“The First Step Toward Getting Back To Lending Sanity”
Some housing bubble news from Wall Street. “Major financial firms like Merrill Lynch, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.”
From Reuters. “Standard & Poor’s said it may downgrade ratings on 18 securities from 11 mortgage-backed bond issues sold by units of companies, including Goldman Sachs Group Inc. and New Century Financial Corp..”
“The bonds are backed by subprime and second-lien mortgages, and so-called alt-a loans, whose credit is considered between prime and subprime, S&P said.”
“‘Many of the 2006 transactions may be showing weakness because of origination issues, such as aggressive residential mortgage loan underwriting, first-time home buyer programs, piggy-back second-lien mortgages, speculative borrowing for investor properties, and the concentration of affordability loans,’ S&P said in a statement.”
“The percentage of loans in the pools that are severely delinquent range from 2.77 percent for Terwin’s 2006-8 issue to 13.46 percent for New Century’s 2006-S1 deal, S&P said.”
The North County Times. “Accredited Home Lenders Holding Co., which sells mortgages to customers with poor credit, on Wednesday reported a loss of $37.8 million for the fourth quarter of 2006.”
“The company’s financial performance, combined with the declining subprime lending market, has led Accredited to put a stronger emphasis on screening subprime borrowers to make sure that they can repay their loans, the company said Wednesday.”
“Joseph Lydon, the company’s COO, speaking during a telephone conference, said that the subprime market could get worse before it gets better. ‘Unless the market moves the way it should, there will be plenty of additional blood flowing in the streets,’ he said.”
“Keith Gumbinger, a VP at the mortgage research firm HSH Associates, said the declining housing market, combined with loose lending standards during the last two years, have come back to haunt the subprime market. However, he said, the current industry troubles could be beneficial in the long term.”
“‘We are going to see more losses as 2007 goes on, (and) more companies could close their doors,’ he said. ‘This is the first step toward getting back to lending sanity.’”
“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”
The Union Tribune. “‘We have been making adjustments to the products we offer as well as processes and underwriting discipline,’ said Joseph Lydon. ‘We recognize the market we’re in, and we believe credit quality has to be the No. 1 priority.’”
“The question for the housing industry is whether the troubles in subprime lending will spill over into more conventional mortgages. If they do, lenders could tighten credit standards for borrowers…and that could hurt not only first-time buyers but also people who recently purchased homes using hybrid adjustable rate mortgages with the idea of refinancing.”
“Nationwide, between $1.1 trillion and $1.5 trillion in hybrid adjustable mortgages are scheduled to reset this year, according to the Mortgage Bankers Association. With little or no price appreciation in the past year, it may prove difficult for these borrowers to refinance out of their hybrid loans if lenders boost credit standards.”
“During the housing boom, scores of lenders entered the niche business of making loans to borrowers with tarnished credit. The increased competition for loans led to easy credit. There are only so many people in that market, said Lou Galuppo, at the University of San Diego. ‘The only way to enlarge the market is to drop the (credit) score.’”
“‘I just don’t think there’s a whole lot of room for anyone in the business to continue to book bad loans,’ Lydon said. ‘The buyers of the loans are putting them back fairly quickly’ if they default.”
From Bloomberg. “Former Federal Reserve Chairman Alan Greenspan said the U.S. housing slowdown may be coming to an end, citing sales of new homes. ‘I think the worst is behind us,’ Greenspan told a Toronto conference.”
“‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”
“Greenspan also said ‘disarray’ in the U.S. subprime mortgage market, which serves borrowers with weak credit who typically pay higher interest rates, isn’t likely to create greater financial instability in the rest of the economy.”
“‘We do have a problem here; it’s probably not over,’ Greenspan said. ‘It may actually infect some parts of the prime mortgage market, but there’s no real evidence that this is a significant issue.’”
“The slump in housing deepened in the final three months of last year with sales falling in 40 states and median home prices declining in nearly half of the metropolitan areas surveyed, a real estate trade group reported Thursday.”
“The National Association of Realtors report showed that the biggest declines were in former boom areas.”
“Median home prices fell in 49 percent of the 149 metropolitan areas surveyed in the fourth quarter, compared to the same period a year ago. That was the largest percent of metro areas reporting price declines since the Realtors began tracking price data in 1979.’
“David Lereah, chief economist for the Realtors, said he believed the data shows that housing, which had enjoyed a five-year boom, was bottoming out in the final three months of last year.”
“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said. ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”
‘As of Feb, 14, 2007 @ precisely 12:00 PM PST, Silver State Mortgage has ceased all national operations. Although this is a difficult time for our loyal broker and builder clients, we are confident that the current opportunities that we are evaluating with other financial institutions will provide a stronger platform for our trusted clients.’
As this blog has pointed out for over a year, sane lending standards will be restored by the MBS market, not the Fed.
What was it that Queen sang, “Another one bites the dust”? What is the implode-o-meter at now? This is getting worse by the week!
World to Greenspan: Please shut your stupid piehole.
I wonder how BB feels about a predecessor running speaker circuit monetary policy in the background for tall $$$? Dismayed? Or encouraged?
He’s probably too smart to spend time listening to that dribble. Honestly, what would be the point. Bernanke is in the real world with work to do. Greenspan is like a visitation of Christmas Past–completely immaterial.
Encouraged of course. He’s expecting the same for himself when he retires.
“World to Greenspan: Please shut your stupid piehole.”
hear, hear! This also goes for all the a$$ clown “experts” on wall street. we do not need your advice, it is proving to be absolute bull. as far as I’m concerned, the investment banks, hedge funds, cnbc, et al, can all go and eff themselves. i’ll take blog forecasts any day over their rubbish.
Chit, I will take a chimpanzee throwing darts at the investment page over the so called expert advice. The only thing they are proving to be experts in is their own fecal matter, as that is what they are offering up amounts to. But who asked me anyway?
Like I said here some months ago, a monkey in the jungle could have done a better job of market forecasting/prediction than Abby Joseph Cohen.
And that’s just one example of the incompetence level on the Street.
No wonder everyone wants to start a hedge fund. They’re “competing” against a bunch of dummies.
Abby Joseph Cohen isn’t incompetent. It’s not her job to give you good advice. It’s her job to get your money into the market. And with the Dow hitting record highs today, she seems to be doing a very good job.
Abby? Abby, is that you?
“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”
There was a farmer, had a dog, and BINGO was his name-o!
B - I - N - G - O …. B - I - N - G - O …. and BINGO was his name-o!
It’s all manipulated. For instance, have you noticed that inflation is always low, according to those idiots, but everything is damn expensive and the medium class has been getting hammered for years? They say that food is cheap, but in reality the government transfer tax money from our pockets to subsidize corn (the main ingredient of everything we eat these days) for agribusiness and processed food. Please, read the book Omnivore’s Dilemma to get shocked. The best book of 2006.
http://www.michaelpollan.com/omnivore.php
oops, “middle class”…my bad.
