Borrowers Want To ‘Step Off The Roller Coaster’
Some housing reports from Wall Street and Washington. Paul Muolo, “Some industry executives are telling us there’s a growing wave of refinancings sweeping certain segments of the business. Which segment? Servicers of payment-option ARMs, watch out. Apparently, all the negative publicity surrounding POAs is starting to hit home with consumers and they’re opting to get out of their ARMs. A recent report by Sandler O’Neill notes, ‘We recently heard from one mortgage REIT that ARM prepayments are surging.’”
“Also, in Monday’s NMN, a story about POA volumes dropping dramatically at Countrywide.”
From Bloomberg. “Countrywide Financial Corp., the largest U.S. mortgage lender, is getting buffeted by bondholders as it prepares to sell as much as $4.5 billion of new debt in a slumping housing market. Investors are concerned that Countrywide, based in Calabasas, California, is expanding into the riskiest parts of the mortgage business just as the housing market slows.”
“‘Bondholders have to ask themselves if it’s worth taking the risk’ of more bad news about the housing market, said Scott MacDonald, director of research at (a) hedge fund.”
“Last month, 4.5 percent of all Countrywide loans had delinquent payments, up from 4.15 percent in August. The increase was caused in part by loans to people with bad credit, and missed payments are likely to continue rising, JPMorgan analysts said.”
“Countrywide’s banking unit had $34.2 billion of pay-option loans at the end of June. ‘They’ve enabled people to borrow who probably shouldn’t have mortgages,’ said analyst David Hendler.”
From MarketWatch. “With loan loss provisions at the nation’s banks at 21-year lows and a cooling real estate market putting some customers in default, certain regional banks may have to boost the amount they put aside to cover bad loans in the third quarter.”
“But loan loss allowances, the SEC has argued, can be used by banks to ‘manage’ earnings as bank managers see fit and, since the Sarbanes-Oxley reforms, the commission has actually encouraged banks not to boost their reserves until a loss becomes inherent in a loan portfolio.”
“While pressure from the SEC may be postponing the time of rising reserves, when charge- offs do start rising the impact might be felt faster and more acutely. ‘It appears that the SEC believes that actual loan losses should flow through to earnings directly as they occur,’ said Punk Ziegel’s Dick Bove.”
“Banks can sell as asset-backed or mortgage-backed securities and have thus ditched a large part of their portfolio, keeping on average only about 20% of the loans they originate. In the case of supbrime mortgages, where most of the risk is expected to lie, the percentage of loans sold to the market is even larger.”
“Moreover, banks can, for a minor charge, move doubtful loans out of their portfolio and put them indefinitely in a ‘loan-for-sale’ category. ‘In there, when you sell it to an investor [at a lower price than the loan was originally worth], you won’t take a loan loss but a trading loss, which you can easily offset in other ways,’ said David Hendler, analyst at CreditSights.”
“The result is that ‘it’s very hard to predict credit quality’ because banks ‘give you a managed loan-loss picture,’ Hendler added. ‘You don’t see the true picture.’”
“Meanwhile, investors are already questioning the validity of banks booking as earnings the so-called ‘negative amortization’ of many mortgages, as banks have little evidence that borrowers will ever be able to pay back the full amount.”
“Yet, according to Bove, the Office of the Comptroller of the Currency is also looking into whether booking negative amortization as earnings is valid. An adverse finding could eventually force banks to boost reserves and take charges.”
The Orange County Register. “Is it time to refinance? ‘It’s an incredibly attractive time,’ said Al Hensling, head of mortgage brokerage United American Mortgage in Irvine. Hensling said lenders competing aggressively for borrowers amid a cooling housing market are partly responsible for the drop in mortgage rates.”
“‘They need to originate loans,’ Hensling said. ‘They have built these operations.’”
“Companies like Countrywide, Wells Fargo and Washington Mutual are calling borrowers whose loans are automatically switching from a fixed rate to an adjustable rate, Pimco’s Scott Simon said.”
“Lenders expanded staff and facilities during the boom years and need to keep producing, he said. ‘In the old days, nobody would call you,’ Simon said. He added, ‘There is money to be made every time a transaction occurs.’”
“Payment-option loans, which were rarely used before 2003, have become popular amid high home prices. They accounted for 23.6 percent of all home loans for purchases in the county in the first seven months of this year and 37.9 percent of refinancings, according to First American LoanPerformance.”
