Bits Bucket And Craigslist Finds For February 12, 2007
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subprime meltdown effects.
Already discounted in the markets ?
Already discounted in the markets ?
“The Trend is Your Friend” I also believe that bad news seems to create more bad news.
The sub-prime lenders have a lot of downward action ahead. I don’t think it has been discounted in current prices. We should see some indications this week. Watch LEND.
You will ALWAYS have opportunistic investors (day traders and whatnot) looking to time the market when things are oversold. That is why you always see a drop, slight recovery (pedicting the bottom is over) to only see it fall further. The cycle repeats itself over and over.
Wash, Rinse, Repeat.
That is why nothing happens in a straight line, but yes, the trend is usually your friend. Volatility also brings some opportunity but ensure you put stop losses in place.
I was watching Bloomberg this morning and they called today Judgement day for sub-prime lenders.
A bit of hyperbole but I like the image.
CFC announcing larger than expected defaults. I guess NEW and HSBC were the tripwire. Now, the rest of them start to come clean and take a beating.
Actually, I made a list last September and have been watching it ever since. Interestingly, one that nobody seems to have mentioned yet is Novastar (NFI). That’s lost almost a third since it made its SEC disclosures and statements last Monday. It’s almost as big a hit as NEW. Otherwise, there’s surprisingly little action in the lenders’ stocks today. Indymac (NDE) has been dinged a bit, but all of the others seem stable at 3-4x what they were trading for in January, 2000. I keep expecting National City (NCC) to bust. There have been a large-ish number of insider transactions at the end of January and beginning of February. We’ll see what happens.
“Already discounted in the markets?”
With the folks at the top saying “no contagion,” and every shard of empirical and theoretical economic evidence calling into question why contagion only works on the climb to the top and not on the way down, it is hard to imagine that the market’s crystal ball is not extremely cloudy, and hence unable to accurately discount future ripple effects of the subprime implosion underway.
Check out the carnage beginning at Fremont…
http://calculatedrisk.blogspot.com/2007/02/fremont-lending-changes.html
Actually, that will cause carnage at other lenders, not Fremont. If Fremont suddenly refuses to fund sketchy loans in the pipeline, it doesn’t hurt them immediately, only down the line when quarterly results are announced. The ones who are hurt are the FBs who were refinancing their way out of trouble using those sketchy loans, which means there will be a whole lot more defaults and foreclosures at other lenders.
1 in 20 O.C. residents can’t pay property tax
Per yesterdays (Sunday) O.C. Register, 1 in
20 Orange County (California) residents
couldn’t pay their December 2006
property taxes on time.
This is the highest deliquency rate since 1996.
But the ‘real’ rate may even be higher.
Consider this:
What percentage of O.C residents used money
borrowed from other sources (ie. HELOC) to
pay their property tax? How about money
’stolen’ from the future? (ie. not funding
401(k) plan).
In other words, what percentage robbed
Peter to pay Paul?
There is, of course, no way to know for sure,
but I’ll bet its a pretty high number.
1 in 10 maybe?
Whats even more amazing is that these stats
were compiled from the December, 2006
collection period.
In an informal survey, the Register determined
that 44% of respondents noted that the reason
their taxes remained unpaid was because of
“Higher costs of adjustable mortage”.
With even more ARM’s adjusting this year,
what’s 2007 going to look like?
Incredible.
That’s an incredible statistic, 1 IN 20. Would be interesting to see if this is happening to that degree in other parts of the country.
1 in 20? Why not say 5%? : ) Sounds better!
5% Californians not paying taxes now but this thing is just starting. Any guesses on what percentage won’t be paying by end of ‘07?
I’ve always wondered how exactly this happens. Even w/55% down on this home we were required (in NY) to escrow our tax bill. Is that not required in CA? Are taxes escrowed but people are only mailing in principal? My mortgage company pays our taxes so it’s really not anything we even think about. Do mortgage companies withhold tax funds if account is behind in any way?
Many people my self included do not have taxes escrowed - why give the mortgage company money for free? Also it would be 5% of Orange county not 5% of Californians.
“why give the mortgage company money for free? ”
I agree with you on that one but we weren’t given the choice despite a decent cash flow and financial position.
“ 1 in 10 maybe? ”
1 in 4 (maybe even 1 in 3) of OC residents are so far above their head that they are in trouble. Yes, 1+ in 3 owns their home outright. But look at the number of Jag’s, Massarati’s, Ferrari’s, Bently’s, and other high end sheet metal on the road. Too many of those were bought with HELOC’s.
“Orange county is different, its going to get hammered” to quote Thornberg.
munch munch munch… its going to be a long show.
Got popcorn?
Neil
Neil — I wonder how we could confirm if even 1 in 3 owns outright anymore. Since that statistic has been around a long time, as I recall, HELOC and cash-outs might have tempted a serious number of formerly free-and-clear owners to take on mortgage debt. Sort of, “The road to HELOC is paved with Bentleys.”
Chip,
You might be right… Maybe it is less than 1 in 3…
But its certainly not enough to matter.
Paris Hilton in a Bently I understand. Joe pharmasist? Oh boy… cash outs were brutal.
I wonder when they’ll stop. Not yet… but soon cash outs will be at only 10% of their previous rate.
(Ok, they never quite completely stop… but you get the point.)
Got popcorn?
Neil
What is not taken into account are the number of loans that have taxes escrowed and some of these are currently in default to the bank. The bank is obligated to have paid the RE taxes and can only add to the banks cost.
