interest rate.  The ensuing recession or depression is the process by which the economy adjusts to the errors and wastes (malinvestment) of the boom, or bubble.

It remains too early in the current cycle to confirm that a “Minsky Moment” has occupied, or if the current stock market activity is a short-term correction that will rebound in a few weeks, or months.

It should also be noted that during that during the last downturn vacant land decreased in value at a far greater rate than improved properties that could be income generating.  A paired repeat sales analysis study that we conducted indicated that vacant land was declining at a rate of about 1.35% per month (rounded) versus improved sales that were declining at a rate of about 0.75% per month (rounded).  Land was declining in price at an 80% greater rate than improved property.

Generally, entitlements are only worth about what they cost during a normal market and are “usually worthless” during a downturn, such as we recently experienced.

The current macro-level economic activities have not yet impacted real estate values, they may and they may not.  Time will tell…

 

 

THE BIG SHORT – A Movie All Americans Need To See

January 16, 2016 – I went to see The Big Short today.  I encourage everyone to go see it.

After seeing this movie, you will know why I list Banks among The World’s 3 Greatest Evils (I won’t go into the other 2 at this time).  You will know why I took on Fifth Third Bank and suffered for 7 years to achieve vindication.  And why I look so forward to all of the other whistleblowers out there getting their share of that and many other banks.

For me, it was an emotional movie.  I lived it and knew it at the time.  I can totally relate to Mark Baum, and really the others who went short, as it was an obvious winning bet – but, to win, the American public had to be decimated and we knew banks and Wall Street would be bailed out by the taxpayer.  Corporate Socialism I heard it called recently.

It was good to see the few other people that forecast what I termed in June 2005 The Great Depression II (c).  Unlike them, I just didn’t make a few billion dollars:(  I am glad they did at the cost of ‘the smart money’ on Wall Street.  Yes, a few of us can be right and 99.99% of the World can be wrong.   Remember Mann’s Axiom….

Money will be made shorting the current Echo Bubble during this Echo Depression(c).  It just won’t be as much as last time since the bullish housing people know what the shorts are doing this time around.

I was interviewing with the OCC in the Summer of 2008 and they asked me if I thought banks had learned their lesson.  I said ‘NO’ and that as soon as the pendulum swung back to optimism they would do everything all over again.  I have been told things are even worse today than in the bubble years.  Scary.  The OCC then asked me what it would take to stop banks from being so wreckless.  My answer was to enforce the FIRREA penalties that would allow the government to fine and imprison individuals – the corporate veil does not protect employees that violate FIRREA.  I won’t give it away, but the movie tells us how many bankers have been arrested for the housing debacle – you won’t be surprised, but should be disappointed in the system.

Today, my solution to get banks to clean up their act is simple – eliminate the FDIC deposit insurance.  The public would demand 100% transparency and total safe lending and practices before they would put their money in a bank.  Of course, and saying this I sound like Mark Baum for sure, this would just move all of the unethical and greedy people from banks to non-bank lenders.  The scum keeps moving to where it can thrive.

Speaking of which, the scum have renamed CDOs today as ‘Bespoke Tranche Obligations (BTOs).  Also, a residential lender told me that lenders are starting to do ‘Statement Loans.’  They simply look at your bank statement to see your income and don’t request your tax return.  This is the first step in the direction of the old NINJA-type loans.

I encourage anyone in the industry that encounters these products to collect all of the info you can and go to the authorities so these people can be prosecuted when the time comes – I will be glad to advise you on what steps to take.  Also, investors should remember a rose is a rose is a rose.

Please go see the movie.  Please tell everyone you know to go see the movie.

 

2015 AEI/CRN CONFERENCE IN WASHINGTON, DC

November 3, 2015 – I attended the 4th annual AEI/CRN conference last week.  Instead of me trying to summarize what all of the great speakers said, you can go to the link below to see the presentations.