“Yet Hensling and other brokers say homeowners are growing concerned about the loans’ risks. Among their pitfalls, the loans generally offer a low starter rate but have a higher adjustable rate behind the scenes, Hensling said. He said owners with option ARMs want to ’step off the roller coaster.’”
A couple from Origination News:
‘New Century Financial Corp., Irvine, Calif., has announced the adoption of new disclosure and underwriting best practices. ‘In light of recent regulatory guidance and the changing interest rate environment, we have re-evaluated our programs and practices and developed enhanced policies and techniques to reinforce our goal of providing fair and informed access to credit,’ said CEO Brad Morrice.’
‘A negative rating outlook has been assigned to Realogy Corp. by Moody’s Investors Service because of “continued weakness in the residential real estate market.” Moody’s also affirmed Realogy’s Baa2 long-term ratings and assigned a Baa2 rating to its proposed $800 million offering of senior notes. In explaining the negative outlook, the rating agency cited expectations of double-digit volume declines in home sales and modest price declines in the second half of 2006, as well as mid-single-digit volume declines and modest price declines in 2007. The ratings could be downgraded if profitability continues to decline sharply in 2007 because of falling home sales or prices, or a “material increase” in leverage caused by a large acquisition, Moody’s said. Realogy is one of the largest real estate service companies in the world, Moody’s said.’
And NMN: ‘More lenders are paying attention to Fannie Mae’s messages about inflated appraisals because the warnings are right about two-thirds of the time, a company official has told a symposium on appraisal fraud.’
OT, don’t know if this was posted yet:
Home truths
“How much does housing wealth boost consumer spending?
“BEN BERNANKE, the chairman of the Federal Reserve, speaks of a “substantial correction”. Others use more lurid language. But no one doubts that America’s housing market is in trouble. After several years of double-digit growth, house prices have slowed sharply. By some measures they are falling. Today’s debate is about the consequences, particularly for consumers. Will Americans slow their spending gradually or suddenly, and by a little or a lot? At issue is whether people treat their housing wealth like a nest egg or like a cash card.”
“Will Americans slow their spending gradually or suddenly, and by a little or a lot?”
I would like to think better of most Americans but I think many will spend until they run out of credit. The question is will those who give credit keep on giving it.
Actually, there’s some evidence people spend more when they no its their last.
Like Thelma & Louise driving that T-Bird at full-speed into the Grand Canyon. Yaaaa-hoooo!
“At issue is whether people treat their housing wealth like a nest egg or like a cash card.” (?)
Unfortunately both. That is why this whole thing is such a mess, not only is their current value/wealth at risk but their furure’s as well.
falling by all measures in all places- name one county that has rising prices (non katrina)
“Meanwhile, investors are already questioning the validity of banks booking as earnings the so-called ‘negative amortization’ of many mortgages, as banks have little evidence that borrowers will ever be able to pay back the full amount.”
—A day late and 50¢ on the dollar short IMHO. In the future people will regard this with the “Well of course they should have known better, we’d never make THAT mistake,” attitude that people regard buying stock on margin in the ’20s.
It’s quite transparent, any “investor” who doesn’t like it is free to sell the stock. What I don’t like about it is the earnings ending up in S&P 500 earnings calculations and other indexes.
The damage to the CMO and REMIC market will be substantial. IMHO, 99% of the brokers and public have no clue what they are buying. I can tell you from experience that back in the early 90’s when rates started to rise, there were massive losses. These bonds are pools of mortgages, and when interest rates rise,people pre pay them or are in default, it effects the portfolio greatly. The trillions of GSE debt is a house of cards waiting to tumble.
It is great that many of option payment/IO/ARM borrowers are refinancing. Of course, I suspect many of them may be surprised at how high their 30 year fixed payment will be.
I suspect many others will be surprised to learn they cannot afford to refinance into a 30 year fixed payment loan, especially given the amount added to their loan balances while they enjoyed the option of paying the minimum allowable initial payment for as long as possible.
A girl in my office moonlights (spreads wunderful moonbeams of joy???) as a loan writer. In her words NOBODY with an ARM qualifies for a fixed - these refi’s are simply 3/1’s rolling into 2/1’s. About 1/4 don’t qualify anyway, and those that do have zip cash. Kinda last hurrah stuff.
David Merkel
Residential Real Estate Inventories Peaking?
