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The International Society of Professional Valuers |
Nor-Cal Chapter Newsletter |
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January 2009 |
The American Society of Appraisers Volume 2, Number 1 |
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In
This Issue Links
to Info: ASA International · ASA Home Page · Site Map · Events Calendar · 2009 Conference Sea World, Orlando
ASA HQ Staff Liaisons: Accreditation Issues BV, PP & GJ - Giovanna MTS, RP & ARM – Sabri Handouts & Info for
Member & Candidates · Calendar Links to Photos Contact Us Vice-President Treasurer Past President M&TS Director PP
Director RP Director Newsletter: Send
articles, notices or calendar events to
NorCal Website: |
Program Meeting
Thursday, January 8, 2009 4:30 to 6:30 pm Silver in
the Modern Era: Georg Jensen to the Present Day
Presented by The Silver Fund and Hands-on program on Georg Jensen & 20th
century silver Hors d'oeuvres & wine bar following Dinner on your own. Cost: $35 for ASA
members/ $45 for non-members Parking is
available on nearby Sansome at Pacific Space is very limited for this event; attendance
is limited to the first 20 who register. NOTE: The
reception is being partly subsidized by the chapter, so the cost is a low $35
for members, $45 for non-members. Board Meeting Prior: 3:00 – 4:00 all members are welcome to attend The
Silver Fund and Argentum-The Leopard’s Head Antiques share a large gallery
space in historic Robin J. Erdmann, ASA The Your chapter Board of Directors met Thursday, December 11 for an extended business meeting. We managed to talk through a lot of issues, and revisited some of the items we identified at our August retreat. There’s still a lot of work to be done, but on the whole, we are making progress. We very much need a part time administrative assistant, but we aren’t quite ready for that, yet. One of the positives coming out of our meeting was appointing Steve Braitman chair of the chapter’s Membership Development and Retention committee. We’ve never had this committee before. Steve has great enthusiasm and interest for spreading the word about ASA and appraising as a career with young people, and bringing in new members. Steve’s specialty is appraising record collections, and was featured by the National Office in a newsletter earlier this year. Which reminds me: Will Schnitzer, ASA, our membership director and ex officio President, reported four new applications for membership. Will is responsible for new member applications that come our way from the National Office. Steve will be doing more outreach. Our next meeting on January 8th will take on
a different format. The board will meet from 3 to 4 pm. From 4:30 to 6:30, we
will host a hands-on workshop on the
works of Georg Jensen and 20th Century Silver. It will be held
at a silver gallery in In February, we will host our annual economic forecast
with San Francisco Federal Bank Senior
Economist Gary Zimmerman. Also in February, Bob Podwalny, FASA, will be teaching a
one day seminar on report writing.
Although developed for MTS, this seminar has application to all forms of
private property—not only MTS. The date is Thursday, February 19, tentatively
to be held at L’Olivier Restaurant, the location of our BOD meetings, at We also set a date for Dave Lewis’s, ASA, Zoning & Site Analysis seminar. The date is set for Thursday, May 19, with a tentative location at the Petaluma Sheraton Hotel. Watch for more details. The seminar price is $245, and includes Dave’s book on the subject – a $45 value - some triangles for case studies and, of course, an excellent lunch. The non-member fee is $275. Finally, on behalf of the |
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Theory behind a Crisis Part III Charles B. Warren, ASA
Previously my focus has been on X and the property securing it. It is possible that the loans were never worth X because of bad underwriting, even erroneous valuation of the underlying security. Let us say that the underlying security, P for Property, was believed to be something like P=X/.9. It is even possible that some allowance was made for default, collection and so on in the original securitization process. Let's use the factor c, with c<1. So the package now has a value of abcX. But nobody probably knows whether abcX is equal to, greater than or less than X. My bet is abcX it is at least equal to and probably greater than X. How much greater is dependent on efficiency of pricing, competitiveness. Just how competitive was this process? What nobody knows yet is whether when the supply and demand curves for P shift to reflect increased supply (overbuilding and default/foreclosures) as well as reduced demand (tighter underwriting/higher mortgage rates) what relationship P will have to abcX. Depending on just which X you're talking about the relationship is likely to be different. But that is looking beyond pricing a security to valuing THE security. So far that topic is not widely discussed. Let's take a little mark-to-market valuation problem. Let us say we have a portfolio of mortgages. They were based on cash-back-to-buyer transactions. The buyers bought a $350000 house, took out a 90%, $315k, loan and got $50000 cash back on closing. Arguably those mortgages were underwater the day they were written. But at the teaser rate of 3% the borrowers kept current... until the teaser ran out in 24 months. Now they're all in default. In the 24 months the real market has declined 10%, from $300k to $270k. So, looking at the package realistically the portfolio values are off about 15%. If it will take, on average, another $20k to foreclose and $15000 to sell the properties, the net realizable per parcel comes out at about $235000, about 75% of book. Now if we figure that the cost of capital is 20% and the necessary sellout time for the lot of them is estimated to be five years, we knock off about 40% off what's left, leaving about $140k of the original $315k. Total discount of about 55%, leaving something like $.45 on the original dollar. Now, we know that Lehman sold a bunch of mortgage backed securities for something like half that. Was the original underwriting worse? Is it a question of liquidity, he who has the gold makes the rule? Bump up the cost of capital and the present value goes down. Or is it a question of fear? If government comes along and says, "these mortgages will always be payable at the teaser rate", that could be ugly. How ugly? That's another scenario. But I doubt that it would be much uglier than the first. So, mark to market and illiquidity are probably creating some real buying opportunities. How does this relate to the various finance bailouts that are presently in the news? Well, if, having recapitalized these various entities the government proceeds, as it did with RTC, to peddle the assets en masse at fire sale prices, somebody is going to do just fine. In the same vein remember Executive Life? Properly managed, the headline numbers will probably not be the actual cost of the GSE and other bailouts. But with a little back-scratching, conspiracy and collusion . . . and there will be plausible deniability. Blame market speculators or some other sleazy capitalists. Or at least that's one theoretical possibility.
Chapter officers: Chapter President Robin J.
Erdmann, ASA (RP) Chapter Vice President Douglas S.
Baxter (PP) Chapter Secretary Gil Mitchell, ASA (MTS) Chapter Treasurer Robert P.
Lentz III, ASA (BV) Chapter Past Chair William C.
Schnitzer, ASA (RP) Discipline Directors
and Associate Directors: Business Valuation Jim Schilt, ASA / Alan Karbousky, ASA Anyone interested in being an active participant in the chapter
should contact Robin J. Erdmann, MAI ASA at robinerdmann@comcast.net
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