Yes Ben in 6 weeks: las Vegas has learned of
Silver State - HUD & US agencey mortgager & servicer
US Mortgage ” ” ” ”
Southwest 1031 Exchange - Custodial keeper of thousands of LV 1031 transactions…absconded with the $bicks.
Each are taking Millions down…the dominoes are moving more rapidly in 2007 from the 1st USA Capital Mortgage Billion dollar fraud and fiasco,! first filed BK 12/2005.
Greenspan is hopeless. Alzheimer’s is taking its toll. After promoting ARMS, he now says that we are at the bottom and that the subprime problem will be limited. Where is John Stossel when you need him? Give me a break.
Greenspan is a banker and his mission is to defend banks’ interest.
ARMs transfers risk to borrowers vice fixed that transfers risks to banks. That is why he was promoting ARMs then.
I have serious doubts about integrity of this man, or even integrity of the Federal Reserve. Why did they stop publishing M3 numbers ?????
Sad to see that this country is becoming corrupt at high levels of government.
Of course Uncle Al was and is protecting the industry. The industry is funding his speaking tour.
Key here is that Greenspan was instrumental is the mess that has been made, yet they interview him as if he is an oracle. Too many people hung on his words before and look at what happened. So here he is spewing more crap, with the FBs looking to him for hope. I guarantee you his interview will appear above the fold, front page of many newspapers.
Incredible.
BayQT~
“Key here is that Greenspan was instrumental is the mess that has been made, yet they interview him as if he is an oracle.”
You won’t see anything negative in the MSM about Dr. Paul Wolfowitz either; shove a stick into a proverbial bee hive, and then step back and let someone else get stung.
I never forget during early month of the invasion to Iraq, Wolfowitz was testifying in front of the congress and it was obvious that he was avoiding answering questions and was doing his best in deceiving the congress.
Lying/deceiving congress is the same as lying/deceiving American people. And we see lots of dishonesty from people who beat patriotic drums all the time.
Not quite the same. Lying to Congress is a crime.
Greenspan was looking at an overall trend, not just a single year or two datapoint. Historically, people massivly overpay to be rid of the interest rate risk that they transfer to the banks. One of the most reliable ways to make money was to overweight mortgages to treasuries (the call premiums were far larger than the risk taken on). However, like almost all economists, his timing of announcing that observation couldn’t have been worse (not only were rates low, those spreads tightened dramatically in the last few years).
Right. We had declining rates for years (all central banks holding short rates low) and even before 2001 low volatility which translated into low risk. ARMs for years carried much lower rates barely passing LT fixed yields even after settling beyond the intro periods.
BUT - AT THE TIME HE WAS SELLING THE VIRUES OF ARMS LT RATES WERE AT ALL TIME HISTO
RIC LOWS. Only an idiot would sign up for an ARM at the time he was promoting as the risk/reward was a joke. Pass the risk to the lender…
Exactly. At the time mentioned, investors were chasing adjustable paper. Unle Al knew exactly what he was doing. Protect the banks. Screw the consumers. Ironic, however, we are still heading down the road to massive bank failures in addition to increasing consumer insolvencies.
In a sane world, I would rather have failed banks and a strong middle class to bail out said banks than to have both constituents go down in flames.
Greenspan…. His job with his private bankers was to “loan” money despite prudent standards that were here to fore in place. Lowered loan standards resulted in simply more loans. It’s that simple. Nothing complex.
Sad to see that this country is becoming corrupt at high levels of government.
Becoming???
FDR orchestrated the theft of the citizenry’s gold over 70 years ago. Government has always been about stealing your wealth and giving a pittance back to you. Inflationary policies are just a less transparent way of doing so.
Greenspan is brilliant. He knows exactly what he is doing and what the policies he espouses will lead to. He has no integrity.
“He has no integrity.”
Understatment of the year. He should be exiled to a deserted island with no means of communicating with the outside world.
YES Jeckyl Island Ga. along with all of the rest of the FED and the people who control their puppets like Helicopter Ben Bernake
Greenspan was to the Fed what Liarreah is to the NAR.
Greenspan was to the Fed what Liarreah is to the NAR.
“Why did they stop publishing M3 numbers ?????”
Our corrupt politicians want to hide the fact that they are flooding the world with dollars. If we don’t know how many dollars are out there, we don’t know we’re screwed. However, when the world realizes how many dollars are out there, they will dump them like there is no tomorrow.
Can you say ‘hyperinflation’?
Greenspan is a knight because he works for the international elite central bankers located in the City of London, not to be confused with London.
“we believe credit quality has to be the No. 1 priority.’”
———————————————————-
The party is over, the fat lady has sung.
As opposed to volume no matter what the risk. Pass the risk to MBS since they were demanding it. Now the market for these notes vanished so the wholesalers could be stuck in the middle with products in the pipeline they need to discount severely just to unload…
Plus the notes that are coming back from the MBS buyers. First to admid was New Century. FirstFed has 70% of its income came from uncollected negative amortization:
http://www.businessweek.com/magazine/content/07_07/b4021072.htm?campaign_id=yhoo
When all of this is over, WHO will have credit quality ????
“David Lereah, chief economist for the Realtors, said he believed the data shows that housing, which had enjoyed a five-year boom, was bottoming out in the final three months of last year.”
Dear DL, Uncle Al, BB, It’s in the bag, and Apple-souffle:
We don’t need no education.
We don’t need no thought control.
No dark sarcasm in the classroom.
All in all you’re just another brick in the wall.
All in all you’re just another brick in the wall.
Hey! Greenspan! Leave those kids alone…
That’s pretty funny.
‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices. Lereah said.’
Yet another Lereah quote/prediction to look forward to laughing at come spring when the opposite happens. It’s like Christmas over and over with this guy. I wonder what his breaking point is with his constant optimistic drivel, if any. Maybe one day while being interviewed about the market, right in the middle of another rosy sunshine spew he will interrupt himself and say ‘You know what, I can’t do this anymore. I didn’t think I could embarrass myself anymore than I have, but I just can’t slap lipstick on this pig anymore in the face of irrefutable reality. The market sucks. There I said it.”
That is the only way I could imagine having any respect for the man.
“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said. ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”
I don’t know about you guys, but I find myself drooling for the end of March to get here so we can see what DL has to say about that ‘discernible’ improvement. Someone please save that quote and dump it into the ever growing database of crap coming out of DL’s ass.
What information is he talking about as he hopes the fourth quarter was the bottom. Why cant 2007 be the year of continued contraction. Oh wait 2007 has already reserved its name as the year of foreclosures.
