Credit Environment “Difficult”: CEO
Some housing bubble news from Wall Street and Washington. “Accredited Home Lenders Holding Co. reported a quarterly loss three times larger than Wall Street expected as more homeowners defaulted on mortgages. CEO James Konrath called Accredited’s results ‘dissatisfying,’ citing a ‘difficult credit environment.’”
“Subprime lenders are being battered by lower volumes, narrow margins and rising defaults. Accredited said on Wednesday it set aside $42 million more reserves at year-end than in September because delinquencies are rising, and investors are forcing it to buy back more soured loans.”
“Lending volumes declined, as mortgage originations fell 18 percent to $3.87 billion.”
“The company will not issue a 2007 earnings forecast, yet said market turbulence will persist through the year’s first half. It expects loan volume to decline and origination costs to rise in the first quarter from the fourth quarter.”
The LA Times. “Fremont General said Tuesday that it would stop making second, or ‘piggyback’ mortgages, that allow borrowers to use a second loan in lieu of a down payment when buying a home. The company said it could no longer sell the second loans at a profit because of the turmoil in the sub-prime business and investors’ fear of defaults.”
From Bloomberg. “Santa Monica California- based Fremont General stopped offering the programs because it can no longer sell the loans at enough of a profit, said Trude Tsujimoto, general counsel for Fremont Investment & Loan, which does the company’s subprime lending.”
“Most of the extra $1.8 billion HSBC will set aside to cover bad loans relates to subprime home equity loans, executives for the bank said. ‘Where we believe that the first lien mortgagee will foreclose, and we’re seeing a lot of that going on, we are then saying it’s unlikely we’ll get anything for the second lien,’ HSBC CEO Michael Geoghegan said.”
“Fremont in mid-2006 tightened lending standards for ‘80- 20′ combo programs, where the second loan represents 20 percent of a home’s value. About a quarter of subprime mortgages in 2006 involved combo programs, up from 16 percent 2004 and 1.3 percent in 2000, according to UBS AG.”
“‘The answer to solve everybody’s problems was the 80-20s,’ as the lending also allowed mortgage companies to help borrowers get into homes made less affordable by record home price appreciation in many states, said Jack McCleary, head of asset- backed trading for UBS.”
“Fremont last month cut programs that allowed borrowers to put no money down without proving their incomes, put down less than 10 percent for properties sold without real estate agents or refinance loans already more than 90 days late.”
The Financial Times. “A savage sell-off has swept through the credit derivatives market for sub-prime mortgages since HSBC and New Century Financial delivered a bitter pill to investors last week.”
“‘Shorting sub-prime credit has finally worked for the housing bears, finding its ultimate expression through the ABX index,’ says Gyan Sinha, mortgage strategist at Bear Stearns.”
“‘Liquidity has (temporarily) evaporated from the ABX market and a ferocious sell-off has caught most of the market off-guard,’ say Gary Jenkins and Jim Reid, analysts at Deutsche Bank. ‘This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.’”
“The Deutsche analysts add the unknown risk is whether any investor in ABX products faces liquidation pressure elsewhere in their portfolios. ‘As a minimum, the conclusion we draw from this recent (and so far isolated) event is that we need the US economy to be strong for the leverage in the system not to cause a panic, and that when the next downturn in the economy does come, credit is unlikely to be immune from this,’ they say.”
From Reuters. “A new version of a derivatives index that lets investors hedge U.S. subprime mortgage exposure on specific layers of risk is slated to hit the U.S. asset-backed securities market on Wednesday.”
“Some investors doubt whether the latest index will become a popular hedge tool for investors, given the sharp slide to new lows in the ABX 06-2 and 07-1 series. ‘I don’t know if this thing will ever get off the ground. You’ve got two of the worst-performing indexes and you’re going to create another product off of that? I just don’t know if that’s going to fly,’ said Mike Kagawa, portfolio manager at Payden & Rygel.”
The Orange County Register. “If guys like Steve Schroeder are correct, shoppers will have another score to worry about when they’re house hunting. But Schroeder thinks you’ll soon need a ‘collateral risk score’ too, a computerized analysis of the home’s pricing to ensure it’s logical.”
“As this housing cycle warmed up, I can’t tell you how many lenders swore to me this time wouldn’t be another boom-to-bust. Why? New loan-checking technology. Yet credit scores may not have been enough. Apparently, credit scores couldn’t entirely tell the lender how risky the loan would be.”
“Eventually, Schroeder thinks these scores will be part of the borrowing process. The computer, unlike other participants in the process, can’t be bullied or swayed by the cash-filled lure of a closed sale. ‘It’s a whole new ballgame,’ Schroeder says.”
“Schroeder knows that lenders made more than their fair share of mistakes in this real estate cycle. ‘This industry operates a lot like a herd of lemmings,’ Schroeder says. If one type of loan becomes popular, lenders frequently have few choices. Do those hot deals or fail to thrive, or even survive.”
“‘The business pressure was tremendous. That began extending the idea of what was a good loan,’ says Mark Fleming, CoreLogic’s economist. ‘Now everybody’s pulling back on their appetite for risk.’”
From MarketWatch. “U.S. retail sales fizzled at the beginning of the year, with big declines in auto and gasoline sales. The report showed ‘a continuing trend of weakening growth in consumer spending,’ wrote Scott Hoyt, an economist for Moody’s Economy.com. Energy prices and, the housing bust will be ‘formidable obstacles to spending growth.’”
“Masco Corp., the maker of Behr paint and Delta faucets, had a fourth-quarter loss after a decline in the U.S. housing market reduced demand. It was Masco’s first quarterly loss in five years. Sales in the quarter fell because of the slowdown in new home construction and a moderation for consumers paying for ‘big ticket’ home-improvement items such as kitchen cabinets.”
“Fed chief Ben Bernanke said Wednesday that the central bank is comfortable with rates at their current levels but stressed that further rate hikes could occur if the inflation outlook worsens.”
“Tentative signs of stabilization have appeared in the housing sector, he said. ‘However, even if housing demand falls no further, weakness in residential investment is likely to continue to weigh on economic growth over the next few quarters as homebuilders seek to reduce their inventories of unsold homes to more-comfortable levels,’ he said.”
“As a result, the housing market continues to be a key downside risk to the growth forecast, he said. The FOMC trimmed its forecast for real GDP growth in 2007 to 2.5%-3% from its earlier estimate of a range of 3%-3.25%. Bernanke said growth would strengthen over the course of the next two years as the drag from housing diminishes.”
