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Michael Olenick: NAR’s Big Miss on Home Sales Underscores Lack of Transparency and Accuracy in Mortgage/Housing Data

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By Michael Olenick, founder and CEO of Legalprise, and creator of FindtheFraud, a crowd sourced foreclosure document review system (still in alpha)

The National Association of Realtors (NAR) has announced that their estimates for home sales have been materially incorrect since 2007, and that they plan to restate the number of homes sales downward. Apparently the NAR derives their homes sales information from the Multiple Listing Services, the proprietary “want-ads” real-estate agents use to list houses for sale.

Their error stems from several causes, but one of the biggest is overestimating the number of people who sell their homes without a real-estate agent. During the height of the housing boom many people skipped real estate agents, and their 6% commissions, opting to sell houses on their own.

I can see how some people would have decided to skip an agent back then. When I moved from CA to FL in 2005, I went on a weekend vacation with the family, left the house with a real estate agent for an open-house, and came back to nine bids, all well above asking price. I was amazed, but also wasn’t sure what the real estate agent did since my former house obviously sold itself.

NAR took the number of people who came to this same realization, and projected many people were selling homes without real estate agents. They ignored one small factor — the national housing collapse — and the apparently difficult to infer fact that when houses became harder to sell more people hired real estate agents. They also used old Census data to project population trends and they didn’t factor in changes based on consolidation in the MLS market. In other words, they massively blew it.

NAR data is the sole benchmark for existing home sales in the monthly scorecard released by the Dept. of Housing and Urban Development (HUD), under supervision of the White House. As of Nov., 2011, the NAR statistics are the exclusive measure used to measure existing home sales, a vital component used by government agencies, banks, economists, and others to gauge the health of the housing market. Additionally, the data has been cited by the Dept. of the Treasury and various branches of the Federal Reserve.

My own data, derived from sales and mortgage information filed at the courthouse, showed that the NAR figures were wrong. So did data from CoreLogic, a title insurance spin-off based in CA that works on real estate data, who also takes their data from court records. Court records are the best source of real estate data, because any definitive move in real property requires a filing at the courthouse.

I asked colleagues at other companies in my industry and every one of them — from my tiny FL-based one to giant behemoths — uses courthouse data. We all knew that the NAR data was incorrect. Banks must have known, Fannie Mae and Freddie Mac, with their large portfolios of real-estate, surely must have noticed that their properties weren’t selling. It seems impossible that the small army of economists employed by the Federal Reserve could have overlooked the error. Some of us complained but nobody listened because the NAR data was presumed to be definitive. If ours was different, then ours must be incorrect, even if all of ours showed the same trend.

I’m regularly asked to analyze, comment on, or write about trends in housing and foreclosure data. But this week’s non-surprise from the NAR brings up a deeper issue; the methods used to compile that data. Besides home purchases, which isn’t really something I focus on, I’ve found some reports about foreclosure filing estimates to be wildly off.

Last week I wrote that Bank of America had transitioned from filing Countrywide foreclosures as “BAC Home Loans” to “Bank of America.” My analysis about their reason for doing so was the crux of the article. But it’s also noteworthy that there were a number of materially incorrect articles published about an enormous “surge” of filings by BOA when, in fact, there was an increase but most of the “surge” came from changing the name under which they file.

That is, people saw “Bank of America” filings spike, but didn’t notice “BAC Home Loans” filings declined. I spoke to a couple reporters that wrote those stories. They verified the corresponding decrease with county officials, but nobody ran a correction.

It’s not only backwards-looking data collection that’s questionable. My systems wade through a morass of garbage generated by poorly written bank and law firm computer systems chock-full of obvious errors.

One of my colleagues is Prof. Linda Allen, Chair in Banking & Finance at Baruch College of business, at CUNY. Prof. Allen is a long-time academic who understands finance, and especially real estate finance. Her long list of publications speak for themselves; she’s a genuine expert in the field. She predicted the real estate bust in academic papers long before it came along, and I’m fortunate to have her using my data for some of her research.
I ask Prof. Allen when I’m stumped about finance questions. Most of her answers are along the lines of “Michael, you know that language is a swap to hedge against daily LIBOR fluctuations” (um .. yep .. I knew that). But she was more straightforward when asked why the data collection systems at banks suck.

“Someone high on the food chain in one of the biggest banks admitted to me that they were not being paid to do the back office stuff,” Prof. Allen wrote. “You have to understand the disdain on the street for the operational end of the business. I wrote an article entitled ‘Revenge of the Back Office Nerd,’ that states that this inattention to the back office brought down the entire system.”

I know that banks hire great software engineers, but I also know that they’re more likely to end up creating quant-trading systems than writing operational software. But you’d think that with amounts of money swooshing around the system one of them would stop downstairs to take a peek, if for no other reason than to ensure that the data their systems use for trading is accurate.

