]]>“A Lot Of Buyers Have Moved To The Sidelines”
Some housing bubble reports from Wall Street and Washington. “Pulte Homes Inc., the fourth- largest U.S. homebuilder, said the housing market is unlikely to have a quick recovery as buyers wait out the drop in prices. ‘We’re not projecting anything to bounce off the bottom at this point,’ CFO Roger Cregg said at a UBS conference in London. ‘There’s been a lot of buyers that have moved to the sidelines.’”
“‘We don’t think it’s repeatable,’ Cregg said of the high profit and sales of 2004 and 2005 for builders.”
From MarketWatch. “Cregg, when asked about the prospect for M&A activity this year, said given the uncertainty in the housing market, ‘valuations are questionable during a time like this.’ Since it’s unclear how much land on the balance sheets will be impaired, there’s a feeling that ‘maybe you shouldn’t do anything here.’”
From Bloomberg. “MGIC Investment Corp., the largest U.S. mortgage insurer, was the top gainer in the Standard & Poor’s 500 index on Feb. 6, the day it agreed to buy No. 3 mortgage insurer Radian Group Inc. for $4.9 billion.”
“In the five weeks since, it has become the 10th-worst S&P performer.”
“‘There’s investor fear that credit quality in mortgages is deteriorating,’ said Mark Patterson, a managing director at NWQ Investment Management Co. L.L.C., of Los Angeles. It was the largest shareholder of Radian and second-biggest investor in MGIC as of December.”
“‘A number of subprime lenders had eased underwriting standards considerably, but there’s scant evidence that’s going to affect the mortgage insurance industry,’ said Patterson at NWQ Investment. ‘What matters is the economy: Do people have jobs? And those issues are fine.’”
From Reuters. “Some with connections to the mortgage industry (see) job losses ahead. That was potentially good news for recruiters with the right clients, said head hunter Jimmy Donaldson, who said his firm was getting interest from mortgage professionals looking to switch industries.”
“‘Everybody’s going down, not just New Century,’ he opined.”
“‘I didn’t know they had problems. I’m just grateful I didn’t have stock,’ said a woman who read about New Century in the morning paper and was concerned for people inside the company as well as investors and borrowers. She said her name was Donnie Lynch. ‘Lynch like hanging. Like what they might do there,’ she added, gesturing at New Century’s low glass tower.”
“New Century Financial Corp., the largest independent U.S. subprime mortgage lender, said yesterday that Barclays PLC has demanded that it immediately buy back about $900 million (U.S.) of mortgage loans.”
“On Monday, New Century said it had less than $60 million of cash on hand. It has said lenders might force it to repay more than $8 billion it doesn’t have.”
The Associated Press. “Financial services company National City Corp. on Wednesday said it has not been able to sell some $1.6 billion in nonconforming loans amid a downturn in the market for mortgage loans made to borrowers who do not qualify for conventional loans.”
“The company has written down the fair value of those loans by $11 million through February and said further write-downs are likely.”
The Orange County Register. “Impac Mortgage Holdings, an Irvine-based investor in mortgages, said Wednesday the percentage of late payers in its portfolio doubled last year, raising concern that a lending crisis that began with subprime borrowers may be expanding to those with better credit profiles.”
“Borrowers who missed at least two monthly payments accounted for 6.2 percent of Impac’s mortgage holdings Dec. 31, up from 3.1 percent a year earlier. That translates to $1.36 billion in problematic loans, nearly double the year-ago figure.”
“New sales of collateralized debt obligations (CDOs) have surged 90 percent in the first two months of 2007, compared with the year-earlier period, some of which may be due to managers rushing to get some deals to market in February because of weakness in subprime mortgages.”
“‘We have heard of some CDO warehouses liquidating and/or taking mark-to-market losses in transactions in their ramp-up phase,’ Morgan Stanley analysts wrote.”
“Lawyers for investors hurt by the meltdown of mortgage lenders that cater to risky borrowers are likely to file a wave of class-action lawsuits against the lenders and possibly their auditors and bankers as well.”
“Gerald Silk, a partner at plaintiffs’ firm Bernstein Litowitz Berger & Grossmann LLP in New York, said investors will probably zero in on the companies’ internal controls and whether there were deliberate misstatements in their financial filings. Under the 2002 Sarbanes-Oxley corporate reform law, top corporate officers must certify financial statements.”
“‘There is no question that there are lots of bells and red flags as to where were the third parties and what was their role in this,’ he said. ‘What about the auditors? What about the banks. These are questions that the investors that bring these cases are going to have to really work hard to figure out.’”
“‘We are considering litigation, no question,’ he said. ‘We have already had numerous discussions with some very, very large pension systems throughout the country on this.’”
“House prices could tumble 10% this year and force the United States into recession if a credit crunch taking shape in the mortgage market gathers steam, Merrill Lynch said in research notes this week.”
“Merrill said the biggest concern is that tighter lending standards in the mortgage market, even if confined to lower-quality borrowers, will constrain overall housing demand and hamper recovery in the struggling housing market.”
“‘It is not inconceivable (given what is happening now to mortgage originations) that we end up with something closer to a 10% decline in home prices this year,’ Merrill Lynch said.”
From CNN Money. “Ohio’s attorney general joined officials from other states, barring troubled subprime mortgage lender New Century Financial Corp. from operating in the state.”
“‘If nothing else, this debacle underscores the need for us to drive New Century and unscrupulous operators out of our state once and for all,’ said Attorney General Marc Danny. ‘And we are also demanding that this company be held accountable for all its misdeeds,’ he said.”
“Earlier this week, regulators in Massachusetts, New York, New Jersey and New Hampshire issued cease-and-desist orders against the subprime lender, barring it from taking new loans in their states.”
“U.S. Senate Banking Committee Chairman Christopher Dodd said on Wednesday regulators bear some responsibility for problems in the subprime mortgage sector and he plans to call them before the committee for questioning.”
“‘That’s what’s made me angry here — that the regulators apparently have not been doing as good a job as I think they should have been doing,’ Dodd told reporters. ‘But we’ll know the answer to that question as we bring them before the committee,’ he said.”
“The goverment is preparing to punish some subprime mortgage lenders under investigation for discriminatory practices. Rep. Carolyn Maloney of New York, a committee member, is proposing legislation that would impose restrictions on banks and other mortgage lenders.”
“They would be required, for example, to evaluate a borrower’s ability to repay an adjustable-rate mortgage over the entire term of the loan, not just at the start, when much lower rates are in effect.”
From Peter Schiff. “Those who believe that the subprime market is unrelated to the broader economy do not understand that…it’s just that the subprime sector, being one of the most vulnerable spots, is where the problems are first surfacing.”
“The bottom line is that far too many Americans, not simply those with low credit scores, have borrowed more money than they are realistically capable of repaying.”
“The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels.”
“However, continuing to look the other way is no panacea either, as the real estate market is already in the process of collapsing under its own weight.”
“It is also typical and very disingenuous for lawmakers to feign outrage and to have waited until a collapse has occurred before taking action. Had the government taken preemptive action with regard to mortgage lending, the real estate bubble never would have inflated to the degree that it has.”
“The main risk is that Ben Bernanke and his buddies at the Fed panic, producing something far worse. Let’s hope that cooler heads prevail.”
From page two of the class action link:
‘Separately, Massachusetts state authorities have subpoenaed UBS AG’s UBS Securities and Bear Stearns over research reports on subprime lenders, saying they want to know if there were any conflicts of interest involving the brokers and the lenders.’
‘Legal experts say that with many subprime borrowers in deep financial trouble, they expect class-action plaintiffs will also take a close look at other possible defendants such as the auditors who signed off on the companies’ books and the bankers who had financial relationships with them.’
Sounds like UBS and Bear Sterns analysts may be in for a severe slap on the wrist…
they wont go that far, a good scolding and finger wave, perhaps
A lot of people are probably waving the finger at them right now.
……..And they are waving back as they head off to deposit their money in foreign accounts.
Laughing all the way…………..
I’m going to predict right now that it’s e-mails again that catches the guilty.
It’s hard to shred bits and bytes.
Unless your IT guys are in on the scam, but no one ever thinks to include them.
You’d be surprised what can be recovered even from files that have been “deleted”. Wiping disks clean is a costly, time-consuming process that hardly any IT departments implement correctly.
Remember Office Space? They’re probably happy to screw the finance guys after the finance guys screwed them … lol.
I can’t wait to see a bunch of these jerks go to jail because of their Blackberrys. How sweet that would be.
You know, the mob seemed to have this one figured out. There was the case of the bookie back east who kept all his book on computer (back in the 1980’s). He told his secretary, if the cops ever raided the place, to push a button under her desk and then cooperate.
They did, she did, and when the FBI took the computers out the door, the high-powered electromagnets the bookie had built into the door, which the button activated, wiped all the disks as the PCs were carried out.
“You got nothin’!!” He walked.
–Shannon
As an IT guy I can honestly say that this is a plausable way to distroy data.
In the Navy, we used hand-held 120VAC degaussing magnets to wipe classified disks and tapes. Then we shredded the tapes and pounded the disk platters into shrapnel.
–Shannon
If they were to do that - they’ve got guilt written all over their face. Works for the mob, but as markets internationally are affected, we would never let that fly in our banking community.
Just as the Navy guy mentioned, magnets do a good job of erasing data quickly. But unless you physically destroy the platters, forensic data recovery experts can still figure it all out. The government ALWAYS destroys drives it wants “erased”.
A big magnet might have been enough 15 years ago, but not anymore.
Anyway, in today’s SOX world, if you can’t produce emails and documents, they’ll take one look at your data retention policy and assume you’re hiding complete evidence of whatever you’re being accused of. GUILTY!
Guilty of what? Making stupid loans to stupid people? Is this a crime?
Nowadays, when people lose money, they decide what is and isn’t a crime after the fact.
I agree. Even with Realtors telling clients there are multiple bidders its never provided to buyer. Plausible deniablility. The buyers who fall for the fake bids has “Sucker” all over their face and cant prove jack in court.
no need to shred since there are backups and big boys like goldman sachs spend billions on IT every year
at the minimum they have hundreds of EMC storage systems in multiple locations around the US linked by fiber, the databases are backed up multiple times an hour to tape or disk and the databases are sent to failover sites in case of another 9/11.
if you want data and emails just go to Iron Mountain with a subpoena and say i want all the tapes that belong to whoever. then just import the data.
or a lot of companies will probably have archives of data and emails online that the FBI or whoever can look at
From Peter Schiff. “Those who believe that the subprime market is unrelated to the broader economy do not understand that…it’s just that the subprime sector, being one of the most vulnerable spots, is where the problems are first surfacing.”