‘Accredited Home Lenders Holding Co. today announced results for the fourth quarter and year ended December 31, 2006. The company will not issue earnings guidance for 2007 because of the high level of uncertainty surrounding key external conditions that determine profitability. These conditions include:
– The amount and nature of competition and the effect of industry consolidation on capacity in the non-prime mortgage origination market
– The overall condition of the real estate market
– The impact of recent industry changes to products and underwriting standards and practices on originations and the secondary markets
– Investors’ appetite for certain whole loan products, whole loan pricing, and posture on loan repurchases
The company expects the current market turbulence will persist through the first half of 2007 and includes the following assumptions:
– Volume in first quarter to reflect the declining trend from the fourth quarter and seasonality impact
– Cost to originate higher than fourth quarter levels as a result of lower anticipated volume
– Continued pressure on whole loan sale premiums in early 2007
– Repurchases begin to decline by the second quarter reflecting improved credit focus and discipline
Long-time readers will remember this little outfit from early on:
‘FMF Capital Group Ltd. today announced that it is deferring interest payments on its subordinated notes for the month of January. FMF Capital Group is a residential mortgage lending company that originates and funds primarily nonconforming or ‘nonprime’ mortgage loans in the United States and sells those mortgage loans to institutional loan purchasers.’
so this industry is basically a huge shorting opportunity sometime this year?
“Accredited eliminated stated income loans with higher combined loan-to-value ratios (CLTVs) to borrowers with FICO credit scores of less than 640, Lydon explained.”
If stated income loans are headed to their historic 0.5% or so of all loan originations, then shouldn’t they be approved for minimum FICOs of something like 820?
wow
“A new version of a derivatives index that lets investors hedge U.S. subprime mortgage exposure on specific layers of risk is slated to hit the U.S. asset-backed securities market on Wednesday.”
Derivatives give you the chance to place a bet, be right and then try to collect from a bankrupt counter-party. It’s just another part of the credit bubble.
The problem is that everyone wants to make money by betting rather than doing something useful.
I’d like to be able to invest my money in something that will actually produce a better world, and make a profit as well. What are the options there? Most business ventures are either a hedonic waste, a total fraud, or plain overpriced. Even most charities are of dubious value these days. I got a call from a police benefit fund and only 15% of what you give ends up going to police widows the rest is “administrative”. It’s disgusting.
I give away a pretty decent percentage of my income. I don’t give much of it to registered charities. I find my own “situations” and donate. That takes legwork but is very satisfying.
amen, my boss organizes container shipments to Africa filled w/ medical equipment, books, computers (Pentium II or better required standard) that he and his group all pay for themselves and oversee the disbursement in Africa once the shipment arrives (months later). talk about karma builder.
“The problem is that everyone wants to make money by betting rather than doing something useful.”
Climber, you’ve brilliantly summed up the entire American economy in one sentence. I remember my instructor in an early 1980’s junior college investing class explaining how things worked on the trading floor. I raised my hand and told him it sounded an awful lot like a casino. Being that he was a stock broker by day, he was not amused.
“adopt-a-landlord” - like that handle!
“everyone wants to make money by betting rather than doing something useful”
True, because the tax and regulatory burdens of doing something useful are so high (do you know what it costs a small business to hire that -first- full time employee) that gambling is a very viable alternative.
I sincerely hope the mindless complaints about tax and regulatory burdens will start to subside now that the anti-government Republican political model of the late 20th century has gone bust. This country does not need to encourage an infinite number of “small businesses” that don’t generate enough value to carry their own weight. The best example of unregulated small business is the millions of illegal aliens running their own sub-contracting “small businesses.” There is no god-given right to be a parasite on the common infrastructure and externalize all your costs.
Would you rather have large businesses like GM or Chrysler laying off 12000, or 13000 employees at once? Think about that for a minute those are 12 or 13000 families that will have their lives turn to crap because of bad management decisions!
I would rather have the small business that are run on a shoestring, with a couple of stable, long time employees that also have time to contribute to the community that they live and work in… At least the fallout would be less devastating, than those enourmous losses, whom most of these people have little or nothing to do with….
And please separate Illegal alliens from small business. They are more often than not not related, unless you choose to hire your landscaper off of the corner, pay 20 dollars, than going to the chamber of commerce, yellow pages, or other sources of info, and hiring a small local company that pays taxes, has employees, a payroll, etc, etc…
GM might be laying off buy toyota and honda are hiring people and expanding. GM’s management are idiots, but so are the UAW who negotiated themselves out of jobs with crazy benefit demands and refusing to improve efficiency and quality.
a few years ago close to 75% of Ford’s and GM’s cars came off the assembly line with problems that needed to be fixed. Toyota was around 5% or less. UAW refused to change procedures because they didn’t want the people who fix cars before they go to the dealership to lose their jobs because the cars were too good. morons.
Albrt you are ridiculous. Your repsonse to the comment that people dont want to work is to bash the millions of small contracting businesses the illegals have started. Some people have only one agenda and yours appears to be getting illegals out of the country. The minutemen are accepting volunteers albert if you want to join.
JTCC you are ridiculous too, so there. I am in Arizona but I am not a minuteman and not primarily concerned with illegal immigration. My point is that our current immigration problems are a failure of rational regulation that will not be cured by getting rid of all regulations. Thus the analogy to unreasoning complaints about how unspecified “taxes and regulation” are making it too hard to start up an unspecified small business.
by the way, I also don’t disagree with Mr. Riley’s observation that the incentives in our society favor gambling over productivity. I just don’t think it can be cured by a simple-minded “less taxes and regulation” approach. Better government requires better government employees, which requires more money not less.
Working at a big company sucks unless you’re the kind of person who is lazy or incompetent and needs to hide in a crowd.
Practically all innovation takes place at small companies.
Better government requires better government employees, which requires more money not less.
OH WOW… we’ve gone entirely off the deep end now.
“Practically all innovation takes place at small companies.”
I don’t disagree with that at all. Small companies that are adding value can probably handle a reasonable tax and regulatory burden. But I am not the least bit interested in subsidizing people who can’t keep books or pay taxes and are dumping their waste in the alley.
re: better gov’t and pay
I work in gov’t, and I have seen the effect of local gov’t paying too little. They get underqualified people (for example, hiring a traffic planner who isn’t a PE!) and the work suffers. They waste money or end up outsourcing (paying many times over what they would have paid for employees who were qualified and closer to market rate). It’s gov’t, so you don’t expect to pay market rate (except federal, which pays well above, but isn’t exactly hiring much any more) but to go so low below market rate means you get the kind of yahoos who can’t get a good job in industry because they’re lazy, stupid, etc, or you get the young and inexperienced (that would be me *eg*).
