“Mass Psychology Often Trails Economic Reality”
Some housing bubble reports from Wall Street and Washington. “Home-building and mortgage-banking company NVR Inc. Tuesday said net income dropped 32% from the previous year and lowered its outlook on continued deterioration in the U.S. housing market. The company said its gross margins continue to suffer from pricing pressure in many of its markets. Citing lot deposit impairments and the continued deterioration of the housing market.”
“‘We expect margins to continue to fall based on land deposit impairments in the coming quarters and continued weakness on pricing,’ wrote Banc of America Securities analyst Daniel Oppenheim.”
“New orders in the third quarter decreased 18 percent from last year. Meanwhile, the cancellation rate jumped to 27 percent from 15 percent last year and 13 percent in the second quarter of 2006. NVR warned that pricing pressure in many of its markets, which include Washington and Baltimore, will weigh on profits.”
From Reuters. “Wells Fargo, the No. 2 U.S. mortgage lender after Countrywide, said fee income from mortgages fell 35 percent to $484 million. Applications fell 18 percent to $95 billion, and unclosed mortgages as of Sept. 30 fell 17 percent to $55 billion from a year earlier.”
“‘It’s not surprising to anybody that the housing market has slowed,’ CFO Howard Atkins said.”
“Downey Financial Corp. reported net income for the third quarter of 2006 totaled $57.2 million, down 4.3%. Daniel Rosenthal, CEO, commented, ‘Back in March of this year, we increased the start rate on option ARMs originated for portfolio to reduce the potential for negative amortization. We also indicated that we would continue to closely monitor trends in the residential housing and lending markets and would make further pricing adjustments as deemed appropriate.’”
“Provision for credit losses totaled $9.6 million in the third quarter of 2006, compared with a reversal of $0.8 million a year ago. During the current quarter, the California residential real estate market continued to show signs of weakening, with a decline in prices beginning to emerge in certain segments for the first time.”
“Other income totaled $30.7 million in the current quarter, down $14.9 million from a year ago. Contributing to the decline between third quarters was a $14.7 million decline in net gains from sales of loans and mortgage-backed securities due to a lower volume of loans sold.”
“Loan originations (including purchases) totaled $1.605 billion in the current quarter, down $2.039 billion or 56.0% from $3.644 billion a year ago. Loans originated for sale declined $876 million or 51.5% to $824 million, while single family loans originated for portfolio declined $1.147 billion or 60.0% to $765 million.”
“National City Corp., the No. 8 U.S. bank, set aside $73 million for bad loans, up 30 percent. Net charge-offs rose 41 percent to $117 million, including $10 million of ‘fraud-related mortgage loan losses,’ while nonperforming assets rose 16 percent to $689 million, in part because of real estate foreclosures.”
The New York Sun. “Don’t get relaxed about the housing industry, because it’s going to get much, much worse. That’s the message from Gary Gordon at Annaly Capital Management, a firm which invests in mortgage-backed securities.”
“Bears argue that the consumer has used his home ownership as a piggybank that is now ominously empty. They point out that mortgage equity withdrawals have climbed almost without pause since the early 1990s. Today, these borrowings are plummeting, a development that the folks at economics consultancy ISI call ‘unprecedented.’ Equally without precedent is that existing home prices may actually decline this year.”
“Further gumming up the works is that confidence in rising home prices turned lenders into enthusiastic coconspirators. Mortgage lenders have required less information about borrowers and less regular payments on loans than ever before.”
“As an example, 62% of non-agency loans made last year had low or no income verification, up from 24% in 1998. Also,52% of such loans made in 2005 had zero or negative amortization requirements. In 1998 there were no such loans.”
“Mr. Gordon says that affordability is key. Home prices have increased at the second fastest rate in over a century. This rapid cost increase means that many people are simply priced out of the market.”
The Star Telegram. “Real-estate lending is coming under increasing scrutiny from federal regulators. ‘You’re beginning to hear conversations that it’s getting harder’ to arrange bank financing for real estate, said Tony Landrum, developer of The Tower high-rise condo in downtown Fort Worth.”
“One threshold would be when all commercial real-estate loans, with some exceptions, amount to more than three times, or 300 percent, of a bank’s capital. John Dugan, chairman of the Office of the Comptroller of the Currency said 35 percent of the banks it oversees exceed the 300 percent guideline. In 2000, real estate accounted for 28 percent of the loans at U.S. banks with less than $1 billion in assets, Federal Deposit Insurance Corp. Chairman Sheila Bair said. She said that as of March that had risen to 42 percent.”