“The bottom line is that far too many Americans, not simply those with low credit scores, have borrowed more money than they are realistically capable of repaying.”
Thank you Peter. I couldn’t have said it any better and this is the #1 reason why prices went sky high and why they will fall. It is pretty obvious is you ask me.
Again from Schiff;
The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Their legislative proposals will require that lenders make potential borrowers verify their incomes and restrict credit only to those who can afford the payments after the teaser periods end. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels. There is just no way to crack down on lenders without causing a crash in the real estate market.
Talk about painting yourself into a corner.
He’s right, but either the government will crack down on lenders, or lenders will have to crack down on themselves. In either event, the result is clear.
Crack down….? On the government letting the “private” federal reserve look the other way as “lower” loan standards were put in place for the toxie/subprime loans were given to most anyone who wanted to sign up? Banks made their money. Commissions spent. Its over! Its that simple. Many people hurt for the greed of a few. What else is new.
I was talking about the future, not the past.
Horse is out of the barn. A little late now to crack down now for “the furure”. Damage is done unless there are a lot of “new” buyers that will be coming on board now who have the credit, income and desire to buy homes in a falling depressing market with new higher standards set by the government which should have been in placed. Nope, new government standards a little late now for the market.
“Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices…”
My wife has finally caught on as to why I wanted something as cheap as what we paid for our foreclosed home. The new house next door (same size) sold for double what we paid. The existing house on the other side (50% larger) sold for three times what we paid.
Return to traditional prices? Wouldn’t bother us a bit. Our paper gains so far are just that.
I was talking to a local banker this morning. He kept mentinoing the subprime issues and he was worried.
I said - don’t you recall our conversation on this the last few years?
He stated they have a number of local builders and they are slowing down dramatically. They are also not approving anymore loans (in the near term) for an residential projects.
They he said “can you believe that New Century story”.
Unbelieveable!
Century said it had less than $60 million of cash on hand. It has said lenders might force it to repay more than $8 billion it doesn’t have.”
60000000
-80000000000
____________
=
$7.94b?
yeah, with a big negative sign in front of it.
But I heard its worth at least $10 per share worst case scenario …
Thats OK folks … Enron was a $500 Million scam.
I already see this being over $9 Billion Scam.
Are you suggesting community banks are funding some of these local builder projects that are about to go poof!?! You think they are hedged like the big Wall Street Investment Banks (WSIB)?
Despite using a credit union, I guess it might be high time to take out the savings, less than 100K and stuff it in the mattress. I for one do not want to be left waiting in a year-long line for FDIC, if there even is any!
I have been wondering where the money was coming from for all of these multi million dollar custom homes these small time builders were building on speculation. Community banks? UH OHHH!!
Some in my neighborhood in McLean, VA ($2-$3 million built on teardown lots purchased at bubble peak(2005)) proudly display the financing institution and even the banker’s name. Two that come to mind are a smalll community bank from across the river in MD and another is SunTrust.
Are you suggesting community banks are funding some of these local builder projects that are about to go poof!?!
Yes! Most of the local high-end custom guys all use the same local bank.
I’ll believe anything. I was in the bank a couple days after this whole thing started a few weeks back, when HSBC announced they’d taken a larger than expected hit off of their US mortgages. That was big news then, right? (Not so big any more?!)
Anyway, Nobody at the bank had heard about it. They were shocked.
I had gone in to re-read the FDIC documents.
“They would be required, for example, to evaluate a borrower’s ability to repay an adjustable-rate mortgage over the entire term of the loan, not just at the start, when much lower rates are in effect.”
Back to the future? It sounds like a reversion to traditional lending standards is underway, including scrutiny of a borrower’s ability to repay a loan. Downpayment requirements actually serve as a useful signal in that regard — maybe the newly-concerned Congressmen will catch on to that idea as well?
“..ability to repay an adjustable-rate mortgage over the entire term of the loan”
If I think about it…..won’t that basically make ARM loans obsolete?
Actually, my wife told me yesterday that all of a sudden, 95% of the loans crossing her desk are now fixed rate 30 yr. What a change!
“… fixed rate 30 yr.”
And are there downpayment requirements as well?
Just going from I/O ARM to fixed rate (assuming the same interest rate) reduces a given household’s home purchase budget by a substantial amount at a given percent of their income, as fixed rate loans include principle repayment schedules in the loan calculation.
You’re not supposed to do that math. All is bright and sunny. Got out and shop. Move along… nothing to see here move along.
Seriously, the economy is going to take a triple contraction with just the loans:
1. Slowdown in MEW
2. Higher payments
3. Slow down in profitable sales, even sales requiring money be brought to close.
All three will slow the economy.
Got popcorn?
Neil
“All is bright and sunny. Got out and shop.”
Ain’t that the truth? Time to get the ol’ fiddle tuned up.
Refinancing to a fixed rate does nothing to help as your $700k property heads south to a $400k property. When those people find themselves underwater or in a neighborhood without a lot of neighbors they’ll leave the keys on the countertop too! All refinancing will do is keep a more orderly decline and draw things out longer.
There will be a lot of lien stripping in bankruptcy court before all is said and done.
Can you still do that? It was commonplace years ago, even on things like car loans in chapter 13.
10% haircut they forcast happened long ago here in Vegas. We have at least another 25% to go.
That’s the really hilarious part — all these forecasts which any observant individual would realize have already taken place!
And furthermore, a paltry 10% is laughable given the horrendous overvaluations right now. 50% and now we’re talking!
I think they mean 10% for national prices. Of course, local conditions (e.g. Vegas) may vary.
“‘Everybody’s going down, not just New Century,’ he opined.”
Finally, someone is speaking the truth!
“Utah may be at risk for subprime delinquency”
http://deseretnews.com/dn/view/0,1249,660203297,00.html
‘Still, Matthews points to the fact that Utah’s subprime delinquency rates remain much lower than the national rate of 14.27 percent. In addition, only five other states posted lower subprime delinquency rates than Utah in the fourth quarter.
“Our actual experience in subprime mortgages continues to be better than the national average,” Matthews said. “If our market continues to have home prices appreciating and sales continuing to absorb those homes, I think we will forestall increasing fore- closures.” ‘
1 in 4 mortgages are sub-prime in Utah. What this guy fails to realize is that Sub-Prime was the machine that kept sales moving and the home prices appreciating. So, tell me Mr. Matthews, what exactly happens IF home appreciation slows and sales drop?
I’m going to Sam’s for a very large bag of popcorn.
UT was hot in 92-94 when CA crashed- same this time around
just like Cape Cod is first in the tank
1987 then 2004 fall
I thought things were different in Utah?
ooops!
The Mormon prophet has repeatedly warned his membership on the folly of taking on debt. It seems as though the Mormon prophet is, in fact, fundamentally opposed to the War on Savers. Now Utahns will get to learn why they should follow their prophet.
“Begin in a small way, my brethren, and gradually build toward a reasonable objective. Save a little money regularly, and you will be surprised how it accumulates.
Get out of debt and rid yourself of the terrible bondage that debt brings.
We hear much about second mortgages. Now I am told there are third mortgages.
Discipline yourselves in matters of spending, in matters of borrowing, in practices that lead to bankruptcy and the agony that comes therewith.”
– Gordon B. Hinckley –
http://www.lds.org/conference/talk/display/0,5232,49-1-315-18,00.html
Sounds like some very smart advise.
Sounds like some very smart advise. Its a shame, it appears, many didn’t listen.
My wife and I took a monthlong roadtrip in October around the 4 corners area of the southwest and we thought Utah was the cat’s meow, Southern Utah, in particular. Oh so beautiful and well kept, small 150 year old towns.
Now about western Colorado and northern New Mexico?
We thought we’d accidentally gone way too far east and were in the middle of Appalachia, incredibly depressed areas, everywhere, the poster child for our trip being a curious choice:
Farmington, NM:
Sitting on a ton of oil, you’d think it would prosper in these days of inflated oil?
We saw 29 pawn shops, in a 4 mile stretch of town.
NM - “Stepping stone to the Third World,” as many say.
Thomas S. Monson (next in line to be Mormon President):
“It is a human tendency to want the things which will give us prominence and prestige. We live in a time when borrowing is easy. We can purchase almost anything we could ever want just by using a credit card or obtaining a loan. Extremely popular are home equity loans, where one can borrow an amount of money equal to the equity he has in his home. What we may not realize is that a home equity loan is equivalent to a second mortgage. The day of reckoning will come if we have continually lived beyond our means.
My brothers and sisters, avoid the philosophy that yesterday’s luxuries have become today’s necessities. They aren’t necessities unless we make them so. Many enter into long-term debt only to find that changes occur: people become ill or incapacitated, companies fail or downsize, jobs are lost, natural disasters befall us. For many reasons, payments on large amounts of debt can no longer be made. Our debt becomes as a Damocles sword hanging over our heads and threatening to destroy us.
I urge you to live within your means. One cannot spend more than one earns and remain solvent. I promise you that you will then be happier than you would be if you were constantly worrying about how to make the next payment on nonessential debt.”
“This is a day of borrowing, a day when multiple credit card offers arrive in our mailboxes each week. They generally offer a very low rate of interest which may apply for a short period of time; but what one usually doesn’t realize is that after that period has expired, the rates increase dramatically. I share with you a statement made by President J. Reuben Clark Jr., who many years ago was a member of the First Presidency. Its truth is timeless. Said he:
“It is a rule of our financial and economic life in all the world that interest is to be paid on borrowed money. …
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. … Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.” 4
My brothers and sisters, I’m appalled at some of the advertising I see and hear advocating home equity loans. Simply put, they are second mortgages on homes. The promotion for such loans is designed to tempt us to borrow more in order to have more. What is never mentioned is the fact that, should one be unable to make this “second” house payment, one is in danger of losing his house.”
Excellent! This reminds me of a favorite quote I once heard at an LDS conference talk:
“Them that understands interest gets it. Them that don’t understands it pays it.”
Back in the early 90’s, the Mormons made a bunch of Public Service type announcements that played pretty regularly on TV.
The one I remember the best was about domestic violence but there were a handfull of topics addressed. They were superb.
Sounds like they need to get back to work.
