“The Industry Is Completely Inside-Out Right Now”
Some housing bubble reports from Wall Street and the New York Times. “Housing bulls took heart on Dec. 27, when the Commerce Department reported that sales of new one-family homes rose 3.4 percent in November from October. But those who think that the worst may be over for the housing market should take another look at the data, economists say.”
“On its Web site, the Census Bureau acknowledges: ‘As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.’”
“By how much? Economist Joseph Carson estimates that the government is overestimating the pace of annual sales by 100,000 to 150,000. Economist Mark Zandi estimates that the differential is even greater. ‘Given the rise in cancellation rates, it suggests that between 150,000 and 200,000 home sales are being counted that actually did not occur.’”
“Just as the rising tide of cancellations leads the Census Bureau to overreport sales in the short term, it leads the government to underreport inventories.”
From Inman News. “With the Fed continuing to express worries about inflation, there’s no guarantee that short-term rates will come down.”
“‘Three meetings ago, bond futures traders were already pricing in a rate cut in January,’ said Amy Crews Cutts, deputy chief economist for Freddie Mac. ‘But the Fed pretty much said, ‘Bah humbug! You’re not getting a Christmas present. We’re not going to cut rates anytime soon. If you’re lucky, we’ll leave them alone,’ rather than raise rates to keep inflation in check.”
“According to Kenneth Rosen, of the University of California-Berkeley, ‘even a hiccup’ in foreign investment will mean ‘long rates go up.’ ‘Money is as loose as it’s ever been in modern American history — way too loose,’ Rosen said. ‘I can’t imagine them cutting interest rates unless we have an actual recession.’”
From Bloomberg. “European Central Bank President Jean- Claude Trichet said he’s optimistic Europe and Asia will be able to withstand a slowing U.S. economy and policy makers must be ready to act against any inflationary risks.”
“When asked about inflation risks in the world economy, Trichet said: ‘We do not declare victory, we have to remain alert.’”
“Even in the U.S., where a housing-market slump is clouding the outlook, inflation is still policy makers’ ‘predominant concern,’ according to minutes from the Fed’s December rate meeting released Jan. 3.”
From National Mortgage News. “Wall Street now controls a significant portion of the nation’s subprime industry. Now, there’s nothing wrong with that, but Wall Street will be dictating the terms of foreclosures for thousands upon thousands of subprime borrowers who are predicted to go delinquent in the coming 24 months. And some subprime borrowers vote, but they don’t donate the kind of money to Congress that the Street does.”
“About three weeks ago Mandalay Mortgage of California laid off an untold number or workers. One source there told us it was the second round of layoffs for the company.”
From Origination News. “Mortgage lenders cut 2,900 full-time employees from their payrolls in November, wiping out a 2,500 increase in October that established a new high for jobs in the mortgage industry. Freddie Mac estimates that originations of conventional mortgages dropped from $715 billion in the second quarter to $597 billion in the fourth quarter. For the whole year, originations totaled $2.65 trillion, compared with $3.17 trillion in 2005.”
The LA Times. “When the cold call came from Ameriquest Mortgage Co., Jeff and Cheryl Busby were intrigued. The agent was a smooth talker, and the Busbys were not concerned that he didn’t offer them a chance to study the documents.”
“They later found that their interest rate was 11% — far too high. The agent said he would get them a better loan. The new terms were worse. The payments nearly equaled their entire income. Ultimately, they sued, saying Ameriquest had invented a car sales business for Cheryl to improve her financial status. Their lawsuit also said the agent had fabricated a higher income to ‘flip’ the Busbys into a bigger loan, larded with illegal charges.”
“The Busbys couldn’t make the payments and were forced to sell. The bungalow had been in Cheryl’s family since 1935. It was 100% of the Busbys’ retirement nest egg. Now it was gone.”
The Houston Chronicle. “Cynthia Muir thought she got a good deal in 2003 when a friend told her that with his help she could buy a town house and sell it for a profit in six months. But the payments rarely were made, she said, and the home never was rented out.”
“The FBI’s Houston division has formed a unit dedicated solely to fighting mortgage fraud. Currently, the office has about 25 multimillion-dollar cases open involving various types of mortgage fraud. If left unchecked, the fraud could have repercussions for the local housing market as bankers, fearful of the growing problem, make it harder for homebuyers to get loans.”
“Muir also sued the appraiser, who she claims inflated the property’s value; the mortgage broker, who she alleges knew the property was overvalued; and the title company, which she claims failed to protect her.”
“‘I should have just never let someone be in charge of something like that,’ said Muir, who acknowledged that she never saw the property before buying it. Muir paid $448,000 for her four-bedroom town house. In 2006, the Harris County Appraisal District valued the property at $298,057.”
“‘The industry is turning a blind eye to fraud,’ said David Zugheri, a Houston mortgage broker. ‘The industry is completely inside-out right now.’ Experts say many Houston-area homes are being lost to foreclosure because of mortgage fraud. ‘This is an epidemic that will come to roost in the Houston housing market,’ said Zugheri.”
“The fraud sends ripples through the economy because many loans are wrapped into mortgage-backed securities and sold to investors. If investors get wary of the investments and take their money elsewhere, banks could get more reluctant to lend and tighten lending requirements.”
“‘The potential does exist,’ said Barton Smith, an economics professor at the University of Houston. ‘We’ve already seen construction loans start to get hard to get. But I think the Federal Reserve’s going to find out that to avoid a collapse, they’ll have to back off their interest rates to provide enough liquidity to the financial system to not bring the whole stack of cards down.’”
“The Busbys couldn’t make the payments and were forced to sell. The bungalow had been in Cheryl’s family since 1935. It was 100% of the Busbys’ retirement nest egg. Now it was gone.”
70 YEARS and they couldn’t pay off a BUNGALOW?!@#
I think they refi’d it.