“That’s an incredible statistic, 1 IN 20. Would be interesting to see if this is happening to that degree in other parts of the country”
I see 84,080 tax deliquencies for LA County per foreclosure .com. THat would, in my very rough estimate, work out to 1 in every 24 LA property Owners. If it was not for prop 13 the rates would be worse that OC.
California will go bankrupt. The majority of voters have lost all common sense and the government unions are out of control. Arnie will wish that he hadn’t run for reelection.
I see the waste constantly, all the way here in Texas. California agencies buy stuff that I know they don’t need, but they “have to spend it” or they’ll lose out in the next budget cycle. They tell me this without guilt or remorse. Not once does it cross their minds that they should save taxpayer money.
Of course, California is not unique in this regard. California is simply the biggest sympton on the state level, and the one at most risk.
But hey, the politicians will still make ads that say Candidate X want to raise taxes! Elect me! Crime will increase, your schools will go to hell, but I won’t raise taxes.
The ones who do tax? They blow it! I don’t mind paying a reasonable amount of taxes if I see money used wisely but that would be too logical. (Sorry will not try to get too into politics here)
I agree that this is wasteful, but do you actually know of any government — local, state, or federal — for which this is not the case?
Why not deposit that money in an account. If you don’t spend it, not only do you NOT lose it, but gov’t officials get a BONUS like executies do if they SAVE money. But also tie the Bonus to performance. They have to spend but do it wisely.
That would be too logical though.
If you don’t tie people’s pay to performance, then that is communism, not capitalism. Home Depot anyone?
it would a mistake to run a government like a profit oriented company. it exists to provide services. you might as well abolished it and worry about how you will survive in a free for all environment.
Do you really expect that governments elected by dolts, will be any more fiscally responsible than the Republicrat cretins who perpetuate the two-party plutocracy’s stranglehold on the levers of power?
Sammy, please elaborate. Does your post mean that you’d prefer to see a single-party domination of our government, i.e., no Republicans?
To understand the contempt we have for both parties…
My wife and I went on a month long roadtrip, circling the 4 Corners area of the Southwest (gorgeous area!) in October and we saw a ton of election candidates signs on the side of the road in 6 states and the one common bond to around 90% of the signage?
No party affiliation listed on 90% of the signs, be it Democratic or Republican.
Typical sign said:
“Joe Bloggs for State Senator” (with wavy American Flag)
That’s because 90% of the candidates in that area are representing small districts/towns (whatever) where name recognition “plays” more often, or a bigger role, than party affiliation.
The other 10% were statewide or at least larger officeholder kind of positions.
This is not unusual. Anywhere.
I read somewhere that 45% of the wages in Los Angeles are under the table therefore no taxes are collected.
” read somewhere that 45% of the wages in Los Angeles are under the table therefore no taxes are collected.”
There is a hugh underground black market economy in LA city which is 25-30% of total economic transactions. How many mom and pops, shady businesses actually report more than 50% of their gross receipts in LA. The CA state board of equalization and franchise tax boards cannot account for and collect billions in owed tax revenues in LA county due to 10’s of thousands of small businesses able to underreport(or even not report) actual business receipts. Not to mention much economic trasactions are conducted under the table in cash, especially in used junk auto sales, parts, auto repairs. ect.
A significant % of these underground transactions are conducted by, you guessed it, the huge LA population of illegal aliens and green carders. So whats new!
On the other hand, if you are a bona fide native citizen of Cal running a business and you attempt to hide income or underreport, the State board will screw you over, put liens on your assets, garnish your wages,seize your bank accounts, ect. The State of Cal screws over Cal/US citizens while allowing illegals to pilfer the state out of 10’s of billions yearly.
” read somewhere that 45% of the wages in Los Angeles are under the table therefore no taxes are collected.” IMHO Probabaly more than that.
One of the reasons CA LA and SF RE is so much higher than the rest of the USA is the China trade, the related profits and hidden accounts.
Maybe you should read his entire post, Walker.
If California raised its taxes as a share of income to the level of New York, they’d be rolling in dough. At least in the short run.
California and New York are the two states most screwed by the federal government — treated as cash cows despite high poverty rates. But New York has more self-inflicted wounds. Believe it or not.
One example — New York has the highest Medicaid spending per recipient, California the lowest. I’d say California’s Medicaid spending is unfairly low. New York? The health care industry is the most powerful lobby in the state.
I don’t know much about the industry but I was just talking Medicaid this morning with the wife of a friend who writes Medicaid contracts in NY state. She was explaining how Bush’s medicaid cuts in the recent proposed budget would help eliminate the pork in the system since insurance companies will no longer be awarded those contracts for life but instead have to write new proposals every 5 years.
I was wondering if you think the low population densities upstate (geographically most of the state) might be a major contributing factor to the high medical costs in NY. No one wants to be too far from proper care yet the numbers each area hospital serves is much lower than city hospitals.
The state has recommended shutting down and/or merging several upstate hospitals this year and they are going to get quite a fight. I think the average upstate citizen on the street doesn’t want these closures to happen.
There are already stories of people with serious diagnoses waiting up to 12 hours for an available bed. Another concern is that proper care might now be a 3 hour drive away. That seriously impacts how a family is able to support a patient with long term illness.
Many influencial upstaters want to deter development and progress to maintain the untouched pristine aspet of the area yet losing good medical care may be part of that price. It seems the state doesn’t want to keep hospitals open for an ever dwindling # of people.