There’s a station up here that has turned into a round-the-clock infomercial for no-standards lending. Maybe the LDS could buy some time and counteract?
Any Mormons here? We need your anti-debt Public Service announcements playing across the US. PLease!
Back in the early 90’s, the Mormons made a bunch of Public Service type announcements that played pretty regularly on TV.
The one I remember the best was about domestic violence but there were a handfull of topics addressed. They were superb.
Sounds like they need to get back to work.
There’s a station up here that has turned into a round-the-clock infomercial for no-standards lending. Maybe the LDS could buy some time and counteract?
Any Mormons here? We need your anti-debt Public Service announcements playing across the US. PLease!
Proverbs 22:7 “The rich rules over the poor, and the borrower is the slave of the lender.”
I just read somewhere yesterday that you using a home equity loan to finance your Orlando vacation in 2007 will be a debt you pay on until 2032. Imagine how much that trip actually cost.
JR,
Where did you find that 1 in 4 number? I am also watching the Utah market.
What do you think will happen in Park City? Too much $$$ floating around to prop it up, or will it get hit too? Got an “it’s different here” aquiantence there…
I can’t imagine Park City remaining unscathed if this whole debacle turns into the financial crisis it is shaping up to be, but I haven’t been keeping track of listings up there. My wife and I thought about buying a house last summer after being immersed in education and sheltered from all this until we noticed this atrocity happened:
http://housing-watch.com/regionview.aspx?city=Salt-Lake-City
That’s a hell of a jump. I get updates from the MLS on several neighborhoods (I have been keeping a spreadsheet since Oct where I keep track of relistings) in SLC and price per square foot is coming down even though the median price still looks good. Also, relisting to mask days on market and reductions in asking prices is rampant.
There has been a tremendous amount of building in Park City, filling a lot of open space and eroding some of the quality of PC, IMHO. Driving in from I-80 there are a bunch of new condos with a big sign at the road listing prices in the 400s.
Any input on St. George? My husband keeps bugging me to buy an investment property there b/c it’s “growing”, I’m trying to convince him now is not the time to buy anywhere.
7th paragraph of the article……
“In Utah, where 26 percent of all mortgages are considered subprime, delinquency rates run high. “
Wow, so 26% of all existing loans in Utah are subrime? Seems bad.
As opposed to 20% of existing loans in OC, I understand.
“The subprime lending meltdown may have missed Utah for now…”
Oh really?
-Higher than normal inventory
-Flat asking prices
-Rising delinquencies
-Exotic financing drying up
-Higher interest rates for resets
This guy is forgetting that the party just started later in UT.
-Leads the nation in personal bankruptcies year after year
-More wives stay at home, leaving out that second income we see frequently elsewhere in the US.
-Lower incomes
-Inability to leave ego out of purchasing decisions (tight-knit neighborhoods = everyone’s watching me)
-SUV’s are expensive, people.
-Too many people being quoted that Utah is the nation’s best-kept secret. Secret’s out, fun’s over, douchebags.
-Faith-based belief that real estate always goes up.
“More wives stay at home, leaving out that second income we see frequently elsewhere in the US”
My guess is that this is actually a hedge against financial crisis, not a contributor. In households with two income earners, there are two opportunities for job loss to send the finances into a tailspin (since spending inevitably is set according to combined income). When there’s just one income earner, there’s less income, but on the other hand there is effectively a 50% lesser chance of an income earner losing his/her job.
I agree. I’ve got friends who bought a million dollar home in LA. The husbands whole income pays the mortgage, the wifes’ income pays everything else. If one of them loses a job, either they’re not eating or they’re not paying the mortgage. Insane.
BTW, they are “Prime” borrowers and yes some idiot wrote a mortgage that equalled someone’s total monthly income.
Probably that lender thought they were being prudent, seeing how we’ve read of mortgages written out that were actually MORE than the monthly income.
No bailouts!
Schiff: “The fix now being suggested by some members of the U.S. Congress demonstrates how Washington completely misunderstands market dynamics. Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels.”
Washington is not the only entity that seems to miss this point. I keep hearing economists say there are no worries, as interest rates remain low, ignoring the fact that downpayment requirements will instantly price out a large swath of the recent risklove buyer pool.
Can anyone come up with a statistic on the percentage of purchases made in 2006 with no money down? I am guessing it must have eclipsed 50% (including 80/20s), but I admit to having no supporting data…
Possibly true of conventional SFH and condos. Out in Trailer-Park land, I observed ZERO no-money-down transactions in 2006. I am not the only lending source there, but often the seller takes a second. Even then, people have a certain pride in being able to make a few thousand down payment. Different class of people, I suppose, from those who feel entitled to $500K POS on zero down.
I have noticed this about trailer parks too. (Or small piece of country land w/ trailer on it … the parks can be risky during development runs because the owner sells out for $$$ and cost of moving the trailer can be prohibitive.)
I think it’s the difference between poor people who want to stand on their own feet and realistically assess what they can afford, versus poor and middle class who feel entitled to a higher standard of living that they, unfortunately, cannot afford.
People seem to confuse the absolute value of their net worth with their net worth … -100,000 is less than 10,000! Hello! (As a reminder, absolute value in math is the magnitude without the direction of a number from zero, so |-14| > |3|, even though -14
I use the terms “negative wealth” and “antiwealth” for the same thing. The appearance of wealth (as if reflected in a mirror), but its actual opposite. To the phoneys flashing all their alleged possessions, it doesn’t matter: They LOOK wealthy, even if they are literally poorer than homeless people who own nothing. What a strange illusion (perhaps I should use the word “glamour”).
How true this is. My son & his wife bought a mobile home about two years ago in Peoria, AZ. It was a very manageable 19K. They put 2K down and the park fees are about 300/mo. They could not rent an apt. cheaper and still have their two cats and a nice size yard for their daughter to play in. They have become very involved in the community and my daughter-in-law is now on the park board. They have not regretted this decision at all. They have also kept any other debt to a minimum. This enables his wife to stay home with their little girl. This is in contrast to his sister-in-law & his best friend who were sucked into the RE hype there two years ago….both now in foreclosure. I just don’t see my son & his wife as ‘poor’ .
Higher interest rates, anyone? (Gold prices are jumpy today, a leading indicator of unmitigated future inflationary pressures…).
—————————————————————————–
US producer prices add to inflation pressures
By Daniel Pimlott in New York
Published: March 15 2007 14:16 | Last updated: March 15 2007 14:16
US wholesale goods prices rose last month, adding unexpected inflationary pressure to the economy as the cost of energy rose sharply.
The producer price index rose by 1.3 per cent in February, more than the 0.5 per cent rise economists were expecting, after falling 0.6 per cent in January, according to the Labor Department.
http://www.ft.com/cms/s/64f6ea34-d2f3-11db-829f-000b5df10621.html
The producer price index rose by 1.3 per cent in February, more than the 0.5 per cent rise economists were expecting
Ouch! Nothing like missing a key indicator by 260% to make you realize how worthless all these “economists” are.
To be fair, that’s only a 160% difference.
Okay, so it doesn’t really change the argument: they’re idiots.
Whoops, you’re right.
Wikpedia
“Stagflation in the USA was defeated by the then Federal Reserve chairman, Paul Volcker, who sharply increased interest rates to reduce money supply from 1979-1983 in what was called a “disinflationary scenario.” Starting in 1983, fiscal stimulus and money supply growth combined to create a sharp economic recovery which is in line with standard macro-economic models”
I think the Fed is gonna have to raise rates, been sayin that for the last three meetings (talking about inflation seems to have done absolutely nothing), and thats gonna drive a stake in the feeble housing heart, as well as our, limping economy.
BB needs a trip down mommory lane to clear his head, and try to figure out how many inflated dollars his speaking engagements are gonne be worth if he does not have the sack to do something, and I mean right about NOW.
“Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels.”
So we should instead stay with current practices, avoiding the return to traditional prices? What was he trying to argue here?
I think his comment was intended to be positive (as in “prices will go down if traditional lending standards return”), not normative (”traditional practices should be restored).
Everyone says, the market is going back to normal. I take that to mean, traditional prices.
man the J boats
http://news.yahoo.com/s/nm/20070315/us_nm/life_pizza_dc
wonder what was extravengant in 1929
1000 pizza…
watch out for armored cars, with roof signs, making krazy traffic moves…
if not delivered in 20 min pizza is free….
“The goverment is preparing to punish some subprime mortgage lenders under investigation for discriminatory practices.”
Um . . . I don’t think they discriminated against anyone!! I believe a big part of the problem is they weren’t discriminating enough.
Greedy idiots is not a protected class . . . yet.
“They would be required, for example, to evaluate a borrower’s ability to repay an adjustable-rate mortgage over the entire term of the loan, not just at the start, when much lower rates are in effect.”
Seems to be a little harsh.
Hey, some of you may remeber the LA Times article Ben posted here that covered a certain Sharon Lewis crying a river about how she’d been hosed. Turns out this worthless waste of sperm is a fraudster. OCrenter did some great detective work here:
http://bubbletracking.blogspot.com/
If you got some extra time, e-mail the heck out of that LA Times reporter and tell ‘em to cover the real story:
tom.petruno@latimes.com
That is AMAZING.
I cannot believe it. the biggest thing: why draw attention to yourself if you’re a fraudster???
stupid truly is as stupid does.
HIC
Remember SerCasey?
Thanks for that LA Times contact! I put it to good use. I read that article in the paper and the subsequent investigation on the blog and all I could say is, “Wow.” The only thing worse than the housing market right now is the journalism in this country. What a joke.
Plenty of ARM resets coming up in the next couple of years. Oh wait, they can just refi to a fixed! NOT!
Many toxic ARM loans have pre-pay penalties, also, since most used 100% financing, they will have to come up with a ton of cash to cover neg am amount and the required down. The new appraised value, which will be lower will add to the difficulty in refinancing.
Second innining of this mess is complete. Getting ready for the top of the third.
Whichever bagholders end up owning the toxic notes may have to be a little bit flexible about the terms, if they don’t want a ton of REO.
You gotta love Schiff. He puts some of our doom and gloom predictions to shame:
Think of the U.S. economy as an unstable dam. The first leaks will be seen in the dam’s most vulnerable spot. But there will be many more leaks to follow. Before long, the entire dam will collapse. It would be a fatal mistake for those living downstream to assume a leak is an isolated event, unrelated to the integrity of the dam itself. But that is exactly what those on Wall Street are doing with respect to the horrific data emanating from the subprime market.