I suppose each new generation “bought” it from the previous? What’s sad is ALL the int. paid to the lender over the years! There has to be a better way!
Yes, exactly. What’s the difference between intergenerational interest and renting???
You get to choose the color of your paint and the type of drapes without consulting the landlord.
I don’t know if this is their old address or the new rental address, but the live(d) at:
11059 Greenwood Ave N,
Seattle, WA 98133-8738
Zillow has no info. Anyone have access to more?
Gotta tap that equity, you can’t just let it sit there and give you peace of mind.
The word of choice seems to have been “liberate”. Liberate your equity. The word “liberate” has a lot of emotionally positive resonance. Much more than more appropriate words such as “squander” and “eliminate”.
Wife’s grandparents bought in SF in ‘72 for 70K, refinanced at $300K and again at $850K, sold at $900K a few years ago and cleared a grand total of $80K.
Option — “The word “liberate” has a lot of emotionally positive resonance. Much more than more appropriate words such as “squander” and “eliminate”.”
Well put.
“Wife’s grandparents bought in SF in ‘72 for 70K, refinanced at $300K and again at $850K, sold at $900K a few years ago and cleared a grand total of $80K.”
The american dream come true!
Wife’s grandparents bought in SF in ‘72 for 70K, refinanced at $300K and again at $850K, sold at $900K a few years ago and cleared a grand total of $80K.
With capital gains taxes they probably lost money.
Wife’s grandparents bought in SF in ‘72 for 70K, refinanced at $300K and again at $850K, sold at $900K a few years ago and cleared a grand total of $80K.
That may be true but don’t you think that over time they used the refi’s as an ATM and I’m quite sure they bought things and maybe paid for an childs education or two. So to say only $80k gain may not really be the big picture.
read that latimes article. it is utterly astounding to me how people don’t read the damned contracts when their house is on the line! and frankly, that makes it exceedingly difficult to find a lot of sympathy for them.
unbelieveable.
I agree Linda. Speaking of putting your house on the line: this weekend I saw a tv commercial advertising second mortgages. They were pushing it as a way to pay off credit card bills or take a vacation, or make home improvements. So let us say some dumbass has $20K in cc debt and pulls one of these loans. If he misses the payment on the second, doesn’t that put him at risk of losing his home? And what is with people racking up thse huge cc bills? It sure explains all the fashion divas I see all over the place.
On the news last night, the consumer reporter was interviewing a 29-yr-old single woman whose credit card debt increased in five years from $8000 to $19,000. This woman was complaining about hidden fees and exorbinant interest rates; meanwhile she was sporting (according to my wife) a $300 dye job on her hipster hair, a $1000 pair of Prada eyeglasses, a cashmere sweater, and what looked to us like 1-carat diamond studs in each ear. I bet she has a BMW 3-series parked outside her crappy studio apartment.
I love this country! Piss-poor, but we look fabulous and drive great cars!
When you live in a nation of hucksters, ya gotta dress the part.
Time will be cruel to such folks.
Whenever I see these people, I usually laugh to myself at their foolishness. They think bystanders like me look up to them and envy all their stuff, and those like themselves probably do; however, I look at them as pretentious a$$e$ with weak egos trying to prop themselves up with showy displays of money and wealth: money and wealth they only pretend to have. I really laugh to myself when I think of the money they waste on interest each month to feed the beast of their own ego.
Hey, when you buy brand names like Polo you are only making a rich man richer. Target for me.
You know sam’s club has some decent clothes for this dude.I see these fake people everyday drifting around clueless thinking they are the sh@t with all their debt.In the long run they will be working for me.
Hey, when you buy brand names like Polo you are only making a rich man richer. Target for me.
It’s doesn’t matter where we shop. Do you pay for cable Tv? Money to athletes! Do you drink Pepsi? Money to Britnney Spears! Do you have a nike hat? Money to Tiger Woods! Pratically everything we purchase pads the pockets of some celebrity.
Not missing it,
You have hit on one of my pet peeves. Many people (especially on this blog) complain about the “welfare queens” who are usually poor, single mothers trying to raise their kids (not trying to make a judgement here).
Personally, I have a much harder time with all the people in the entertainment industry. We **ALL** have to pay these parasites every time we buy food, clothing, & anything else which is advertised on TV, movies, at ball games, etc.
Oh yeah, and how about paying taxes for a new stadium when the old one is perfectly adequate?
As someone who is not the least bit interested in sports or pop-culture, I really resent having to pay for these idiots to run around, squandering money on “bling” while there are decent people who cannot feed their children.
Don’t get me started!
Speaking of TV, watch for James Garner touting reverse mortgages. He sure doesn’t look like Brett Maverick any more, but I suppose it’s very appropriate that the star whose character was once the most popular gambler in America should now be advising old folks to gamble away their houses.
My favorite celebrity tie-in has to be Kenny Rogers, who wrote a song called “The Gambler” and is touted as an expert on which indian casino you should go to, on billboards all over el lay/o.c./s.d.~ ha
What about that dude from “chips” who is on late night tv promoteing great land deals in BFE?
What about that dude from “chips” who is on late night tv promoteing great land deals in BFE?
Hands down the best. Ponch takes it.
Robert Wagner is also shilling for reverse mortgages in commercials running on cable and UPN/CW these days.
Almost as bad as those “invest using our propriety software” commercials that run on Saturday and Sunday mornings. What a scam.
“proprietary” software (sorry, typing too carelessly)
Fun thing with that guy from CHIPs. He is singing the praises of California Pines up in Modoc County. Yes you can pick up a lot there for $17,999. You can also pick one up for about $1,500 by going to http://www.bid4assets.com, in early May and buying one at the Modoc County Tax Sale auctions. My recommendation. Do neither. If you’ve been to Modoc County you’d understand.
“Robert Wagner is also shilling for reverse mortgages in commercials running on cable and UPN/CW these days.”
