Loan Guidelines “No Longer Appropriate”
Some housing bubble news from Wall Street and Washington. “Subprime lender NovaStar Financials shares tumbled nearly 40% Wednesday after reporting a fourth-quarter net loss. Problems with mortgages originated in 2006 knocked $17.4 million off fourth-quarter earnings. Provisions for losses on loans NovaStar has been forced to repurchase cut $13.4 million off results. More provisions for losses on a package of early 2006 mortgages the company securitized cost it another $10.3 million, NovaStar said.”
“NovaStar has tightened underwriting guidelines on its mortgages in response to the housing market slowdown, Lance Anderson, chief operating officer, told analysts during a conference call on Tuesday.”
“‘What happened in 2006, in the housing market we had a swift downward shift which caused the guidelines that we had in place to no longer be appropriate,’ Anderson said.”
From theStreet.com. “‘The credit performance of our portfolio, and specifically our 2006 originators, deteriorated during the fourth quarter, resulting in impairments on mortgage securities and additional loss provisions for loans held-in-portfolio in the REIT,’ says Scott Hartman, NovaStar’s CEO.”
“‘Also, our gains upon securitization were reduced during the quarter because of lower whole loan prices. Furthermore, during the fourth quarter, we experienced a greater level of loan repurchase requests due to early payment defaults than we have historically,’ Hartman said.”
“NovaStar is also considering whether it should retain the company’s real estate investment trust status, it says. NovaStar says it expects to ‘recognize little if any taxable income’ through 2011.”
National Mortgage News. “As the subprime carnage continued last week another concern was raised. One non-depository mortgage executive told us that warehouse providers (Merrill, others) have a provision in their contracts, stipulating that a lender must be profitable at least every other quarter.”
“In other words, if a mortgage banker loses money two quarters in a row, they could potentially lose their lines.”
The Charlotte Observer. “Wells Fargo Home Mortgage will close a Fort Mill, S.C., operations center that employs 250 people, the company said Tuesday. The center Wells Fargo is closing is part of the company’s high-rate lending business. The employees approve funding for loans made by mortgage brokers, and also purchase loans made by other lenders. Wells Fargo said it will close a similar operations center in California.”
“The company has responded to the defaults by tightening the requirements for new loans, further shrinking its volume.”
“‘We tightened our credit policy,’ Wells Fargo said in a statement. ‘This decision directly impacts our nonprime loan volume, which in turn impacts staffing levels in the areas devoted to managing these loans.’”
The News & Observer. “Eagerness among mortgage lenders to increase their fee income pushes them to sell as many loans as possible, even ones they know borrowers can’t afford, outgoing Federal Reserve Governor Susan Bies said. That is driving more people to fall behind on payments and default, she said.”
“‘There’s a real transaction-based mentality in the industry today that you didn’t have 20 years ago,’ Bies said. ‘To make a decision faster, and try to get the customer to say yes to you before they go and shop anywhere else, they’ll waive terms.’”
From Inman News. “Chris Flanagan, managing director and head of global research for JP Morgan Securities, said approximately 35 percent of all subprime mortgage borrowers could have a difficult time meeting their loan obligations when their adjustable-rate mortgages hit their first adjustment period.”
“‘These are consumers who were getting into 100 percent loans when home prices were softening,’ Flanagan said. ‘The more troubling characteristic were the lenders willing to reach to make those mortgages available.’”
“Flanagan’s research revealed that 10 percent to 15 percent of all new loans originated in the fourth quarter of 2005 and all of 2006 were subprime loans. The amount of money at stake could be $200 billion, with as many as 500,000 to 1 million consumers in potential jeopardy.”
From Bloomberg. “Denise Hamilton was earning the biggest salary of her life painting and packing refrigerator parts until Collis Inc. decided to shut its Evansville, Indiana, factory and she was fired.”
“Hamilton lost her $11.20-per-hour job last month because Collis’s main customer, Whirlpool Corp., the world’s largest appliance maker, cut production after a drop in home sales reduced demand for new refrigerators, washing machines and dishwashers. Whirlpool fired 500 workers at its Evansville plant and Collis fired 160, including Hamilton.”