I’m originally from Upstate New York, my relatives are still there. I’d agree with everything you said, except what has deterred development is extremely high taxes (9.5% sales tax in my home county!), way too many entitlements making it very expensive to run a business, the power of labor unions, and crappy weather much of the year.
The indian casino between Utica and Syracuse is a terrible thing in my opinion - low wages, they pay little taxes, gambling sucks money from those least able to afford it, and because their stores pay no taxes can price everyone else out of the market.
Gambling doesn’t suck money from anyone unless they step up to the gambling table and willingly put their money down. A fool and his money … they are parted in many ways and most of them are by foolish personal choices.
–
California and New York also are home to the biggest Crooks in the world, in Silly.con Valley and Manhattan, the biggest beneficiaries of the Twin Bubbles over the past dozen years.
They will also suffer the most when the bubbles can’t be sustained. It is that simple.
Jas
it would really be helpful if you can back up your assessments with something more concrete like numbers from reliable sources.
–
Ever heard of Scam Options fraud? Where did it begin and where is it most rampant?
Ever heard of Reckless Mortgate Lending? Where did it originate?
You don’t need “reliable sources,” you just need to open your eyes. Playing blind wouldn’t serve you well.
Jas
“If California raised its taxes as a share of income to the level of New York, they’d be rolling in dough. At least in the short run.”
At a higher tax rate, it would still take a while to pay off all the debt we’ve accrued to this point, let alone pay for new/better services. Beyond that, I’m sure our wonderful govt. would find a nice quick way to blow through all the money as they’ve always done with past revenue increases.
The #1 problem with government is that they only hire government employees.
Hiring gov’t employees is a problem since it is very difficult to fire…then you get the assinine “use it or lose it” mentality.
Like it or not, this is one smart thing done by the Bush administration: hiring independent contractors rather than inflating gov’t with new hires who cannot be as quickly/easily down-sized. But of course nobody ever thinks about this angle.
Sure, that’s smart. Hide the numbers and costs from the taxpayers, don’t worry about any accountability issues if things go wrong. Heckuva job, W!
“…the 10.5 million federal contractors and grantees the government’s “hidden workforce” because politicians tend not to mention them when discussing the size of the federal bureaucracy. Yet such workers absorbed nearly $400 billion in federal contracting funds and $100 billion in federal grants in 2005…
Politicians who focus on the size of the civil service and fail to acknowledge the hidden workforce “encourage the public into believing that it truly can get more for less,” Light said. And the heavy reliance on such workers, while sometimes necessary, makes it more difficult to figure out who is accountable when things go wrong, he said.”
http://www.washingtonpost.com/wp-dyn/content/article/2006/10/05/AR2006100501782.html
Doesn’t anyone remember the $900 toilet seat from the 1970s?? Outsourcing is not a panacea for government spending.
Do you think anyone overseeing government spending can go up against someone like Halliburton? Ever hear the story of what happened to Bunny Greenhouse? (http://en.wikipedia.org/wiki/Bunnatine_Greenhouse)
“The #1 problem with government is that they only hire government employees”
you must not be reading the news lately. private contractors with no accountability is now one of the biggest problem of the government. where would rather *waste* your tax dollar?
California bankrupt? Not a problem. The USA bankrupt? Not a problem. Just print more money.
–
Just like what we did during the Great Depression? And who all will profit from “printing money” if such a desperate act was undertaken??
Jas
The printers.
California agencies buy stuff that I know they don’t need, but they “have to spend it” or they’ll lose out in the next budget cycle.
Here is a good one on waste- Forest Service spends a few million here in Santa Clarita (Acton) so they can consolidate their offices that are now spread throughout the Angeles Forest
What is the big deal? They already have thousands of acres and lots of viable land for offices. Offices built, parkland suffers, solution, close more of the forest to the public.
“Texas. California agencies buy stuff that I know they don’t need, but they “have to spend it” or they’ll”
The LAUSD, the humongous LA school district, is spending billions of taxpayer dollars,bond funds, buying up eminent domained houses all over inner LA areas, and building new primary schools in such areas as east LA, east/central SF valley, Scentral LA, ect. They are’investing’ hugh sums of CA tax-payer dollars in education for the half-million or so kids of immigrants.
This activity does provide jobs for the relatively few fortunate contractors, whether state union contractors or independent out-sourced contractors, who get these contracts. But it is all funded by taxes and CA bonds passed by the generous CA voters.
“but they “have to spend it” or they’ll lose out in the next budget cycle.”
Yes, that’s because budgets like RE only go up. If they don’t spend it they won’t get that increase that they may need next year. I fought these budgets (county) for 25 yrs.
“but they “have to spend it” or they’ll lose out in the next budget cycle.”
isn’t this how everyone operates? private corps does this all the time. charitable institutions are the only entities i have seen where this is not the norm.
Did you know that all the sub prime loans do not have tax and insurance impounds? It is hard to believe, with max leverage and bad credit. I guess the bond underwriters did not want the hassle of dealing with the deadbeats for the impounds, since they will have to make up the difference when the loan goes bad. No the counties and states going to feel the same thing any other sub prime investor gets: the shaft.
It use to be the lender’s wanted to get impounds, so they could earn interest on the deposits and secure the value. I guess rates are too low to provide a decent return for the risk. Oh, there is a novel idea: risk vs reward.
Paladin
Thanks for info.