Re: UAW. Everyone blames the UAW, but Toyota has a UAW shop in California–former GM–which has gone from being one of the worst factories in the country to being one of the best in the world. When Toyota and Honda are making highly reliable, best-selling cars with UAW labor, and the Big Three can’t even turn a profit with factories outsourced to Canada and Mexico, at some point you have to own up to the fact that it isn’t the union–it’s the management.
Management comes up with crappy car designs. Management’s “strategic vision” is to look two quarters in the past. Management has a problem with labor, and labor, thus, with management.
If the “Big Three” could emulate Toyota’s management style, they’d have a chance. After all, Toyota’s approach to manufacturing excellence is no secret. And, in fact, those “oppositional” UAW workers in Fremont learned to work with Toyota’s management style when they took over the factory–to wonderful and very profitable effect. It’s the sclerotic Ford and GM white collar force who can’t seem to get with the program.
And why should they? Buying Congress out to get trade protection has worked for them so far.
GM’s international brands do farely well in markets where they actually have to compete. In the US, they’re just a loan originator (GMAC) that happens to make 4-wheelers. Of course the unions are mad. How do you take pride in your work when you know you’re churning out crap and thanks to some CEO’s stupid decisions your job security is going down the crapper?
you obviously do not understand the legacy cost issues. The UAW has created (and mgt never wanted to take the ultimate challenge…..bankruptcy) a cost structure much higher than the Japanese cos in the US. By the way, if you really look at the current quality ratings….even by the paid off….the US makers come within statistical margins in most cases.
“Practically all innovation takes place at small companies.”
you must be joking to make this statement. big breakthrough r&d, like fundamental research, still requires lots of money and brain power that small companies will be hard press to provide.
Gambling is also a viable alternative to having a straight job. My lending business is very cautious gambling, but puts me in a tax bracket that is a major disincentive vis-a-vis Real Work. BTW after telling you all more than once that I would not make any more loans in the near future, I agreed again today to lend about 30% of property value (this is the senior note) to a past customer with a perfect payment record. An offer I couldn’t refuse, as I shall continue to charge 9.6% … the borrower might pay 10% but I’m giving rewards for good behavior.
Why would your client agree to such terms? It seems like there is still plenty of money to be had for such secure loands at lower rates elsewhere.
Josh
Albrt is indeed an idiot. It would appear he wants to invoke the discredited socialist model, where everyone pretends to work for the State, and the State pretends to pay them.
Bite me.
This is what I was talking about yesterday.
Work and education and service seem to have no value, and it has to be resolved or the country may not survive.
A graduate student (who used to date my wife, and then became a friend of ours) told me that it was business people who voted for Franklin Roosevelt in 1932 because they wanted to preserve free enterprise instead of watching their fellow colleagues destroy it.
you might want to look at russia during that period to see what motivates them the most to support roosevelt. remember what happened to the elites and capitalists when the communist took over?
It seems that everyone wants to make a killing. Nobody appears to be happy just to make a living anymore; its just not enough.
That’s likely because we don’t have any more stability/security — whether it’s job stability, pension security, even security in marriage & family.
With uncertainty, we humans go into “survival mode” and begin to hoard resources. IMHO, it’s to be expected, given our current economic & political environment.
“The problem is that everyone wants to make money by betting rather than doing something useful.”
Well said.
I’ve found in my 40+ years on the planet that volunteering brings a lot more fulfillment than a shiny new car. I am the economy’s worst nightmare. I buy very little and fortunately need to work a less stressful life because of it.
guess there no more business cycle
Bernanke said growth would strengthen over the course of the next two years as the drag from housing diminishes.”
on the big rock candy mountain
I hate politicians but Ron Paul is probably the only guy who understands this credit bubble and the Federal Reserve. And he’s going to be in the CNN debates! How did that happen? Someone is going to get fired for this one.
could happen IF the slowing consumption is only in durable goods and investment picks up to compensate for its’ decline… Very iffy (maybe I am wrong)
We don’t need a “collateral risk score” - the lenders knew what they were doing. After all, if they’re taking no-doc stated income loans, they’d find a way to ignore collaterial risk scores
It’s just a competive marketing tactic to make one company look better than another. “Look we use blah blah and therefore you should throw your money away with us and not the other guy.”
No kidding, it would be a huge step forward if they would simply ask for a pay stub from prospective borrowers.
“Fremont General said Tuesday that it would stop making second, or ‘piggyback’ mortgages, that allow borrowers to use a second loan in lieu of a down payment when buying a home.”
How many other lenders will follow suit? If downpayments really do become the norm again, watch out below. In California, most first time buyers use piggyback loans, as no one has 10% or 20% saved. No first time buyer, no trade up market, the whole scheme falls apart.
not quite, most of the lenders that have discontinued the 80/20’s have done so because hsbc was purchasing the paper and i’m sure they were read the riot act by hsbc. most still offer 100% financing, albeit at a higher threshold for fico scores, which they needed to do anyway. the buybacks and credit defaults from already originated paper will bury the remaining players, not their ability to offer 100% financing, imho.
That’s a very useful comment, I wondered about that myself. Thanks.
The 100% situation, whether it be 80/20’s, 90/10’s, or flat out 100%, is the ultimate damned if you do and damned if you don’t, stuck between a rock and a hard place scenario right now. If you pull the plug on these deals, the market is dead, no question. If you continue to lend it’s certain suicide as well. The answer is obvious but too painful for most to consider, and that is: Take this already dead market off life support and let it rest in peace. Let the healing begin.
Or come up with yet another way to “hedge” the potential losses (see post above re new derivatives)
People are finally starting to question the validity of making ridiculous purchases, finally. Last week I had a gal in my office for a pre-qual on a home in Reno. They (husband&wife) barely can scratch up the downpayment, but in their situation (employment & credit) 100% financing won’t be a problem. About midway through the interview, the gal gets this funny look on her face. She proceeds to go on about problems between her and her husband, and she doesn’t know where the relationship will be in a year or two. Her question was; with the type of loan they were looking at, what if they had to sell in a year or two? I expalined that if at best, the market flatlined, they would be hosed. Factoring in realtor commission along with sellers share of closing costs, they would have to bring roughly 8%-10% to the table to close the deal, in this case, 25K-30K. I’m not kidding, she looked at me wide eyed and asked “That’s if the market stays where it’s at and doesn’t go down any further?” My reply was yes, to which she added “Why would we do this?” I shrugged my shoulders. I’m currently awaiting a call from a very pissed off realtor. Oh well. it won’t be the first.