“‘Working for Collis was the best job of my life,’ said Hamilton. ‘Money is going to be tight.’”
“New and existing home sales dropped almost 10 percent last year, depressing demand for products from copper pipes to kitchen sinks and resulting in the loss of about 100,000 jobs in the U.S. Housing-related unemployment probably will increase in 2007, according to the Joint Center for Housing Studies at Harvard University.”
“By the end of this year, job cuts at companies including Whirlpool, Masco Corp. and Emerson Electric Co. may exceed the fallout from the 1991 housing slump, said Paul Puryear, managing director at Raymond James & Associates.”
“‘The fallout in the early 1990s was much worse than what we’ve seen so far, but this downturn is not over,’ said Puryear. ‘The full impact hasn’t hit yet.’”
“‘We’re going to see other industries have a hangover long after the housing recession is over,’ said economist Richard Yamarone. ‘Housing has a ripple effect through the whole economy, from the carpet makers to the dishwasher salesmen.’”
“‘For the first time in many moons, the fourth quarter was a time for slowing sales in the United States and booming sales everywhere else in the world,’ Caterpillar CEO James Owens said. ‘I think we will see that essentially be the pattern for 2007. My guess is it’s going to get a little bit worse,’ Owens said.”
From MarketWatch. “Home Depot Inc. on Tuesday said its fourth-quarter profit plunged 28%, hurt by a slump in the housing market. Frank Blake, recently installed as chief executive, called results for the most recent fiscal year ‘disappointing’ and said they reflect ‘challenging’ conditions in the housing market.”
“Blake warned that 2007 would be challenging as the housing market continues to shake out. ‘We anticipate continuing headwinds in 2007,’ he said. ‘There is a lot of inventory to work through in housing. If you look at the back half of ‘07, we’re not terribly optimistic, but we could see things start to improve then, but…it won’t be a dramatic turnaround,’ he said.”
The Ann Arbor News reports from Michigan. “A federal agency announced Monday it has assumed control of operations at Ann Arbor-based Huron River Area Credit Union. Regulators from the National Credit Union Administration, the independent federal agency that charters and supervises federal credit unions has taken over the credit union’s management, placing it in conservatorship.”
“‘We found it’s been operating in an unsafe and unsound manner and is in imminent danger of insolvency,’ said Kathy Fagan, spokesperson for the Michigan Office of Financial and Insurance Services. ‘This was something that came up suddenly.’”
“A credit union is typically placed into conservatorship when its loan or investment portfolios are judged by regulators as too risky, putting the institution’s viability in danger, said David Adams, chief executive officer of a trade association that represents credit unions, including Huron River.”
“‘Most often regulators are identifying problems well in advance of it being a crisis and I suspect that’s what’s happened here,’ said Adams.”
“Sreedhar Bharath, a professor of finance at University of Michigan’s Ross School of Business, speculated the move may be due to the actual or anticipated future foreclosures due to the area’s recent job losses. He also suggested the move may be an attempt keep customers, including other financial institutions, from panicking and withdrawing their money.”
“‘Home lending in Michigan in this climate is a risky bet. They may be being cautious and taking action even before bad things are happening,’ he said. ‘My guess is you might see more of this happening in the future. Foreclosure rates are up in Michigan.’”
‘Beleaguered mortgage giant Fannie Mae said Tuesday it has decided to withhold $44.4 million in bonus money tied to company earnings targets from nearly 50 senior executives after a government-ordered review found they were undeserved on the basis of performance.’
‘Stung by repurchase requests for loans with early payment defaults, wholesale mortgage lenders — which derive their business from loan brokers, have been swallowed up, exited the business or closed shop altogether.’
‘Central Pacific Mortgage is selling six wholesale branch offices, according to an announcement Wednesday. More than half of the operation’s $180 million monthly volume has reportedly been Alt-A.’
‘New York Mortgage Trust Inc. said it has agreed to sell substantially all the assets of New York Mortgage Co.’s wholesale lending arm in a transaction expected to close by the end of the month. The wholesale operation was originally launched in July 2005 to generate ARMs and Alt-A loans, the company announced at the time.’