I predict DL loses his job by September. Hopefully the NAR will realize this is a shrewd PR move to make him the whipping boy (not that he doesn’t deserve it).
The cluebats will come out of the locker in September when relatively little of the huge Summer inventory hasn’t sold and FB look at trying to hold on for another long winter.
“discernible improvement in both sales and prices.’
Actually i would agree with him on this point…. improvement from the december 2006 data… just depends on your frame of reference. See how the perma bulls keep on sliding the comparison years back to 2003,.. then 2002, then 2001…
Historically dec - jan are slow then late spring picks up…
this guy just spins and spins… i have stopped keeping up with his quotes.. its all liar-speak anyways…
I for one am not looking forward to this March or this spring.
Why? Because once spring arrives and the MLS listings begins to grow. Anyone in the real estate industry worth a salt will know “their goose is cooked and a fast immediate exit will begin. Todate, the devastation is farily ugly, but the “slope of hope” had but just begun. This slide will or should dwarf the NASDQ collapse.
This collapse is reaching to England, Ausieland, Netherlands, Equidor, Israel, Spain, Zimbabwe, and I am sure there are more. We are discussing “multi trillion dollars” of debt that is impossible to be repaid.
As Micro as the couple earning $35,000 who signed up for a $1000PMI mortgage 2 yrs. ago {scraping each pay to make that} will soon receive the resets to $2- 3000/mo. or over 100% of there total wages.
As Macro as the US having to fund a current account deficit of $62 billion a month internally with higher interest rates placing more pressure on every lower quality borrower down this food chain, bringing each into more risk of further defaults.
I wonder if any FIAT currency can survive this massive bubble of debt exhaustion.? Alan if you are out there isn’t another bubble yet to build? Or are all the boys from Jeckyl Island finally in position to collect?{foreclose}
“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”
I understand that back when subprime was a small market. But as large as its become?!? Oh wait… I see how people spend money.
“The National Association of Realtors report showed that the biggest declines were in former boom areas.”
What they meant to say is “The National Association of Realtors report showed that the biggest declines were in former boom areas where they had convinced a whole bunch of really dumb people to sign up for really stupid loans. Thank you for paying for my hummer and BMW sucker!
If you don’t have a copy of the “map of misery” stored on your computer… google it and save the image.
Sit back, relax and…
Got popcorn?
Neil
That quote from Gumbinger is so simple, yet contains so much truth.
My wife is a school teacher and she says a clerk is trying to buy a new $278,000 house this week, because the Realtor says it is her last chance to get 100% sub prime financing. She currently pays $680/mon rent. New payment? $2,060/month. The offer is going in this weekend.
So you see, Lareah is correct………..the market is going to puke up…….er I mean pick up this spring………….until they realize there will be no more funny money.
Paladin,
OMG! The scary part I wonder what the piti is and that $2060 is still an adjustable loan.
One more generation of GF/FB. After this group of people have been taken care of we will see true bottom.
Paladin..exactly why I got two offers. Both HAD to close on the 27th…I examined the pre-approvals with the contract offers.
P: My wife is a school teacher and she says a clerk is trying to buy a new $278,000 house this week, because the Realtor says it is her last chance to get 100% sub prime financing. She currently pays $680/mon rent. New payment? $2,060/month. The offer is going in this weekend.
I think the problem is that way too many people have bought into the idea that it is necessary to buy a home, no matter how high the price. $1400 a month could have bought her a much nicer car, an extra large plasma screen TV, et al. And all that in the first two years. Instead, she decided to pay too much for a house. People are getting confused about the difference between credit card balances and mortgages - a high credit card balance might force you to crimp your spending, but a overly-high mortgage can ruin you.
That extra $1400/mo should be saved for a down payment in two years when home prices are lower. She could save over $30,000 in two years for a 20% down payment for the same house that will be auctioned off for $150,000
JR: That extra $1400/mo should be saved for a down payment in two years when home prices are lower. She could save over $30,000 in two years for a 20% down payment for the same house that will be auctioned off for $150,000
Without a doubt. I was merely pointing out that even frittering away tens of thousands on expensive toys is more prudent than overpaying for a house in today’s bubble market.
I find it incredible that in March 2006 the FDIC issued a report “Scenarios for the next Recession” (St Louis) and the #1 problem was the number of subprime loans that had brought homeownership from historical 64% levels to 71% - the FDIC concludes that 10% of all home owners would lose their house. Now Bernanke in testimony yesterday and today is waffle, Greenspan is a cheerleader along with the NAR. The foreign countries have stopped purchasing as many Gov issued securities, the euro is rising and with Japan’s recent growth, Japan is likely to raise rates causing the carry trade to crash. A perfect storm that nobody would have believed possible in 1960. This spring will be the DCB, then 10 years to reach bottom.
“#1 problem was the number of subprime loans that had brought homeownership from historical 64% levels to 71% - the FDIC concludes that 10% of all home owners would lose their house.”
Not home ownership try LOAN OWNERSHIP
That is what has increased. In the last five years very few people have a home they own. They have LOANS that own them.
“This spring will be the DCB, then 10 years to reach bottom.”
How cheerful of a goldilocks economy!
“This spring will be the DCB, then 10 years to reach bottom.”
Hoz –
I followed your post till this line stopped me. How can there be a DCB in light of the subprime implosion?
GS,
Surely you see the pick-up in sales in SD County? (No, I’m not being sarcastic.)
As prices have dropped over the past year or two, those who were waiting for the 10% discount are now salivating at all their options in this “buyer’s market”. Don’t know about your area, but here in Carlsbad, sales are in line — or better than — sales in the past couple of years.
I’ve been witnessing a DCB since about Oct/Nov of last year. I don’t think it will be very strong, or last beyond another month or so, but it’s there.
The sheeple are truly clueless. They can’t even remember what prices were just a few years ago. It’s that whole “price anchoring” thing. They actually think a house which sold for $600K in 2005 is a steal at $500K…even though the same house might have sold for $140K in 2000. Unbelievable.
“…If they do, lenders could tighten credit standards for borrowers…and that could hurt not only first-time buyers but also people who recently purchased homes using hybrid adjustable rate mortgages with the idea of refinancing.”
In the short-run, I agree; however, in the long-run first-time buyers will be better off paying lower prices as demand falls and sellers capitulate.
As a first-time buyer, I agree.
“During the housing boom, scores of lenders entered the niche business of making loans to borrowers with tarnished credit. The increased competition for loans led to easy credit. There are only so many people in that market”
Actually, I think that market is about to get bigger.
I agree, a lot of attention is being given to the fact that sub prime is blowing up but not many have mentioned that too much money was given to people with good credit. Good credit only means you were able to pay your bills in the past, it doesn’t mean you are smart enough not to bury yourself in the future. A few percentage points drop in price and the 100% LTV crowd is toast, it doesn’t matter if they were prime or subprime.