10/16/2006 1:08 PM EDT
Well, maybe yes, maybe no. If true: here’s the bull case, and here’s the bear case.
Here’s my take. In labor unemployment, we have the discouraged worker effect. The unemployment rate might go down, even though more people are not finding jobs and giving up.
In bond trading in 2002, I would troll around for bonds that were seemingly cheap only to be told that there were few for sale. I would then ask why the indicative price wasn’t higher, if there was little available at a price that more than fairly discounted the default risk. The answer would come back that the seller could not afford to take a loss. Needless to say, the price the seller (or sellers) wanted was unrealistic in the 2002 environment. At a time like that, a good bond manager just sits on his hands, and waits for economic rationality to sink in. That doesn’t happen fast, but with enough situations like that (and there were a lot) maybe I would get to buy one issue per week in size.
Homes are like those illiquid bonds. After they have been on the market too long, many sellers take them off and decide to hunker down. But, the homes are still out there as a form of “shadow supply” to the market, appearing opportunistically if things get better, and unwantedly, if life events force a sale in order to accomplish other goals.
Another correlating sign of this is all of the alternative means of trying to sell homes at present. Incentives, seller financing, auction sales, foreclosure sales, for sale by owner, etc, are growing phenomena that do not arise in a booming residential real estate market; they show up when sellers are desperate. They need a sale, and they need to minimize sale costs.
All told, it means that there is a lot of hidden residential housing supply out there, regardless of what the published inventory numbers may show.
Position: none
Subtle and fascinating analysis .
Some anecdotal evidence - In my neighborhood (Loudoun county VA) the number of listings in the last 4 months has gone from 30 down to 17. Of that 13-listing reduction, only about 5 have been actual sales - the rest are just expired listings. There’s *some* reason why those houses were listed - obviously in every case it’s someone who’s willing to sell and move if the price is right, and thus could be considered part of that “shadow supply”.
This shadow supply will serve to not so much deepen the housing downturn, but rather lengthen it, i.e. prevent a return to 2005 prices for a very, very long time. The more I look at it, the more I think it’ll be probably 15 years before we see 2005 prices, assuming near-normal inflation.
txchick57 “All told, it means that there is a lot of hidden residential housing supply out there, regardless of what the published inventory numbers may show.”
I agree. Your entire post was very insightful. I hope that blubbering gen Xer is still lurking and will read some of your stuff over time. The truth can hurt! But atleast you know what you are dealing with.
Not to beat a dead horse but that kid was not dumb. This kind of info. should factor in…. once you can over come the fact the “life is not fair” part, some find out early others later but we all find out.
I agree that there is a ’shadow supply’, and I have been waiting for the next explosion to happen.
When the values begin falling in earnest, YOY, the next ‘rush to the exits’ shall begin.
The waiter at Johnny Rocket’s that bought ten houses on suicide loans must go belly up first, though, so the word gets out.
We’re on the verge of that happening now.
Unlike others, I DON’T think this will take years and years to play out. I think this will be- and already has been- severe and sudden.
Great post by txchick.
As for the article up top:
“Both sides can point to evidence supporting their cases. Optimists note that the housing slowdown has so far had scant impact on consumer spending. Pessimists say that is because the pace of active mortgage-equity extraction has not yet slowed. The truth, most probably, will lie somewhere in between.”
Why not HELOC your house now if you see values going down?
Is the bank really going to take your house?
Nope.
HELOCing your house now, if you plan on staying put for another ten years, might not be such a bad idea, if you know how to wisely invest the majority of the money- so it grows.
Thus, it makes sense that refi activity is still going like gangbusters.
THESE PEOPLE AREN’T PLANNING ON MOVING.
Ginster,
What the story left out is that MANY of these FB’s will not be able to refinance as they will have negative equity. The lender will require the FB to come up with the cash to conform with the more stringent lending requirement of a standard loan. Additionaly, the days of rubber stamp liar loans is gone. These FB’s may have to verify income and such. Regardless, one can only imagine starting with a $400,000 neg am loan 2 years ago, to wake up to a $440,000 principal balance due today.
That brings up the question of what happens when someone with a liar loan goes in to renegotiate and the bank realizes that with their proven income, they don’t even qualify for their current suicide loan, let alone a 30yr fixed.