From Bloomberg. “Most U.S. home markets are in bear mode as anxious sellers growl and buyers are scarce. All of the leading indicators now painfully confirm that. To all the existing indexes, I’d like to add one more: The Donald Trump Index.”
“Last year, when the home market peaked, the Real Estate Wealth Expo, featuring Trump and 70 other money mavens, charged as much as $499 per person and attracted more than 60,000 participants.”
“Recent ads for the event offered a price as low as $99 for similar seminars that are scheduled in cities such as New York, Chicago, Boston, Los Angeles and Toronto. Is there any connection between the 80 percent drop in the Trump Index and the measurable decline in the market?”
“Mass psychology often trails economic reality. Academic studies show that amateur investors consistently lose interest after having bought at the top of most market cycles. This time won’t be much different.”
‘In 2000, real estate accounted for 28 percent of the loans at U.S. banks with less than $1 billion in assets, Federal Deposit Insurance Corp. Chairman Sheila Bair said. She said that as of March that had risen to 42 percent.’
And the FDIC reported last year that some banks in markets like Florida are closer to 70%. I believe Georgia is in the high 60%’s.
From the NY Sun article: ‘Mr. Gordon agrees that mortgagebacked securities markets have been slow to respond. However, he thinks that spreads will widen. A huge inflow of funds from CDOs, and indirectly from hedge funds and private equity firms have compressed spreads, but that cannot last.’
“…some banks in markets like Florida are closer to 70%. I believe Georgia is in the high 60%’s.”
That is truly alarming. It’s time to put ‘helicopter’ Ben to work. Quickly move hard earned assets. Note to self: Get some canned food and bottled water on the way back.
That worries me, too, because my CDs are all in Florida banks. They’re all pulling in over 5% and have good ratings, but…
Thats why I put my CDs in a credit union. They pay more than 5% but their total RE investment is less than 7%. And their rating is A+.
It is a military federal credit union (very conservatively run - a retired Army Col is the CEO) so I’m thinking that it will do OK in a possible (most likely future) financial meltdown.
You would only have to worry if your CDs are for more that $100,000. Otherwise you have FDIC insurance.
The rise in %RELoans is mostly a function of the decline in bank car/personal loans. People finance cars with GMAC instead of taking out a bank loan. They take out a HELOC instead of taking out a personal loan.
I’m not sure FDIC insurance will be sufficient. That could easily become insolvent as well in the case of major bank collapses.
Thats why I asked around and picked the credit union that I did. It has a 50 year track record of conservative investing and even it could be vulnerable if things really get as bad as I think they might.
Also keep in mind it can take months to get your FDIC check, and I doubt they pay interest while they’re doing the paperwork.
“Also keep in mind it can take months to get your FDIC check…”
That’s the part that concerns me, more than a likelihood of outright loss. Murphy’s Law could be that house prices finally come down enough that I’m ready to buy, and I can’t get at my money.
> I’m not sure FDIC insurance will be sufficient. That could easily become insolvent as well in the case of major bank collapses.
Isn’t the FDIC covered by the US treasury? Then, if the FDIC needs money, the treasury has to print it. It might be worth less, but you’ll get your nominal dollars.
Skip the FDIC; go TreasuryDirect.gov. 4-week T-bills are the way to start.
The FDIC is not backed by the US Treasury. It is an insurance fund, just like FEMA flood insurance. Once it goes under, it will be up to Congress to decide whether to bail it out, and under what conditions. Big depositors might get nothing.
There is a 0% chance that congress will not bail out the FDIC, at least up to the $100,000 limit.
Looking at the Downy Bank release under “Net Interest Income”, I found this quote:
NON-PERFORMING ASSETS
Non-performing assets increased during the quarter by $27 million to $67 million and represented 0.39% of total assets, compared with 0.21% at year-end 2005.
So, their NPA level is higher than their net profit, but since the bank can choose when they write off the loss, they appear profitable.
That is more than Net Interest Income for a single quarter. The loss has already been accounted for via the provision for loan losses. I.e as those loans went bad the provision for loan losses was increased, thereby reducing net income for that quarter.