I always assumed that those were to setup the next Austin Powers sequel, wherein Doctor Evil’s financial empire expands in mortgage lending. Only to find that they aren’t quite evil enough to make any money at it.
Will Rogers said that america is the first country to drive to he poor house!
And what is with people racking up thse huge cc bills?
I know a female that recently got her chest enhanced, thank you capital one. Her doctor should have performed some plastic surgery with sissors on her card instead.
And to think that Crap-ital One just sent me ANOTHER fabulous offer. I treated the same I way I do all of their mailings. I made a few rude comments on it, scribbled all over the application, stuck it in their post paid envelope, and mailed it back to ‘em.
Direct mail jijutsu. I love it.
Even better, print out some vulgar scat-pron, people eating shiite and other filth, put that in the envelope and mail it back with the comment ‘U touched my poo….’
It’s hard to have sympathy for someone who does not even check out the interest rate, or know what it means.
When predatory lenders meet stupid fools, nuver put your money on the fools.
That’s exactly what regulation is for. To protect the stupid people from the sharks.
As much as people try it is nearly impossible to keep mentally un-agile people and their money together. It’s sort of like oil and water. It’s not their fault of course, character and working hard won’t make you a genius, so you have to feel bad. But I don’t see it as a solvable problem.
I should feel bad about their situation, but I somehow I can’t. If you can’t even visit the property you are buying, read the loan docs, or check out the interest rate in a meaningful way on your ‘nest-egg,’ you are a sitting duck.
There is a big difference between being ‘mentally un-agile’ and just plain lazy and stupid.
When my wife and I bought a dishwasher, it took several hours of Internet research, then more hours to find the right seller. These guys can’t even take an hour to do some research on a huge committment that might send you to the hospital for a month and kill your plans for retirement. A friend’s word or the promise from a ‘nice’ mortgage broker is good enough.
P.S. I think nice mortgage broker is an oxymoron (present company excluded, of course)
I kind of agree, but you also have to remember that banking and lending are “regulated” so people “expect” that there is some kind of govt oversight and that fraud is prosecuted in a timly manner.
Basically, people are lulled into a false sense of security by the appearance of regulation. It’s one of the worst things about goverbnment, they disallow private action, or promise to do something and then they fail to act and people are worse off then if they were expected to do it themselves.
Exactly climber. If the goverment spent a tenth of its time focusing on low level investment fraud as they do overseeing “fraud” at deep pocketed (and sueable investment firms) the “little guy” would be far better served.
But since there’s little glory (or political gain) in saving the $100,000 savings of some elderly couple from the various Ponzi schemes and multitude of “get rich” schemes advertised on late night tv, the “government” isn’t interested until AFTER millions have been lost by thousands of little guys.
Its sad but I don’t see it ever changing. And those who promote more government “regulation” as the “answer” don’t know jack about how devastating day to day fraud is to humble folk.
The bungalow had been in Cheryl’s family since 1935. It was 100% of the Busbys’ retirement nest egg. Now it was gone.
100% of their nest egg? So what were they planning to live on during their retirement? Socialist Security? Ha! They’ll starve after paying for property taxes, upkeep, and utilities.
I’ve got a fair number of friends, though, who think that their best retirement plan is their house, free and clear. Fine enough, but that can’t be your ONLY retirement plan!
And the fact that the Busby’s went along with a fake business to get the loan… oh my, you can’t say they weren’t complicit in this. Sounds like mortgage fraud to me, on the broker’s part and their part as well.
Wait a minute! These people are REALLY stooopid! Here’s more detail from the article:
Things moved so fast, they said, that they had no opportunity to read the dozens of pages of fine print.
Dozens of pages yes, maybe one dozen. Fine print? It’s usually Times New Roman 10-pitch or some such. I have never had a loan document in front of me that had sections of tiny, fine print. (Could be wrong about theirs, but I doubt it. They were just lazy and in a hurry.)
And then…
The Busbys found a lawyer through Cheryl’s employer, Solid Ground, a Seattle nonprofit that counsels victims of predatory lenders.
What?!?!? She works for a place like that, yet she didn’t know any better than to read her damned loan documents? Lazy, ignorant, stupid fools! If Ameriquest hadn’t taken their money, it probably would have ended up in Nigeria.
NoVa, that detail threw me off too. Here is someone who works for a nonprofit dedicated to helping victims of predatory lending who herself becomes a victim and gets a lawyer through her employer, who is bankrolled by the Gates foundation who in turn bankrolls Ameriquest, none other than the predatory lender. What a convoluted way of putting things. I couldn’t figure out whether they were trying to get at the Gates Foundation, or the subprime lenders, or my sanity. The whole thing made no sense to me. If they really wanted to prove the point that the Gates Foundation is having it both ways, OK, I can see they have a point. But couldn’t they find victims who made more sense? I would pay good money to know what the LA Times is thinking…
Check out yesterday’s (Sunday) edition of the Times; this was the 2nd installment of a series depicting contradictions in Gates Foundation investment policies. Sunday’s article depicted people in Africa who are given healthcare from the Foundation, yet live near pollution spewing industries invested in by the Foundation.
chip, that one made more sense to me, because at least is appeared as if the people affected were real victims. Today’s article was all over the place and nowhere at the same time.
I would love to be able to sue Bill Gates.
I can just imagine her counseling the prospective victim:
“Now make sure you sign legibly, and have two forms of ID ready for the notary.”
That article…..so many bizarre details. I read it this AM on the front page of the Seattle Times.
As a Seattleite, perhaps one of the more interesting details is that the whole thing takes place in Seattle but the story is by an L.A. reporter.
These people neglected to read the loan docs they signed not once, but twice.
That house is in one of Seattle’s toniest ‘hoods. In other words, you have to be a complete doofus to lose money on a house on Green Lake that’s been in the family since 1995, let alone the 30’s.
That article…..so many bizarre details. I read it this AM on the front page of the Seattle Times.