I did not realize that sub-primes do not require tax and
insurance impounds. Until now, I always thought it was
the reverse, since the sub-prime market entails more risk.
What is your current take on the Orange County
sub-prime market?
Do you have a sense of what the default rate
might be in 2007?
The OC sub prime mortgage fraud submissions submitted via e-mail (still hopping to get the actual web site functional this week) have lead to unbelievable disregard for the fundamentals. I think OCRenter at http://bubbletracking.blogspot.com/ really sees this first hand and his post are so, so funny. I wish I had his sense of humor.
Defauts are going one way: up. We are hitting an accelerating default velocity, yet all the conditions remain “favorable” for housing (low rates, full employment, easy money but tightening, population growth and inmigration). Think how unbalanced this market will become when those factors start to change, as they always do.
Paladin — your note reminded me of a book I have stored somewhere about the history of taxes. It seems that the oldest and best-preserved records in the world almost always involve tax rolls/information. Governments always get their property-tax take first, so mortgage lienholders of any stripe will be second at the table. I suppose the only way the gummint could get screwed would be if an uninsured structure burned to the ground on a low-value piece of land, and wasn’t replaced.
It used to be that you could only impound your own taxes and avoid PMI if your loan was 80% or less (LTV) ie. 80/20 loans, etc.
“Did you know that all the sub prime loans do not have tax and insurance impounds?”
Probably because the lenders realized that the borrowers would go into default quicker if they included the tax impound.
aren’t ppty taxes included in mtg payment?… so that you can’t not pay em
What if you don’t have a mortgage?
“What if you don’t have a mortgage?”
The tax office probably will suggest that you consider getting one, in order to pay your taxes. The only difference between government and the Mafia is the latter isn’t much into “sensitivity training.”
Property taxes are NOT always included in the mortgage payment. That’s a deal between the lender and the borrower, though in most cases (especially with high LTV mortgages from established lenders) the bank does require it.
However, over three mortgages that I’ve had in my life, none required it for taxes or insurance. They did, however, require top credit scores and minimum 20% down payment before this would happen.
Yo! Got CDS?
http://www.markit.com/information/affiliations/abx
(click an index, any fricken index)
O.K. Let’s see, I’ll open up the chart for ABX HE BBB (you know, a tranch with some decent credit behind it! BBB, that credit is better than GM!). Hmmm, the bonds were priced at 100.5 in August. Today? Oh, my. 88.5 and dropping like a rock. P’cola, If I had invested $1,000 in August, I could only get $888 out today, and probably less tomorrow. Good thing I did not buy $50 million, like the NY Teachers Pension Fund (….kidding, but some one did buy the bonds). These bonds are starting to like like those 20% seconds behind all those sub prime firsts! Oh, wait, that IS what they actually are (….not really, but it does seem the values are comparable). Wow. More to come.
Don’t forget to adjust for inflation! $888 is worth less than $888 back in August. The Bernanke train just keeps steamrolling on.
What better way to eliminate the national debt than devalue it.
I am not expecting any serious losses when banks mark to market their MBS portfolio at the end of the first quarter. Its not like MBS are 50% of their portfolio or anything.
Any idea what percentage MBS are of the average bank portfolio?
Generally 0. The advantage of having an MBS is that they are tradable, the bank’s loans are a lower cost than a securitized product.
Also, the bank doesn’t have to mark to market their loans or MBS quarterly (or ever, as long as they aren’t selling them), but they are supposed to reserve appropriately for credit losses (appropriately in the viewe of management).
I should clarify that that’s a bit of a tricky statement, the smaller the bank the smaller the ownership of non-Treasury securities, so for the median or average bank, it would be pretty low, but for larger banks it can be bigger (because they act as dealers in securities).
I just checked WFC’s 10Q for the 3rd quarter of 2006 and the bank has $41 billion of mortgage backed securities included in the Securities Available for Sale line on the balance sheet of $53 billion. WFC has an additional $40 billion of mortgages availabable for sale on the balance sheet. Also in the gross Loan Portfolio totaling $307.5 billion are included 117 billion of loans classified as 1-4 Family Mortgage Loan (1st and 2nds).
WFC has total exposure of around $198 billion in mortgages including the $41 billion of MBS. Stockholders’ Equity is $45 billion.
I left off that total assets are about $483 billion which compared with total mortgage related assets of $198 billion puts WFC’s total exposure at 41% as of September 30, 2006 per the 10Q.
Based on bank 10Qs that I have reviewed (about twenty) mortgage exposure is more or less 50% of total assets for just about any and all banks in the US.
Based on bank 10Qs that I have reviewed (about twenty) mortgage exposure is more or less 50% of total assets for just about any and all banks in the US.
Are the mortgages 20% down (15 or 30 yr fixed) or are they scamdoodle loans?
p.s. if I send you a link to my bank’s financials, could you give it a look-see and give me an idea what is going on? My right-brain hurts when all those digits show up on the screen and attempt to activate my left brain.
Send them to me PhillyGa.
Send them to me PhillyGal.
where?
Just post the ticker if it’s public and you’ll have your answer in no time flat. P Popper, yeah mortgage exposure is probably 50%-75% depending on the institution, but mortgages and MBS are very different things, and neither are marked to market in most cases. Even the AFS aren’t really marked to market (only trading securities because accounting rules are truely insane).