Besides a panic attack, what would the bank do with such a person (which probably make up a large chunk of the bank’s portfolio)
“what would the bank do with such a person”
wish they’d go away.
Call bank guard.
Extra Bank Guard soon to be added to administer, if requested, free “Coup de Gras”
imploder posts ” Extra Bank Guard soon to be added to administer, if requested, free “Coup de Gras”
In China the family is billed 9 cents for the cost of the bullet when they excute a prisoner.
hmm - I doubt it. In Europe, liar loans are still extremely popular, the banks simply don’t want to know what you can pay. I don’t doubt US banks also find a way around this as credit is still expanding. Although there are some cracks in the easy lending landscape, there is no fundamental change yet.
No doubt. I’m sure these are the same people who will be shocked to learn that a $500,000 mortgage is more than $1,700 a month!
$1,700? that’s more than the pop up add I get that says $1,500 a month! that’s $1,700 is probably more like $3,400.
John Law “$1,700 is probably more like $3,400.”
That was kind. Just PITI… no ins, no property taxes.
“That was kind. Just PITI… no ins, no property taxes.”
PITI include takes and interest: that’s what the “T” and “I” stand for.
Chris posts “PITI include takes and interest: that’s what the “T” and “I” stand for.”
Yes, you are right! My mistake. For a minute I got carried away and thought I was Jas.
Regardless, one can only imagine starting with a $400,000 neg am loan 2 years ago, to wake up to a $440,000 principal balance due today.
you forgot to add in the HELOCed koi pond, Sub Zero fridge, and ‘paid off’ credit card debt. The principal balance is now $500,000.
On a house that will net out at 380k. Ouch.
First sign of real price drop in my area of Aptos, CA. A 3BR/2BA 1250sq ft. townhouse is FSBO at $529,000 and just went out for an open house yesterday. This is at least $150,000 less than similar units in the area that have sold in the last year and $200,000 below other units for sale right now in the area. Still far too rich for my blood, but I figure that there is a GF out there that desires to be a FB and will jump on this dump in a heartbeat.
(What the story left out is that MANY of these FB’s will not be able to refinance as they will have negative equity. The lender will require the FB to come up with the cash to conform with the more stringent lending requirement of a standard loan.)
Maybe, but reported prices have not declined that far — yet — and long term interest rates have not risen. I expect this may be the last chance for many of those facing financial distress.
It may be that the mortgage brokers who sold the toxic loans might be able to re-use their usual generous appraisers to allow borrowers to get out of the option-ARM, collecting one last fee, if the alternative is foreclosure and borrower participation in a class action lawsuit.
Really, current mortgage market conditions — after the whole world has woken up the bubble — are a very surprising gift to borrowers that they ignore at their peril.
I urged a friend who had a floating rate HELOC to lock it in about 10 days ago. Too busy. UFB.
these mortgage people are shameless.
first it was a fixed a few years ago
then get an ARM
whoops, rates are going up, get a fixed!
they’ve made money probably 3 or 4 times. that doesn’t even include people who refinanced instead of buying a house. I wonder what shameless new scheme is next?
Probably something involving a combination of one’s elderly parents or in-laws, a court-ordered conservatorship, a reverse-mortgage on their house to meet the minimal payment options, and redirecting their SS checks to the bank. Any day now I expect to turn on an informercial late at night on cable to see Carlton Sheets asking “Do your 85 year-old parents really deserve to eat?”
back to the trough, back to the trough, but each time there is less and less slop to eat. Now they will be licking the bottom, and probably getting some splinters in their tongues…. Then what?
When piggies don’t eat, piggies start eating each other… Usually starts with tails and the littlens’.
Have you seen the little piggies
Crawling in the dirt?
And for all the little piggies
Life is getting worse
Always having dirt to play around in
Eveywhere there’s lots of piggies
Living piggy lives
Have you seen them out to dinner
with their piggy wives?
Clutching forks and knives
To eat the bacon?
“Current mortgage market conditions are a surprising gift to borrowers that they ignore at their peril” - agree that the fraudulent…er, subjective…appraisals may still be available, but wonder how many I/O ARM buyers can even afford that refi fee
My bank does not do Option ARMs, but some of these borrowers are wanting to refinance. The rates on these has risen quickly. Some have huge margins. I have in the last week seen some with rates of 8.66% and over 9%. And of course they have big prepayment penalties. Brokers who originate these get paid more for big margins and prepayment penalties.