It’s amazing that people do not realize that their home has to appreciate at least 8% for them to break even when they sell (assuming that no chunk of principle has been paid down, which in most cases, it never has). So you see the situation you put yourself in for years to come with 100% financing in todays market (especially on an I/O deal)…… it’s called being behind the proverbial 8-ball.
Interesting juxtaposition: Don’t know what they’re doing with a lifetime committment issue (marriage) and they don’t know what they’re doing with a home purchase (possible lifetime committment these days).
I found that to be extremely funny. That Realtor is going to be spitting nails and fire when she/he calls. Too funny but good for you.
There need to be more mortgage brokers like you. Bravo.
When the realtor calls, ask them to commit, in writing, to handle the sale in 2 years for no commission. This would put the buyer at ease if they knew they didn’t have to pay the commission to get out. I suspect that won’t go far, but it would eliminate the buyer’s objection.
NV- I appreciate your brutal honestly to your clients but arent you kind of shooting yourself in the foot. Im not sure how you do your marketing but, i know people in the biz that rely on referel business largely from realtor types. If you are not actively promoting the virtues of home ownership in concert with your realtor referal, dont you think those referrals will end? And before i get lambasted on this thread and nv gets taughted as a superhero pls understand that i dont do purchase loans i am just curious about his business model.
I used to work with a remax broker (who did military relocations into DC area) who would re-list sales for people who bought from him at 4% (3% co-op) (or sometimes for nothing beyond 3% + MLS fee if they were squeezed) - I left workng for him to get into PR/Govt. Relations - but he was a really solid character. I sold a house a week for him - taking his prospects around on tours he set up - and got paid a flat salary.
He had a great, no-bulls**t operation. But I was tired of R.E. at that point. Still, one of the best people I ever worked for.
nnvmtgbrkr (Nevada mortgage broker)
God bless you.
NV,
Too bad you aren’t in the Sacramento area. I’m going to need a good broker in 3 yrs.
My guess is you can do California loans? Or if not will be able to in a few years when we (the blogettes and you guys) start buying?
The 100% situation, whether it be 80/20’s, 90/10’s, or flat out 100%, is the ultimate damned if you do and damned if you don’t, stuck between a rock and a hard place scenario right now.
And for those of us on the sidelines waiting to buy, it’s a win-win situation!!
I think you’re absolutely right. If the HSBC’s of the world are not willing to take the top 20% risk by itself, because upon foreclosure, they don’t get made whole, the only way they would be willing to buy a 100% loan is with dramatically different underwriting (verification of income, higher credit scores, etc.).
In any event, lots of people are now out of the market to buy, unless they have a down payment…
Actually, I rather hope 100% financing stays around for those of us with good credit scores. If I could buy a house with 100% financing with a 30-year conventional mortgage at a fixed rate, and the cost was less than my rent, I would do it. It will be the reward for those of us who didn’t buy into the Ponzi scheme.
Actually, I rather hope 100% financing stays around…
I have to say, I don’t. People with no equity frequently make lousy neighbors. Why? Because when something goes wrong with their home, they don’t have a penny of equity to draw on to make repairs. If you’re in a condo building, as I am, this can actually impact property values for everyone. These people are frequently uninsured, too — think “Mr. & Mrs. Too Much House” from that “Real Financial Heroes” series on You Tube.
The sub-prime crowd with 100% financing is just as you described, but what about the savers and responsible crowd? Back in 2002 I bought two vehicles with 0% financing because it allowed me to keep my cash in savings and investment. I would love to be able to do the same with a house. If I could get 100% financing and keep my downpayment working for me, I would do it. IMO, it is a useful tool if used by the right people. It’s just that it was given to the irresponsible, and now the lenders are going to pay the price.
For the responsible people with money, there will always be 100% financing. Banks are always happy to lend you more money when you don’t need it and have the ability to repay the money with ease.
I recall a time in the recent past when banks were really tight with Bay Area businesses. They would give you a line of credit, but only if you deposited an equal amount of money in the bank with them. So, if you want a $100k second, that’s fine, we’re happy to give it to you—just put $100k in the bank as collateral.
I doubt that I would be a buyer anytime soon, but if I was then 100% financing would be attractive to me. The banks requiring collateral for a loan would not be a problem for me, as long as they allow common stock as collateral. In essence, this would be no different than using margin in a brokerage account. However, parking $100k in a bank to borrow $100k makes no sense to me. Why would anybody want to do that?
“Actually, I rather hope 100% financing stays around for those of us with good credit scores.”
You enjoy paying interest on borrowed money?
The piggybank loan was sold to them as a way of not having to pay PMI. Me thinks some loan holders will be having an ‘epiphany’ on why PMI was created in the first place.
You think?
salinasron, doesn’t your market lead the state in option arm loans? Something like 40%? No foreclosure issues there, I’m sure.
So the sub prime market is imploding. *yawn Wake me up when the non sub prime finds they are in trouble too. That will be the big headline. Right now the headline reads Stupid mortgage cos gave money to poor credit risk people. Wait until it reads Stupid mortgage cos gave way to much money to everyone. That will be a headline !
The sub-primers are just the first in the long line of dominos. A-paper will have it’s day very soon.
A bunch of the bad loans at HSBC were prime.
This morning Goldman Sachs downgraded nyse ticker HBC (HSBC) from neutral to sell.
And of course when you translate:
Strong buy=buy
buy=hold
hold=sell
sell=HOLY SH** RUN AWAY FROM THIS TOXIC CR**!
sell=sell short
In addition, I suspect we will soon be reading about more sour loan spillage from community banks around the country like Coast here in Florida.
The big problem is with the definition of “prime”. If your are a 700+ FICO and you want to borrow $400k without proving your income, is that “prime”? What about borrowing $600k? $800k? $1MM?
At some point, Fico scores become irrelevant, and only the cold hard facts about income relative to your loan matter. Any mortgages based on unproven income should be considered sub-prime, IMHO (and maybe they are, I don’t know).
There are lots of rich gamblers out there who bit off more than they could chew in terms of mortgage debt.
eloan has basically removed the zero-down 7 year fixed that was available last April (I have a screenshot LOL), fixed rates now require at least 10% down. Their 80-20 programs have now become 100% 6mo adjustable IO balloon 10/20.
“A savage sell-off has swept through the credit derivatives market for sub-prime mortgages since HSBC and New Century Financial delivered a bitter pill to investors last week.”
“‘Shorting sub-prime credit has finally worked for the housing bears, finding its ultimate expression through the ABX index,’ says Gyan Sinha, mortgage strategist at Bear Stearns.”