If the loans ever become current, the provision for losses will be reversed. NPA assets result in an charge against bank capital when they are charged off. NPA don’t affect bank income except that they do not accrue interest.
If a state or federal bank became insolvent, how long would it take to collect those newly minted fdic dollars?
I had an account in an insured savings bank that went kaput in the early 90s. It was a seamless transition. They took all the accounts and turned them over to a solid, solvent bank in the same area. I always had access to my account if I had wanted. The only catch was that the high interest rate that the defunct bank had been crediting dropped at the time of transfer. The FDIC paid the new solid bank the funds they need to back the new deposits. Meanwhile all the good investments and the crappy non-performing investments of the defunct bank went to FDIC’s investment pool for disposal.
The best way to find a bank with problems is to look for one with high yields. That goes for credit unions too.
“The best way to find a bank with problems is to look for one with high yields.”
LOL — that’s what worries me. From “timing the market,” it could go to “timing the banks.”
This reminds me of the old Juicy Pop ads, in particular: [as I recall] “How many does it take? Let’s see. Ah-one, ah-two, ah-three–CRUNCH! Three.
Desireable GA Neighborhood had an auction this Sunday for a “Majestic Marietta home”. New construction, completed in 2005- current occupant bought in 2005 and has lived there for 10 months. Planning to move back to NY and read a book “How to sell you House in 5 Days”. Minimum bid was $349,500 and he had several pages of signatures with bids, I only saw the first page but all bids were just below $400k. There was a house 4 doors down with a RE sign and flyers, listed at $650k, similar house…
Now that is a motivated seller…(might know more about the RE mkt than the realtors?)
Auction Update Tues 10/17/06 on the Auctions from the Sacramento Bee Story on Sunday: http://www.sacbee.com/103/story/40433.html
Results: Six of 12 homes sold at substantial reductions under the old listing price. The other six were pulled from the sale after not meeting the seller’s reserves.
There is a telling commentary on the Sacramento, CA market. A seller can’t even dump the house at an auction. Another good point: Almost all the buyers are now owner occupants. The Flippers are leaving the market and we will find the true value based on fundamental affordability again. It may take a couple of years to get there, but it will happen.
Guy probably figures he can add several hundred thousand dollars in value to his job/career/life in the next few months if he just forgets about Atlanta and concentrates on his situation in NYC. Probably calculates huge opportunity (albatross) cost of owning property he’s not involved with and the attendant uncertainty. Maybe true market is $450-500K (forget the $650K listing) and he nets $400-$450. Smart man.
“Recent ads for the event offered a price as low as $99 for similar seminars that are scheduled in cities such as New York, Chicago, Boston, Los Angeles and Toronto. Is there any connection between the 80 percent drop in the Trump Index and the measurable decline in the market?”
Is this Trump Index a leading indicator of where bubble market home prices are headed?
The Trump index is a leading indicator of American stupidity.
And, sad to say, the people attending seminars from Trump and his ilk could have gotten much better info for free. From their friendly neighborhood library.
Well yes, but Trump has a certain residual entertainment value. He’ll probably be able to keep on doing the $99 seminars right through the whole crash and beyond. And he might need to. Didn’t he go broke once before?
I’m sure The Donald is quite entertaining, but so is this board. And I don’t have to pay 99 bucks to log on here.
“The Trump index is a leading indicator of American stupidity.”
I’d say a lagging indicator. ASSI (the American Surging Stupidy Index) is off the charts right now.
Donald seminars=worthless.
This board=priceless.
Or from their friendly neighborhood blog.
Most useful Trump indicator: Watching his comb-over for wind direction.
I bet these “seminars” don’t have question and answer periods….
I hate to be all government and what not, but these are another prime example of where the States AGs should be showing up..
“Mass psychology often trails economic reality. Academic studies show that amateur investors consistently lose interest after having bought at the top of most market cycles. This time won’t be much different.”
This fact helps the newfangled homebuilder business model (aka “take the money and run”) work well for insiders.
Well looked d’here! We just dun harvested this ‘ntire last crop of fools! Whadda ‘r we gonna do now? Bedder saddle up! There is gonna be some rough riding ahead.
It will take at least 10 years to grow the next crop of greater fools. I plan to be ready! (junior high, high school, and college right now).