The loan with the 8.66% rate, had a payment that was over $2,000 under the interest required. This can cause some big negative amortization, accruing at a high rate. Many people cannot afford any payment higher than the minimum. I believe that over time, the performance of these loans will prove to be poor. This could be trouble for the borrowers, as well as for companies that service big amounts of them.
Jesus! $2000? That’s going to leave a mark.
“I believe that over time, the performance of these loans will prove to be poor.” –You think? The stupidity of this bubble is astounding. They will study this in the future and rightiously shake their heads at how dumb we were. As bad as tulips I say.
I’m sure the LO that originated them will swear up and down that they only do loans for investors, not people looking to lower to their payment because they are tapped out. They say, “Who cares what happens to the loan amount when your property is appreciating?” Well, properties aren’t appreciating any more, your real rate is 8.66% and I don’t think the borrower is using that spare cash to invest in the stock market. That’s a hell of a return someone would need to beat in the short run. Not something a qualfied finance adviser would want for their client if you ask me.
Jobs are the ultimate determinant of consumer spending. CAPEX is a pretty good tool in forecasting the direction of the job market.
Total CAPEX continues to increase despite housing investment falling because non-residential CAPEX is twice as important as residential CAPEX.
So while the economy is in a soft patch due to housing, it will take much higher interest rates to cause the type of housing crash that will create havoc on the overall economy.
HFA,
Per our conversations last week about the HF industry, where I can I get in touch with you? Thanks.
DAP, my email is hedgefundanalyst@gmail.com. I don’t check it often, but will be checking it more often if/when I decide to break-off from my current shop. Feel free to drop a line about anything or everything.
Will do. Thanks.
So let me guess: Now is a good time to buy stocks?
Getstucco… are you a psychic?
GetStucco, glad to see you are finally learning the song and dance.
Pray tell in what sectors is CAPEX expanding and increasing job growth? From the BLS it sure looks to me that bartenders and waitresses are experiencing a good deal of growth but not the real productive sectors of the economy in America. How long can the financials float the consumer in this country without requisite wage inflation as housing is demolished? The more hedge funds that blow up, the happier I get.
The financial industry=the pyramid builders of the 21st century.
Technology
Not in this country.
ftp://ftp.bls.gov/pub/suppl/empsit.tab2.txt
Of course these are gubment figures so take them as you will.
Durable goods and heavy and civil engineering construction were ranked 3 and 5 on your list and those are both capital goods building industries.
Yes durable goods: The most volatile of all consumer purchases and the most likely to crash and burn if discretionary consumer spending tanks from the cash out refi boom ending.
Heavy construction and civil engineering: Primarily dominated by government contracts. New Deal anyone? How about a big dig? Any large buildings going up in America outside of Vegas?
I like the personal and laundry service category personally
For those that don’t know what NAICS is go here:
http://www.census.gov/epcd/www/naicsdev.htm
Welcome to the United States of Norte Americano.
oil service jobs in canada
I can’t argue with somebody who makes a flawed assumption and then bases his entire rebuttal on it.
Gee, no wage or job growth. I guess that’s why government tax receipts are gaining at a break neck pace.
Gee, under 5% unemployment rate and consumers won’t be able to spend anymore because no more MEW? You forget that house prices are down a sliver relative to how much they went up. There is PLENTY of equity to withdraw for all but the latest homebuyers.
Once again, I wouldn’t be on this message board if I weren’t a housing bear. I don’t know how retarded people have to be to understand this point.
My contention is that it will take much higher interest rates most likely due to an inflation scare in order to get the housing crash.
Thanks for the retarded comment as that makes you seem like a real smart guy. Your contention is an assumption as well and quite flawed also. You don’t have a rebuttle as you don’t have one. The crash is occuring without a massive jump in interest rates.
This boom has been fueled by credit, loose lending standards and greater fools. Rising interest rates won’t matter at this point because the goose is stuffed and you know it.
Gov. tax receipts up? Yes not only because of individual receipts but because of increased corporate receipts. Corporate receipts are at an all time high in terms of percentage and amount. And how much of the tax receipts are up due to housing related taxes because of the boom? Come on smart guy bring it. 5% unemployment? Even the most uneducated retard knows that number is understated.
Not once in any posts of your posts have you put up any numbers or facts and you resort to name calling in response to anyone that questions you for more clarification. If this is how hedge fund managers act then all the more reason for these new age boiler rooms to go extinct.