One of President Obama’s planks surrounded data transparency; making sure that regular people had access to the information that affects their lives. Part of the meltdown in the derivative markets was a lack of transparency, which exists to this day. We still don’t have a full list of the loans Fannie Mae owns, despite that Freddie Mac has been publishing this data, albeit in a difficult to aggregate manner, for years.

Finance is difficult, and hitting an iceberg is bad. But hitting one because somebody thought a lowly looking should wear blinders, because they weren’t worth of enjoying the view, is worse. The NAR fiasco is our big and already injured ship scraping needlessly and perilously close to disaster. There’s a possibility that when their revisions are released we’ll know that, in hindsight, we should have made different decisions than we did.

Even if we manage to escape disaster we should take this mess as a warning. Let’s demand open, honest, full disclosure about data, data collections, and collection methodologies from any organization generating information used to build public policy.

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31 comments

  1. avg John

    A mistake? I think not. Hows about calling it a big whoppin lie, similar to all the other deceits and propaganda coming out of Washington D.C., Europe, China, Wall Street and the main stream media.

    And something tells me all of the fraud and mismanagement associated with MF Global and this Corzine character will be a giant misunderstanding caused by a bookkeeping error. Yeah, right.

    1. mansoor h. khan

      avg John said,

      “Hows about calling it a big whoppin lie”.

      What amazes me is the stock market. Why has it not crashed yet?

      A severe stock market crash (I think) will jolt the public into rethinking/discussing this whole shebang and help them realize that it is all smoke and mirrors.

      For real change to take root we need much larger portion of our society to be discussing the stuff we have been discussing at NC here.

      mansoor h. khan

      1. Sleeper

        As far as realistic views of stock market valuation -

        A helpful note would be for the financial news to report on the daily volume created by the very fast automated computer trading programs. This is computers trading with each other and is little or no reflection on the actual valuation of the company which underlies the stock.

        The daily volume is a pretty meaningless figure.

        Note that the DOW has been trading between 8,000 and 12,000 for a good many years which is a contra indication of the steady growth (8%)that is often proposed.

        So real stock market values perhaps we ought to be seeking unicorns.

        1. Nathanael

          The majority of trades in “highly liquid” stocks are indeed computerized HFT trades and mean NOTHING.

          You may get a better picture from the stock indexes of illiquid stocks.

      2. Rex

        Yeah, isn’t the stock market driven now mostly by lies and manipulation? It’s like Tinker Bell. If enough people can be convinced to believe, it can fly.

        1. jsn

          Like Twain said, “the markets can stay irrational longer than you can stay solvent!”

          Successive coordinated global central bank interventions, as keep happening, are necessary to ensure that bankers get their bonuses this holiday season that there may be some trickle down in the new year for 99 percent peons.

      3. kemo sabe

        I wonder if there’s been a quid pro quo between the Administration, Fed and Wall Street. Maybe the price of the trillions given to the banks (er. wall st.) was to keep the market from crashing. I’ve noticed that the market has been oscillating between 10,000 and 12,000 on the Dow for over a year. Under the guise of QE, more money’s being loaned to the traders. Just a thought….

        1. Sleeper

          My guess is yes there is a quid pro quo -

          I think the argument goes like this -

          Many loans to corporations are based on stock valuation as collateral ergo the loans can be called if the stock value tumbles past a certain point that said for the entire market to continue there is a vested interest in keeping the stock values up or at least trading within a comfortable range.

          Thus we have a continued “happy talk” offensive.

      4. Ray Phenicie

        “What amazes me is the stock market. Why has it not crashed yet?

        A severe stock market crash (I think) will jolt the public into rethinking/discussing this whole shebang and help them realize that it is all smoke and mirrors.”

        Quite so-look at the long line of steady state on the DJI chart at Yahoo finance to see that on the week of 01/17/2000 the DJI average was at 11722.

        ?!! What the – - – -?

        Or go back further to early Jan 1995, the average is at 3908, then lo and behold it doubles to over 7800 by 07/07/1997! No financial instrument known as a putatuve BLUE CHIP could ever really double in value in that time. The obvious sings of a bubble are all over the place in the DJI chart. I am suprised no one has ever commented on this.