Here’s the links if any of you financial heads would be so kind -
income statement
balance sheet
cash flow
TIA!
posted 3 links but they must be in moderation jail, so here’s the ticker:
MTB:US
As of Dec 31, 05, they had 2.3 billion in construction loans, 16.6 bilion in mortgage loans, 2.6 billion in Government backed real estate securities, and 4.2 billion in privately backed real estate securities. Total real estate loans and securities $25.7, while total assets are $55 bilion (46% of assets are exposed to real estate). They have $5.8 billion in equity and $0.6 billion in allowances (losses they have already taken).
Most of their loans are commercial which are almost always floating rate (commercial borrowers typically hedge using swaps or futures rather thay paying the bank a premium for the callability feature that is in a mortgage).
On an average basis, they had 17.3 billion in real estate loans (banks tend to adjust at quarter ends, so the SEC makes them report average balances, too).
tx for taking the time, bluto.
If you’re ever in Phila., hit me up for a cheesesteak!
Ooh a cheesesteak, might have to take you up on that, I grew up in the west, but now am in DC, and have been wanting an authentic one. Were you worried about the credit of your bank because you’re a stockholder or a depositor?
Honestly, my take was that most of their loans are for apartment type properties, but they weren’t as clear as some banks. They had (at year end 05) more than enough capital, if you were a very nervous depositor, you could start shopping the competition, if their equity drops to under 7% of assets (it’s at about 10% now). If you are an equity holder, there are a zillion other things to take into consideration.
The authentic cheesesteaks be here, “cous”!
to your question - nervous depositor. Proceeds from my house sale are parked there. Not to get too specific, but the funds exceed the FDIC max. One of the other banks I’m considering - have already looked into their jumbo CD rates- is an old school Main Line bank, can’t imagine they’re anything but conservative. And then the rest will go into my credit union. On another thread posters gave websites that rate banks.
I had intended to purchase a home 6-9 months after I sold my residence. It didn’t take long for me to notice that sales were slowing, prices sliding, and then I found this blog. So now I’m a bubble-sitter/nervous depositor.
With that sort of liquidity you might consider a brokerage fund and bond fund (I’m sure you could find something similar with the same basic interest rate structure (you could sort of ladder it for extra liquidity if needed) and thereby spread some of that risk around more credits to help you sleep better at night. Shoot an email to adam.nelson at gmail if you want some specifics.
Bluto: Can you make a determination of their liability, real or potential, for repurchase of MBS securities from early default or nonperformance? Have they made any escrow or allowance for this (usually done in footnotes)?
Sorry, I don’t have the time to go peeking through myself right now, but this is the issue which sinks lenders nowadays, not the loans they’re holding, but the loans they’ve already pawned off coming back to bite them.
Not very well from a 10-K. You’d have a very hard time telling if those were say FHLM securities bought on the open market (if so there only risk is that Freddie fails) or stuff they created via the swap transactions (where they trade mortgage pools for securities). The enterprises don’t deal with most of the sub prime lenders directly (sub prime by definition means a non-conforming or loan that the enterprises don’t buy). If prime loans were going bad quickly enough for a buy back clause to be triggered (I am not familiar enough with the Enterprises make good terms) you’d should be seeing the ALL/LLP hit each quarter. Then equity when those were exhausted.
I mentioned the balance of the allowance for losses at year end (as you get to count that as capital), you could walk through the quarterlies how much it has been changing this year if you were really interested. (I’d put a couple of bucks on not much given the ratio of commercial to residential). I’m not here to make judgment calls, so those are just the facts.
(Twin Cities, Minnesota)
Closeout on Condos
Prices have been slashed at Uptown Landing … the developer defaulted on the mortgage, partly because of a soft condo market
…Uptown Landing developer Springbrook Corp. refused to say what went wrong with its projected $20 million project. But industry experts suspect the building sat almost empty for nearly two years after completion because of today’s soft suburban condo market and rising interest rates, construction prices and land costs. “Right now, a lot of contractors are running into trouble,” said Larry Zielke, who handles foreclosures as managing partner at Shapiro Nordmeyer & Zielke LLP in Edina. “Foreclosures are up overall on individuals, but they’re also up on contractors.”
Springbrook sold only three Uptown Landing units after finishing the first phase in summer 2005.
With almost no condo sales, the company soon defaulted on the mortgage.
http://www.twincities.com/mld/twincities/news/local/16678237.htm
Here is the piece on foreclosuresin the Twin Cities. I haven’t seen it yet (comp is being goofy), but hopefully it is decent.
http://www.myfoxtwincities.com/myfox/pages/News/Detail?contentId=2318008&version=4&locale=EN-US&layoutCode=VSTY&pageId=3.1.1
That was just for the teaser promo’ing the piece. Here’s the link to the actual piece itself:
http://tinyurl.com/3yr9kc
The story says there are 7000 foreclosed homes currently in the TC metro. That’s notable, considering that as of 1/15/07 there were not quite 33000 active residential RE listings in the TC market. So for just over every four homes currently listed for sale in the TC, there’s a home in foreclosure. That’s a hard number to ignore.
2nd try
who is buying reits when institutional investors are net sellers?
Should You Buy When Private Equity Sells?
plus a nice fleckenstein rant
http://immobilienblasen.blogspot.com/
Found this unrelated, but depressing, chart while surfing jmf’s links:
U.S. households with less than $500 in the bank
Age group Percent
Under 35 34.5%
35-44 25.1%
45-54 22.1%
55-64 19.0%
65-74 18.8%
75+ 14.9%
Source: Federal Reserve Board’s 2004 Survey of Consumer Finances
Where do these numbers come from? I would like to request that, from now on, all posted numbers come with a reference to a reliable source. It’s just getting too hard to measure my confidence level.