Check out USA Today.com. This week they profile Phoenix and it is pretty bleak. They say prices are down 25% but of course the RE people rationalize it by saying “we are getting back to normal” so everything is good. Tell that to the people whho bought at the top 8 months ago!
Yeah, like the publisher of the Tucson paper (rich guy of course) saying the hoi polloi can withstand a 10% price dip and “ride it out.” The hell they can! We’ll see about that.
“Academic studies show that amateur investors consistently lose interest after having bought at the top of most market cycles.”
Interest is not the only thing the amateurs lose. They also lose their shirts, as well a certain part of their anatomy.
Quickly gain interest in other things: Drinking and Sobbing…..
“One threshold would be when all commercial real-estate loans, with some exceptions, amount to more than three times, or 300 percent, of a bank’s capital. John Dugan, chairman of the Office of the Comptroller of the Currency said 35 percent of the banks it oversees exceed the 300 percent guideline”
Here it goes. This is just about how the S&L collapse got started. A little fraud and then banks started getting scrutinized more closely. Not long afterward there were capitalization issues and loan-loss reserve requirement violations… which accelerated the decline as lenders had to clear their books of underperforming loans. Right now lenders are holding on to foreclosed properties that are not selling but as these properties pile up pressure will mount to sell BEFORE regulators get involved.
And make no mistake - REOs are raging forward - on a parabolic increase. I’m seeing 300% increases in REO numbers since the beginning of the year in SoCal. The resets, 100% financing and neg-am numbers don’t reconcile well with price declines.
Buckle up for that “soft landing”.
Wait until the commercial stuff starts and you see high profile downtown office buildings in big cities posted for foreclosure again. Then we’ll know the party is really getting started.
tchik, give the commercial side 2-3 years to catch up to residential.
I doubt it will take 2-3 years. A friend of mine, a VP in commercial banking at a bank everyone on this blog has heard of, is in an emergency audit of a commercial loan in Pheonix. The loan is to a homebuilder.
This is happening faster than ever before. While it does seem glacial, the speed of information propogation will make things happen faster. Due to the amount of money tied up win homes (via mortgages, builder loans, loans to other REIC companies, etc.) we’re going to see another S&L crisis. Perhaps a worse crisis?
The next two years will be interesting.
Neil
This is a good point you’re making. Look how bubbly commercial REIts are still.
http://finance.yahoo.com/q/bc?s=BXP
When would you say a good time to is to start loading up on PUTS?
Wanted: Former Resolution Trust Corporation employees, for a two to three year enlistment with Son of RTC. Excellent pay and benefits, and you get first dibs on any property that RTC processes. Submit your application now; the job will start by 2Q07.
How’s the song go? “Her name is REO and she dances on the sand…just like that river winding through a dusty land” Even got the southwestern angle in there…
“As an example, 62% of non-agency loans made last year had low or no income verification, up from 24% in 1998. Also,52% of such loans made in 2005 had zero or negative amortization requirements. In 1998 there were no such loans.”
Do banks disclose the amount of net income applicable to earnings from “zero or neg am” loans? Better yet is there a tracking agency that keeps up or ranks which bank is booking the most “wishful income”? Banks are going to be the short of the century in about another year.
Your post got me to thinking about three of my borrowers who have repeatedly asked to up the amts of their loans. I had been sort of complacent thinking “az_lender never does a neg-am or IO” but this isn’t quite true, since I have allowed certain people to expand their indebtedness considerably. No more Mrs. Nice Guy. Although I will still and always allow people to skip a payment or two if they have temporary difficulties. Stay tuned for what I’m forced to do if I face any new repo situations. (Last repo was resolved in ‘04.)
Some do, others make it tricky to calculate. Downey for example is a big player in Neg Am loans (12 billion outstanding this quarter). In their quarterly release they give the total amount of negative ammortization in that loan balance (270 million this quarter) but to know how much was added this quarter you’d have to compare last quarter’s release with this quarters. If they don’t break it out in a pretty table for you, it should be a line item in the operating portion of the cash flow statement.
Won’t be long before the lenders will start reporting write-downs to reverse unrealized income booked earlier… as properties get short-saled or REO. Happened a lot in corp America in the late ’90s and reversals stunned shareholders. Look at EDS. They recorded unbilled revenues and showed them like regular revenues… the CEO at the time was smug - beaming with pride at shareholder meetings AND SELLING STOCK. Hammered the stock to the tune of 80% hit to stock price.