“‘Liquidity has (temporarily) evaporated from the ABX market and a ferocious sell-off has caught most of the market off-guard,’ say Gary Jenkins and Jim Reid, analysts at Deutsche Bank. ‘This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.’”
I hope to be reading similar comments about the equity markets soon. “Savage selloffs” are my bread & butter.
roubini was talking about problems in the ABX 2 weeks ago.
Isn’t it amazing how these “savage selloffs” seem to come out of nowhere?
I know, isn’t that supposed to be the smart money? oh well. it’s said because even though their hedge fund my fail, they still already took out their $100 million.
Yes but will the SEC, Elliot Spitzer or lawsuits make them give it back down the line?
I think this was mentioned yesterday…here’s an update
Schools to cut $8.8 million
The Santa Ana Unified School Board voted late Tuesday to trim nearly $8.8 million in mostly administrative and facilities costs as part of an effort to balance the district’s budget.
http://tinyurl.com/32xdg6
Anaheim rejects housing plan
Disney succeeded in fighting a proposal to allow residences across the street from its property.
http://tinyurl.com/2tyfyo
Is it true that they have plans for a third theme park in the general area ?
Sounds like it…Disney officials said the plot was slated for “visitor venues” that sounds like a third park to me.
Big business wins over affordable housing. Shocker.
I use to date a girl whose family lived near Disneyland. The nightly summer firework shows at the park would literally shake pictures off the wall.
Grew up 2 blocks from Disneyland 1300 block of Loara St. down the block from Palm Lane Elementary. We used to lay on chaise lounges every night at 9?pm in the driveway to watch the show overhead. I think the development was called Enchanted Estates or some such and we had a Tinkerbell Tile inlaid on the front porch. Wonderful memories.
We sold our craftsman home in Anaheim Colony right near Pearson Park in Summer 2005 and collected a wad of cash. Since then the wife and I have traveled alot, worked a little, had a baby, just now looking to go back and we still have all the house money plus some . My old employer (Socal Edison) wants me back at considerable wage and the wife is being recruited to work a good paying dream job, both jobs and companies are solid.
The wife mentioned the other night at 9 that the fireworks would be going off. We walked outside and look at the stars where we lived for about an hour. Sometimes I would sit on my garage roof and smoking watching the fireworks (dont tell the wife). Its funny if we move back to SoCal I would love to live back in Anahiem Colony.
Third theme park? Boy, does that seem dumb. Disneyland is swell but the “California Adventure” is useless except for the soaring thing and the white-water rafts. And I guess the big roller coaster if you like that sort of thing. I was always noticing what enormous incentives they had to provide to get any people into DCA. If they develop a third park they’d better go back to traditional Disney stuff
A difficult credit environment is good in the long run. Credit should always be difficult, it carries a lot of responsibility.
When I was young and dumb I was turned down for a motorcycle loan. It was a good thing in the long run. I just said to myself “I’ll show them, I’mI going to save up and pay cash.” And I did.
It is a common myth that easy credit is a “gift” or benefit for the recipient. Politicians really like to play this one up, “everyone deserves access to credit”. It’s a lie. Not only didn’t I deserve credit, I’m better off for not having had it.
‘“I’ll show them, I’mI going to save up and pay cash.” And I did.’
And easy money is very bad for cultivating a sense of collective responsibility, especially when a War on Savers makes saving a risky endeavor without serious inflation hedges in place.
One of my former neighbors devised what the rest of us called Larry’s Easy Financing Program. Here it is:
100% down! No additional payments!
Sadly the 0% down, no additional payments loan is now pretty common. In fact, you can get it appraised at 10% more than the real value and keep the difference. Jail’s apparently too full of pot-heads to make room for these white collar criminals.
“War on Savers” - how right you are. That’s why I have to gamble on lending at 9%-10% to persons the bank will not deal with. Obviously a 5% money market fund does not pay anything at all after taxes and inflation.
lol
Media coverage of housing market too upbeat
http://tinyurl.com/3cktau
Oh how the sentiment has changed. Again, market psycology is a huge factor. How is this thing supposed to turn on a dime this spring with this change in thinking?
I think it will take a while…take my wife and I for example…we’ve been looking to trade-up from our condo to a SFR…looked at a place a couple of days ago…my gut (and knowledge from this blog) told me the POS was over-priced, and to hold out. I felt absolutely no pressure to buy and I’m sure plenty of other potential buyers feel that way (as reflected in abysmal sales #’s)
Ben’s oil tanker analogy (in yesterday’s posts) is on target. You don’t turn oil tankers on dimes.
Ben’s oil tanker analogy (in yesterday’s posts) is on target. You don’t turn oil tankers on dimes.
Maybe not while floating in chartered waters, but in unchartered waters, hit a reef and they’ll not only stop on a dime, they’ll sink. The RE markets are floating in unchartered water.
what changes on dimes is the mass opinion on the direction as abetted by your favorite propaganda source.
One might call it the direction of the “Fear Wind.”
‘This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.’
Didn’t the facts change several years ago? AFAIK the only thing that has changed recently is general awareness of the facts.
“As this housing cycle warmed up, I can’t tell you how many lenders swore to me this time wouldn’t be another boom-to-bust.
Boo fookin’ hoo for the lenders. Cry me a river.
What’s the saying-A banker’s memory has about a 10 year retention span.
These lending sleazebags have been retaining the absolute worst of the worst appraiser’s to do all their crummy deals.
How fast can you get it down and how cheap will you do it.
Great qualifications for your appraiser selection process.
And now the table’s turned.
You’ve reaped what you’ve sowed, morons.
Here’s what Countrywide is saying a person clearing $115K and with $45K in cash can afford in Sunnyvale. . . $360K max 30yr fixed (not enough income for more).
$360K was the going rate for a decent condo in 2001-2003. We’re going to need some more monkeys falling from the trees to get back there, alas. No way I would rent for $1500 (effective monthly payment after tax considerations) what a $330K loan would get me though.
Loan Amount 374,939 - 40 year fixed $2614 a month
Loan Amount 361,528 - 30 year fixed $2617 a month
Wow I bet that 40 year loan is going to be real popular. 10 more years of payments for and extra $13,000 sounds like a deal to me!
Troy, I am trying to understand your comment. I guess you mean that what a $330K loan would get you in Sunnyvale would be such a piece of trash that nobody would pay $1500/mo rent for it. Is that what you meant? Sorry, it’s the ambiguity of “rent” as a verb (landlord or tenant?) -
That’s the way I read his comment. I rent a place for about 50% of what the after-tax mortgage payment would be for a comparable place. Granted, I live in a more expensive city, so I expect the ownership premium to be greater than Sunnyvale, but I’d bet the difference isn’t much greater than in Sunnyvale.