As a Seattleite, perhaps one of the more interesting details is that the whole thing takes place in Seattle but the story is by an L.A. reporter.
These people neglected to read the loan docs they signed not once, but twice.
That house is in one of Seattle’s toniest ‘hoods. In other words, you have to be a complete doofus to lose money on a house on Green Lake that’s been in the family since 1995, let alone the 30’s.
I agree, it was bizarre.
No bubble in Houston, yeah right.
Fraud in TX will turn out to be as bad as Florida, California or anywhere else. Probably worse.
when I saw that article, I foresaw a tx victory lap!
Cynthia Muir The supposed victim in the story paid 448,000(thats almost half a million dollars) without even looking at the property. Now she wants to sue everybody. Thats just f@#$ing ridiculous. Its your own fault Cynthia.
I agree, jtcc. Fraud, schmaud. Someone told Cynthia she could make a big buck flipping a property whose end user was unknown. If she thought this was risk-free, the more fool she.
Huh - Is this the propery? Tax Assessed for $38K !! http://www.hcad.org/records/details.asp?tab=&bld=1&card=1&taxyear=2006&acct=0332300650035
Ben,
Another sub-prime lender throws in the towel.
http://www.securedfunding.com
“Dear Valued Customers,
Based upon market conditions and limited product availability, we are ceasing wholesale operations. We have stopped accepting new applications, and will have until the 12th of January to fund out the pipeline. We appreciate your patience as we undergo this transition.
Thank you for your support”
I am getting close to the next one… I will post when I can confirm…
Heh heh heh…multiple train wrecks.
crispy, when you (or some other blogger) recently posted 7 subprime lenders belly-up in the past week, I didn’t know what it meant statistically. How many of these shops exist?
risked life and limb to attend the annual lenders fair in denver on friday. there were more than a dozen booths that were empty, not because of the snow, but because the lenders no longer exist (ownit, sebring, etc.). there were still 180 lenders there selling 80/20 investor. stated, and option arms. the scuttlebutt among the attendees was that three more big players were do to go down before the end of january (option one, new century and you take your pick). the attendees were still hyping 100% investor stated loans while the state is in the process of making the loans a criminal offense. very surreal, imho.
boulderbo,
Truly, that had to be weird. Yet it’s so in alignment w/much of what we’ve seen over the last few months. It’s as if there’s a total sense of this being the end of the line and yet at the same time….. an unwillingness to acknowledge just how severe this situation really is for them. I know what it’s like to say good-bye to a great “hey-day”, but…. you have to say your good-bye’s and move on. These guys are just trying to “move over”. That’s why we’re having to weather so many “things are going back to normal” articles! They just can’t let go.
*Normal defined as 15-20% annual appreciation and getting paid 3 pts. on a loan/home sale.
Boulderbo-
The New Century story is one I am having a hard time digesting. They are pretty big. They are also public traded where are the others I am hearing specualtion are on are not. Was there anything specific on New ?
got my info from some current employees and some higher up people from some of the recently closed firms. it kind of makes sense that if you are closing large numbers (and the paper sucks), then your buybacks are equally large. the comment that i got from a regional vp of one of the recent closures was “hell, we got shut down having $80M in buybacks, word is that new century is on the hook for over half a billion.”
Those buybacks are significant. The stock is at a 3 year low. WOW. Still hard to believe.
What about D1, Fieldstone and ResMae?
Symbol - NEW 4:00PM ET 29.66 Down 0.74 Down 2.43% 2,306,400
Nice trick
Crispy & boulderbo,
I am stunned by the significant time-density of these failures. What is trigerring the buybacks? Why are the failures occuring so fast? thanks.
Look at it this way: Even your average person on the street sensed the housing bubble had burst months ago. An many educated men and women on Wall Street have known for a long time there would be fall-out — rising delinquencies and such. But the “experts” assumed that with the economy strong, job growth decent, and interest rates still low, the increase in loan delinquencies wouldn’t be that severe and would be spread out over time.
But they’re getting the surprise of their lives right now. Loan delinquencies are climbing very quickly, even on relatively “unseasoned” loans (those on the books for just a couple of months vs. those outstanding for 12, 18, or 24 months, when you typically see DQs climbing). Several factors are contributing in my view: The extremely lax lending standards in the past year or two … fraudulent appraisals … the abuse of stated income loan programs (borrowers just making up any old income they wanted to in order to qualify) … and the decline in home values, which is making it impossible for very high LTV borrowers to sell and get out from under oppressive loans.
As to why the lender failures are coming so quickly, the proverbial “switch” flipped in the mortgage bond market very recently. The end buyers of high-risk mortgage-backed bonds are stepping away. That’s drying up the ultimate source of funding for primary lenders. Result: Many thinly capitalized subprime shops are going “Poof.” You can read more about the last time this happened (1998), and more about why, at my blog. I’ve been posting about it for a while now. Hope this helps.
http://interestrateroundup.blogspot.com
So where are the good shorts remaining. I got on LEND but have I missed the boat on New Century?
I dunno. They are up 3.3% today.
I think that the psychobabble term is “cognitive dissonance” When what you see is so at odds with what you believe that you “don’t trust your lying eyes.” True believers make the best salesmen, so these jobs are filled with them. These people are simply incapable of seeing their world collapsing around them.
jim A,
Kind of wondered that myself. It seems a lot of these folks will become “nomadic” for a spell going from firm to firm, blaming things on the “products” (loans) they were peddling or that they need to work a different demographic or move to a different state/area whatever.
By the time they figure out that as bad as things have been they’re only getting worse they will be behind in their own specuvestor property payments as well as their BMW. But it will NEVER be their lack of vision that put them in the fix they’re getting fitted for!
The almost-new New Century corporate building in my SD hood at the SR 56 and I-15 intersection looks practically deserted.
Funny. It’s across the freeway from my condo, and I’m looking at it right now. Sure enough, no lights on.