Downey had $136 million of wishful income, oops I mean negative amortization, for the six months ending June 30, 2006 per their cashflow statement. The third quarter 10Q wasn’t posted to their website yet. That shite is an automatic write off in my book.
http://tinyurl.com/y4oqmj
todays santa rosa press democrat has a wonderful front page article.a couple of quotes “moody’s predicts there may be a drop of as much as 8% by the end of ‘08,from last augusts peak price of $619k” “homes are selling for $80-$100,000 less than they did last year” michael coit strikes again.
Tom,
how much is the market down already, 10% or 15% in your area?
So a ton of people are getting screwed, I’m starting to think that we need to apply reverse “Frat Boy” adjustments to get a handle on actual declines (idea is that a college guy exagerates his sexual conquests by 2-3x). Likewise, seems like most of the real estate reports are understating price adjustments by 2-3X, so a reported 8% decline is actually a 16-24% decline.
OT. News from Bloomberg quoting Diane Swonk. Didn’t she say just last week the housing mkt. wasn’t hurting?
http://www.bloomberg.com/apps/news?pid=20601109&sid=a6RM0FGH5dc4&refer=home
“At the Dearborn auction, a 1,300-square-foot (120-square- meter), three-bedroom house, in poor condition and an undesirable location, sold for $1,500.”
Wow! And just yesterday I read some blowhard savant claim that housing prices will never go down to zero!
Well in most places they certainly won’t. Where there is a large enough oversupply of housing, either due to overbuilding or outmigration they certainly can. The city of Detroit owns lots of anandoned property that it has seized for back taxes. In many cases they’ve just bulldozed the structure into it’s own basement and thrown dirt on top.
Sure wasn’t me. Watch Compton in 2 yrs. Those $500K crackhouses will drop below $100K… and still sit empty.
Swonk is another charlatan posing as an economist who never fails to make excuses for the government. Her lies align closely with Kudlow’s as she is one of his featured fools on his Kudlow & Company Follies.
Major Tower Planned in L.A.
Robert F. Maguire wants to develop the 50-story structure at a cost of more than $300 million.
http://tinyurl.com/yhlpdj
they might pull it off. the vacancy rates here in LA are not too bad right now
I hope they do…it would be good for downtown.
Sure, for the bums! More heating grates to sleep on & nicer surroundings for the vagrants to take their open-air dumps. When this downturn gets into its 3rd year no one will want to be caught dead in downtown LA during the daytime let alone at night.
There’s still a very strong market for cheap apartments in most American cities. The problem is that nearly every new development that has broken ground over the past five years has been targetting the same top tier of people who can afford luxury apartments or condos (who have also been targetted by McMansions).
The supply of Americans who can afford to pay THAT much for shelter is a MUCH smaller than the REIC thought.
West Side LA Apts either sh#tbox or Luxury ($$$$$$$). Nothing in between.
I’ll be interested to see what happens to the Playa Vista Development properties…. Thats A LOT of Units… Houses, Condos, Townhomes, Apartments… all at Arm and a Leg prices.. And packed together. Don’t know how well it will age.
Reminds me of the Park La Brea Towers and Complexes built in the 60’s. Was a white elephant for many years. Finally full now, and desired.
I watched these go up… A whole lot of 2×4s and particle board. Something tells me that those sitting in their $600,000 sh*tboxes can easily hear the other FBs around them.
Oh brother - just hit my tape:
WASHINGTON, Oct 17 (Reuters) - Federal Reserve Governor Susan Bies said on Tuesday “….”We have had clear initial signals in recent months that housing prices are no longer rising as they had been and are declining modestly in some key markets”
Really? Ya think it maybe mightta stopped going up so fast? Maybe it’s going up slower now? Modestly declining.
This is the Fed at its “hindsight-is-20/20-day-late-and-a-dollar-short-could-you-
do-any-more-to-ruin-this-country-with-your-incompetent-meddling “best. Unbelievable. Truly.
Actually, the best spin would be, “The rate of decrease is slower than expected so you should buy now before the rate of decrease increases.” If you say it fast enough the average ‘Merican will nod wisely and ask where to sign.
Thank goodness I followed Jim Cramer’s advice and bought into the banking sector!
Me too! What would we do without such well reasearched winners?