First American profiting from risk
First American buys into computerized checks of potential mortgage mistakes.
http://tinyurl.com/322zvg
True story about First American: When I first moved into my house, both of my toilets broke down. In a 2 BR house, that’s a problem.
So, I called the home warranty company, which just happened to be First American. (Not my first choice, but the sellers threw it in with the home sale.)
Any-hoo, First American sent a plumber who was supposedly licensed, bonded, insured, and all that good stuff. But he was, shall we say, less than honest.
One of my toilets had a cracked tank. And this particular toilet was one of those old high-flow models. He proposed to replace the tank with a low-flow tank. Without replacing the high-flow base. Which would lead to lots of incomplete flushes.
Since high-flow toilets are no longer sold in this country, I made him replace the whole commode. He wasn’t too happy about that, but, hey, it’s my water bill. And I don’t want to pay a dime more for water than I have to.
And that’s my First American story.
lol…when I bought my condo the sellers threw that in too…had garage door opener problems..their fix only lasted a few months then I had to replace the whole damn thing…
Oh, and the warranty didn’t cover my freakin’ fridge’s ice maker when that busted…lol
In my first First American story, I neglected to mention that the First American-sent plumbing whiz also “fixed” my leaking tub/shower faucets. I put that in quotes because his repair only lasted a few months. I’ve since fixed those faucets myself. Did a much better job too.
In my First American story I got lucky. Dishwasher in condo broke down and needed a new motor. First American installed one with apparent success. (Exception that proves the rule?)
Sorry, I was posting faster than I was reading…too much Peet’s coffee this morning….bzzzzz
‘This industry operates a lot like a herd of lemmings,’ Schroeder says. If one type of loan becomes popular, lenders frequently have few choices. Do those hot deals or fail to thrive, or even survive.”
This is a silly comment. Making sound loans at competitive interest rates may bring growth to a halt, but it doesn’t hinder survival. What hinders survival is the loss of principal.
You are so right. There is always “make hardly any loans at all” — that requires layoffs, but is the obvious response to a crazy situation.
“If guys like Steve Schroeder are correct, shoppers will have another score to worry about when they’re house hunting. But Schroeder thinks you’ll soon need a ‘collateral risk score’ too, a computerized analysis of the home’s pricing to ensure it’s logical.”
I suggest the REIC may need to develop a ‘complacency risk score’ too.
“But Schroeder thinks you’ll soon need a ‘collateral risk score’ too”
I’ll just get a “stated income/stated asset/stated collateral risk score” loan.
While the concept may be a good idea, I don’t think their model is all that useful. It says that OC is the 273rd lowest risk among 379 major metro areas. Sorry, but I just don’t see it this way, OC prices are going to drop, and because of the high prices and low affordability, they are going to drop a lot. Somehow, that doesn’t seem like the “collateral risk score” is accurately reflecting the risk. Of course, I doubt they have any real way of accurately modeling credit crunches, shifts in psychology, and other factors that will play a role in the crash.
I agree. Any model that doesn’t have all the bubble markets like OC in the top 10 is seriously flawed. Their models are probably off for the very reasons you described, and none of these factors can be modeled.
From Lansner’s blog…happy Valentine’s Day to those renters out there
One-fifth of renters found romance within their apartments
We take a few minutes out from this blog’s usual bull-vs.-bear debate on this Valentine’s Day to ponder a nationwide survey of renters who’ve visited Apartments.com on romance and the apartment dweller.
While 59.5% of those renters polled don’t think it is a good idea to date someone who lives in the same apartment building …
• 5.6% are currently in a relationship with someone met while living in the same apartment building.
• 21.2% have been in a relationship with someone met while living in the same apartment building.
• 9.4% did date someone who lived in the same apartment building. And it ended in a bad breakup.
• 3% actually married someone they met while living in the same apartment building.
• 17.7% currently have a secret crush on someone who lives in their building.
• 24.7% had a crush on someone who works/worked in a building where they lived (ie: maintenance person, superintendent, property manager, doorperson)
• And 10% began a relationship with a roommate while living together as roommates.
Two little hints, I think.
“Liquidity has (temporarily) evaporated from the ABX market ” So first the houses themselves cannot be sold quickly, and now neither can the securities underpinning the mortgages! I would be worried about that. Hedge funds etc. must be looking to see how far away the exit is.
“Bernanke said Wednesday that the central bank is comfortable with rates at their current levels but stressed that further rate hikes could occur if the inflation outlook worsens.”
What else can he say? Housing deflation is starting to manifest itself, so forget about inflation. But he will pretend to be worried to defend the dollar. They will have a big problem in a few months. Presumably they will have to ease to support the housing recession, but there goes the dollar. Sh*t.
“Bernanke said Wednesday that the central bank is comfortable with rates at their current levels but stressed that further rate hikes could occur if the inflation outlook worsens.”
Sorry, cut and paste twice
But how will the FED deal with housing deflation? Housing prices are not part of the CPI (only housing rent equivalent, or something like that), so the inflation numbers will not capture any decrease in home prices (just as they did not capture their increase during the bubble). The only thing the CPI can capture is a change in rents, which seem to be all over the place depending on the particular market. So, while there may actually be deflation, the statistics probably won’t bear it out unless rents decrease significantly. What will the FED do if the official statistics are showing inflation but there is actually deflation?
Also, will action by the FED actually influence mortgage rates at this point? The market is finally waking up to the fact that subprime mortgages actually have risk, and require a risk premium. And prime mortgages might have some risk too, especially if prices fall. So, isn’t it possible that the FED could lower rates but mortgage rates would still rise because MBS investors are demanding higher rates to compensate for risk? If this happened, then the FED would have lowered rates in a failed attempt to save housing, while simultaneously adding additional risk to the $ - a lose, lose proposition. Will the FED take that chance? Aren’t they more concerned about the $ than housing (or even the US economy), as the fact that the $ is still the world’s reserve currency is the only thing that really gives them any power?
Yup, once the bond market starts taking serious losses on MBSs, the risk premium will go up much faster than BB can lower the rates. And there is already so much money sloshing around Wall Street that lower rates to pump EVEN MORE in is simply not a good idea.
Weekend topic suggestion:
What is the geographic distibution of credit jobs? If possible, isolate them by mortgage and non-mortgage related.
In other words, which communities will be spanked by this downturn?