“…there were still 180 lenders there selling 80/20 investor. stated, and option arms…the attendees were still hyping 100% investor stated loans while the state is in the process of making the loans a criminal offense…”
Continuing right on up until the bitter end. Sickening.
glad to see we are at the “bottom” as the stories in the news get more heartwarming by the day……
Oh and speaking of no bubble in Texas. The house I rented in Cedar Hill, Texas, SW of Dallas has been appraised by Dallas County at 50% more than it was offered to me for in 2001. Right. No bubble there.
“But I think the Federal Reserve’s going to find out that to avoid a collapse, they’ll have to back off their interest rates to provide enough liquidity to the financial system to not bring the whole stack of cards down.”
Liquidity is already at record heights. Liquidity is what CAUSED the problems. Tighten it, and bring down the house of cards NOW. The U.S. will eventually be better off for doing so.
Yes, we need credit desctruction and we need it NOW!!
Amen! It is time Americans reduce consumption.
Yep - you don’t save the junky by giving him more heroin. Withdrawl can be painful, recovery a long process, but it’s the only long term solution. The sooner we get this economy into rehab, the better.
A lot of f’ed buyers are gonna start seeing babies with the heads turned around falling from ceilings….
Agreed, but it’s too late don’t you think? How ever is a service economy based on hyper-consumption ever going to handle the shock? This is going to get good.
“But I think the Federal Reserve’s going to find out that to avoid a collapse, they’ll have to back off their interest rates to provide enough liquidity to the financial system to not bring the whole stack of cards down.”
There is a widespread belief that the Fed or somebody is going to ride to the rescue. Maybe not.
These days, there seems to be a rising level of cargoism on Wall Street…
http://www.afa.org/magazine/1991/0191cargo.asp
So true. Great link — thanks.
agreed, the Fed is caught and to rely on rate cuts as a panacea is just foolish, IMO.
I keep asking myself how the Fed is going to ride to the rescue. Lower rates and flood the market with money?
Been there, done that. It will prolong the party, but deepen the hangover. Plus, the potential for real, measurable (by the Gov) inflation is high, and we know BB does not like inflation.
His most famous quote about his central banking philosophy was, “The job of the Federal Reserve is to take away the punch bowl just when the party starts getting interesting,” referring to the need to raise interest rates when the economy is at its most active.
http://en.wikipedia.org/wiki/William_McChesney_Martin,_Jr.
Well ISTM that the party is about to get REAL interesting. But hey, Great White is playing so stick around.
> I keep asking myself how the Fed is going to ride to the rescue. Lower rates and flood the market with money?
According to the new way of AG, the Fed could let the bubble have its way and only mop up afterwards. That could mean, e.g., leaving the interest rate where it is, until the market has fully turned, with changed outlooks of market participants and returned risk premiums, and then rapidly reducing the interest rate to fight the sytemic risk of a financial meltdown like in the Great Depression. The dollar would stumble internationally but would keep its value within the US, and the imported price inflation would prevent an overall price deflation. If they can pull it off - I don’t know.
more gas, that’ll stop the fire.
The Accidental Cheerleader?
—————————————————————————–
Kohn sees moderate growth with lower inflation in 2007
By Greg Robb
Last Update: 12:45 PM ET Jan 8, 2007
WASHINGTON (MarketWatch) — Economic growth in 2007 will be moderate but sustainable, and inflation will be lower than it was in 2006, said Fed vice chair Donald Kohn on Monday. “The economy appears to be weathering the downturn in housing with limited collateral effects and inflation appears to be easing with the aid of lower energy prices, well-anchored inflation expectations, and competitive labor and product markets,” Kohn said in a speech prepared for delivery to the Atlanta Rotary Club. But Kohn stressed it was too early for the Fed to lower its guard against inflation. His expectation of a very gradual decline in inflation was “by no means assured.”
The more I read about our current mess, the more I am convinced that we are about to enter a severe deflationary period - and there will be nothing the Fed can do about it. The excess liquidity/credit bubble is caused by low reserve requirements and low loan standards. Reserves and standards cannot be lowered much more - and if raised will just cause lack of demand for credit. It seems that even if the Fed were to lower rates to 0, there is no more credit needed and thus we deflate. That is the near term end game.
I don’t know why these people think the Fed is going to ride to the rescue with lower interest rates. The Fed has been for the last two FOMC cycles increasingly talking about RAISING interest rates to combat inflation, which is affecting the entire U.S. economy, and not just one corrupt, overpriced segment of it.
Come spring, these guys are SO screwed at the first quarter-point increase in the overnight rate.
“I don’t know why these people think the Fed is going to ride to the rescue with lower interest rates.”
Because BB has not really gone out of his way to build a reputation as an inflation hawk the way Volcker convincingly did when he was new on the job.
“But I think the Federal Reserve’s going to find out that to avoid a collapse, they’ll have to back off their interest rates to provide enough liquidity to the financial system to not bring the whole stack of cards down.”
Too late, at this point it would be the equivalent of pushing on a string.
“The Industry Is Completely Inside-Out Right Now”
The industry is made up of thousands of individuals who chose to participate in this. No sympathy.
You betcha. I am conscious of laziness and greed on my part, in that I was willing to lend my money at 9% and 10% to people who IMO were ill-served by borrowing it. However, I did know they could pay it back, and it was my money to lend. And I did desist when prices got crazy. So I can feel a little but superior to the so-called lenders who are out of the chips now. BTW no serious defaults among my clientele since 2003. (A non-serious default is a phone call from a client saying, “I can’t make the payment this month, can you tack it onto the other end of the mortgage?” Am happy to accommodate if it doesn’t happen often. Of course what it actually tacks onto the other end of the mortgage is usually 3 payments.)
I sent an email to those Bloomberg clowns ripping them for their bull$hit “the bubble is over!!!1!!” story.