But are you diversified. I love it when that maniac screams about diversification. Anyway, what kind of life is it when you are practically mainlining coffee and screaming, “Booyah” at a computer screen 24/7? Is that what he means by diversified?
Sure, I am diversified. I own several home builders within the group
Yeah you have to have Starbucks, Peets, and tea. It’s never a bad idea to divide between Robusto and Arabica or Green/Black Tea, too.
He’s a clown laugh a little. Sometimes you need the clown to tell you the things that no one else can say.
The guy’s a complete lunatic, self absorbed, and busily pumping the stock he already owns. Problem is, he actually can move price in thinly traded stocks. Not much better than the spam stock pumpers that break through email filters with mangled up message body text.
That said… I made some $$$$$$$ off several trades he mentioned that were already on my radar and I pulled the trigger after hearing his pump…
Cramer, Kuldow, Swonk, Fund…. all perma-bulls…. all extremely wealthy.
What else do they have in common?
Many who listened to them and took their advice are extremely poor.
Well, they just were not diversified enough.
“As an example, 62% of non-agency loans made last year had low or no income verification, up from 24% in 1998. Also,52% of such loans made in 2005 had zero or negative amortization requirements. In 1998 there were no such loans.”
“Mr. Gordon says that affordability is key. Home prices have increased at the second fastest rate in over a century. This rapid cost increase means that many people are simply priced out of the market.”
When we say it were all jack*sses. When they say it, its a revelation.
NEW YORK, Oct 17 (Reuters) - National City Corp. (NCC.N: Quote, Profile, Research), the No. 8 U.S. bank, on Tuesday said third-quarter profit rose 15 percent, as higher fees and improved mortgage results offset an increase in bad loans.
Dear Snookered Customer,
I’m sorry to inform you we lost some of our/your money due to a minor lending oversight. Don’t worry, however; your money is safe with us; heck, it’s FDIC insured. Moreover, we have already implemented remedial actions.
*Fine Print: By the way, starting next month we will be increasing our/your fees.
Sincerely,
Sacrosanct Bankgster
Increase the Money Suppy enough and every bank can make a profit.
…and make really great loans too.
Funny.
Ha! The Texas Trap snares another Clownifornian. Jeez, these properties could not be in worse areas for resale.
http://dallas.craigslist.org/rfs/221917775.html
“Dallas was recently rated by Moody’s as one of the few large metropolitan areas in the U.S. where prices are expected to appreciate this year. ”
You betcha. Gosh, I get so confused by this guy named Moody.
Moody has PMS and needs some Prozac.
What great deals! Where do I sign? Honey, pack the kids! We’re moooing to Texas.
Wow, why would he list one as being in Savannah (Texas) when you can hardly even find it? Turns out it’s not too far from where I used to live, in what till recently was just farms and grass. I guess “Savannah” has a better ring to it than Hackberry or Krugerville.
Anyway, why anyone would want to live in a subdivision way out there, I don’t know. Neighbors on every side (er, assuming the houses are actually occupied) and no town nearby. All the conveniences of rural living along with the space and freedom of the city! Yeehah.
LOL..Hackberry and krugerville…
“All the conveniences of rural living along with the space and freedom of the city! “
I agree, if you are going to live in the country at least have some land and houses far enough apart that you don’t look out your window and into someone elses window.
Also a pet peeve of mine is real estate listings that don’t tell you how much land is involved, it is after all a real estate deal which usually involves land.
“Also a pet peeve of mine is real estate listings that don’t tell you how much land is involved, it is after all a real estate deal which usually involves land.”
Not in LA or SD it doesn’t.
Ha-ha, he’s got a (916) area code. That’s Sacramento! He must’ve doubled down after he bought all his investment property in Sacto. A double fool!
I noticed the 916 Sacramento area code too (Mom & brothers live there). What an ass-wipe…I bet the specuvestor was too busy county his future appreciation profits that he didn’t factor in the property tax bill, which in most areas of Texas are around 3.5% That would be quite a chunk of cash to come up with. Numnuts.
What’s the deal with these new Wells Fargo NELOC loans? NELOC as in “NO Equity Line of Credit”. As in, you need more money but no longer have equity in your home.
Is this a hoax? I saw the article/advert with my own eyes on the net and it looked authentic. But when I turned the computer off I began doubting the whole thing.
So, is this for real or is this a surreal joke/farce?