Smart guys who are in the stock selling biz sometimes need to make retarted comments in order to find buyers.
Interest rates don’t need to rise any higher to finish housing off. They are currently “Throttling the patient with both hands”.
Hedgefund- what do you think of a Fed Prez talkin about “Ghost Towns” guess she didn’t get your memo….
Well mortgage rates are “almost as low as they were in the summer of 2003.” How long before home prices are “almost as low as they were in the summer 2003″?
“I can’t argue with somebody who makes a flawed assumption and then bases his entire rebuttal on it.”
How’s this assumption from a real slow learner, that has made me a fortune and saved me from really bad advice
“The Trend is Your Friend”
Some lenders, who I can’t mention, are working with adoption agencies whereby a FB homeowner can reduce their payments significantly or get out of their loan without going in BK by giving up one or more of their children for adoption to bank who then arrange for kid to be picked up by adoptive parents.
A very interesting lender concept if you think about it. Having babies to pay off your mortgage.
And some lenders, who I can’t mention, are even thinking of how to obtain particular bodily organs of FB and selling them to transplant clinics in lieu of foreclosure.
“And some lenders, who I can’t mention, are even thinking of how to obtain particular bodily organs of FB and selling them to transplant clinics in lieu of foreclosure.”
Now that would likely prevent the next bubble from materializing. I vote for court-ordered organ removals for all FBs.
LOL. You had me for about two seconds (busy morning, not enough coffee), in which I reread the first paragraph.
Im waiting for Nevada areas with legalized prosititution to allow FBs to ‘work off’ their upside down mortgages. “Come F our FBs” or “Pimp my FBs”
mmmmmmm cupcakes……
Whole new view of ‘upside down’.
I wish Mr. Swift was here to advocate baby eating.
Yum.
They’ve enabled people to borrow who probably shouldn’t have mortgages,’ said analyst David HendlerThey’ve enabled people to borrow who probably shouldn’t have mortgages,’ said analyst David Hendler.
Well, all it takes is a crowbar to the head of some of these idiots in banking to finally figure this out. Now, maybe, that 22 yr old Taco Bell manager, the $20K hairdresser lady, and $8/hr janitor shouldn’t be given $500K loans for some piece of $HITbox house in Oakland or East Los Angeles. DUH.
Well so long as they can sell the loan why not? The question is can we get fund managers and individuals to say “These bonds are paying 9%? What’s the catch?”
“The extra yield, or spread, investors demand to own the company’s $1 billion of 6.25 percent notes due in 2016 compared with similar-maturity Treasuries has widened by 24 basis points to 136 basis points since they were sold in May. Spreads on bonds of rivals with comparable credit ratings have risen by less than 2 basis points, Merrill Lynch & Co. index data show.”
does that sound like it’s worth it? so much more risk for so little upside.
Will they take ex-wives? Now, THAT would be a worthwhile eneavor. ( I put on my asbestos raincoat)
mmmmm…. cupcakes
I think, for the for the Loan originators, this is the last chance at the trough. Now it’s a numbers game. They have these bloated staffs, the word is out on the toxic loans, and they’ve got an excellent cold call list, since they just got done selling all those toxic loans.
The question is; how many of those people they call will qualify?
My guess is between 5-10%, maybe. If they could have qualified for a conventional mortgage at their purchase price, then that’s the direction they would have gone in the first place. Nearly every toxic loan is held by a household who couldn’t come close to qualifying for a conventional 30yr fixed. So probably something like a third to one half of all mortgages across the country that originated over the past five years cannot be paid off. Its going to get really, really ugly.
I really hope the percentage is higher than that. I was thinking 60%! That would be one hell of a sh#t storm! I do know from friends in the business that many people that could qualify for 30 yr fixed were corralled into options… the brokers made back end points to sell those loans. Guess the lenders liked the adjustable and pre pay penalty features. So hopefully there are more solvent “homoaners” out there than 10%. If they didn’t already heloc the rest.
“If they didn’t already heloc the rest”. Therein lies the rub. How many of those that were solvent at the signing are solvent now? Can you say his and hers H2’s?