‘Stung by repurchase requests for loans with early payment defaults, wholesale mortgage lenders — which derive their business from loan brokers, have been swallowed up, exited the business or closed shop altogether.’
I wouldn’t be surprised if this problem entirely closes the market to people with subprime credit. Even in good time, the calculated percentage of default can be as high as 20%. Given the bubble prices of the last few years, I agreed with some economist that the default rate will hit as high as 80%. it sucks to be poor.
It sucks to be poor, but it sucks even more to be poor and irresponsible!
Really? Why? They don’t seem to mind defaulting on their first payment so why should anyone feel sorry for them? They competed for properties, driving up prices, properties they couldn’t afford as it’s becoming clearer now. They created a big huge mess (granted they needed and got plenty of help from lenders) and they won’t be around to help clean up. That chore is going to be left to the taxpayers to fund, with the 2007 shiny new reincarnation of the RTC. Actually paying for it is another thing altogether…
I’m with AZ_Bubble on this. I don’t feel sorry for irresponsible people — poor or not — who drove up prices for everyone by taking out idiotic mortgages. It sucks to be them NOW, yes, but it’s sucked to be financially responsible and very much wanting to buy a house in a RE market that has gone completely ape-sh*t the past few years thanks to waterfall liquidity. I’m not putting my 20% down on a house when I’m competing against dingbats making a third of my household income who have been able to put down nothing.
Hey, don’t forget those people are victims!
Amen. I sold in 2004, am waiting to buy again. I absolutely refuse to compete with other buyers armed with exotic financing and no money in the bank. I’m happy to rent in the meantime. Let someone else overpay for their house.
If they just walk away from a depreciating asset with the lender’s cash(back), how are they victims? Who is the truly irresponsible party, the con man or the mark?
I bet most first payment defaults are fraud, not legitimate subprime borrowers.
They are victims because it wasn’t their fault. In fact nothing was ever their fault. Obviously they would not be victims if prices had gone up 20% every year, they would be financial geniuses and send Xmas cards every year to the mortgage broker.
I like to think I give people as much benefit of the doubt as possible. But I have no pity for aforementioned borrowers. Two years ago a couple of friends of mine bought way more house than they could afford and asked me why I couldn’t do the same? “I refuse to pay these crazy prices for a house.” But oh, the market would only go up, they said, and by the way - just get a 0% down mortgage like we did and you’ll be ok. I told them they were nuts and to ask me about the falling market in two years.
And here we are. They’re going through a pretty tough time and I know they can’t sleep a night.
It is their fault, at least partially. Why do they buy a home that they cannnot afford? - very likely for quick profit.
And they are the reason of prices going 20% every year.
It is their fault, at least partially. Why do they buy a home that they cannnot afford? - very likely for quick profit.
And they are the reason of prices going up 20% every year.
Pardon my French, but the subprime and “Alt-A” (what ever that is) markets have gone ape sh!t. We can point the finger at everyone…borrowers, brokers, lenders, investors, and government agencies. They all played a role in this. I think they all understood the risk, and for some reason or another, chose to turn the other cheek. In my opinion, these brokers/lenders were the first line of defense. I’m not a lender, but I know better than to loan someone money without verifying/analyzing their ABILITY and WILLINGNESS to repay the loan. You know they’re willingness is compromised…otherwise they wouldn’t be in the subprime bucket. On top of that, these lenders are offering subprime borrowers stated/limited income documentation loans. Well…there goes their ability to repay…because McMortgage didn’t verify/analyze their income. At this point, their ability and willingness to repay have been compromised. And to add insult to injury, lenders are offering subprime borrowers 100% financing? Give me a break. There’s a right and a wrong way to loan to subprime borrowers…this is the wrong way.
C’mon guys, where’s your sense of humor?
Haven’t you noticed how all the FBs are being presented as “victims” by the media? I made a comment yesterday how probably about 5% are victims of predatory lending, the remaining 95% are claiming the victim status because it’s pretty hard to admit what fools they were. Next logical step is the tax-payer bailout of all these “vitims”.