If it’s for real, I know at least one person who may be heading for Wells Fargo this week. He’s trying to get equity out of his condo but the comps just fell so the cookie jar’s empty. Former Microsoft millionare with a penchant for techie toys and expensive cars.
People keep saying it’s the little guy that’s going to get creamed. Transfer of wealth from poor to rich, etc. I think a lot of little guys are going to make out like bandits. Common sense was all that was needed to make a killing in the run-up and that is something that’s found in equally in all strata (or conversley, pretty rare in all strata).
So how about these NELOC’s? True or not true?
That’s too funny.
Before it was bought out, NationsBank used to be NCNB. We used to joke that that it stood for “No Cash for No Body”
Bubblebath-Desireable Ga Neighborhood had an auction this Sunday for a “Majestic Marietta home”. New construction, completed in 2005- current occupant bought in 2005 and has lived there for 10 months. Planning to move back to NY and read a book “How to sell you House in 5 Days”. Minimum bid was $349,500 and he had several pages of signatures with bids, I only saw the first page but all bids were just below $400k. There was a house 4 doors down with a RE sign and flyers, listed at $650k, similar house…
Now that is a motivated seller…(might know more about the RE mkt than the realtors?)
Intel and IBM earnings look great. Wells Fargo reports improved origination and refi mini boom. Builder sentiment is up. Things are turning around and housing will achieve a soft landing. Interest rates are historically low. It’s a buyer’s market, and it’s a great time to buy the “American Dream”.
How’s that for an assault on your psychology.
Its wonderful. In fact I’ll pass it along to may neighbors who haven’t sold their property in nearly a year.
Also please pass it along to the builders. No need discounting now.
Also pass it to Yahoo, Motorolla, tell them to start laying off 10,000+
and they’ll look just as good as Intel.
Ponzi Unit Takeaways:
http://www.xanga.com/home.aspx?user=russwinter&nextdate=10%2f17%2f2006+23%3a59%3a59.999
“Do they provide loans for the late fees too?”
LOL. I wouldn’t be shocked.
At any rate, Downey reported today. As you know, I don’t think the actual earnings are important, but the trends in negative amortization, etc.
The amount of negative amortization included in loan balances increased from $229 million at June 30 to $277 million at September 30th. This is 2.25% of loans subject to negative amortization. In Downey’s case their option ARM portfolio shrank by $895 million to $12.327 billion. So negative amortization increased 21% despite the fact their option ARM portfolio shrank 7% during the quarter.
28% of their loan interest income is non-cash interest due to negative amortization, up from 26% in the second quarter. Now remember this is loan interest income, not net interest income. If and when the day comes that this non-cash income isn’t there because of problems, it will have a leveraged impact on their bottom line because there is no “non-cash” interest expense. They will still need to pay their depositors and creditors in cash.
Now we know the negative amortization trends have been bad, but the trend in non-performing assets (NPAs) and delinquent loans is very interesting:
Dollars in millions
June 30 2005 Sept. 30 2005 Dec. 31 2005 March 31 2006 June 30 2006 Sept 30 2006
NPA $25.2 $30.3 $35.2 $38.9 $39.3 $66.5
Del Loans $41.7 $46.2 $56.2 $59.4 $64.2 $101.2
All loans delinquent 90 days or more go non-accrual and are in NPAs. So the trend here is accelerating, and, amazingly, Downey only provided (thru their income statement) $9.6 million for credit losses during the quarter. Yet their NPAs and delinquent loans increased by over $64 million in the last quarter.
So it seems that credit quality trends are significantly deteriorating. It’s not just the builders and inventories.
Also, I’m sure you are aware that New Century Financial has tightened credit quality standards in the wake of the Interagency guidelines. It seems that Downey is still trying to figure out how that guidance will impact them, “At this time, we are assessing what impact, if any, this new lending guidance will have on our loan production volumes.”
So net-net, credit quality is clearly deteriorating and can be seen in the trends of negative amortization and problem loans. The new guidelines are likely going to make it harder (coupled with home price weakness) for these troubled borrowers to refinance. Again, I will point out that GDW and DSL tend to be more conservative in their lending. Imagine what the sub-prime guys are seeing.
Good analysis here Joe. Thank you for posting. The foreclosure to REO pipeline is starting to flow, and the originators and their financiers are beginning to fight amongst themselves.