I encourage others to give them a piece of their mind:
mbenjamin2@bloomberg.net; rmiller28@bloomberg.net
Ultimately, they sued, saying Ameriquest had invented a car sales business for Cheryl to improve her financial status.
Muir also sued the appraiser, who she claims inflated the property’s value; the mortgage broker, who she alleges knew the property was overvalued; and the title company, which she claims failed to protect her.
So let me get this straight - it’s ok to make up careers and go along with overvalued home prices but only until there are negative repercussions at which point they cry “victim”?… I mean I assume Cheryl knew she didn’t have a car sales business. And newsflash, Ms. Muir - values can change! Sometimes they go down. Perhaps your home was valued correctly at the time (correctly for a b.s. market, that is). These lawsuits just irk me.
“Muir also sued the appraiser…the mortgage broker…the title company”
“‘I should have just never let someone be in charge of something like that,’ said Muir, who acknowledged that she never saw the property before buying it.”
WTF? She never even SAW the property that she was paying ALMOST HALF A MILLION DOLLARS FOR, and it’s all of these OTHER peoples’ faults.
OK
Just wait till her lawyer gets done with her. The true financial pain is about to begin.
I agree to a point. Remember when the Ameriquest ’settlement’ was announced? The government put the report out Friday evening, assuring minimal press coverage. It was $300 million, in all states, I believe. It works out to just a few thousand per complaint.
Thing is, people don’t have to accept the settlement, so these lawsuits are going on with very little media attention. This one wouldn’t have seen the light of day, except for that Bill Gates angle, IMO.
Lawsuit are a poor way of setting things right, but with thousands of people treated this way, not one person was ever arrested!
in a fed lawsuit who gets the $ ?
Arrrested?? The boss was promoted to Ambassador to the Netherlands!!
On the same day that the White House announced that President Bush is nominating California billionaire Roland E. Arnall to be ambassador to the Netherlands, the company he controls said it would set aside $325 million for a possible settlement of allegations of predatory lending tactics.
Arnall’s company, Ameriquest Mortgage Co., is being investigated by regulators in 30 states. A $325 million settlement would be one of the largest ever in a predatory lending case
http://www.washingtonpost.com/wp-dyn/content/article/2005/07/28/AR2005072801842.html
I don’t see how she is a victim.
She is a criminal; she signed fraudulent loan documents; she attested to a car sales business she knew she did not have; she knew the documents were bogus, but she went along thinking she was going to get rich. She was aided and abetted by the fraudsters around her, but she is a fraudster too. To claim victim status is beyond the pale.
The devil made her do it. Maybe Flip Wilson should be appointed to the Federal Reserve or OFHEO. Yes, I know he’s dead, but I don’t think that necessarily disqualifies him at these organizations.
“…but I don’t think that necessarily disqualifies him at these organizations.”
LOL.
So long as Geraldine brings along her boyfriend, Killer, I’m game.
The broker even made up fake business cards for her!!! Yeah, they’re “victims” alright…
(Name is Cheryl Busby BTW, not Muir, of Seattle)
I think the FBI/mortgage fraud police should put real estate broker offices on notice that they have to report it if a listing that hasn’t sold goes up in value by more than 5% if relisted . Put RE brokers on notice that they have to oversee their crooked RE agents ,which is something they should of been doing from day one .
Good idea, Wiz. Doesn’t it seem, though, that all the interested parties (even the FBI, Fed, etc.) are truly complicit? It’s like NOBODY (’cept us bubble bloggers) is willing to let market forces — and common sense — take over.
Very scary, as I wonder where **we** all will end up in all this drama.
Abit off topic but related to RE…anyone catch the new apprentice show with Donald “going down the bankruptcy line again” Trump spinning his new show in all places, CALI…yep…the intro of flashy cars …. flashy people…flashy streets…is this just a desperate attempt of Donald trying to re-affirm the American people that RE is as sound as his hair…please….that show goes to the core of what’s so wrong with American in general - our society can only build “fluff”…. and as long as others believe and pay into it….it’s the big weave over by Donald that keeps his lifestyle and keeps the rest of america in “dump in your pants mode”……Donald should have his picture in the dictionary under either bad hair day….or better yet…Pathetic!!
I don’t know, I agree with most of your complaints, but I actually LIKED the apprentice show, not for the elimination format, but for some actual business lessons that were implied in the results of some of the competitions. Like, how NOT to sell product X to population Y. Yup, Trump would certainly go down the tubes again if he weren’t a TV star.
“Money is as loose as it’s ever been in modern American history — way too loose,” Rosen said.
Looks like Ken Rosen is finally starting to let out some of his inner bear. I agree with everything he said in that article. I met someone who saw Rosen speak last year and they said he was pretty bearish, as were many of the people present. When I say “the people present” I am talking about long time RE investors/developers. They are sitting on the sidelines waiting for the last GF to jump in. I have even heard tales of people who sold land to “investors” during the height of the last bubble in 1990 and then wound up buying back the same property for about 25% of what they had sold it for. Of course, episodes like that won’t happen this time because it’s different here!
It’s happening already. The homebuilders are still working to clear their books. The deals they have been making have them getting about 20% of their book value with a free option to repurchase at double the sales price within 3 years. Basically they are pushing the carry costs off on to deep pocketed developers and investors. Of course, to make this worth while for the developer, they are selling at fire sale prices. After these builder fire sales are complete, my office expects a dry sales period where the non-professional sellers come to grips with the new realities of the land sales market.
Good point. It seems that the true “investors” would know the game pretty well. I can certainly imagine some hawking the millstone to foolish and greedy flippers on the upside then coming in on the downside to “help them out” by cutting the rope when they have been pulled far enough underwater. The house always wins.
Over my career I have worked very closely with three successful real estate entrepreneurs. The one thing they all have in common is being a cheap buyer. They are patient negotiators with reservoirs of cash. They sell into manias and buy after crashes. The guy I work for now started out by buying properties from the RTC. He is excited about the changes in the market because it will allow him to reload his portfolio and start the cycle all over again.