  2. Conscience of a Conservative

    After seeing the regular cycle of politically motivated economic forecasts of Lawrence Yun and his predecessor(s) this comes as no shock, but the irony of all this is that after the change improvements in the numbers are all the more likely, so we can be sure of more polyanish forecasts from the NAR

  3. rjs

    a couple links on the settlement:

    Iowa AG says mortgage settlement should be done by Christmas = Iowa Attorney General Tom Miller said Thursday a settlement between almost all state attorneys general and the five largest mortgage servicers should be finalized before Christmas, with or without California.
    http://blogs.desmoinesregister.com/dmr/index.php/2011/12/08/iowa-ag-says-mortgage-settlement-should-be-done-by-christmas/

    Ex-Cuomo Aide Said to Be Among 4 Foreclosure-Monitor Candidates – A former aide to New York Governor Andrew Cuomo is among at least four candidates being considered to ensure that banks including JPMorgan Chase & Co. and Bank of America Corp. comply with any settlement of a nationwide foreclosure probe, a person familiar with the matter said. Steven M. Cohen, who was the governor’s secretary, is one potential foreclosure monitor, according to the person, who declined to be identified because the negotiations are secret.
    http://www.businessweek.com/news/2011-12-15/ex-cuomo-aide-said-to-be-among-4-foreclosure-monitor-candidates.html

    & btw, that pig video starts up every time i go to nakedcapitalism.com

  4. Capt. Jack

    Another great job by Michael. It’s funny how the folks that should be knowing things first always wind up “knowing” last.

    I think they are just pretending to know what they know and when they know it…

    This situation with R.I. State Senator Moura is developing and could become very interesting.

    URGENT FAX FROM RI SENATOR MOURA TO SENATOR JACK REED

    Relative to the good Senator’s letter (below) to the Department of Treasury regarding Wells Fargo, dated December 2, 2011, the only response I’m aware of was entirely anticipated.

    A call was made from Shari Ruber (515-324-6987) over at Wells Fargo’s “Office of the President” to the Senate President’s office suggesting this lawmaker was using her title improperly.

    R.I. Senator Moura Complaint To The Department of Treasury RE: Wells Fargo

    Imagine that – a Senator with the temerity to demand accountabity for hundreds of billions of taxpayers dollars is being accused of abusing her title by a Wells Fargo strumpet.

    This story from R.I. is not over.

  5. Fraud Guy

    This is an extension of the principle “You cannot get someone to understand something that they are paid not to.”

    Thanks to mergers, consolidations, and layoffs, I have worked for several small to mid size companies who were acquired by larger competitors due to our value, and one of the biggest points was the accuracy of our data. Once acquired, the quality of data went down tremendously (usually overstating value), but, of course, the bonuses of directors and executives was based upon the inflated values.

    1. Nathanael

      This is a variant of the ancient scheme of “seeding” gold mines. Buy a company with a good reputation (this is the “seeded” gold planted in the mine), then rip its guts out and sell crap for the same price (at a much greater profit).

  6. fresno dan

    “Their error stems from several causes, but one of the biggest is overestimating the number of people who sell their homes without a real-estate agent”

    FIFY:
    Their error stems from one cause, the overwhelming need to try and prove that real estate is a good investment. Of course, even more bizarre is that people listen to NAR shills – anybody listens to somebody who sells on commission is a sign of extreme mental illness….

    1. Jeff

      I called my real estate sales lady about the
      ‘NOW IS A GREAT TIME TO BUY OR SELL’ brochure
      that she sent me.

      She said she’d have to call me back on her mobile…
      Said something about the sheriff nailing something up on her door.

      1. Nathanael

        Heh. Most of the time, it is either a great time to buy *or* a great time to sell, so that’s usually a safe brochure…

        ….but right now, because of the mortgage fraud and MERS garbage clouding everyone’s title, it is not a good time to buy OR to sell!

    2. Ishmael

      Exactly, so an organization in the business of selling real estate collects and distributes information on sales and ultimately the sales data is found to be over stated which fits with the “create more sales” mantra. Big surprise there. My reaction to that story was, “Tell me something I do not know.” Let me throw a strange thought out, why estimate anything. It is usually not the number which is reported that is important but the direction and amount of change. Information gathering might be incomplete but if it is incomplete in a consistent basis then that is far better data to me then data where the estimating method is constantly being changed. This is one of the problems with data issued by the govt. Estimating methods are continually being changed with no changes in past data resulting in incorrect trends which always work in favor of the incumbent.

  7. Sleeper

    There ought to be real doubt that NARS data is valid. This is part of the “happy talk” offensive that is presently underway.

    And with the advent of MERS which is designed in part to avoid courthouse filings expect that the courthouse data is not accurate either.

  8. Procopius

    “One of President Obama’s planks surrounded data transparency; making sure that regular people had access to the information that affects their lives.” Yeah, just like his pledge to return us to the rule of law. Hows that one working out for you? Who’s in charge of the transparency? The closet authoritarian, Cass Sunstein, who wants to have people posting disguised disruptive comments on blogs and chat rooms.

  9. psychohistorian

    Employment and unemployment data is another example of accumulated and reported data that currently poorly represent our reality…..Oh look, the number of UI claims is down, things must be getting better.

    BLS numbers now are little better than totally misleading, but that is point, right?