Excellent point. While many used the 100% so they could let their down payment work in some other form, many many more didn’t have the savings to begin with and will soon find out how much they like paying 750K for something no one would touch for a penny more than 300K. Ouch! Hope you can hang on for another 20 years.
It’s going to be REAL ugly when the reset clock on the self-destruct loans goes off and the FBs will be caught with an upside down mortgage, rising rates, and tightening credit,
I’m starting to believe this mess is to big for the feds to let tank. They’ll bail them all out - if you listen to the congressmen, they make all these borrowers sounds like victims.
And, it seems to me, the distinction between prime and subprime is a little blurry these days. Could a 103% loan be considered prime? I don’t care what the credit score, if somebody is bringing zero cash to the table (no skin in the game), that is high risk in my book. How do the banks look at this? Maybe NNV mortgage broker can help me out on this.
“‘We do have a problem here; it’s probably not over,’ Greenspan said. ‘It may actually infect some parts of the prime mortgage market, but there’s no real evidence that this is a significant issue.’”
When “real evidence” becomes apparent to Greenspan and the masses, it would be too late to address the issue. What Greenspan fails to acknowledge is that you don’t have to wait until everything crumbles before you realize there’s a problem.
I think Greenspan is well aware of this. I don’t know why he made his statement, if he want to calm the market or if he actually believes it, but if he believes it I would give him credit for being right about the economy many times. The subprime market is toast, but what happens to the prime market can only be a qualified guess at this time.
“The subprime market is toast, but what happens to the prime market can only be a qualified guess at this time.”
Always happy to offer a qualified guess. The subprime implosion will result in a gap between demand and supply which will not resolve until sellers knuckle under the reality of a complete dearth of buyers willing and able to pay last year’s prices. Not until sellers come down from their pre-subprime-implosion perches and prices adjust accordingly will the prime market be able to resume historic transaction volume.
Here’s the question:
How many prime borrowers require equity extraction to meet their debt service obligations?
And another two:
(1) How many prime borrowers will be underwater when prices adjust downwards to reflect the sudden dearth of subprime product;
(2) How many new prime borrowers will be willing and able to pay anywhere near what the 2005 subprime borrower was willing and able to pay, especially in light of flat or falling prices (see the graph at the bottom right of p. A1 in today’s WSJ for a recent bit of evidence on this)?
In addition, how many stretched prime buyers were unwittingly channeled into subprime products because home prices were higher than the amount they could typically borrow?
In reading all these questions, it would appear this bubble is a very long way from unraveling completely. Blood in the streets won’t even begin to describe what this country’s housing market will look like in another a year. When massive amounts of people, all in the same ‘hood, who bought in at 400, 500, or 600K can’t make payments and can’t sell for a dime more than 300K, it will get very ugly. Banks are also going to get hit as they will have all this crap on the books and hoping to get the same wishing price as the people who walk.
Therefore, here is my question, when the REOs really take off and inventory is just sitting, banks should realize that if J6P and Jane Soccer Mom couldn’t sell and walke away, what makes WaMu or Countrywide think they are gonna sell at 600K?
That’s why some of us say it’s Deja vu all over again since Japan recently had a similar housing/banking experience.
“…What makes WaMu or Countrywide think they are gonna sell at 600K?”
I wanted to raise a similar question yesterday with regard to Hosed Savers Banking Conglomerate (HSBC). Taking a hit on the books because your customer defaults is one thing but foreclosing on a property and absorbing the costs of maintaining (additional employees, taxes, insurance, hoa, repairs, yard, and so on) and selling (advertising, RE agent fees, auction, and so on) said property in a rapidly declining market is another.
Ultimately, how many primes will be prisoners (borrowers that can make their payments in the future) and how many will be defaultors?
The lender has to look at ZIP code they are about to devalue and see what else they have in that neighborhood. Smart banks are probably repackaging other loans in same neighborhood before NOD kicks in.
Or, put another way, how many of today’s prime borrowers will be tomorrow’s sub-prime borrowers.
GS, I have a question for you. I know someone who just made an offer on a house in San Diego in the $2 million range. The offer was accepted, no surprise there. I tried to counsel them about the market, went through the whole sub-prime schpiel, etc. They countered that, well yes, all the FB’s that bought POS’s (my terms, not theirs) are in a tight spot, but they really didn’t think it would affect well-heeled buyers because they can afford high-end houses, yadda, yadda, yadda. I said that of course they may not be in danger but they certainly could be paying a lot more than what the house is worth simply because of the previous upward price pressure in the low end — since a POS that was going for $200K is all of a sudden going for $400K, then of course a house that was going for $400K is going to go up in price because if someone could buy it for the same price as the POS (400K), then they would do so, and so on, cascading up the food chain. Anyway, I guess my question is, even though most of the speculation and sub-prime loans has undoubtedly occurred in the lower end (let’s say $250 - $750K although $750K isn’t exactly low-end), how much would this affect higher-end properties, say $1.5 mil and up. Are there any numbers or studies out there? Thanks in advance.
I don’t know why he made his statement
I do. If someone paid me $100K a shot to give “lectures” I’d say anything they wanted too.
Uncle Al knows the score. Painting a pretty picture disassociates him from any impending market panic.
Who even listens to this quack anymore? What creds does he have? Why does anyone bother we Greenbackprinter. This guy cannot really believe what he says, can he?
Greenspan is like a tricky lawyer. “no real evidence” … at that instant in time. True. Subprime is getting hammered, but not the primes. YET.
“Joseph Lydon, the company’s COO, speaking during a telephone conference, said that the subprime market could get worse before it gets better. ‘Unless the market moves the way it should, there will be plenty of additional blood flowing in the streets,’ he said.”
I assume he is talking about home prices reversing direction and increasing instead of decreasing. This shows that subprime lenders count on prices always increasing as part of their lending model.
No he’s talking about lenders doing an about-face and doing what they should.. plan on blood on your popcorn. Their history isn’t to good on doing what they should, hence where we are.
There history is a 50% failure rate during the wash and rinse cycle.
Anyone else think it will be higher this time? That implode-o-meter is hungry! Keep hands, feet, and small kids away from it. But feed greedy brokers to it all day.
Got popcorn?
Neil
The only blood on the streets is from the MBS buyers. All the fraudsters and zero-down buyers keep their blood safe and sound.
‘The only blood on the streets is from the MBS buyers. All the fraudsters and zero-down buyers keep their blood safe and sound.’..You don’t know Wall Street, do you? They WILL get their pound of flesh.
“Gumbinger said no one should be surprised that subprime customers are defaulting on loans: ‘They got that way for not paying their bills in the first place.’”
“And then we have AG’s moment by moment truth: “‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”
This whole fiasco is an eye opener. It has eroded any faith I ever had in the supposedly knowledgeable over-educated zombies running our economy and the stock market.
““‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”
Which means that the ship is sinking and the water has reached the level of the Bridge but after that it will continue to sink at a slower rate and will only slowly hit the bottom of the ocean.
This is a common government ploy. If the numbers don’t tell you what you want, take the first derivative and see what it tell you. Seriously, they do it all the time. At least in this case Greenspan didn’t mislead you with what he was looking at. Usually they just spin like they’re talking about the original function itself.
Not to beat a dead horse, but I can absolutely assure everyone that the NAR’s YOY median numbers are about as useless as Greenspan. Portland, OR showed an increase of 11%, yet I just sold my house there for about 15% less than the peak price from last spring. From what I can tell the smaller stuff has held fairly steady, but the larger the house the more it has dropped. Of course you still have a lot of delusional sellers who believe that their house is still appreciating due to these median figures.
Same here, 15% off when I sold in Portland this year. Problem is, it sold for well over the median.
Also, as has been discussed here many times, one of my potential buyers saw the price drops happening and instead of buying my house at $X were able to spend the same amount and get much more house in a more exclusive neighborhood. Again, much higher than the median, skewing the reality that the house they bought most likely lost 15-20% from original list price.
We’ve seen this (statistically rising prices, but declining prices on the street) in San Diego.
IMHO, the median price isn’t reflecting the median home price, it’s reflecting the median sales price (what people are willing and able to pay…NOT what a particular home is worth). It is affected entirely by what lenders are willing to loan the “median” buyers.
If lenders tighten standards, and people who could once borrow $500K now qualify for $200K, we will see the median price tumble.
It measures the “value” of a mortgage, not a home.
The median figure is now useless. It’s only measuring what Phillip Rothchild and Helen Fondulac-Kennedy are purchasing as second homes in Pawtucket and Sconsett Nantucket.
averaged with the few Everyday Joe homes that are selling for much less.
That’s interesting, someone who’s blog I read just boasted about how his Portland house will not be a part of any bubble (if there is one) based on those same figures.
“‘The worst of the adjustment is over, meaning not that the market is turning,’ Greenspan said, ‘but that the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.’”
The rate of decline in which local real estate market? Because there is not, I repeat, is not a national real estate market. And didn’t he really mean to say the rate of decline is decelerating?
P.S. In retrospect, I suspect BB’s and AG’s Newtonian world views will have proved to be overly smooth. The subprime implosing is very likely to result in a sharp downward discontinuity in the level of demand. The derivative that AG is suggesting when he talks about deceleration cannot be calculated for a discontinuous function.
As always GS, good point.
Well credit quality went hyperbolicly negative. This means that now we have the crappy loans from 2005 going bad at the same time the Insanely crappy loans from 2006 are going bad.
Sounds much like one of those Central Valley pileups that occasionally propagates backward through a line of 50 cars driving along the freeway in the fog. Except the fog in this case is coming out of economic policymakers’ and other REIC cheerleaders’ mouths.
Well the lenders were blinded by greed, that’s kind of like fog. Arguably, the future is ALWAYS shrouded by fog. Unfortunately, the longer the economy has gone without an accident, the faster it goes.
“…future is ALWAYS shrouded by fog.”
But the REIC propaganda fog seems extraordinarily thick at the moment… brings to mind the old college joke about using the squid method when you don’t know the answer on your exam (blind the professor with a cloud of ink…).
GS, I remember well those days. I compared students in exams to squids inasmuch they tended to emit large clouds of ink when either provoked or frightened…!
Well, hyperbolic trajectories ARE the only things that go up but don’t come down. If the housing prices were hyperbolic, then perhaps the NAR is right after all?
Record home price slump
Fourth quarter report from Realtors shows largest price drop on record as markets with price declines now outpace those with gains.
By Chris Isidore, CNNMoney.com senior writer
February 15 2007: 2:31 PM EST
NEW YORK (CNNMoney.com) — The slump in home prices was both deeper and more widespread than ever in the fourth quarter, according to a trade group report Thursday.
Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter of a year earlier, according to the report from the National Association of Realtors. That’s the biggest year-over-year drop on record, and follows a 1.0 percent year-over-year decline in the third quarter.
In addition, 73 metropolitan areas reported a decline in the fourth quarter, compared to a year earlier. That outpaced the 71 that saw a gain. It was both a record number and percentage of markets showing a decline in the group’s quarterly report. Five markets saw prices unchanged.
That decline was a far more widespread than the third quarter, when only 45 markets reported drops and 102 saw gains, or the second quarter when only 26 saw a year-over-year slump in prices. The national median price was still showing a year-over-year gain in the second quarter.
The most recent median prices are down even more - 3.4 percent, since hitting record highs in the second quarter. Almost three-quarters of the markets reported on by the group saw declines in median prices over the last six months, with eight reporting double-digit declines.
Vacation markets, where investor-buyers had driven up prices during the building boom of 2005, were particularly hard hit.
The Sarasota-Bradenton-Venice, Fl., market saw the biggest year-over-year decline in the fourth quarter, with prices plunging 18 percent.
When looking at the change between the fourth quarter and the second-quarter peak, Palm Bay-Melbourne-Titusville, Fl., market saw the biggest drop, with median prices plunging 19.5 percent.
But the weakness in prices wasn’t restricted to those kinds of vacation markets. Springfield, Illinois reported a 16.2 percent drop in the fourth quarter compared to the third quarter, the biggest decline during that time frame, along with a 10.4 percent decline compared to a year earlier.
Still the trade group statement said it believed that the worst was over for the drop in prices.
“Examination of data within the quarter shows home prices stabilizing toward the end,” said a statement from David Lereah, the Realtors’ chief economist. “When we get the figures for this spring, I expect to see a discernable improvement in both sales and prices.”
Part of the decline in prices was due to the drop in sales pace. Total existing-home sales, including single-family and condo, were at a seasonally adjusted annual rate of 6.24 million units in the fourth quarter, down 10.1 percent from a 6.94 million-unit level in the fourth quarter of 2005.
And the slower pace of sales, coupled with investor-buyers from 2005 trying to sell homes and condos they had bought, created a glut of homes on the market, according to other real estate readings, which also fed into the decline in home prices.
Realtors President Pat Vredevoogd Combs, a Grand Rapids, Mich. Realtor, admitted the group doesn’t expect to see a big gain in 2007 statistics.
“Right now, buyers are responding to seller pricing and incentives, and there’s a bit of a pent-up demand as a result of buyer hesitation during the second half of 2006,” she said in the group’s statement. “We’re not looking for big changes, but a gradual rise in sales and home prices is projected - that will be good for the overall housing market and related industries.”
She said that since most home owners stay in a home six years on average, a look at five-year price gains shows most homeowners are doing OK despite the recent weakness. The median five-year price gain is 41.8 percent, according to the group’s figures.