Which reminds me of the last predictable and failed bail-out:
http://www.youtube.com/watch?v=Z_Ny9_CrUVY
The other thing about a dam is that a small leak soon erodes into a huge leak, even if the structure of the dam is otherwise OK. And its very hard to fix a dam once it leaks. Usually you have to drain the lake.
“But that is exactly what those on Wall Street are doing with respect to the horrific data emanating from the subprime market.”
What Schiff seems to miss is the extreme faith the Wall Streeters have in the engineering solutions offered by top economic policymakers in Washington.
Speaking of engineering, the PPT has entered the equity markets just a bit ahead of the normally scheduled 2pm EST intervention to offset the selloff reaction to unexpectedly high PPI numbers…
http://www.marketwatch.com/tools/marketsummary/
Gotta admit, the stock market is holding up remarkably well given that an interest rate hike is now a virtual certainty…
You really think so? Reasons?
I would be happy as a clam if the rate went up, I’m just rather low in confidence that it will happen. Rate retrenchment by the end of the year wouldn’t surprise me, in fact (it would be very stupid, though).
It is transparently obvious that the market is propped up at the moment, as a PPI inflation shock would have traditionally sparked a selloff. But what better time to kill two birds with one stone, but inflating share prices and calming investor nerves with the same intervention?
“by inflating”
You really think so? Reasons?
The PPI numbers are off the chart. More than double the expected increase in prices?
“The Labor Department’s Producer Price Index for February jumped by 1.3 percent, more than twice the market estimate, due to a big increase in energy prices and the largest rise in food costs in more than three years.”
Inflation is about to spiral out of control. I can’t possibly see how the Fed doesn’t raise rates. Although I am making the mistake of assuming the Fed will do the rational thing…
The only number that mattered this morning was the TICs which came in at 97Billion. That number meant foreign investment still trusts the US.
No, you’re making the mistake of assuming that the Fed can do anything that will work.
We’re so used to thinking that the Federal Reserve Bank’s control of short-term interest rates can successfully control the entire economy that we assume that it’s some sort of economic law of nature.
It isn’t.
First, there are no such laws, economics not being a science. Second, the problem now is the absolute amount of debt, not it’s unit cost. Raise rates, and you’ll restrict new debt, but not the amount of money that’s already been borrowed, and which won’t be paid back. Lower them, and you’ll maybe stimulate new borrowing, on top of too much already. Which also won’t help. That is assuming that the folks who borrow money from the Fed to lend it to everyone else don’t take the lower costs (to them) and, by holding steady or even raising rates on the loans they’re making, use the differential to pay down some of the bad risk they’ve already taken on. Which would be the smart thing for them to do, consider the position they’re in.
I just don’t think there’s anything the Fed can really do at this point. Reading between the lines of what the Governors are saying, I think they know it. They can maybe help pick up the pieces afterward, but right now, the economy’s gonna do what it’s gonna do. The R.E. boom wasn’t particularly interest rate driven. Rates started going up a long time ago, and it didn’t slow anybody down. Likewise, the collapse we’re all seeing hasn’t been affected by the FFR, which hasn’t moved much lately. If interest rates aren’t the problem, they’re not the solution.
The Fed’s in damage control mode, at best.
–Shannon
Does the PPT write the marketwatch.com headlines? There is a mismatch between the DJIA’s struggle to climb a paltry 30 pts and this blurb:
“Dow swings sharply higher
Investors continue to find comfort in rebound from heavy losses earlier in the weak.”
http://www.marketwatch.com/
Wow, Barclays “demanding” that New Century pay back $900M for s**t loans, and New Century having no more than $60M cash. I had been wondering about relative sizes, given that “Ownit Mortgage” bit the dust on a demand of (only) $75M from Merrill Lynch. Beware the Ides of March (which are come but not yet gone).
It’s clear that New Century’s toast — My question is, what happens to Barclays and all the other major banks that bought the s**t thinking they were protected by the buyback clauses?
It’s called counterparty risk. The massively paid geniuses are supposed to have it covered.
I think they will end up with many foreclosed properties.
While we are using big words, the corrolary to high counter party risk is…..
cascading cross-defaults!
Ah, yes, they theoretically are hedged or insured against risk. But what happens when the insurers start denying claims due to fraud? What happens when the hedgies collapse? For icing on the cake, what happens when the lenders’ REO departments can’t continue to assert that the houses are still worth 2005 prices, and the banks then need to adjust their balance sheets to something more realistic? The same thing that happens to the builders?
Perfect storm watch in effect…
“‘We’re not projecting anything to bounce off the bottom at this point,’ CFO Roger Cregg said at a UBS conference in London. ‘There’s been a lot of buyers that have moved to the sidelines.’”
And that is before the full effects of the subprime shutdown and shutout are felt. This thing is about to freefall.
“The bottom line is that far too many Americans, not simply those with low credit scores, have borrowed more money than they are realistically capable of repaying.”
ummm, peeps are not born with poor credit scores. they start out with good scores, until something happens. there’s lots of good credit homedebtors out there who will soon move into the other camp.
actually cereal, you’re wrong.
You’re born with NO credit, and when you get your first credit you will have bad credit (relatively). Things that raise your credit score are things like:
1) how long you’ve had credit
2) how many lines of credit you have
3) how long you’ve gone without a late
and so on.
Some of these factors work against you when you are young/starting out.
when I got my first credit card, I had NO credit, which is the same as “bad” to many lenders. After having the card for a year always paying on time I checked my credit score, and my score was only 580. I called FICO, and they said it’s becuase I only had a year of credit history.
this was back round 1991 or so.
My credit score now is great (high 700’s maybe low 800’s I think, haven’t checked in a while) but that’s because I have 16-17 years of good credit history.
Credit scores seem to be based on “factors” that aren’t really measuring cause and effect relationships, but are just correlated. Anything you happen to do that looks anything like what defaulters do, lowers your rating.
So what happens during the coming tsunami when the swelling high risk crowd tries _everything_ to stay above water, or conversely, even people with “good credit” start defaulting.
I wonder if their models are about to get noisy…
we predicted a bull market in lawyers months ago.
How `bout it? Seems everyone will have some type of lawsuit aimed at someone else. Zero accountability. God Bless America! (Hmmmm…wonder what I can sue for.)
“‘We are considering litigation, no question,’ he said. ‘We have already had numerous discussions with some very, very large pension systems throughout the country on this.’”
did I say a hyper-bull market in lawyers?
Good luck finding someone with money.
Indeed. What were formerly deep pockets are now moth-eaten rags.
“The goverment is preparing to punish some subprime mortgage lenders under investigation for discriminatory practices. Rep. Carolyn Maloney of New York, a committee member, is proposing legislation that would impose restrictions on banks and other mortgage lenders.”
Glad to see that Rep. Maloney has taken time out from her witch hunt against law abiding citizens who own guns. Now she’s going to try to screw banks and mortgage lenders for forcing average americans (at gunpoint no doubt) to forcibly accept large mortgages and HELOC’s against their will. I hate when evil bankers subject consumers to “waterboarding” in order to take their filthy lucre.
Sarcasm off.
When HELOCs are outlawed, only outlaws will have HELOCs…
“The goverment is preparing to punish some…”
Savers.
“The goverment is preparing to punish some…”
Renters who saved.
The easy way for the Dems to do this is by raising the income taxes for all, while at the same time doubling the mortgage interest rate deduction on taxes. It would be slick and slimy, but that’s the party of Willie.
Sorry, we already are going to have to raise taxes to pay for the Republican’s trophy war. Ooops, I forgot, it’s ‘blame the Democrats’ week.
No, raise the taxes on “the rich” - now defined as anyone who can still pay their mortgage
“Glad to see that Rep. Maloney has taken time out from her witch hunt against law abiding citizens who own guns.”
Agreed. Maloney is a douche bag. Those liberal Dems make me just as angry as the neo-cons. Truly a worthless lot if there ever was one.
I worked in the credit industry for many years. IMHO, credit standards have deteriorated over the last two decades. It used to be that once a consumer filed bankruptcy, they were black-balled from ANY credit until the bankruptcy cleared their profile (7-10 years). Within the last 10-15 years, that all changed. Credit card applications would start arriving by the arm loads the day all the debt was discharged so the BK’er could start all over again! I believe this change in credit granting policies prompted the sub-prime mortgage lending and the big mess that it’s in now. Credit used to be a privilege. Now, it seems like it’s a right.
Credit card applications would start arriving by the arm loads the day all the debt was discharged so the BK’er could start all over again!
My understanding of the reason for this is that once a person files BK, they cannot file again for a certain time period (I forget how long, but it’s like 7 years or something)
thus, it’s “safe” to lend to them, because they can’t file BK right away again.
That always puzzled me. It seemed that when creditors’ backs were against the wall (debtor skipped out and they needed help locating him), creditors worked together by sharing information, but once a bad debt is discharged through BK, all that loyalty and common sense, (if the debtor screwed them, what’s to stop him from screwing me? or, if the debtor couldn’t handle credit then, what makes me think he can handle it now?), goes out the window. Just because a debtor cannot file bankruptcy again for a while does not make him solvent or a good credit risk. Lawsuits are costly and time consuming and a judgment is not a sure bet in recovering credit losses. All the debtor has to do is stop taking your calls, close his bank account and switch employers. Evading creditors is surprisingly easy, even if they have a judgment.
Possibly Clouseau, but the current BK laws may cause many to be forced to repay existing CC debt and if it is a HELOC for debt consolidation (non purchase money) it may also be assessed against the debtor for future repayment. I doubt that CC companies will open new debt w/o receiving a complete BK discharge of all debt.
No kidding. I remember back in the ‘93 time frame, after having a VISA CC for a year with a $500 limit, I tried to get an Amoco gas card….not enough credit. Now? You can pick one up with your Big Mac.
“Washington fails to grasp that a return to traditional lending standards would precipitate a return to traditional prices, which are way below current levels.”
Doesn’t this just sum up the entire bubble in a single sentence?? Finally, some flat out states that prices have nothing to do with “fundamentals” and everything to do with non-traditional lending over the last few years.
‘A number of subprime lenders had eased underwriting standards considerably, but there’s scant evidence that’s going to affect the mortgage insurance industry,’ said Patterson at NWQ Investment. ‘What matters is the economy: Do people have jobs? And those issues are fine.’