With all the references to Hummers here, you would think that sales went through the roof and GM would be in the black. I’ve seen sales figures of around 2k a month in 2004. There have to have been more mentions of hummers here in this blog. Is this an irrational hatred thing? And no, I don’t have one and wouldn’t have one, drive a paid off 1997 nissan altima. But still…
FWIW, I am a borrower who took an option ARM even though we could easily qualify for other types of loans. At the time, my spouse and I were concerned about possible future fluctuations in cash flow, which it attractive to be able to pay less if we needed. As I understand it, this is the type of financial situation that option ARMs are supposed to be used for. It turns out we didn’t have any of the anticipated problems, so we’ve always paid the 30-year amortized payment. But the statistics indicate that we aren’t the norm. More typical is a relative of mine who got an option ARM and paid the minimum. She didn’t even realize it was neg-am until she looked closely at one of her statments. That’s when she realized that she couldn’t afford to pay off the principal. She sold out in time and is renting now, but not everyone will be as watchful or as lucky.
I think that you’re definitely the exception. The rational that I heard from a lot of my friends who got into bad mortgages was “Well I can’t afford it right now at $XXk/yr, but in two years when I’m making $XXX/year, it will all work out.”
And surprise, surprise, not very many of them are making >30% than they were making two years ago.
One of the brokers I spoke of has an option arm. (1.5 mil) He Heloc the rest and put it into 2nd trust deeds…. Does this seem ok to everyone?
Will he option an arm to save himself?
I distinctly recall getting the “Lower your monthly payment!” pitch when I applied for my mortgage. The idea was to get me into an ARM, but I insisted on a 30-year fixed. And that’s what I got.
I actually got my first mortgage from Al Hensling.
Back when I was a bit more naive.
He jacked me for 500 basis points of yield spread premium about 1 week before closing.
He then tried to cover his tracks with a cock and bull story about interest rates spiking.
The velocity of RE Sales affects the entire industry food chain. The current RE industry is dependent on a fast rate of sales, going back to a normal market (slow number of transactions) means the end of the industry in its present form.
“Countrywide’s banking unit had $34.2 billion of pay-option loans at the end of June. ‘They’ve enabled people to borrow who probably shouldn’t have mortgages,’ said analyst David Hendler.”
Well, the phrase that comes to mind involves Sherlock. And the word ‘no’.
“Last month, 4.5 percent of all Countrywide loans had delinquent payments, up from 4.15 percent in August. The increase was caused in part by loans to people with bad credit, and missed payments are likely to continue rising, JPMorgan analysts said.”
Can anyone tell me what is considered a normal delinquency rate? Above 4% seems high… As as the article noted, this is after managing and placing loans after a “trading loss.”
Interesting times,
Neil
So there’s a “growing wave” of ARM prepayments?
Isn’t this exactly what the industry wanted all along? Sucker these American airheads into loans that have prepayment penalties and keep those penalty monies rolling in for years and years?
It’s the ONLY reason I can think of for pushing these loans on stupid, clueless consumers.
Hopefully when this is all over Americans will start grabbing a pencil and doing some quick math to figure things out before they sign on the dotted line.
OT- But an interesting milestone today. The penny melt value is now worth more than 1 cent.
http://www.coinflation.com/cent_milestone.html
Before anyone cashes out their passbook account for pennies to melt down, bear in mind that scrap yards typically pay around 30-40% below the future’s value for metals.
For example, back in April when Copper HG was trading close to $4.00/lb, my company (Sacramento electrical contractor) dumped a ton of scrap wire that had been accumulating in our yard for years for “only” a little over $2.75/lb (and we wound up liquidating over 15,000 pounds). Still a good return for stuff that was basically just taking up space, though.
Fool me once, shame on somebody!!!!
Fool me twice shame on ????
Now how did the president say it
People have too much time invested in getting into the latest hysteria- catching child predators- to take time away from their dinner tables- where they’re at 7 times a day- to think about stuff that is hard- like math or statistics or odds.
We just wanna shoot it, eat it, and hear it in a soundbite on TV.
“Did you have a threesome that went wrong?”…
…is soooooo 2002.
It’s 2006.
Time to focus those binoculars on that potential child abuser across the street. Jerry Springer is only a dancer on some show now, anyways.
Fear, and the proliferation of it, is the new opiate of the masses. It’s ‘cool’ to be afraid.
The information, the statistics, the odds…they’re all there…
…but it’s all so ‘borrrrringggg.’
(tongue firmly in cheek.)
“In the land of the blind…the one-eyed man is King.”