Fremont is Santa Monica based. But if they went under, how many jobs would be lost in the Westside? LA proper? California? I have no clue as to their employment distribution and thus I ask.
“‘Liquidity has (temporarily) evaporated from the ABX market and a ferocious sell-off has caught most of the market off-guard,’ say Gary Jenkins and Jim Reid, analysts at Deutsche Bank. ‘This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.’”
Yep. This implies the market doesn’t trust the mortgage companies…. well… more specificaly (as trust doesn’t matter too much in finance), they feel the premium isn’t sufficient for the risk.
We’re starting to see the more aware hourly employees at my sight “hunkering down” and moving assets into precious metals. (No investment advice here… I think the hedge funds collapsing might hurt metals more than anything else.) But that means they’re cutting spending. The majority (debtors) are spending away happily. But soon they’ll complain about a loan they were denied, or their new interest rate… soon. When that complaining is a roar, its T-minus 12 months to a decent time to buy a house.
But right now Joe and Jane sixpack don’t realize the Tsunami is coming.
(of course the “Joe Sixpack” on Ben’s blog knows… but not the millions.)
Got popcorn?
Neil
Amen to that. I’m having to explain to people where I work (a bunch of engineers) how the financial markets work with mortgages and how the sub-prime lenders folding now is a leading indicator on where the housing market is going to be. I can’t believe that I’m having to repeat myself all the time.
Of course, I’m being told by a bunch of people who don’t have a clue that it is going to pick up again this year. I just look at them and think “Huh?”
I have tried explaining this to my family who want me to buy my grandmothers overpriced 1950’s last remodeled fixer upper for 350 in MA, and I have replied that I am not interested, not even with 1/3 of the purchase price as a “gift” from my mother. They cannot imagine what the subprime and eventualy prime MBS’s are going to do to the market. I have even been called a very negative person by those interested in selling me said property. Still not interested!
Go ahead and be called negative, Pinch. You’d fit right into my family as far as the penny-pinching goes. But, sorry, we don’t have any openings for new family member jobs.
Why would you have to BUY your own grandmother’s house?
“Fed chief Ben Bernanke said Wednesday that the central bank is comfortable with rates at their current levels but stressed that further rate hikes could occur if the inflation outlook worsens.”
Will the markets give credit to saber rattling without any action to back it up?
I didn’t think so, especially with a new chairman - I thought markets normally tested them to see if they would back up their words with action. But, so far they appear to be giving him credit for mere saber rattling. I don’t understand it, especially as inflation has been above Bernanke’s “target” range for quite awhile.
I’m sure this was mentioned…
OC home price flat at $600,000 for January
2007 got off to a slow start for housing. The median price of all homes sold in Janaury was $600,000. That’s down 4.8% from December and down 6.6% from June’s revised record high of $642,500. It’s also equal to revised figures for January 2005, the first month without profits since November 1996. Sales last month were down 16.3% vs. a year ago’s revised totals. That’s the 16th straight month that home prices have failed to keep up with the previous year’s pace. The data by key market niches:
Price Vs. ‘06 Sales Vs. ‘06
Houses $675,000 0.7% 1,451 -14.3%
Condo $440,000 -3.3% 538 -25.4%
New* $539,500 14.9% 411 -9.5%
All $600,000 0.0% 2,400 -16.3%
It’s also equal to revised figures for January 2005
Should that read “2006″ or has there really been no net appreciation in the past two years in OC??
Here’s what I simply do not understand. We have days like yesterday when Chrysler announces yet more layoffs and plant closures, it’s reported that the trade deficit has set another record and is now over $700 Billion a year and mortgage companies right and left report huge losses and, in the face of all this, the stock market happily goes up another 100 points.
It’s as if the economic movers and shakers all sat down and decided that they are going to make money no matter what happens. Bad economic news is simply ignored, rose-colored glasses are parked on powerful noses, happy talk is spoon-fed to the press and the dow goes up and up no matter how dismal reality looks.
Perhaps I’m missing some other explanation for the disconnect that I’m seeing in the stock market? Anybody?
Way too much money has been created recently so you will see it chase after various markets for some time searching for returns. The BOJ is a big part of the problem along with various moves by the CB to prop up the fiat currencies.
For a while at least it will look like a game of whack the mole as money shifts out of foundering markets creating new bubbles.
But even as this goes on losses will continue to mount and systematic risk is huge so you may well see large swings start to happen.
Right now the US stock market is doing well mainly because their are few other places to invest.
Losses will happen and systematic crises will happen but considering the huge amount of money that was injected into the worlds economy over the last few years it will take time and a lot of losses before the we see a real tightening of the “money” economy.
Don’t forget that it isn’t actually money that is being created but rather credit and they are not the same thing even though all of the gold bugs would like to think they are.
Money = A claim on real goods.
Credit = A claim on money.
The biggest difference, of course, is that credit always has a debt component with the underlying premise being that the debt will be paid back at some point. So M3 skyrockets while M1 sort of flounders around. Meanwhile, all these hedgies and other hot money types are moving markets with tons of leverage and everything is being done on piles of credit/derivatives. Yet not 1/400th of actual money is available to satisfy all of these claims.
Sounds like a recipe for massive credit implosion to me. And nothing can be destroyed faster than a bunch of junk credit.
To add to this thought, we got a taste of what the coming credit implosion is going to look like with the recent subprime tremors. Some of these outfits were literally here one day and gone the next. In many cases, the workers were finding out about it on a message board or after it came out on the wires without so much as an email or a sign on the door saying the company was going under. This is how cascading cross-defaults start: with the marginal players imploding seemingly without warning. And then it quickly spreads like wildfire throughout the system.
Let me repost a comment that I made over at Calculated Risk:
I don’t know alot of macro, but see if this makes any sense. Further inversion of the yield curve is part of the “bad news is good news” Wall Street meme. Any bad news implies that the fed will loosen, providing more liquidity to pump up asset prices, and trigger another round of bonuses for brokerages. This in itself is an indication of how liquidity itself is the only thing fueling Wall Street. The effect of the underlying economy is unimportant compared to the effect of expected Fed rates. The tail wagging the dog like this is an indication of how thin and emaciated the dog has become.
The disconnect is that the Dow is a lousy indicator.
1. GM got a brokerage upgrade
2. 3M is going to buy back stock
3. There was a RUMOR that some mining company MIGHT buy Alcoa.
All three are heavy Dow components, so up goes the Dow. Yeah great. Shrinking fundamentals like buy-backs drive up the dow and make us feel “confident.” Doens’t anyone think beyond the first level anymore?