The speakers and people in attendance are major players in the residential real estate industry.  They recognize the appraisal process is broken and the current appraisal report is basically useless.  Major change is needed and I believe it will be these people who make it occur.

I encourage you to take the time to listen to the presenters and read their presentations.

George

The email below is from the AEI:

Thank you for your interest and participation in AEI’s recent event “Fourth annual international conference on housing risk: New risk measures and their applications.” We wanted to share the event summary and video with you; please feel free to share these with friends or colleagues.You can also view all of the presentations from the conference.

Learn more about the Wealth Building Home Loan, Edward Pinto and Stephen Oliner’s revolutionary approach to low-income home finance, which has received rave reviews in The New York Times, The Washington Post, and Reuters, among other outlets.

Explore more of AEI’s work on issues related to housing risk at HousingRisk.org, the website of AEI’s International Center on Housing Risk, and don’t miss the November 23 briefing call with Steve Oliner and Ed Pinto to discuss this month’s release of the Mortgage Risk Index. Please contact Urbashee Paul to receive dial-in information for the conference call.

AEI is a community of scholars and supporters committed to expanding liberty, increasing individual opportunity, and strengthening free enterprise. To learn more about AEI, please bookmark AEI.org and visit often.

Yours cordially,

The AEI Events team

American Enterprise Institute for Public Policy Research
1150 Seventeenth Street, N.W.
Washington, D.C.20036
www.aei.org

 

COUNSELORS OF REAL ESTATE (CRE) 2015 CONVENTION

October 24, 2015 – Last week I attended the CRE 2015 Convention in Charlotte.  As usual, the conference had a number of prominent speakers discussing significant issues affecting real estate.

If you have not heard of the CRE, I encourage you to visit their web site at www.CRE.org.  Also, the 950+ members have tremendous experience in all facets of real estate.  You should consider contacting them for your more difficult real property challenges.

Below is a list of items I took away from the presentations.  I hope you find these of interest, also.

George R. Mann, CRE

The current immigration event in Europe should add about 1.5% to the European population

This immigration event should lower the average age of Europe – which is aging fast, just like the USA and other developed countries

25%-30% of population growth is due to immigration

Europe is considering lowering the quality of real estate construction – because it cannot afford quality! ((MANN – This supports my belief that the overall decline of our generations, starting with the Millennials and going forward, will result in a long-term decline in quality, intelligence, etc.))

In the USA, the median net worth of people under 35 years old is 8.5% lower than in 2000

In the USA, 15.5% of people under 35 years old work part-time – historically, that was 5.5%

Since 2008, the fastest growing countries by population have been Australia, New Zealand, and Israel

Germany has 80 million people and that will decline by 7 million over the next 50 years

Worldwide, 2.8 Billion (with a ‘B’!) people will move to the cities by the year 2050 !!!!!!!

Currently, there are 5.7 million job openings in the USA – the highest ever

WalMart operates under 65 different names in 28 countries

SuperCenters have replaced all but 650 of the original Discount Stores

There are now 656 Walmart Neighborhood Markets – approx. 40,000 square feet

16 ‘Expresses’ are being tested in North Carolina – approx. 15,000 square feet

Also, WalMart is testing grocery home shopping…you select and purchase your groceries online and then drive to the store and someone loads them in your car

WalMart remodels stores every 5 years

Meier remodels stores every 7-8 years

WalMart and Meier indicated stores cost $80-$130/sf to build.  But, values were around $20-$30/sf !!!  They were very clear that they know their actual costs and any associated leases have NOTHING to do with the value of real estate.  ((MANN – Now, when will appraisers doing bank appraisals start appraising drug stores, auto stores, national restaurants, and so on correctly!!!))