I think they need to rephrase the question to “Do people have jobs with salaries to support their mortgages?”
exactly eastcoaster,
for an “investment professional” to mouth such an obviously ignorant statement is incredible (if not an outright lie). A simple examination of the issues of subprime lending reveals the problem isn’t having SOME income its having enough (especially after resets occur).
Indeed, “enough” out here in Cali means being able to afford a mortgage of at least 400K under a traditional 30yr fixed plan. If you ask me, I’d say the lending institutions built this hole for themselves. They did something really sneaky — realizing that interest rates were at record lows, they tried to shift their mortgage portfolios to a larger percentage of higher-yield ARMS and other volatile instruments. Well, those aren’t gonna fly and now the lenders should pay the price. I think there’s an element of personal responsibility involved; soberly evaluating what you can afford and buying accordingly. At the same time, though, if someone wants to play Vegas-style odds games then they should be ready to take the hit when their number doesn’t come up.
the subprime lenders are merely the tender underbelly of the coming implosion. looks like someone’s knife found the target.
soft underbelly has me thinking that subprime is Italy in WWII terms, no? the real fight was France, Germany and the Pacific- which would be prime loans in our WWII analogy.
If memory serves me right, the expression “soft underbelly of Europe” was used for the Balkans in WWI.
Which was why Winston urged on the disaster at Gallipoli.
Yup, remember that movie with (the young) Mel Gibson?
Gallipoli was a decent idea, poorly executed. The housing bubble, on the other hand, is based on an awful premise — Real Estate Always Goes Up — but then executed incredibly efficiently, milking every last drop of leverage out of the (flawed) premise.
Of course, that will just make the correction that much more spectacular, on the principle that the higher you’re able to build something on a bad foundation, the bigger the crash when it finally falls down.
She said her name was Donnie Lynch. ‘Lynch like hanging. Like what they might do there,’ she added, gesturing at New Century’s low glass tower.”
LOL. Already some are saying, “Off with their heads!”
any one have an opionion on MIC ?
military ind complex
how will economy look when we calculate a war w/o profit
WW2 made the Dollar the World currency
now we have tanks and sht dumped in a desert
532 million on an embassy in Bagdad -
credit P&E / Debit ?
Gulf 1 only cost 15 billion or so becuse of operation TIN CUP
We ended major operations in Vietnam in 73 and had a recession the same year. We pulled out of Korea in 53 and had a recession in the same year. We ended major operations in Iraq in 2007 and had a recession in the same year??
Actually we didn’t pull out of Korea in 53 but major operations ended.
I thought “major combat operations” ended in Iraq in 2004. That’s what the Decider said in front of that big “Mission Accomplished” banner. What gives?!?
yup, toast, that means we are due for two “delayed recessions”
It is a common misperception that WW2 made the dollar the reserve currency.
What really happened was that WW2 decimated all of Europe and every other major world power EXCEPT the US, which was entirely intact except for Pearl Harbor.
Thus, we kept our industry, our factories, our infrastructure, everything.
As Europe/Japan/Russia/everyone else was busy rebuilding their war-torn countries, we could produce without problem.
The other countries thus fell into huge debt to us, and that leverage (they all owed us) allowed us to have the world reserve currency (Breton Woods I aggreement).
Times are different now. The war we are in is impoverishing us, while OTHER non-involved powers are building their economies (china, india, russia, much of europe).
Thus, we lose our productive capacity (money is being funneled elsewhere) and we fall further in debt to THEM.
This makes it more likely that our currency will FALL from favor, just like the European currencies fell from favor when they were debtors.
Being a debtor is a b*tch.
As things are going, the Yuan (Renmimbi) has a better chance of being the next reserve currency.
“As things are going, the Yuan (Renmimbi) has a better chance of being the next reserve currency.”
Except that China actually has a trade *deficit* with everybody else in the world but us. And a huge amount of their trade surplus has been invested in US debt. Which means that when the US finally has a nice housecleaning recession, China has an economic collapse and fracturing civil war.
And China has major demographic problems. For instance, their population is rapidly aging (on average) because of the one-child-per-family rule. And the high rate of female abortion (leading to 121 males per 100 females) will eventually lead to a volatile society IMHO.
flatffplan, yes I have an opinion on the MIC, but don’t get me started again
(and by the way, that’s two deserts)
Buyer on the sidelines here in Philly ‘burbs. Contrarian to the contrarians here, not a troll, just wondering what people think of the following:
1. Effect of tax cuts on the high-end RE Market. Rich getting richer are able to afford richer houses; this, I think, is the NYC effect, as well as other wealthier markets. I can’t see where the sub-prime market affects these folks. I need a lot more space (3 kids and a mother-in-law), but the prices ain’t budging. Yet, even now the houses are selling. Can’t figure where the people are getting all the money.
2. Higher demand due to a bigger pool of buyers via technology. When I first started looking for a house about 8 years ago, the realtors didn’t even know about Realtor.com. Anybody wanting to buy had to be very serious about buying: had to walk in to a realtor’s office and have them print off listings. Much fewer buyers, I would think, than now. These days, everybody can jump on the Internet and see what’s listed. People only thinking about buying suddenly become potential buyers; whereas in the pre-Internet days, those only thinking about buying would do just that, think about it but never check out the listings. More buyers, more demand, higher prices. I dunno, I just think it all sucks.
My thoughts.
First of all re: #1 - where in the Philly area are you? My parents have a 4BR with a mother-in-law apartment attached to the garage that they’ll be in the market to sell as soon as their 55+ home is built.
Re: #2 - These days, everybody can jump on the Internet and see what’s listed. People only thinking about buying suddenly become potential buyers; whereas in the pre-Internet days, those only thinking about buying would do just that, think about it but never check out the listings.
Unless they can actually purchase the house online (”add to cart - click”), I don’t thing this is a big factor in inflating the buyer pool. They still need to qualify (God willing, that will become more difficult). Can’t use PayPal (yet).
Pre-internet people would scour the newspaper to see listings. Same idea (IMO).
Philly got hit hard during the last bubble (although compared to this bubble in retrospect it was barely a bubble). There are no reasons Philly won’t also get smacked when this bubble deflates. It just takes time…
1. There’s some truth to that. As the rich get richer, things like waterfront land, rare artworks go up with their income.
Most people are financing houses. Even middle income people need someone to buy their house to move up the “ladder”. Without the influx of people with low incomes who were able to buy houses in the boom…the whole system breaks down.
Add to that there (IIRC) has not been a time when new home construction went down by 20% without the country going into a recession.
There are a record # of house empty right now, and RE construction is contracting. It was artificially high for years (roughly doubling since mid 1990s) so it has a long way to fall.
2. Maybe those people have already bought? After all the internet isn’t new. Besides if they buy they leave a residence of some type. Even if it is an apartment, without a lessee the apartment rents would be driven down which (because they are a substitute for houses) would drive down house prices on the margin.
Alot of the buying has been by investors who assumumed that RE is a great investment. It’s a unique investment in that you have to put nothing down. Can frequently get cash at closing apparently. Then HELOC out money every 6 months or so. So it isn’t really an “investment”…it’s a money tree. No money goes in, you just sign your name and money comes to you.
Stable and falling house prices mean no new HELOC money. Means they have to start paying on their mortgage/HELOC, which will bust some people. There are waitresses with 10 houses in this bull market. When they can’t pay, that’s more houses foreclosed upon.
So basically, higher prices begat looser lending which begat higher prices. And falling prices will reverse the whole system.
the deflation of da bubble will be slow and staggered process. no doubt some areas are relatively protected. If the weakest situations fall first, and if the whole thing will de-bubblate over 6 years, it should not shock that some lagging regions still seem peachy.
evil doc
“2. Higher demand due to a bigger pool of buyers via technology.”
No. Tech doesn’t create demand for housing, it merely facilitates it.
“1. Rich getting richer are able to afford richer houses.”
No. You need *more* rich people, not richer people.
“On Monday, New Century said it had less than $60 million of cash on hand. It has said lenders might force it to repay more than $8 billion it doesn’t have.”
Always cheaper to file BK than pay the piper.
after the cash cow’s been butchered, its a little tough to get some milk out of her
“U.S. Senate Banking Committee Chairman Christopher Dodd said on Wednesday regulators bear some responsibility for problems in the subprime mortgage sector and he plans to call them before the committee for questioning.”
“‘That’s what’s made me angry here — that the regulators apparently have not been doing as good a job as I think they should have been doing,’ Dodd told reporters. ‘But we’ll know the answer to that question as we bring them before the committee,’ he said.”
How about Greenspan? Does he just get off scott-free?
He’s as responsible as anyone.
Can I sue him?
The Fed is above the law.
Unless this turns into a genocide…then he will be judged in The Hague(The Netherlands) if he survives the process. Very few do…remember Milosevic and he was much younger.
(‘That’s what’s made me angry here — that the regulators apparently have not been doing as good a job as I think they should have been doing,’ Dodd told reporters. )
Did they do as good a jobs as FASB would have on stock options if you hadn’t stopped them? If the regulators had tried to act in 2004, they would have been fired.
“‘It is not inconceivable (given what is happening now to mortgage originations) that we end up with something closer to a 10% decline in home prices this year,’ Merrill Lynch said.”
This is going to be a blow-out thread.
Did I read this right?
So basically we either have a ‘growth recession’ if the FEDs lower rates by 1 percentage point (which would be a recession under traditional definitions) or a outright recession (deeper recession) if the FEDs don’t lower rates.
What a mess!!!!
Ok, which one of you wrote this? http://dianecohn.blogs.com/reno/2007/03/just_the_beginn.html#comments
And kudos for our local Reno realtor Diane Cohn for refusing to sugarcoat the truth and just telling it like it is.
“”If this meltdown starts to spread to the ‘prime’ loan industry, watch out. I think it will. Remember that the only difference between a ’subprime’ borrower and a ‘prime’ borrower is the FICO of the borrower. I suspect there are billions and billions and billions of loans out there to ‘prime’ borrowers who are just as underwater. Somebody who bought in 2005 with a nothing down loan is no less underwater today just because he had a 790 FICO. And the ARM reset will be no less difficult just because he had a good FICO.”
The Grim Reaper of Depreciation does not discriminate. He likes the high FICO households just as much as the low FICO households.
back that to 2004 in FL and parts of NE
There’s investor fear that credit quality in mortgages is deteriorating,’ said Mark Patterson, a managing director at NWQ Investment Management Co. L.L.C., of Los Angeles.
“‘Everybody’s going down, not just New Century,’ he opined.”