Merrill Loaded for Bear in Mortgage Market That Humiliated HSBC
By Bradley Keoun and Jody Shenn
Feb. 12 (Bloomberg) — Merrill Lynch & Co. Chief Executive Officer Stanley O’Neal was willing to lose $230 million to catch Bear Stearns Cos. and the shakeout is just beginning.
That’s because Merrill is determined to capture a dominant share of trading in bonds backed by home loans, the fastest- growing debt market since 1995 and this year’s most troubled. O’Neal’s enthusiasm for mortgages to potentially delinquent borrowers coincides with the highest default rate in more than six years, a record contraction in demand for so-called subprime loans and descending bond prices.
http://tinyurl.com/23pqks
If I was a shareholder or Merrill Lynch, I would be outraged!
Fascinating. Merrill: All you men jump on this sinking ship. We can save it. O.K., now get out your tea spoons and start bailing water? Ignore that iceberg, full speed ahead.
Here is one of my favorite quotes today:
“HSBC’s troubles stem from its $15.5 billion purchase in 2003 of Household International Inc., then one of the largest U.S. lenders to consumers with poor credit. Beguiled by the high interest rates on subprime loans, HSBC erred by keeping many mortgages on its books instead of selling them to investors. It also bought up the second-lien loans homebuyers use to gain additional leverage.”
No one says HSBC erred by making bad loans, only that HSBC did not find a Greater Fool to pawn them off to! Sheesh.
reminds me of when mercedes bought chrysler back in the late 1990’s. Story was that the Chrysler execs gave crazy leasing terms for short term profit. sold the company, got rich and let mercedes get stuck when the value of the returned cars plummeted and they lost a ton of money on the lease returns.
same thing here. household execs probably knew that the good times would soon end and sold the company to let someone else deal with the headache.
“The best time to get in is when things are horrible…If you can get in at a discount and clean up the underwriting, that could be a big moneymaker when the housing market comes back.”
True, but that could be a couple of years away. Both Merril and the private equity firms have as a model extracting the value and selling encumbered assets to greater fools. My guess is they are counting on the government to be the greatest fool.
The old “pass on your losses” strategy (sell the horse before it dies).
The good times in the mortgage business are over.
And the car business…
And home construction…
and the selling of luxury vacation packages…
not to mention eating out every meal in a restaurant…
or any other business dependent on cash out financing.
Interesting times ahead.
See the stock market this morning? Counter futures!
Got popcorn?
Neil
You seem to be forgetting Wall Street’s position as financial toll-taker. Merrill and the other houses are not interested in holding this garbage paper, but simply passing it on to investors who have an insatiable appetite for these products, making money on every transaction along the way.
jb
bingo, i met one of the senior partners at bear stearns at a funeral last year. i asked him how they could justify buying the junior liens in an 80/20 transaction in a declining market. his comment was that i was thinking like a lender, the risk was not their’s, as they passed the associated paper on a minute by minute basis, they would never hold that stuff in a million years.
This journalist reporting crime:
The criminal erred on the side of keeping the smoking gun instead of removing the fingerprints and leaving the gun at the crime scene.
Yeah, Arlington, you see the same thing. Funny how no one mentions there was a MURDER in all this activity. HSBC’s mistake was getting caught, not doing the “crime” (predatory lending and stupid loan underwriting).
Japanese Investors Turn Bullish on U.S. Treasuries (Update1)
By Wes Goodman and Daniel Kruger
Feb. 12 (Bloomberg) — Bond investors in Japan, the biggest sellers of U.S. government debt last year, are returning to Treasuries as the dollar gains and yields rise.
Fuji Investment Management Co., which oversees the equivalent of $10.8 billion, boosted Treasuries in its global bond holdings to 40 percent from 30 percent in December, anticipating slower U.S. economic growth. Daiwa Asset Management Co., Japan’s second-biggest money manager, is buying 10-year U.S. notes.
“The place to be is the Treasury market,” said Akira Takei, a money manager at Fuji, a Tokyo-based unit of Mizuho Financial Group Inc., Japan’s second-largest bank. “The rally will resume in the bond market.”
The combination of a rally in Treasuries and a 2.2 percent gain in the dollar this year boosted demand from Japan’s investors, who reduced holdings of U.S. government debt for a second year in 2006 in favor of higher-yielding corporate bonds and securities from Fannie Mae and Freddie Mac, Treasury Department data show.
http://tinyurl.com/2bz4mf
Yes, justpump more money into the US Economy. Keep money cheap and as they say, the bigger they go, the harder they fall.
Yeah but they are saving their means of production while we are losing ours. Beggar thy neighbor
check out the mortgage forums are creditboards. suddenly i’m seeing posts for people’s ARM loans getting ready to adjust and they don’t know what to do.
They should pray to the appreciation gods to reverse the downward spiral in home values. or they can just mail in the keys and walk away.
the american dream alive and well in anytown usa
One interesting post was from a guy who had his 100K HELOC credit line reduced to basically what he had already used. I imagine there are a few GFs who think they can weather this “correction” with their untapped HELOC money who are going to be surprised.