Big Box buildings are simply a tool to sell product; they are not a real estate investment

Development is way down for big box users – e.g. Target was building 150 stores per year in 2006….only 5-10 in 2015; Walgreens was building 500 stores per year in 2006….0 in 2015

Amazon has had a huge affect on retail development

Current retail development is in the 200,000 to 300,000 sf range and are power centers with smaller large tenants than say Lowe’s or Home Depot

PetSmart is now moving towards freestanding properties

Distribution Warehouse will continue to do well due to eCommerce

A sale/leaseback is a financing transaction; nothing to do with market rent as it was not put on the market

Above market leases do NOT increase real estate value ((MANN – Per above, when will appraisers doing bank appraisals realize that the portion of value due to above market rent has to be labeled as Intangible Value or Bond Value or some such name?  Of course, Banks need to be requesting such to make this clear themselves….I have only been doing that since the 1990’s!))

================================================

That’s it for the conference.  Many people have asked me how to pronounce Qui Tam and what the heck it is.

I pronounce it like ‘Key’…so Key Tam.  I see some dictionaries spell the sounding out as Kee Tam or Kwee Tam.

Obviously, the best way to explain what it is is to visit Wikipedia and other sites that Google comes up with.  My attorney’s website also has some information – and, as you will see, they are likely the best Whistleblower Attorneys in the nation.  I will be glad to introduce you to them.  Just give me a yell.

http://www.quitam-lawyer.com/

Lastly, for those of you considering a Qui Tam case, please purchase The Whistleblower’s Handbook by Stephen Kohn.  Like everything on Earth, it is available on Amazon.  It answers every question you might have and provides invaluable instructions on what to do while still employed.

Til next time….

 

Many Thanks To All

October 15, 2015 – Since the announcement that I had a hand in making 5/3 Bank pay an $85MM fine, I have received over a 100 emails of support. First, I must thank all of my family and friends that sent emails and supported me over the past 7 years, and longer.

Also, a special thanks to my former staff that sent congratulations.  It was with your buy in of my program that we were able to receive a Best In Class in the Nation rating from bank examiners.  We could not have achieved that without everyone believing that things can be done 100% ethically with no caving in ever.

The emails I received had similar themes:

  • You are Da Mann!
  • Good for you for fighting the good fight, and that you were vindicated. I just can’t believe their shareholders didn’t take this a little more seriously.
  • Wow!  A resounding vindication and testament to your integrity.  Well done.  You are a man to admire.
  • Wow George!  Congratulations!! And BTW as a taxpayer thank you!
  • congrats george.  thanks for winning one for the good guys
  • Glad that you are finally able to get this out in the open and be vindicated.  They certainly picked on the wrong guy back in 2008 didn’t they?!
  • Your ethics and patience are admirable.
  • It warms my heart to see 5/3 hand over $$ for their many abuses.
  • Congrats Mr. Mann. Thanks for having the guts to step up and take a rip at a monster that is out of control.

I wonder how many emails of support 5/3 received?  LOL

I will write more over the next few months.  Nothing in the settlement requires my silence.  I went the route I did because I would never agree to be silent.  It was a long, tough route, but it was worth it.  Everyone deserves to know the full truth.

For now, I leave you with the song that got me thru many tough situations over the past 20+ years.  Give it a listen any time someone wants you to compromise your ethics.

Til next time….

I Won’t Back Down

Tom Petty

Well I won’t back down
No I won’t back down
You can stand me up at the gates of hell
But I won’t back down

No I’ll stand my ground, won’t be turned around
And I’ll keep this world from draggin me down
gonna stand my ground
… and I won’t back down

Hey baby, there ain’t no easy way out
(and I won’t back down…)
hey I will stand my ground
and I won’t back down

Well I know what’s right, I got just one life
in a world that keeps on pushin me around
but I’ll stand my ground
…and I won’t back down

Fifth Third Bank Settles False Claims Act Case for $84.9 Million

PHILADELPHIA, PA, October 6, 2015 — The United States Department of Justice announced today that Fifth Third Bank will pay approximately $85 million to the federal government to settle claims under the False Claims Act (“FCA”) relating to the Bank’s practices in connection with loans insured by the Federal Housing Administration (FHA).  The settlement also resolves a whistleblower lawsuit filed by Kenney & McCafferty in June, 2011 in the Southern District of New York.