Like most guys with “the vision thing,” Rosen has a credibility problem at this point because he saw the bubble trainwreck years back when everyone else was talking about New Era theories…
“Rosen predicts a 35 percent to 40 percent chance of a recession in 2007, and thinks mortgage rates will go up 50 to 100 basis points.”
That would drive a stake through the heart of the bubble…
An interesting teaser from the National Mortgage News (from the link, go to Home):
Company Unveils Mortgage Deferral Program
Mortgage Payment Deferral Inc., Roseville, Calif., has announced the introduction of a patent-pending mortgage program that allows homeowners to defer from three to 36 months of their mortgage payments.
More on it from “Origination News”:
“Company Unveils Mortgage Deferral Program
Mortgage Payment Deferral Inc., Roseville, Calif., has announced the introduction of a patent-pending mortgage program that allows homeowners to defer from three to 36 months of their mortgage payments. The 12 Month Deferral program, or 12MoDef, works by setting aside home equity into a trust account, and the appointed trustee ensures that the mortgage payments are made. The homeowner receives a monthly statement that combines the mortgage and trust account statements. At the end of the deferral period, the trust account is closed, and the borrower receives all the earned interest and resumes making mortgage payments, the company said. “Many of our clients are making job changes, starting families, or struggling with a new business venture, while some are being crushed by meeting the monthly financial burden of their mortgage payment and credit card debt,” said Jeremiah Miller, president of Mortgage Payment Deferral. “A year without the stress of a mortgage payment allows people to reassess their financial situation and regain control of their life again.” The company can be found online at http://www.12modef.com.”
HMMM… A HELOC that you don’t control. Sounds like just the ticket for the Broad Masses of the People (BMP).
And exactly how does that work if you have no equity or negative equity?
I guess I’m old fashion, but I like to control where my money goes.
Deferrral equals forbearance and very creative SPIN.
So - essentially, someone gets a year off paying their mortgage, but (in the case of, say, around a $250-300K mortgate), are going to have payments that are probably $300 more a month going forward? While I’ll concede this is probably a good model for some folks with short-time financial distress, isn’t it likely this is just making things harder for most folks down the line? I mean - if you HAVE to use your HELOC to pay your mortgage, aren’t you almost certain to be in worse trouble down the road?
Yes, but they are able to ensure that the required number of payments are made before default so they can bundle for the MBS.
I’m suing them for ripping off my Pay Whatever You Want™ Loan.
I’m suing them for ripping off my ACTUAL policy described above in my reply to poster Lisa.
I’ll be your witness .. “Hey passthebubbly called it first!!”
It’s just a cash out refi, so you need “equity” to do it. Anyone could have done this before (and I’m sure many have) this one just has a “professional” managing the money so you don’t spend it on a car instead of using it for payments.
I wonder if some idiot at the patent office will approve this. It seems like the “prior art” is so plentiful there’s no way it could be considered new.
“It’s just a cash out refi, so you need “equity” to do it.”
A crooked appraiser can invent that equity for you.
How can this be ‘patent-pending’ there is nothing novel here, just debt deferal. US Patent Office would probably laugh at this claim for a patent…insane statement about a mortgage!
You have a much higher opinion of the US Patent Office than I do. My guess is that the clerk and his supervisor not only sign off on it, but they’re on the phone to Roseville before the end of business.
Well a few years ago, the USPTO was successfully sued for not giving patents, so they’ve pretty much thrown in the towel and become much mor liberal about giving them out. After all, is somebody alledges that a patent isn’t valid, the USPTO isn’t a party, they just watch from afar as the interested parties fight it out in court.
From the National Mortgage News piece:
“Wall Street will be dictating the terms of foreclosures for thousands upon thousands of subprime borrowers who are predicted to go delinquent in the coming 24 months.”
As this is not my field of expertise, any guesses as to what kinds of terms Wall Street might be dictating on these subprime loan foreclosures? And how might the terms have been different had Wall Street not jumped in and bought the loans?
An issuing bank holding a loan can figure out what the borrower can pay and do a workout outside of bankrupcy.
How is that going to work when millions of people through hundreds of institutions own a small slice of an MBS which includes a mortgage? And when there is a second and third mortgage on top of it?
If there are enough foreclosures, will there be enough people to process them? And how will it pay to hire people to manage nickels and dimes?
America’s homes — owned in China, managed in India.
But it’s another way to get money from the FBs. The FB’s don’t want to do BK. They don’t want to ruin their FICO. They feel bad about what has happened, and somehow feel responsible to the lender who screwed the FB and themselves in the first place.
Now the finance community will, once again, sit these fools down, put another piece of paper in front of them. They will sign it without even knowing what they are signing.
They will not even know that once they sign they will throw away the only leverage thay have…..The ability to not make payments….The ability to make the lender own the home.
(apprentice) … another point i missed earlier - all these apprentice’s look like they are cut out of the “perfect magazine image” that we have been sold on for decades. And think of the underlying message - young - great looking -ontop of their game and the most important aspect “THEY WANT TO PLAY IN REALESTATE WITH DONALD” - what lies and misconceptions…how many people sat there last night not realizing that they weren’t just watch another pathetic reality show - but viewing constant underlying messages that the American Front is as sound as Donald’s big flapping gapper…. give the man a shovel because all the Bull is piling up fast….
Why bother watching primetime teevee in the first place? In my adult life I’ve found one teevee series that was actually worth watching, The Simpsons, and considering how sucky this season and the last have been I’m about to throw in the towel on that.
I’m not even watching much teevee sports anymore, either. “My” team, the steelers, won the superbowl last year so enefell football has nothing more to offer me. I did watch that bowl game boise state won, but I don’t car about flawda or ohio state so I won’t be watching that beeceeyes game tonight.