LEND 10.45 +4.41 [73.01%]
Bid: 10.44 Ask: 10.45 Vol: 55,285,216
What are they thinking? Sure, there’s a short squeeze but the volume is extremely high.
-Dimitris
http://countrywide-foreclosures.blogspot.com
“What are they thinking?”
—————————————————————————
Paulson: Subprime mortgage fallout ‘largely contained’
By Gabriel Madway
Last Update: 6:28 PM ET Mar 13, 2007
SAN FRANCISCO (MarketWatch) — Treasury Secretary Henry Paulson said late Tuesday the turmoil in the subprime mortgage market is no surprise given the correction in U.S housing market. Paulson also said the fallout in subprime mortgages is “going to be painful to some lenders, but it is largely contained.”
“What are they thinking? Sure, there’s a short squeeze but the volume is extremely high.”
Wall Street drank the Cool Aid and now they themselves are speculating in the housing market.
Man, do we have volatility ! Yesterday was -130 to +50. Today is -10 to +50.
Wall Street doesn’t have a clue !
The market will get creamed with this volatility. Things will bounce up and down until investors get scared and pull their money out and sit on the sidelines. Then it will just be down, no more up.
This is one time I really hope the republican agenda of personal responsibility holds. Unfortunately if they had their way they would probably hold all the little people to high standards of personal responsibility and let the big finance companies and banks skate.
The democrats on the other hand will probably somehow manage to bring about the greater depression one way or the other.
Abandon hope all ye who enter homeownership here!
However, Democrats won’t bring phony wars that cost trillions, so that Halliburton and other cronies can stuff their pockets, while injured soldiers are treated like crap at Walter Reed.
Democrats brought the Korean War and Vietnam war. We are still in Korea.
If we are in Korea, ask Bush and Republicans to get out of there, since they are running the show for years. There are no bigger warmonger-profiteers than Republicans right now. And if they don’t give a damn about injured soldiers at Walter Reed, or New Orleans residents during Katrina, certainly they don’t give a damn about you. Apply common sense here, and rinse twice. I understand when people defend this Administration or Republicans when they are benefiting from their little phony wars and financial schemes, but I can’t never understand this blind loyalty when you just get hammered. It looks like those episode of Cops, when they wife gets beat up but never wants to press charges and keeps yelling: “I luv ya baby!” Hey, I think that Democrats stink too, but I won’t be defending Republican crooks and warmongers just because of blind loyalty. I’m a fiscal conservative and for smaller gov, but there’s nothing good left in the Republican party. And the last 6 years prove that. Am I voting for Republican or Democrats on the next election? Probably not, because the system is rigged anyway. Look the stock market today…nothing but bad news, but it skyrocketed.
I do believe that the Republicans’ greed and thirst for power will quash their personal responsibility platform. Besides, all politicians have the banking/real estate/finance industries to answer to since they all accept their contributions.
“the republican agenda of personal responsibility holds”
Funniest thing I’ve read today…if the last 6 years are a joke, then this is the punchline.
The current leaders in both parties totally blow right now. The GOP had a chance to clean house over a year ago when the lobbying scandal hit but they chose to continue on with the pork barrel special interest bullcrap that hasn’t been seen since the democrats were kicked out in 1994.
Of course, the same exact same thing happened to the GOP in this last election. I’m not even sure if the key issue of the campaign was Iraq as it was the perception that the GOP led congress had lost touch with reality and had become totally unresponsive to the needs of the country as a whole.
IMO, the fiscally conservative, anti-pork republicans who also want to reign in what’s going in with the war effort are the best we’ve got currently in Congress. Unfortunately we’ve got the exact opposite in the white house. But there are a few responsible folks in the house and senate.
That’s what’s made me angry here — that the regulators apparently have not been doing as good a job as I think they should have been doing
Not that he doesn’t have a point, but who made Christopher Dodd God?
Have you seen his blog? (see ComedyCentral.com’s Daily Show videos)
I haven’t see this posted”
http://www.itulip.com/forums/showthread.php?t=1078
If there is no bail-out, crap packagers will have no market to sell their crap and crap loans will go away until everyone forgets.
Greenspan just said he sees that subprime risk spilling into other sectors. And the market skyrockets…go figure!
Oops, bad grammar: Greenspan just announced that he sees subprime risk spilling into other sectors. Sorry about that…
How does such ‘containment’ work?
—————————————————————————–
Paulson: Subprime mortgage fallout ‘largely contained’
By Gabriel Madway
Last Update: 6:28 PM ET Mar 13, 2007
SAN FRANCISCO (MarketWatch) — Treasury Secretary Henry Paulson said late Tuesday the turmoil in the subprime mortgage market is no surprise given the correction in U.S housing market. Paulson also said the fallout in subprime mortgages is “going to be painful to some lenders, but it is largely contained.” “We have had a significant housing correction in the U.S.,” Paulson said in an interview on CNBC. “The correction has been significant. You can’t have a correction like that without causing some dislocation. It is too early to tell whether it has bottomed. We’ll know more in the next month or two.”
http://www.marketwatch.com/news/story/paulson-subprime-mortgage-fallout-largely/story.aspx?guid=%7B5F1FC5A7-B457-4875-BEEE-D7F73282ED9F%7D
How does such ‘containment’ work?
Hastily-built fallout shelters?
How does such ‘containment’ work?
It works about the same way as “border control”.
LOL!
“We’ll know more in the next month or two.”
Hahhahahahahaah. How about the next year or two…or three or five. Notice how all the spinmeisters expect instant solutions to these simple problems. God, people are dumb. The sub prime debacle is just beginning, the alt-a’s are about to and then the A paper will collapse as people are upside down in their mortgages. There’s not enough money outside of Wall Street to solve this problem, and nobody will tax those guys.
I am thinking the same thing. A two hundred point-plus swing yesterday. from negative to positive. Somebody is proping up a falling market.
rumptittyrumptittyrumprumprump…Hillary is riding to the rescue: WASHINGTON (Reuters) - Presidential hopeful Hillary Clinton on Thursday called for incentives for U.S. lenders to identify troubled mortgages, offer “a foreclosure timeout” and possibly revise repayment terms amid the widening subprime mortgage crisis.
http://www.reuters.com/article/politicsNews/idUSWBT00668120070315
oh, great
Bankers run this country, no doubt.
Here come the “solutions” from the Economic Illiterati.
Here comes the 20-20 hindsight, fingerpointing and election spin.
They’ll all suddenly appear to be brilliant.
Someone forgot to ask her why she voted for the new bankruptcy laws. Hopefully they’ll remember to ask when they have the debates.
Expect all politically ambitious Democrats to join the bandwagon of bailout proposals, without bothering to mention anything about who gets to pay for the lending excesses and borrower stupidity.
“I mistrust the judgement of every man in a case in which his own wishes are concerned.”
Duke of Wellington
It’s not a bad idea, but would unlikely be accepted by enough people to be actually implemented. In any case, Hillary is a politician…they float ideas like this all the time.
Is Hillary going to offer a ‘foreclosure’ timeout to loans that are not subprime? She must be pretty confident this won’t spread to other segments of lending.
She would be wrong.
Also, are the banks going to go along with ‘revised payment terms?’
Any suggestion of a bailout are ridiculous b/c you know that if this is promulgated for ’subprime’ borrowers non-subprime borrowers who are having problems will scream and shout.
Unless the government can afford to bailout all FBs I can’t see this happening.
Hey, If they bail out all the stupid mortgage holders of the past 5 years, I want them to throw a couple hundred K into my “downpayment fund ” that I’ve been assiduously saving the past several years.
Seriously, this can’t happen. I have no interest in bailing out a stupid lender OR a stupid borrower.
The lenders can just disappear down a black hole.
The borrowers can go rent. Plenty of beautiful new rental homes in every market. All across the nation.
Lots of nice new condos everywhere too. Something for every taste and pocketbook I’d say.
“For example, give borrowers a period of a foreclosure timeout, during which borrowers will have the opportunity to put their financial houses in order and to work out a payment plan,” she added.”
Isn’t this what the period before buying a house is supposed to be for?
“Isn’t this what the period before buying a house is supposed to be for?”
LOL. It used to be. You had to save for your downpayment & reserves, pay off credit card debt, stay at a steady job for a while. It’s like trying to fix the brakes when you’re already in the car and rolling down the hill.
No one got bailed out of the dot.com stock mess. Markets completely disconnected from the fundamentals. No one should get bailed out here either.
You need to give the FB time to tear out and sell all of the fixtures.
lol. Good point Shaun.
Someone’s got to corner these politicians with questions that they’ll be forced to answer, live, in front of everybody, on TV.
Maybe there’s a newscaster out there who’s a prime borrower in good standing, still paying on his mortgage?
“and possibly revise repayment terms amid the widening subprime mortgage crisis.”
“Revised payment terms” What the heck does that mean ? Does she understand that on the other side of that mortgage payment is a bond holder that umm… expects to be paid ? I didn’t know that bonds were negotiable after the fact ! Is this going to happen with treasuries too ?
How could you even renegotiate terms for a FB ? They defaulted on their mortgage payment BEFORE the rates even reset ! What are we going to do with them ? No interest mortgages ? 100 year terms ?
And if you stop and think about it, easy/loose credit is what got us into this mess and now you want to… make credit easier and looser yet ? Are you nuts ? Ever heard of throwing gasoline on a fire ?
We need a dose of reality here. What needs to happen, as quickly as possible, is the whole housing market needs to collapse and house prices need to fall 50%. Let everyone that has to go bankrupt. The economy will go into a recession for about 3 years. After everyone has learned their lesson and all the excesses are cleaned out, inject A BIT of capital and get things started again.
There is no use in providing a quick fix bailout to the problem, because it will only make it worse. The excess liquidity has to disappear and the only way that can happen is with massive tightening. And the sooner it gets done the sooner everyone can start over, fresh.
It would be difficult for any politician (Democrats especially) to sit by and do nothing in the middle of this, but I also think it’s impossible for them to stop what’s coming.
The shrewdest politician will be the one who offers a plan that sounds good but basically does nothing (and is less expensive than other people’s plans). Another good but risky tactic would be to propose a plan that sounds good, but is really expensive, and has no chance of being enacted.
It sounds to me like Hillary is going for the first option, but it’s hard to say for sure until we see a price tag. Dodd might actually be the leader here with his relatively dinky $2.2 million idea.
She feels their pain!