Kenney & McCafferty filed the whistleblower complaint on behalf of a former chief appraiser at the Bank, who alleged a broad range of commercial and residential mortgage violations, including fraudulent appraisal practices, which resulted in significant losses to the federal government. The lawsuit was filed under the qui tam, or whistleblower, provisions of the False Claims Act.  These provisions permit private parties to sue on behalf of the United States when they believe an individual or company has submitted false claims for government funds.

Fraud on the government’s mortgage programs has become a major source of False Claims Act recoveries in the wake of the mortgage crisis, and the Fifth Third settlement marks another significant victory for both the government and the taxpayers in this line of cases.  According to George Mann, the former Fifth Third employee who blew the whistle, “the culture of the Bank at that time emphasized profits over compliance with federal regulations.  This type of behavior is exactly what led to the financial crisis and, no matter what the outcome, I felt it was my responsibility to speak up and do the right thing.”

“We were fortunate to represent Mr. Mann in this case.  He is honest, ethical, and informed, and was willing to step forward under difficult circumstances,” said Kathryn Schilling, a whistleblower attorney at Kenney & McCafferty.  “Mr. Mann raised concerns about Fifth Third’s compliance issues internally, but no one listened to him.  He is thrilled that the government has recouped significant funds from Fifth Third to restore taxpayer dollars,” Ms. Schilling said.

Mr. Mann and his attorneys expressed great appreciation for the work of the Department of Justice, and the US Attorney’s Office for the Southern District of New York, particularly Assistant US Attorneys Pierre Armand and Jaimie Nawaday.  Mr. Mann also thanked his family, friends, former colleagues who supported his compliance efforts at Fifth Third, his co-relator John Ferguson, and the law firm of Kenney & McCafferty.

For inquiries, please contact:

Kenney & McCafferty, P.C.

Kathryn Schilling

(215) 367-4333

kschilling@kenneymccafferty.com

 

 

Adding value to the appraisal of the future – by Ed Pinto

August 24, 2015 – Ed Pinto of the American Enterprise Institute was a closing speaker at the Appraisal Institute’s national conference in Dallas a few weeks ago.  One of the new items he presented is summarized below.  As the title suggests, the idea is to make the appraisal of the future value-added – instead of simply providing Market Price as has been the case for the past 80 years.  The primary focus of Ed’s comments is residential appraising.

His ideas follow.  I will not add any commentary.  Just sharing the perspective from an independent party that is in contact with FHA, FNMA, Freddie Mac, etc – Ed was a prominent FNMA employee in the 1980s.

Determine (methodology):

–Market cycle history*

  • Create and review 10-year nominal and real home price trend to determine current position in market cycle relative to equilibrium
  • If the real price trend currently at equilibrium, robust comparable sales approach is likely appropriate.
  • If the real price trend currently elevated or depressed, the lesser of investment and replacement cost approaches is likely appropriate.

–History of buyer’s (>6 mo.) and or seller’s market (<=6 mo.) for existing homes**

  • Determine whether a buyer’s or seller’s market based on months of home inventory divided by listings/sales rate; determine whether a buyer’s or seller’s market
  • If real prices are increasing, it is almost certain that a seller’s market is present
  • Market disequilibrium more likely the longer an uninterrupted seller’s market continues

–Buying power due to change in power leverage**

  • AEI’s Center on Housing Risk plans to incorporate into its Mortgage Risk Index by year end

–Land value and change in land share trends**

  • Calculate land value by extraction using exchange value minus replacement cost

–Whether real price change due to leverage growth or improving utility or a mix

  • Evaluate role played by income leverage vs. fundamentals (i.e. job & real income growth)

*For the MSA, the subject property’s market area and price tier,(zip code or below), and the subject property

**For the MSA and the subject property’s market area and price tier (zip code or below)