I’m on the page with you on that. My husband sits in front of the boob tube but after “Married With Children” (a great American classic IMO) went off the air, I stopped watching altogether. I’ll bet I don’t watch 5 hours of television a year.
You just spend 800 hours a year on blogs.
LOL, me too.
At least that’s non-scripted, interactive, and informative (depending on the blog).
Right. Sounds like someone’s a tad defensive about their television habit. I do the blog thing along side “work,” such as it is.
There is some good programming. We watch mainly HBO, PBS and Comedy Central.
I love TV. Cheetohs for the mind!
That is why I don’t watch it at home. I get to catch up on Snoop Dogg, Christina Aguilera, and Britney when I am on business travel. Definitely some good programming (did I mention Snoop Dogg?!), but too many scumbags wanting to make my kid even more greedy than he already is.
Sure blogging wastes plenty of time, but at least you get to hear from real people who aren’t pimping for someone.
i tell my friends the housing bubble blog is like reading time magazine but the writers are allowed to say what they really mean iw/o of getting the editors approval.
i like the scary shows on court tv and discovery channel and i watch the jewelry show while i read this blog.
if there are no new juicy articles on ben’s blog i have a BAD DAY.
Reminds me of something Rosanne once said (something like this) “you marry the man of your dreams, then, ten years later you realize you’re married to a reclining chair that burps”
Of course the Rosanne paraphrase that will be working real soon is….
“My borrowers said that they needed some more space….So I kicked them out of the house!”
So she married the woman of her dreams? And how is that working out?
Shares of New Century Financial — #1 or #2 subprime lender depending on who’s counting — are in a tailspin today. The mortgage brokers’ board has a few rumors, but nothing substantial. Anybody here have a factual explanation of what’s going on?
read our comments above.
Thank you. I should have read more carefully before I posted . . .
Fed mouthpiece sez:
Housing risks to the downside
Starts may not be far from the trough
Tentative signs housing may be stabilizing
Too early to relax concerns re inflation
etc.
http://www.federalreserve.gov/boarddocs/speeches/2007/20070108/default.htm
“Starts may not be far from the trough”
Justin Lahart’s sidebar — AHEAD OF THE TAPE — Will Housing Finally Bloom in the Spring? on p. C1 of today’s WSJ — picks up on the vacant homes theme:
“Here is one reason to be careful about calling a bottom now. A large number of homes for sale are unoccupied.
In the third quarter, there were 5.7 million vacant housing units for sale or rent, accounting for a record 4.6% of all U.S. homes. The average in the 1990s was about 3.5%.
To get this ratio back to normal, 1.3 million vacant homes would need to be occupied. For comparison sake, economists polled by Blue Chip Economic Indicators expect construction to begin on about 1.6 million homes this year. With so many empty homes out there, one wonders why builders would bother breaking ground on new ones.”
Stucco, how is a vacancy rate figured? Do they count houses that are owned by someone other than the builder and that MAY or may not be regarded by their owners as “vacation property”?
“Housing bulls took heart on Dec. 27, when the Commerce Department reported that sales of new one-family homes rose 3.4 percent in November from October. But those who think that the worst may be over for the housing market should take another look at the data, economists say.”
“On its Web site, the Census Bureau acknowledges: ‘As a result of our methodology, if conditions are worsening in the marketplace and cancellations are high, sales would be temporarily overestimated.’”
“By how much? Economist Joseph Carson estimates that the government is overestimating the pace of annual sales by 100,000 to 150,000. Economist Mark Zandi estimates that the differential is even greater. ‘Given the rise in cancellation rates, it suggests that between 150,000 and 200,000 home sales are being counted that actually did not occur.’”
Can anyone venture a reasonably educated guess about how much the reported 3.4% Oct-Nov ‘06 uptick in new home sales overstate reality?
“Wall Street now controls a significant portion of the nation’s subprime industry.
Now, there’s nothingNot that there’s anything wrong with that, but Wall Street will be dictating the terms of foreclosures for thousands upon thousands of subprime borrowers who are predicted to go delinquent in the coming 24 months.”Ya gotta love the near-miss on a Seinfeld line…
http://en.wikipedia.org/wiki/Seinfeld
Stucco - the Wall Street gutter suckers forseen such a development that is why Bush passed the “New” bankruptcy laws years ago - the books told a story of bad bad things and gave Bushy baby a nudge to protect these sweet cuddly little vermon from being EXPOSED for the very things that would bleed anyone else dry….this fall of cards were probably discussed years ago in many of the corporate board rooms and the assurance of toughter Bankruptcy Laws make the big boys sleep better at night……
“assurance of toughter Bankruptcy Laws”
I am guessing such assurances also make it easier to peddle MBS which bundles subprime timebomb loans.
This is just a quick eyeball & swag:
The shocking thing is that if even the conservative correction factor for cancellations is used then the pace of new home sales for 2006 drops down to about the 2002 level. A sales reversal going back 4 years which was a year when the rise of the bubble was more or less on its cusp of taking off dramatically. Any industry designed around a demand/volume just cannot prevent damage when the demand/volume drops by approximately 20-30%!! That would be like the auto industry’s North American demand dropping from its current ~16 million per year to ~12 million per year. Such a demand drop would create a huge shock to the sector, all the industries that support it and spill over into the greater economy.
OT, but it looks like consumers are finding other ways to continue their borrowing binge now that the home ATM is running out of cash:
http://biz.yahoo.com/ap/070108/consumer_credit.html?.v=4
OT, but it looks like consumers are finding other ways to pay for their spending binge now that the home ATM has run out:
http://biz.yahoo.com/ap/070108/consumer_credit.html?.v=4
Never underestimate the ability of the American consumer to load on more debt! I have a neighbor that took out a $ 1500 payday loan to buy Christmas presents (she thought it was a good deal until I calculated the 436% interest rate for her).