The nation’s leading home builders have all reported declining prices for new homes, which are not captured in this report. KB Home (Charts) reported a net loss of $49.6 million, or 64 cents per share, for the fiscal fourth quarter ended Nov. 30, earlier this week. Other leading builders reporting weakness in prices include Lennar (Charts), Pulte Home (Charts), Centex (Charts), D.R. Horton (Charts) and Toll Brothers (Charts).
The most expensive market in the latest report was San Jose-Sunnyvale-Santa Clara, Calif., where the median home price $760,000. That was up $20,000, or 2.7 percent from a year earlier, but down $19,000, or 2.4 percent, from the third quarter and off $35,000, or 4.4 percent, from the second-quarter peak.
The cheapest market was Elmira, N.Y., where the median price was $78,400. That was off 0.5 percent from a year earlier, and down 16.2 percent from the third quarter, which is when prices there peaked.
Despite the record weakness, there were some markets that showed strong price gains. The best was Atlantic City, N.J., where the median price was $339,800, up 25.9 percent compared to a year earlier.
“Prices slumped 2.7 percent in the fourth quarter compared to the fourth quarter of a year earlier, according to the report from the National Association of Realtors. That’s the biggest year-over-year drop on record, and follows a 1.0 percent year-over-year decline in the third quarter.”
More evidence of the soft landing there?
News is slow in coming in reaction to the NAR numbers. MSNBC and Bloomberg still don’t have anything up. But this source, once again, put the most bearish possible spin on the numbers, Lereah in reverse. Tomorrow could be interesting.
Congress is coming to the rescue? Lower those rates!:
http://www.washingtonpost.com/wp-dyn/content/article/2007/02/15/AR2007021500746.html
“Rep. Barney Frank told Fed Chairman Ben Bernanke he was a “little puzzled” by Bernanke’s position, arguing that prospects of slower growth seemed to him to be equally as important a risk as the possibility of a flare-up of inflation.
Frank, D-Mass., said he found the central bank’s identification of inflation as the bigger risk “troubling.”"
Bernanke’s comment about the Fed closely watching mortgage delinquencies is also troubling. Let’s hope they aren’t watching it to determine if there should be a bailout.
“Greenspan also said ‘disarray’ in the U.S. subprime mortgage market, which serves borrowers with weak credit who typically pay higher interest rates, isn’t likely to create greater financial instability in the rest of the economy.”
Yet Bernanke was quoted this morning as saying the following:
“He reiterated the notion that those massive GSE portfolios may pose a systemic risk to the financial system.”
If anything goes wrong, we can rest assured the plan is to lay the blame on the GSEs… (of course, it may also be necessary to bail them out, in order to “save the system from collapse”…)
Exactly GS.
There goes our Social Security benefits.
“Keith Gumbinger, a VP at the mortgage research firm HSH Associates, said the declining housing market, combined with loose lending standards during the last two years, have come back to haunt the subprime market.”
I believe that “negligent lending standards” is more appropriate.
Amen!
You might be right, but sometimes we like to be diplomatic.
Since HSH was mentioned in this post, I’d like to add that we’re posting a 4-part article (more of a discussion, really) titled
“Is a Credit Crunch coming to the mortgage market?”
We’ve been around since before the last one, so it’ll be an interesting read, I think. We don’t blog, but we always welcome comments, brickbats, etc.
“the declining subprime lending market has led Accredited to put a stronger emphasis on screening subprime borrowers to make sure that they can repay their loans”
well that is a novel idea, isn’t it? who would have ever thought borrowers should be screened to see if they have the ability to repay their loans.
Repaying loans??? Is this some sort of new paradigm??
As Will Rogers liked to say, “I am more concerned with the return of my money than the return on my money.”
From a credit forum……
Let’s welcome another new homebuyer into the ranks of FB:
“I know this sounds crazy, but dh and I bought a house back in Nov. We both had good scores (mid 700s), and low DTI. We went a little crazy and stretched our budget due in part to the encouragement of a loan broker who told us we were ’selling ourselves short’ with what we were planning to spend. We really upgraded the house (new construction) based on her advice and the thought that this was the house that we would grow old in. We did an 80/20 and spent most of what we had on hand to buy furnishings for this ‘dream house’. Well, believe it or not, 4 months in and we hate and regret everything that we did. While we fall into what are considered acceptable ratios, we feel like the payment is killing us. We really dislike the neighborhood and feel out of place. The kids hate the new school system. It’s really a nightmare situation.
The problem is, we probably loaded the house at least 40k over the surrounding homes, (put in a media room with 111 in. projector/screen, did foam insulation in the walls, extensive handscrapped hardwood floors, lots and lots of fancy mouldings - all stuff that has value, but is above what’s in most of the neighboring homes). I think if we did a for sale by owner, we MIGHT be able to get close to what we paid, but realistically, for sale by owner doesn’t seem very probable in this price range. Found one service that allows you to list on the MLS by yourself and offer a commission to the buyer’s agent.
What would happen if we sold for less than what we owed? Would that haunt us forever (or for seven years)? We have a few lines of credit that we could tap to pay realtor’s fees (say $10-15k). I’d even consider leasing for a year or two, just to get out of this house. Would it be possible to buy a home for significantly less (say 50% less) and roll some of the left over debt from this mortgage into a new one?
ANY and ALL advice would be appreciated. We are a very unhappy, very scared family. Thank you!”
That’s funny and sad (for the kids) at the same time.
It’s been only 4 months you friggen whiners, buck it up and live with your mistakes and whiney kids.
At first I thought: this guy is mixing up what he paid and what he owes… but I guess not. The beauty of 80/20.
Oh, and good luck with selling it for what you paid.
Where was that posted?
Here ya go:
http://creditboards.com/forums/index.php?showtopic=234096
Lots of FB and wannabe FB
From the board:
“Like I said, we have a strong income ($180s) …”
And I’m supposed to feel pity for this person?
I would suspect in the mortgage forum on creditboard. There are some amazing stories there.
Good God, that is the exact scenario that I have been trying to explain to my wife for the past two years as the reason for us to avoid buying a house in San Diego right now.
“…the thought that this was the house that we would grow old in.”
Fear not. After one year of juggling all your bills and postponing essential needs to meet the stinking mortgage payment, you feel like you have aged five. So, depending on your current age, you will soon approach your initial expectation of growing old in that home.
Overspent current income- check
Overbuild house for neighborhood- check
Toxic mortgage- check
Spent potential down payment funds on furniture- check
Failed to properly appraise neighborhood- check
Failed to properly appraise school system- check
We are happy to certify you as crazy, and ready for crash landing!