Here’s her plan:
http://www.bloomberg.com/apps/news?pid=20601087&sid=assw6wfJVnkI&refer=home
“New York Senator Hillary Clinton said the Federal Housing Administration should be allowed to offer lower mortgage interest rates for subprime borrowers who are losing their homes.
“This market is clearly broken, and if we don’t fix it, it could threaten our entire housing market,” Clinton, a 2008 Democratic presidential candidate, said today in prepared remarks at a conference in Washington.”
“Should be allowed to offer lower mortgage interest rates” kinda skips the question: where’s the money going to come from? Most banks are allowed to offer lower mortgage interest rates, arent they?
This is the same BS she was spouting in New Hampshire a month ago, but beyond this ‘talking point” she exhibits not a clue about how markets work, or even an inkling that the statement “if we don’t fix it” is ludicrous on so many levels. I’m a dem, but this clinton is a disaster, imho.
“The market is clearly broken, and if we don’t fix it, it could threaten our entire housing market”.
Ah, I see, she believes it’s a GOOD thing that homes are 10 X income.
Hard to pretend you’re “for the people” when what you’re really for is an insanely over-inflated, gut busting housing market.
re. Hillary’s concern about threatening this housing market. Okay, i get it now:
The reason so many people are defaulting on their loans is because the price of houses went so high that we had to invent new payment methods to “buy” them.
Now even those methods are failing and people are defaulting.
But, gosh darn it, these insane housing prices are just such a great idea that we have GOT to figure out a way to keep those prices high forever.
So we’ll bail these buyers out and then wait for the NEXT set of buyers who need to be bailed next year and the year after that and the year after that ad nauseum.
Because God forbid we ever let houses go back to what people can reasonably afford to pay in this country.
Things were REALLY AWFUL when it was like that. I remember the bad old days when it was actually possible for a teacher (me!) to buy a great home with a 20% downpayment and a monthly payment that was LESS than renting a comparable space. And you could pay your mortgage off in FIFTEEN years!
It was just terrible! And really bad for neighborhoods too. The stability was so BORING!
By all means Hillary we do not want to let anything happen that would threaten this glorious housing market of the past decade.
You’re right Hillary, it’s much much better this way. We should do everything we can to make sure that Americans can never again trully afford to pay for their houses.
Keep those prices high and just keep on bailing out the foreclosures generation after generation.
Sound plan.
Is their a politician out there with even half a brain? Please step up.
To be fair, it sounds like she was going for the Zillow-watching soccer mom demographic.
And when I say “to be fair”, I’m being facetious.
Breaking news: Toll Brothers CEO Robert Toll said the spring selling season has been “a bust.” Full story here:
http://www.bloomberg.com/apps/news?pid=conewsstory&refer=conews&tkr=TOL:US&sid=aIti_ROBT6Lc
A few more comments on TOL’s forecasting record here:
http://interestrateroundup.blogspot.com/2007/03/toll-ceo-spring-selling-season-bust.html
“MGIC Investment Corp., the largest U.S. mortgage insurer, was the top gainer in the Standard & Poor’s 500 index on Feb. 6, the day it agreed to buy No. 3 mortgage insurer Radian Group Inc. for $4.9 billion.”
“In the five weeks since, it has become the 10th-worst S&P performer.”
I told everyone here to short MTG, before all that happened. If you heard me, congrats and pay me a beer + chaser of “caipirinha”.
“Shares of U.S. mortgage companies rose after buyout firm Blackstone Group LP agreed to buy PHH Corp.’s home-lending business and Bear Stearns Cos. said it’s interested in buying more subprime loans.”
http://www.bloomberg.com/apps/news?pid=20601087&sid=asC0BUleBZVs&refer=home
Its really fascinating and frustrating to watch this play out. No matter what happens in the housing and mortgage sectors, someone finds a way to write a prematurely positive news piece on it that totally defies logic.
People just don’t get it. Anyone who needs a sub prime loan shouldn’t be buying a house in the first place. Rent and save your money ! But no, BS sees an opportunity to feed more people more money they can’t pay back and so they make a comment like this. And whats worse, people believe it without thinking further !
So right now housing inventory is at record levels and lots of FBs need to get out. To say nothing of the facts that mortgage credit tightening will remove 20%ish of the buyers that were previously in the market and the current wave foreclosures will add 10-20% to the current inventory and there will probably be another wave of foreclosures brought on by the current conditions.
So BS wants to make money loaning more money to people who are already over extended, who have been shown to have a poor history of paying their loans to buy assets that are going to rapidly depreciate in value ! And all this at a time when sooner or later the job market and economy are going to take a hit !
Of course BS doesn’t plan to be the end holder of the mortgages. Oh, no. It just wants to be the middle man and earn the commission for… well, basically doing nothing ! I mean how hard is it to bundle mortgages ?
This example illustrates what is wrong with the whole situation. a) people are way over their head in debt and yet someone wants to sell them more debt. b) people don’t have enough brains to think things through and c) everyone wants to make money shuffling money and do nothing and pass the risk off to someone else.
I’m sorry, but this system does not work and it must stop. We must return to doing things the old fashioned way. Like having a deposit and buying houses we can afford and working at real jobs making things instead of shuffling money.
When, when, when will this country come to that realization ?
If you want to get a laugh, check out this post by a seasoned LO. I know I shouldn’t laugh but I just can’t help myself. The first response is a classic.
“WHEN CAN WE EXPECT TO START MAKING SOME MONEY AGAIN AND THE BANKS START BACK WITH 100%………”
http://forum.brokeroutpost.com/loans/forum/2/103713.htm
2:45 pm? Could you let me in on the joke?
From today’s Salinas’s ‘the Californian’
“The number of foreclosures in Monterey County surged by more than 150 percent over the past year, mirroring a national trend that has shaken up Wall Street and made prospective homebuyers wary of taking the plunge into ownership.Statewide, 4,171 homeowners went into foreclosure, a 48 percent jump from
just two months ago, according to Los Gatos-based tracking firm Foreclosure Radar.
This month isn’t going much better: At 31 foreclosures as of Tuesday, the county already has surpassed the 26 declared during all of March 2006. But some are finding a silver lining to the foreclosure cloud: The real estate market is more favorable to prospective homebuyers than it has been in several years, Salinas-area real estate agents and lenders said.
In February, the median price for a single family home in Monterey County was $657,000 — down from $700,000 the same month last year, according to the Monterey County Association of Realtors. In north Salinas, the median price last month was $568,000, compared with $665,000 the year before. At the same time, homes are taking longer to sell. Countywide, homes spent an average of 151 days on the market, according to February statistics on MCAR’s Web site, compared with 90 days a year ago.
The month of February, the last for which complete figures are available, saw 62 foreclosures in the county, a roughly 400 percent increase over the same month in 2006, which saw 12 foreclosures, according to the Monterey County Recorder’s Office.
Subprime lending is especially prevalent in Salinas, where the median home price is about $550,000, but the median household income is less than a 10th of that, according to the latest Census data. Nationally, subprime lending accounts for about 10 percent of home loans. One local real estate agent said that figure could be as high as 70 percent in Salinas.
“These are just foreclosures waiting to happen,” said Ariel Torres, an agent with Marquez Realty in Salinas.”
But some are finding a silver lining to the foreclosure cloud: .. median price SFH is $657,000 — down from $700,000 the same month last year, according to the Monterey County Association of Realtors.
Excuse me but thats nearly 200% over past decade. Is there any justifaction for these valuations to increase that much well above inflation.
The dinky decline of 45K is nothing folks. WTF, who you fooling. You need nearly 350K off the top to get back to actual norm.
Gotta love it that now that Alan Greenspan is out of office, he can’t keep his mouth shut ! Ironic that he started this thing and didn’t see anything wrong with keeping rates low forever, and now he can’t wait to tell us we are going into a recession.
http://www.bloomberg.com/apps/news?pid=20601087&sid=aMNo.k9C9eP8&refer=home
We have to remember that the Fed was a board. Alan didn’t act alone.
“It is not a small issue,” Greenspan said today. “If we could wave a wand and prices go up 10 percent, the subprime mortgage problem would disappear.”
No it wouldn’t ! I can’t believe he said that.
If house prices went up 10% the bubble would only run another year ! The price gains were only masking the original problem, being FB in debt over their heads, mass speculation and a broken mortgage lending process !
We are actually lucky that the music stopped here and didn’t go on any further !
House prices can’t go up indefinitely to support ever higher levels of consumer indebtedness ! How stupid of him to say it like that.
Boy this is certainly is a pearl of wisdom from Uncle Al:
“It is not a small issue,” Greenspan said today. “If we could wave a wand and prices go up 10 percent, the subprime mortgage problem would disappear”
And if the wind and rain had stopped, the leview wouldn’t have been breached in New Orleans.
He also points out that if prices go down, it could be a problem.
He’s becoming the Grampa Simpson of the financial world.
“If we could wave a wand and prices go up 10 percent”
and that folks, is how the Tinkerbell economy was born
He’s becoming the Grampa Simpson of the financial world.
LMAO!
“The goverment is preparing to punish some subprime mortgage lenders under investigation for discriminatory practices. Rep. Carolyn Maloney of New York, a committee member, is proposing legislation that would impose restrictions on banks and other mortgage lenders.”
Fantastic…. Maloney has been a great rep. for her district and her proposal would go a long way in putting the thieving, lying banks back where they belong.
Layoff at Ameriquest parent
ACC Capital Holdings doesn’t say how many employees to be cut, but workers say number in O.C. is 100 or more.
By ANDREW GALVIN and MARY ANN MILBOURN
The Orange County Register
ACC Capital Holdings, the Orange-based parent of Ameriquest Mortgage Co., said it is laying off workers today “across all lines of business” and combining some of its operations to cut costs amid a downturn in the subprime mortgage industry.
The company declined to say how many workers are being laid off. Employees said the number in Orange County was at least 100, and possibly many more than that.
ACC, in a statement, also said it is “centralizing its retail origination and portfolio retention operations to Southern California and consolidating its New York wholesale loan production operations into its Illinois facilities.”
“This is a very challenging non-prime market,” the company added. “Only companies with the ability to control costs and improve loan quality are going to be successful.”
In an internal memo to employees, the company said: “Throughout the day managers will be meeting their teams and associates individually to describe how they are impacted by these changes.”
The company said laid-off employees will continue to receive salaries through May 25 and benefits through May 31. This enables the company to comply with WARN act provisions, which require employers to give 60 days’ notice of layoffs that affect more than 50 workers, the memo said.