  10. gwen caranchini

    Besides working in the foreclosure defense area as a paralegal and hopefully a lawyer again in April after the Bar exam, I have been doing real estate for the last several years in Kansas City. The company I work for is very good and has gotten away from the big banks for doing loans and works first of all with Chicago Title. Both good things However, the info we get from NARA and through the real estate commissions all paint rosy pictures of the market. The bottom line is home sales are down; pricing is down, the value of homes is incredibly down, and the largest market that moves is under $200,000. Real estate has not rebounded. There are almost one third less real estate agents than three years ago. You struggle on every sale and in the past few months I had two sales go bust because after the contract the buyer lost their job and could not qualify. The baby boomers want to downsize and can’t because there is no one to buy their big houses. There are not enough small houses for these folks. Remodeling of homes is up because people are staying put. In short, the market is not good and the real estate industry is painting a rosier picture than exists. That’s what I see, and I do real estate –parttime.

    1. Sleeper

      Ah some on the spot reporting -

      Here are some tidbits from a southern town that at one time purported to be a banking center.

      Over heard conversations -

      One real estate agent complained of selling just ONE house last year.
      One smaller developer complained of no financing being available.
      One real estate agent said all sales in his area are either short sales or foreclosures and he can’t understand why folks are walking away from homes which are underwater even though they still have income to make the payments.

      And noticeably vacation property is being advertised at 70% off and a major selling point is that the title is clear !!!

      Now this is definitely hearsay and at best anecdotal evidence so perhaps the big NAR picture is correct but I personally think not.

      1. Nathanael

        “vacation property is being advertised at 70% off and a major selling point is that the title is clear !!!”

        Ow ow ow. That hurts. So if you’ve got clear title, you can sell for 30% of previous value…. and if you don’t, you can’t sell for love or money.

        Oh my god the housing market is screwed.

    2. CS

      ahhh realtors. a word to the wise, their M.O. is this: “Real estate sales is like growing mushrooms. As far as buyers go, feed ‘em a lot of sh-t and keep ‘em in the dark”. Told to me as an architect by a realtor/client.

    3. Nathanael

      The Baby Boomers could rent out half the house.

      I expect this to happen. It’s what happened when the rich Victorians “downsized”….

      I’ve been doing some remodelling (to remedy original construction flaws in the only-5-year-old house I bought… sigh…). Anyway, I’ve noticed that the demand is WAY up for the skilled trades involved (plumbing, electrical, HVAC, carpentry, etc.) — it’s harder and harder to get people to show up because they have lots of work. I don’t know if this will be temporary or not. So interesting to hear that you’re seeing the same thing.

  11. rotter

    The “bookkeeping errors” and “misinterpretation of data” or as Avg John calls it “big whopping lies” are about 25% of the whole problem. The real problem is that you can only keep an imaginary economy going, much less “growing” for a short time, then its utterly hollow nature will cause it to implode. Capitalist economies depend on millions of people paying for goods and services with money they earn from reasonably well paying jobs. Those jobs are gone and millions of people have to live on saved money (not for much longer) credit(thats over) and the charity of better situated freinds and familly(soon to be exhausted). All so that a relative handfull of global inherited rich and thier business school-grifter lawyers and accountants can exploit the world and its teeming hundreds of millions solely for thier short term gain. It is the Finance sector should be shrunk to a size that it can be “drowned in the bathtub” not some vague, nebulous, ill defined concept of “government”.

    1. psychohistorian

      rotter said:
      “It is the Finance sector should be shrunk to a size that it can be “drowned in the bathtub” not some vague, nebulous, ill defined concept of “government”.”

      I LIKE IT! Thanks!

    2. Doug Terpstra

      Yes, nice correction on Grover Norquist’s baby-killing maxim. NAR’s and HUD’s deception is not a mistake at all of course, since actual sales are easily tracked even post MERS. There’s simply the ongoing confidence game of casino capitalism, wherein sales and profits are sytematically overreported, while losses and unemployment are conversely underreported. We have to keep kiting checks, leveraging fraction reserves, and spinning the shells at dizzying frequencies so no one catches on that it’s all based on systemic fraud, and there’s nothing under the shells at all.

      As Charles Hugh Smith writes in “The Truth Hurts…”,

      If we can finally be truthful with ourselves as a nation, then we must admit that our financial system is fundamentally based on lies, fraud, embezzlement, misinformation, perverse filters and incentives, shadow systems that mock transparency and regulation, class privilege and the systemic flouting of the rule of law.

      This is the truth that hurts because it reveals the financial system as one stupendous exploitative fraud; but it also reveals the complicity and irrelevance of our judicial system and the complete capture of the legislative and Executive processes of governance.

      There is a system of government in which rule of law is merely a propaganda screen, where financial and political Elites run the show and escape the consequences of their actions: it’s called tyranny. The truth is that we live in a financial tyranny.

      http://www.oftwominds.com/blogdec11/truth-hurts-heals12-11.html

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