OFFICIAL PROJECT STAGES
1. Uncritical Acceptance
2. Wild Enthusiasm
3. Dejected Disillusionment
4. Total Confusion
5. Search for the Guilty
6. Punishment of the Innocent
7. Promotion of the Non-Participants
We really dislike the neighborhood and feel out of place. The kids hate the new school system. It’s really a nightmare situation.
Yeah, what a nightmare. I bet the 5 billion or so people in the world who have nothing compared to you are glad they aren’t in your shoes.
Good Lord, I can’t stand whiny Americans who have no concept of what a nightmare situation looks like. Suck it up, stay or sell for a loss and start over, and be glad you live somewhere where you won’t be blown up by a car bomb or a morter shell.
I know what you mean…….
The last time I was in Sao Paulo, two guys got into a fight over a large wooden shipping crate. Wood is a stepup from cardboard……guy with the knife won the argument.
I have NO sympathy for “but I want it” people…none…nadda. For a billion or so people, a good day is getting enough to eat.
only one thing i can say about you, “YOU ARE STUPID!!!!!!”
Not stupid. Naive, perhaps. Ignorant, no doubt. Feckless, yes. They make $180K as a couple–it usually takes some native intelligence to get to that level.
The picture of the so-macho Merrill Bull furiously eating grass in order to disgorge what it ate. Oh so sorry Mr. Bull, but the nuclear waste you consumed while drunk on greed mead has done poisoned your liver.
(a realist knows Mr. Bull is too big to be allowed to fall. /rats)
The bull won’t fall.
But its about to projectile vomit as no bovine has ever done before.
Isolated? Not even close.
Got popcorn?
Neil
I would not stand too close to the rear of that bull either.
This is a new one…..
Fayetteville couple, 24 others busted in drug ring
By KATHY JEFCOATS
The Atlanta Journal-Constitution
Published on: 02/15/07
A Fayetteville real estate agent and her husband masterminded a $12 million operation to grow marijuana hydroponically in the basements of vacant $300,000 homes, police from at least six Georgia counties announced Wednesday.
Fayette County sheriff’s drug agents said Blanca Botello, 34, is a licensed ReMax Realtor who helped close the sale on at least a dozen homes used in the operation. The homes are owned by Cuban nationals who also may be charged, police said at a news conference.
Police said Botello’s husband, Merquiades Martinez, 35, owns a hydroponics store in Fayetteville. Hydroponics refers to a soil-less process of growing plants in water and nutrients.
Fayette District Attorney Scott Ballard said the couple, along with 24 others, mostly Cuban nationals, are charged with manufacturing and trafficking marijuana and theft of services. Ballard said all 26 are in county jails. No other suspect names were released.
Fayette sheriff’s Lt. Dwayne Prosser said the massive amount of electricity used in the grow process was diverted to the house so it wouldn’t show up on meters and raise suspicion.
“Phenomenal is the best word I can use to describe this operation,” Prosser said.
Fayette County Sheriff Randall Johnson said marijuana was being grown in the basements of 11 homes in Fayette, Henry, Coweta, Butts, Newton and Rockdale counties. Agents raided a 12th home Wednesday afternoon in the exclusive Lake Dow community in Henry County, said Maj. Stoney Mathis of the Henry Police Department.
Prosser said the investigation, which originated from the Jones County Sheriff’s Office and the Drug Enforcement Agency, is ongoing and more arrests are expected.
Hey, at least it stinks less than a meth lab and doesn’t have their propensity to explode.
Yep, when one of those houses burns……people stand around, look at the pretty colors, and listen to Dark Side of the Moon….kinda like a Cheech and Chong movie scene.
That reminds me of a scene I saw once with my own eyes in Northern California:
Big pot field busted. Cops piled up all the weed in a big pile and set it on fire, and then they all stood around the pile as it burned. There was a helicopter hovering above the burning pile of grass, creating a nice outward-flowing breeze.
No kidding.
–Shannon
And stand downwind and inhale deeply! -
“Lereah said - ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”
Mark those words.
And hope the NAR is determined to make them come true regardless.
I don’t expect to seem many sales closing Jan to March. The big question is Apr to June, which would come out in mid-August.
“From Reuters. “Standard & Poor’s said it may downgrade ratings on 18 securities from 11 mortgage-backed bond issues sold by units of companies, including Goldman Sachs Group Inc. and New Century Financial Corp..””
I absolutely love the fact that GS is in there ! The piggiest of the pigmen ! All GS knows is pump, pump, pump. Where is the $100 superspike in oil they touted ?
I can’t wait until Cramer issues a No Buy on GS.
““The bonds are backed by subprime and second-lien mortgages, and so-called alt-a loans, whose credit is considered between prime and subprime, S&P said.”
“‘Many of the 2006 transactions may be showing weakness because of origination issues, such as aggressive residential mortgage loan underwriting, first-time home buyer programs, piggy-back second-lien mortgages, speculative borrowing for investor properties, and the concentration of affordability loans,’ S&P said in a statement.”
Lets play a game called predict the trend. First we had the bad subprimes. Then we had the regular subprimes. Now we have the AltAs. Guess the next three steps !
“The percentage of loans in the pools that are severely delinquent range from 2.77 percent for Terwin’s 2006-8 issue to 13.46 percent for New Century’s 2006-S1 deal, S&P said.”
13% severely delinquent. Hmm… how many are just delinquent ? What is the maturity on that instrument ? How old is it now, like 8 months old ? Have the rates ratcheted up yet ?
Me thinks MBS holders are going to get killed !
I suspect before this is all done the only mortgages available will be 25% down, full doc, fica720, fed + 5%, capped at $300K. No piggybacks, no kickbacks, no false appraisals, no HELs. Period.
And how do the Credit Default Swaps tie it all together?
Our GS is better than their GS! -
“During the housing boom, scores of lenders entered the niche business of making loans to borrowers with tarnished credit. The increased competition for loans led to easy credit. There are only so many people in that market, said Lou Galuppo, at the University of San Diego. ‘The only way to enlarge the market is to drop the (credit) score.’”
WRONG! You can also enlarge the market by increasing incomes (not likely to happen), building homes more in line with incomes (too late for this to happen) or lowering the sale prices (in the bag for 2007).
“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said.”
Two points on this comment.
First, “2006 was the year of contraction” should either be “2006 was the first year of contraction” or “2006 was a year of contraction.”
Second, he actually says “hopefully the fourth quarter was the bottom.” “Hopefully?” That sounds to me like he’s not quite sure–and admitting it!
Military saying: “Hope is not a plan.”
Third, the word “confirms” implies that Lereah had predicted or suspected the downturn. Nope.
There’s nothing soft about this landing.
Nevertheless, I don’t think this will strongly show up in the overall economy until this time next year. It’s going to take awhile for the RE-related job losses, sub-prime infecting prime MBS, lending standards, DOM figures, etc. to affect bottleOfChateauxJoe (SixPackJoe’s already drunk in the ditch).