With each round of OC layoffs, my commute gets better. I know it’s harsh, but I work directly in between Option One and New Century in Irvine, and drive by Ameriquest on the way home.
Here is another case of stupidity.
“China said today its industrial production accelerated in the first two months of 2007, topping analysts’ forecasts in February and signaling increased demand for copper wire and pipe. Stock markets in the U.S., Europe and Asia rebounded as concerns eased that rising U.S. mortgage delinquencies will damp demand.”
Ummm… where are copper wire and pipe used ? Anyone ? How about iPods ? No. Not much copper in them. Ethanol ? Nope, not much there either. How about… houses ? YES. About 400 pounds of copper is used in a house.
Me thinks there is going to be a very abrupt slowdown in China.
http://www.bloomberg.com/apps/news?pid=20601087&sid=afVz4Hfv5SvY&refer=home
What we forget is that China is supplying the world not just the US, China needs to create 15 Million jobs/year just to stay even. Most analysts believe that even if the US economy goes in the sewer, China will still grow ~9% this year. This is a slowdown? China is the 3rd largest exporter, soon to be 2nd behind only the US; China imports raw material. Until China becomes a consumer purchasing country (possibly 20 years from now), it will continue to build its infra structure and industries.
China already produces more automobiles than the USA.
Don’t know if this was posted yet.
WASHINGTON (MarketWatch) — Former Federal Reserve Chairman Alan Greenspan said he expects to see some spillover from the subprime mortgage meltdown into the broader economy if home prices fall, according to media reports. Speaking to a fixed-income industry group in Florida, Greenspan said the turmoil in the subprime market is no small matter. So far, there has been little impact on consumption, but he noted problems in collateralized-debt markets have already surfaced. “If prices go down, we will have problems — problems in the sense of spillover to other areas,” he said.
There is no more “if” prices fall. We’re into “how much” now.
Amazing the state of denial.
OK, does anyone else see the contradiction here? If regulators had enforced traditional mortgage lending standards, housing prices would have stayed at traditional levels. But they didn’t, and prices didn’t. So now, if they enforce traditional lending standards, that will force prices back to traditional levels, and that’s bad?
If it would have been a good idea then (and it would have) it’s a good idea now (and it is). I must have missed it when the mortgage industry was asking Congress to regulate them back in 2003. Oh, wait. They didn’t. Instead it was, “get these regulations off our backs so we can make more money.”
I say, enforce traditional underwriting standards across the board. It’s not like bankers were losing money when 20% down and a max of 30% debt/income was the norm. There’s still profits to be made in that kind of environment. Not as much, perhaps, at least in the short term, but I’ll take lower real profits (that I get to keep) over more fake ones (that I have to give back, and go out of business) any day.
The mortgage lending industry has proven that they are incapable of regulating themselves. It’s time for some rigorously enforced rules. Children need that.
Funny how deregulation always seems to end up this way….
–Shannon
One cannot have enforcement without force. Why are you so quick to bring out the thugs with the badges and guns?
You can have a civil society … you can have the uncivil unsociety. I hear they’re offering them in several flavors around the world now. Suit yourself.
I am rather ignorant when it comes to financial matters, so I would like someone to clarify an issue which has been bugging me. If a prime borrower buys a house and then turns it into an ATM by maxing out all the equity in it, does that still make him prime and pristine?
In my not-so-humble opinion, it doesn’t. But I don’t work in the financial industry.
Go visit Calculated Risk and read anything from Calculated Risk, Tanta and Maxed Out Mama.
It is complicated and difficult to get an easy answer but that is your best bet.
So long as he/she continues to make all payments on time - they are golden.
That’s the underlying problem with relying too heavily on the FICO score - there are plenty of 700+’s out there who don’t have any financial sense and will continue borrowing as long as they can. Hence Alt-A loans that are I/O and neg am, once re-set, will strain the cash flow of even high FICO folks. On a macro basis, Consumer spending falls - recession ensues.
Yeah your New Century all right? what you should have done was look at the past century and learn from that instead like evrything in this country greed takes over and we all pay the price for it.
http://biz.yahoo.com/seekingalpha/070313/29355_id.html?.v=1
Interesting. That chart shows Wells Fargo to be the #1 subprime lender. Have we heard a word from them on all this ?
“Financial services company National City Corp. on Wednesday said it has not been able to sell some $1.6 billion in nonconforming loans…… The company has written down the fair value of those loans by $11 million through February and said further write-downs are likely.”
Old Chinaman say: journey of thousand miles start with one step.
Comment by BanteringBear
2007-03-15 11:40:39
I have been wondering where the money was coming from for all of these multi million dollar custom homes these small time builders were building on speculation. Community banks? UH OHHH!!
This morning I called a small northern CA bank to inquire if they did sub-prime loans, and the woman didnt know! Should I take that as a yes??!
Where are we sapose to keep our bank accounts safe?
It’s concerning to me.
Here is a terrific broadcast about the mortgage fall out.
“James Grant Says Troubled Part of Mortgage Market Is `Immense’” at http://www.bloomberg.com/
Jim Grant from Grants Interest Rate Observer.
Talking Notes
“Troubled part of the mortgage market is immense.”
“40% of an 8 Trillion dollar market.”
“We all talk our books”. Paulson is supposed to say something soothing.
Legacy will be with us a very long time.
AltA - typically 88% was borrowed !
100s of Billions of dollars of CDOs have been sold each year. Package, shuffle, package, shuffle. There is a deep ignorance of CDOs ! Loss models will be wrong ! Investors don’t have enough data to judge the quality of MBSes. Risk has been systematically mispriced ! Corporate debt and mortgage debt ! The CDO machine is sputtering. Its not known who is bearing the risk of CDOs.
Agencies have not been rating debt ! They will be responsible for the outcomes. Moodys ! “Defies logic.” Marginal debt has been made AAA via the magic of repackaging.
What will we see in 90 days ? Risk will be repriced. Housing will be worse. Many people hurt.
“To have been bearish in the face of this titanic rise in stock price is a little bit like being bearish on a hurricane….the market continues to fly in the face of every single received rule, evaluation and prudential investing that I know. ”
James Grant 1996
Every time I look at house price mania I think of James Grants words and substitute ‘house’ for stock.
As an aside I watched Paulson on the news the other night and never saw an individual ‘blink’ as much as he did when asked about subprime mortgages impacting the US economy. Blinking is a reasonable indication of lies.
I made a comment about that a few months ago. There was an interview which was posted on Bloomberg and the interviewer ask some pointed questions which seemed to rattle his composure. Apparently he has not gotten any better at playing the role of a politician.
There’s a great idea for making the evening news more fun to watch. Have them do a polygraph test/interview live on the air! I want to see DL and Paulson and Gary Watts and… and…
dont forget LAY Econ for Calif Ass’s of Realtors.
Off topic: but it’s been awhile since I had a good rant about our old friend Mr. Greenspan. What’s the deal with this guy. He creates massive malinvestment and dislocations during his tenure at the Fed, then he retires and now travels around the globe giving warning speeches about the looming recession and the trouble in the credit markets which he help create. Nauseating, where’s my Pepto Bismol?
Comment by GetStucco
2007-03-15 10:39:23
Higher interest rates, anyone? (Gold prices are jumpy today, a leading indicator of unmitigated future inflationary pressures…).
—————————————————————————–
I noticed gold is higher too Stucco. I am wondering if the feds will raise rates? I have read the oposite -that they will lower rates because of the sheer magnitude of sub-prime & Alt loans, even some prime loans will be at risk if people took out equity lines of credit and have a problem paying back a ballooning 2nd adjustable mortgage.
I have owned gold stocks for awhile, but what worries me about gold is that last week when China’s markets crashed, gold stocks dropped. During crisis, they should have gone up. Just wondering now if owning gold would be a safe bet afterall because some larger banks (WF,CW,Wamu) and other lenders would have to sell assets to buy back these bad loans…this all seems like confusing times ahead for all of us.
My 2 cents, forget about gold stocks and own some physical metal (ETF don’t qualify), own the real stuff, at least 5-10% of your portfolio. Gold is highly manipulated so the price action will often confound. Don’t pay attention to it. Gold is insurance, period. Warning: you friends and family may think your nuts so ignore that too. When you begin to understand just how deep the BS runs, owning some precious metals is the only logical play to make. People who don;t are damn fools in IMHO.
I am wondering if the feds will raise rates? I have read the oposite -that they will lower rates…
From Bllomberg:
Putnam’s Kohli Posts Top Bond Returns, Sees Fed Raising Rates
By Parris Kellermann
March 15 (Bloomberg) — Putnam Investments’ Bill Kohli, manager of the best-performing U.S. government-and-corporate bond mutual fund, is a contrarian when it comes to predicting monetary policy at the Federal Reserve.
He expects the central bank to raise interest rates before reducing them, a prediction far from the market consensus. The Fed will cut its target overnight lending rate by 25 basis points to 5 percent in the fourth quarter, according to the median estimate of 75 economists surveyed by Bloomberg.
“Global economic growth is still strong, so the next move in interest rates is likely to be higher than lower,” said Kohli, 46, manager of the $2.8 billion Putnam Diversified Income Trust, in an interview in Boston, where Putnam is based.
Comment by tweedle-dee (not dumb)
2007-03-15 11:58:37
The market will get creamed with this volatility. Things will bounce up and down until investors get scared and pull their money out and sit on the sidelines. Then it will just be down, no more up.
——
I think so too.
Yeah Greenspan isn’t the great “sound bite” he used to be. I guess he doesn’t have a team of people working under him feeding him lines like he did at the FED: now he just sounds like any other old guy with an opinion. There’s a 33% chance of recession this year: the economy is tanking because that’s what economies do every 6 years: raise RE prices 10% and problem solved. It sounds like stuff you’d hear in a retirement home dayroom: “Yes, Mr. Greenspan, 33%, and we’ll turn up the heat for you and ask Mr. DiDinato to stop changing the channels.” I mean, this guy’s words were moving markets just a couple years ago- what a difference! At least he’s stopped calling bottom…….
Bloomberg:
http://www.bloomberg.com/apps/news?pid=20601103&sid=ahwzaBwuNaII&refer=us
Bloomberg is calling the situation “a bust.” Haven’t heard any of our top economic leaders mention this word yet.
Of course, the Pentagon has finally come around to acknowledging that Iraq is in a civil war. I expect by later this year, everyone in the REIC will be saying they knew the situation was “a bust” all along.