The WSJ is blaming it on foreign investors. From this morning’s Tuesday’s Markets, “every time stocks have pulled back in the past seven months, they have fallen less than 2% and quickly rebounded. That just happened again. New money appears to be coming in, notably from overseas, where governments, oil companies and exporters have dollars to invest.” Twice in two days they’ve said we’re overdue for a correction. The last time the Dow went this long without a 2% correction was 50 years ago.
This was posted on the finance.yahoo.com site.
“Subprime lender ResMAE Mortgage filed for bankruptcy protection this week, the latest sign of stress in the market for low-end home loans.”
Another one bites the dust.
You can also add Silver State Mortgage to that list. It’s on their website.
http://www.ssmwholesale.com/
I can’t tell you how many lenders swore to me this time wouldn’t be another boom-to-bust. Why? New loan-checking technology. Yet credit scores may not have been enough. Apparently, credit scores couldn’t entirely tell the lender how risky the loan would be.
What is loan-checking technology?
And the rest of the statement is just dumb lenders. Credit scores and income (assuming honestly-stated income HA) are plenty enough to determine if the buyer can afford the loan…IF you test their income against Monthly Payment #25 and Monthly Payment # 61.
Dumb lenders, I agree. I do NOT agree that credit scores and verified income are the key to low-risk lending. The key is not to lend more than 80% of what the property would be worth in long-term-trend sense, or in the cash-flow sense. Ha-ha, what lender can adhere to these standards? Not even az_lender. But I came pretty close.
There’s a new guest commentary up on Piggington’s on the impact of foreclosures.
http://piggington.com/guest_commentary_ramsey_on_foreclosure_impact
WOW, that’s going to take me the better part of an evening to digest.
Good article, much more thorough and documented explanation of what I’ve been saying for the last year. An avalanche takes a while to get down the mountain. It might stop, but it’s probably going to gather more and more mass and momentum until something Very Bad happens.
“‘The answer to solve everybody’s problems was the 80-20s,’ as the lending also allowed mortgage companies to help borrowers get into homes made less affordable by record home price appreciation”
———————————————————————
he’s got it completely bassackwards. Appreciation was caused by the lending, which made affordability a problem.
Yeah - helping make homes more affordable by lowering credit standards is like treating obesity by getting bigger clothes.
Excellent analogy.
Exactly.
True. And the same could be said for the GSE’s in general. Fannie Mae was started with the naive vision that they would help more people then ever become homeowners, people that couldn’t have gotten a loan with a traditional bank. Instead, the result of all of this gerrymandering is house prices that have skyrocketed beyond almost anybody’s ability to afford them (without a lot of prior equity or a toxic loan.)
Once again with virtually all things government, exactly the opposite outcome from what was envisioned.
Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt’s New Deal. The collapse of the national housing market in the wake of the Great Depression discouraged private lenders from investing in home loans.
Nobody would lend anybody money to buy a home…fannie mae was created to break the liquidity log jam.
Sheesh misunderstanding of basic facts causes faulty thinking.
Update on San Diego foreclosures:
http://www.voiceofsandiego.org/articles/2007/02/14/toscano/941foreclosures.txt
They don’t even have the January 2007 numbers on this graph (Dec=322, Jan=457), but look how the number of notices of default is now about 7% shy of the all time high!
Unbelievable. So much for rising to normal levels after being unusually low.
“Bernanke said growth would strengthen over the course of the next two years as the drag from housing diminishes.”
Does the Fed have a new crystal ball? Because I thought they always drove while looking out the rear-view mirror? I would think you would need a pretty good crystal ball to confidently predict the drag from housing will diminish over the course of the next two years?
I began reading this blog about a month now and all you fine people have swayed me from buying in this descending market. However, can anyone give me a guideline into when I can/should expect to look in earnest? I now rent, about $1600/mo in Southshore area of MA. Got excellent credit and 20% for about $300k’s worth of home. I’ve been living with family since 2000 (pre- and post-marriage) and have been renting only a year, but am eager to establish some roots and start a family. Is Summer 2007 too soon to get in?
Probably. I’d say 2008 is more like it. In the last bubble I had to wait from 1987 to 1994 for prices to normalize. We are less than two years past the peak, but things seem to be going down faster, especially in MA.
This blog keeps me sane in the meantime.
As WT Economist put it, if history is any indicator of how long this thing will take to settle down, it’ll be a few years at least.
“Liquidity has (temporarily) evaporated from the ABX market and a ferocious sell-off has caught most of the market off-guard,” say Gary Jenkins and Jim Reid, analysts at Deutsche Bank. “This is perhaps evidence that in the world of structured credit and leveraged positions, things can change very quickly if the facts change.”
The facts have changed very gradually over a long period of time, rather akin to the gradually-warming pot of water in which the frog is swimming. However, at the instant the water temperature crosses the threshold where it is too hot for the frog to jump out to save itself, the frog perceives the facts to have changed very quickly. So it goes with the reptilian brain.
I find the debate about 100% financing fascinating to watch/hear/read about. The problem, as I have witnessed, is that a good handful of borrowers didn’t have much money in the first place. Ask me how many borrowers bitched and moaned about how quickly we could get their earnest money back to them in the mail after closing……sign to me that these folks could barely get together the 1K earnest money on the 300,400, 500,600 K house they were buying. And the FICO scores some of these borrowers had, geesh.
I know there are a lot of loan officers smiling at that comment, not because they disagree, but because they agree and have originated deals like this.
I can’t imagine the losses some of these people are going to be taking across the country. Including lenders. I told the gals in our office to understand they are witnessing history and to learn from it.
“to understand they are witnessing historyand to learn from it.”
Exactly. Sit back, take notes, and have Neil pass the popcorn.
close strong
nobody ever learns
15 years from now the kids of today will have their hands on the money of tomorrow and will make the same stupid mistakes while calling the older folks idiots for preaching caution because it will be different and we’ll have technology to predict the future
Wow!…When the subprimes and good old Delta Faucet are BOTH turning OFF the spigots in Build til you Die Land, you KNOW we’re DROWNING !
“’Tentative signs of stabilization have appeared in the housing sector,’ he said.”
Weren’t we told the same thing when the stock market tanked? We were told for about five years that the market was showing tentative signs of stabilization. Deja vu all over again.
The subprime/hedge fund/systemic risk theme is popping up all over: http://www.salon.com/tech/htww/index.html?last_story=/tech/htww/2007/02/14/subprime_risk/&source=refresh
Nothing new, but written for readability by dummies like me whose eyes glaze over reading too many charts. — Including the next round of prospective
marksFBers, not just those conversant in the language of finance.