Waaahoo — this reminds me of a rhetorical question I posted here well more than a year ago — do not the lenders have CYA wording in their equity-line docs that allow them to cinch up the credit if the property values in the area are falling? They’d have been fools not to, as even joe-schmoe-moi would include such a safety valve. Guess the post you read proves that at least some lenders had such foresight. Now for the shock to spread fast and hard as the MSM first begins to mention this little “glitch.”
This could be true…
As an open HELOC is a dangerous parachute to escape a deflating asset.
I’m wondering how long until cash out financing pauses. Ok, it will never completely pause… but when will banks insist on 80%+ equity be preserved?
This is getting interesting!
Got popcorn?
Neil
dba
can u provide links
http://www.creditboards.com, go to the forums and then the mortgage forum
Can someone tell me how much cash NEW has left? I just read that their business model is to borrow from others to lend to others. I was wondering who would loan money to people who do not invest it properly? If confidence in them drops do they go out of business?
The last I saw, they were sitting on $350 million in cash reserves. If thye have to buy back $500,000 loans, that is only 700 of them. Assuming they become worth 80% of that when they are marked to market, they can run that scenario 5 more times and all the cash is gone. Does anyone know how many loans they originate a year?
Sounds like a recipe for very fast and efficient short sales, to me.
I don’t remember seeing a comment about this article in the LATimes.
20% down seems like ancient history
By Kenneth R. Harney, Washington Post Writers Group
February 11, 2007
WASHINGTON — Does anybody remember the old days when home buyers actually made sizable down payments — often 20% or more — when they bought their first house?
New national survey research reveals just how dated and quaint that concept has become in today’s market, thanks to rocketing home prices that have far eclipsed buyers’ incomes and savings.
From mid-2005 to mid-2006, according to a statistical sampling of a representative group of 7,548 purchasers, nearly half of all first-time buyers financed the entire transaction, obtaining mortgages in the full amount of the home price. Also, 30% put down 10% or less.
…..
Buyers who made small down payments in 2005 and 2006 face a starkly different prospect: They started with minimal or no equity, and they may still be in the same position. Worse yet, they could be temporarily “upside down” on their mortgages, with a principal balance greater than their current home value.
People who bought in hyper-appreciating markets could be vulnerable financially if they have to sell on short notice because of a job transfer or they can no longer handle the monthly payments.
Bottom line: Leverage in real estate slices both ways. A minimal investment can produce impressive returns if the appreciation tide is rising. But it can also expose you to a negative-equity situation when the tide recedes.
….
for complete article go here:
20% down seems like ancient history
Saw that in the times yesterday. It was fairly visible (THANK GOD).
20% down = “dated and quaint” — gotta love that!
NEW would originate 700 loans in a bad month! They are probably toast. Someone will buy them out.
Bust Stars Aligning:
http://wallstreetexaminer.com/blogs/winter/?p=422
Russ:
The time to insure yourself vis a vis Gold or in the currency you think will survive, is upon us.
It’s not too late to do something.
whatever.
I like “ZIRP-sixed.”
From Bloomberg: borrowers and lenders who took Greenspan’s ARM advice facing consequences.
http://www.bloomberg.com/apps/news?pid=20601039&sid=aMEfUsHA556w&refer=home
“By Caroline Baum”
Glad someone in the MSM had the cojones to come right out and link yesterday’s bad advice to today’s epidemic of broken ARMs.
From National Real Estate Investor: small banks, big risks in commercial real estate.
http://nreionline.com/mag/real_estate_small_banks_big/
For a lark I went to some open houses in Malibu CA yesterday,and found one I had seen on the market two years ago at one million (four bedroom in a nice area, but pretty high in the hills). At the time, I remember the agent saying tht the couple was motivated, getting divorced. Well, now the same couple is asking 1.4 million. I guess they don’t read the papers about the state of the market (maybe their mutual greed kept the couple together?)
Those flipper/investors are screwing up the housing market near Phoenix!
http://www.azstarnet.com/business/168729
Rules sought on mortgage officers:
http://www.azcentral.com/arizonarepublic/news/articles/0212mortgage-originator0212.html
Check this out from Craigslist Cincin. RE section..
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Every day our club searches cities like Cincinnati Ohio great investment opportunities so you don’t have to. Free Membership, exclusive projects; what do you have to lose?
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just one more way to separate a fool and his money.
FB seniors from San Diego Craigslist …
I’m looking for anyone to buy our house for around $250K and then quick claim it back to us. I can’t qualify for a re-fi nor can my wife. Our mtg is a variable and it will go to over $1900.00 in March
http://sandiego.craigslist.org/rfs/277474993.htmlr $1900.00 in March
Vacant House Insurance…somewhat off topic. I have a relative with a house on the market in the Carolinas. It has been vacant for a year now. Yes, it’s overpriced, blah, blah, blah.
At my urging, the relative got a quote from the insurance company for the vacant house. It was over $3500/yr, more than 3 times the amount they used to pay when the house was occupied. And this does not include vandalism, just fire and storm damage.
Think of all those empty flipper houses in a neighborhood near you. I bet not 1 in 10 has proper insurance coverage if the house is vacant. Ouch.
And the question I have is this: If something happens to the house, like a fire or vandalism, then how stringent are the insurance companies about enforcing this clause? A friend of mine doesn’t want to tell his insurance company because he says “it’s too much bother”, even though he is convinced (he says!) that his insurance will go DOWN instead of up on his vacant house — a house that he can’t/won’t sell after his job transfer.
Will the insurance companies deny claims outright, or pay pro-rata, or do their adjusters just kinda ignore the fact that there happens to be no furniture and personal belongings in that house anymore?