One interesting immediate drag on the economy is the reduction in relocation liquidity. Many of the home-owning crowd will have trouble following the American dream city-to-city when they can’t sell their own house. I know personally of four professional-types that are either on-hold or screwed with 2 notes due to this problem.
For all those who got into ARMS when Greenspan said it was the thing to do I’m sure they are relieved to find out that “…the rate of decline was at its maximum in the third quarter and continued over in the fourth quarter and should now be moving to a much less negative direction.”
This guy has become a parody of himself. If I’m a FB I must be thinking “it’s so comforting that the great sage is telling me my house is only decling 5% per year instead of 10% like last year”
“Major financial firms like Merrill Lynch, which bought large amounts of high-risk, high-return mortgage loans in 2005 and 2006, are now trying to force the firms that originated those loans to buy them back, The Wall Street Journal Online reported. The moves reflect the increasing numbers of Americans who are falling behind in their mortgage payments.”
*******
What a bunch of clowns managing Merrill Lynch.
Good luck with getting those originators to take back those loans.
After an “economist” job (like Diane Swonk) or “chief investment strategist job” (Abby Joseph Cohen)… I think I’d like to be a senior executive at Merrill.
I’ll take a lot less pay than O’Neal or any of those guys, and I’ll do a much better job as well.
“Good luck with getting those originators to take back those loans.”
Yep, it would be hard for the originators to take back loans when they have already gone bankrupt and out of business. The big boys might get stuck with the bill since they are the only ones with money, the small guys were all running on debt issued by the big guys, that has been shown by how many have already gone out of business as soon as the debt spigot was shut off
I am proud to say I recognized what was going to happen four years ago. My friends who were annoyed with my obsession now say, “You called it.” I am not an economist, just an MBA/Paralegal plus old enough to understand. How could I know more than Greenspan-and how much does he earn versus my measly income?? So, I share with you-dark days ahead for many-the train must slow down, come to a stop, before it can go backwards. According to David Learah, another overpaid, underbrained male, this train has just slowed for a bit and now it’s picking up speed. Before you believe him, think- has he yet said one single thing that was accurate (read truthful) since this mess began?
I am proud to say I recognized what was going to happen four years ago. My friends who were annoyed with my obsession now say, “You called it.” I am not an economist, just an MBA/Paralegal plus old enough to understand. How could I know more than Greenspan-and how much does he earn versus my measly income?? So, I share with you-dark days ahead for many-the train must slow down, come to a stop, before it can go backwards. According to David Learah, another overpaid, underbrained male, this train has just slowed for a bit and now it’s picking up speed. Before you believe him, think- has he yet said one single thing that was accurate (read truthful) since this mess began?
sfj: What a bunch of clowns managing Merrill Lynch.
Good luck with getting those originators to take back those loans.
I think the originators are required to take them back as part of the underwriting agreement. Whether they’ll go belly-up in the process is, of course, another matter, altogether. The reason many of these mortgage lenders lent so recklessly is because we’ve never had a major real estate crash in the midst of a healthy economy. They’re about to find out that there’s a first time for everything.
“trying to force” doesn’t sound like much of a recourse to me (versus required).
Then again, I’m not a senior executive at Merrill.
They’re still clowns.
sfj: “trying to force” doesn’t sound like much of a recourse to me (versus required).
Then again, I’m not a senior executive at Merrill.
They’re still clowns.
All other things being equal, Merrill has the contractual right to force them to buy back the loans. What Merrill can’t do is prevent them for filing for bankruptcy protection (which is when other things cease being equal) in order to avoid buying back the loans, so they can try to pay their workers before Merrill gets its principal back.
The point is the originators, like Countrywide here in California, may be gone in a year, long before they take back but a fraction of those crap loans.
The seller/purchaser agreement between the seller (i.e. mortgage banks) and purchaser (i.e. Wall Street firms) are, for the most part, in favor of the purchaser. Additionally, as a condition of approval, many (if not all) of these purchasers review the financial positions of these sellers prior to buying loans from them. The Wall Street firms are very aware that these sellers are not capable of buying back these loans. These sellers didn’t have the capital to close/fund these loans in the first place. They used short-term financing from interim financers (i.e. banks). If you have a Company with a $50M net worth that originates and sells $5B a year…let’s say 10% are bad and need to be repurchased…that’s $500M…how in the world are they going to repurchase $500M in loans? Their company is only worth $50M. As a matter of fact, they couldn’t even repurchase 1%. And those interim financers (i.e. banks) that provided the short-term financing to fund/close those loans in the first place have enough sense to not finance a repurchased (bad) loan. These mortgage banking companies are not thinking about their repurchase risk when they originate these loans. Many of these so called mortgage banks have replaced their underwriting guidelines with investor purchasing guidelines. Some big names have already gone down, but still, there are a lot of mortgage banks (subprime lenders in particular) out there that think they’re somehow immune to what’s happening in this industry. It’s really sad.
Subprime Outlook Extremely Challenging
In a letter to her clients, a Goldman Sachs analyst took a posture similar to other recent reports, comments from industry executives and others in calling the situation “bleak.” She wrote that the outlook for subprime credit quality remains “extremely challenging.” She put the blame squarely on what she describes as lax underwriting standards by lenders chasing new business.
“David Lereah, chief economist for the Realtors, said he believed the data shows that housing, which had enjoyed a five-year boom, was bottoming out in the final three months of last year.”
“‘This information confirms 2006 was the year of contraction and hopefully the fourth quarter was the bottom,’ Lereah said. ‘When we get the figures for this spring, I expect to see a discernible improvement in both sales and prices.’”
PUT A FORK IN DL…THIS RE PIG IS DONE
Love the way Merryl linch is trying to turn back loans it took on…this is just as interesting as HSBC losing 10 bill…all this going on and the NAR is like a cult on its way to the hail bop
how many bottoms can you have? how bout chins?
NAR is like a cargo cult
LOL. Well said.
GS: NAR is like a cargo cult
I would say every industry is like a cargo cult - build it and they will come. This is why industry after industry develops overcapacity, followed by destructive price wars and corporate bankruptcies. The difference with real estate is that the overcapacity has been fueled by no-money-down loans. And of course, stories of the guy next door who struck it rich simply by buying his house.
The terms senile and full of shit come to mind when I think of Greenspasm.
What blows my mind is that all of this is occurring after only $500 billion in loans reset. We still have another $2 trillion to reset this year and next, not to mention any FB who got another whacky loan after their loan last year reset. I still see some companies pushing no down no doc neg-am ARMS. This is insane. I knew all the high on the hog living the past 10 - 15 years just didn’t add up. We’re just about to hit the equals sign while reading left to right … McMansions + SUVs + 1% ARMs + trade deficits = future poverty.