My guess would be whether or not the vacancy was a factor in leading to the event that triggered the claim. For example, a claim from vandalism or damage from someone unlawfully occupying the home and converting it into a meth lab might get denied. But an act of god or whatever (if not otherwise excluded from coverage) would be covered.
Although one is really leaving themselves at the mercy of his insurance company by not taking the steps to convert the homeowner’s policy to a vacant property. In my limited experience, claims adjusters will find whatever excuse they can to deny major claims whenever possible. Minor ones they won’t press the issue on minor technicality (they can easily recoup the money lost by charging higher premiums in the future) as its not worth the costs of disputing a claim over. But they will fight like a junkyard dog to avoid reimbursing damages whenever they have solid grounds to do so.
Yeah, I always tell folks this about insurance companies:
They pay their bills and salaries with your premiums. They’re carefully calculated for that purpose.
They pay for the Christmas party and their vacations by denying claims.
My husband and I got a laugh over the weekend. Last summer we toured the models for a condo development right off of the 5 freeway in Orange, Ca. I think it was called 3 Chapman then. We didn’t bite as we could buy a SFH in the area with >= sqft for the same price…and have a garage. A few months ago (and I think someone may have mentioned it here already) a huge NOW RENTING sign went up. Yesterday we drove by and noticed that it has been rebranded to “Allure Apartments and Lofts.” What? You guys found out nobody wanted to pay $650K for a 2bd w/ loft condo with a view of Interstate 5? Oopsie.
Originally those units were slated as Condos. AS the units neared completion the developers decided to change them over to apts. Reason; no one with any brains would purchase those units, being as they are right between two freeways(5 and 57)and sited on a very busy wide street(Chapman). The entire project was Mistakenly conceived and abysmally sited, and is a monument to developer greed and stupidity. Who the hell except for marginal immigrant temants wants to live in units sited right next to one of the busiest fwys in Scal.
The best part is they are asking insane rents. These are down the street from a mobile home park and adjacent to a freeway on the border of Anaheim/Orange and they are asking Irvine type rents. Good luck with that!
http://www.forrent.com/apartments/1000009714.html
A condominium board on the Upper East Side is asking a judge to stop a newly opened Subway restaurant from baking fresh bread, claiming the building is being “inundated with strong and nauseating food odors,” causing property values to plummet.
http://www.nysun.com/article/48454
Love that condo lifestyle…..
Poor fool:
http://washingtondc.craigslist.org/nva/rfs/275820089.html
$289000 Desperate for QUICK SALE — NO PROFIT SITUATION — An Honest Post
honestly, here’s the situation…I bought a 1 bd condo for $289k a few months ago and no longer believe it to be a good idea. I will sell it to someone in sought of just breaking even, or even at a loss. It is available for $289 OR BEST OFFER. I was told this to be an investment and future metros are going to make this condo $500k. If you believe that then this is a GREAT OPPORTUNITY.
If any of the agents I spoke with who said this is a great investment and that these are selling like hotcakes and there will be no more condos for anyone to buy are looking for a great investment then please BUY MY UNIT. Email me for pictures and details. Please be a SERIOUS BUYER as I’m not looking for profit. Honestly if you are reading these listings then THERE IS NO BETTER BUY THAN WHAT I GOT. Thanks. Please note for all of you waiting in the sidelines browsing, IF THE MARKET GOES DOWN THEN I WILL NOT SELL MY HOME. THE OPPORTUNITY IS NOW.
There is “no better buy” than what he’s got, he says?
Sorry dude, you are toast. Bad move, buying that overpriced condo.
My favorite line is this:
“I was told this to be an investment and future metros are going to make this condo $500k. If you believe that then this is a GREAT OPPORTUNITY.”
Oh yeah, and if I believed that, I’d be buying TWO or THREE of your overpriced little gems! Great opportunity, bwahahahaha!
My favorite line: “IF THE MARKET GOES DOWN THEN I WILL NOT SELL MY HOME. THE OPPORTUNITY IS NOW.”
Hope you enjoy being a landlord, Nimrod.
I just can’t feel sorry for these people. He honestly thought that he could make a couple hundred thousand by just holding onto the house for a little while? And now suddenly he can’t cover the carrying costs? Maybe his primary home’s ARM just reset?
Wonder if he’s looking forward to the prospect of cramming 2-3 roommates into that 1 BR condo. Like Marsha Mason had to live with doofus Dreyfuss in The Goodbye Girl.
“Like Marsha Mason had to live with doofus Dreyfuss in The Goodbye Girl.”
*******
Excellent reference, Philly…
Hey all you mortgage pros!
CalculatedRisk has a post up about Fremont issuing new guidelines. Do any of you have any independent information on this???
My apologies if Ben (or someone else) already posted this. There’s been so darn much news to keep up on lately!
Bill Fleckenstein’s column from 2/5/07:
How Housing Masked a Weal Economy
http://tinyurl.com/35n4dw
Typo. Should read:
“How Housing Masked a Weak Economy”
“They (WMC folks) are going to get rid of all 100% financing on all borrowers below 700 FICO. Also, (there will be a) 95% cap on first-time homebuyers. All we talked about is coming to a head. Now watch the home builders suffer.”
(Yawn…)
http://www.phillyblog.com/philly/showthread.php?t=31064
This is such a quality thread for Realtor clap trap.
updates are now live:
http://madisonhousingbubble.blogspot.com/
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