The sad fact is, if making homes more affordable was the goal, and brokers, lenders and builders were only trying to grant the American dream of home-ownership, then the prices of home should have DROPPED, not EXPANDED. It’s fundamental economics that if you want more people to buy your stuff, you have to expand the distribution and/or drop the price; you can’t expect to expand your customer base by RAISING prices!
Now, the dream of home-ownership is going to become more possible, when home prices crash and those who know how to save and spend appropriately can finance themselves into a suitably sized- and priced-home. Prices will crash until about 2010 or so, depending on the regional market. After that — unfortunately, since Americans are the best-educated morons that Humanity has ever produced — prices will be speculated up again and the incoming sensible people will have to rent for 5 years or so.
I wouldn’t be surprised if this problem entirely closes the market to people with subprime credit.
As it should be. People generally have poor credit because they have a poor track record paying bills. No one with such a history has any business being handed a loan for hundreds of thousands of dollars.
“Subprime” mortgages are really just a euphemism for junk bonds.
Very true. What a lot of people don’t look at when they blame these folks for overextending is how much money the brokers made on the loan. The mortgage brokers are as much if not more to blame for this disaster. I would love to see the W-2’s of the brokers that qualified these buyers in the past 2 years. Too bad they aren’t charged back their commissions when these bad mortgages go into default in the first year…..
Subprime mortgages ARE junk bonds priced like treasuries. It’s like getting a Yugo when you pay for a cadillac.
Novastar was just another shimp on the barbie.
Southern California is Subprime central. It’s like a crack den. They’re selling the stuf and using it too.
Chuck Ponzi
http://www.socalbubble.com
“More than half of the operation’s $180 million monthly volume has reportedly been Alt-A.’”
And that should come as no surprise. Question to the brokers/LO’s out there: How many full doc A-paper deals did you do last year?
Wow. implode-o-meter must be going wild.
Who in their right mind gambles in the stock market when you have Cramer and his fellow pickers missing their projections by 72%. And these guys get million dollar bonuses.
…..Deutsche Bank Securities analyst Stephen Laws, l, cut his price target on Novastar Financial by more than 72 percent. His new price target of $8, down from $29,
…Shares of Novastar Financial sank $6.76, or 38.5 percent, to $10.79. The stock touched as low as $10.35, crashing through the previous 52-week low of $14.92 set earlier this month. Novastar’s stock hasn’t traded so cheaply since 2002. A year ago today, Novastar’s stock was worth $27. Two years ago, it traded at $34.61. Three years ago, it closed at $51.35
I know, these Fing clowns get rich for being stupid and wrong…WTF!!!!!!
No prift. Only bigger and bigger losses. As a result, more and more housing related market bailing. When will the sheeple hear the alarm bells and how will they respond?
boo hoo hoo
Looks like the Grinch stole Christmas for Fannie Mae executives.
One down, thousands to go.
using credit cards to margin NFI (lol!):
http://www.webspawner.com/users/womfm/index.html
Brad, Nice catch! Maybe we should email this guy at: bigcraig79@earthlink.net
to see how his trade is working out?
I can’t get over this dolt. I think he ought to team up with Casey!
Copyright © 2004 Working On My First Million. All Rights Reserved
Remarkable. Credit Card advance and HELOC to use for margin purchase. This douchebag got creamed today. Ask how he’s doing!
Send E-Mail to: bigcraig79@earthlink.net
Ouch! To be fair Brad’s website and suggestions are copywrite 2004.
Look at the NFI News/Info page!
http://www.nfi-info.net/news.htmThis will be probably my last writing here. Like most long NFI investor, I am shell-shocked after the conference that took place yesterday, and quite annoyed that I participated in the collective hallucination that led so many into such a disaster. Yes, hallucination, or more to the point, collectice delusion, a variant of the latter.”
And it goes on… Nyuk-Nyuk-Nyuk!
“
depnds on what you call sub-prime
this number is low imo
Flanagan’s research revealed that 10 percent to 15 percent of all new loans originated in the fourth quarter of 2005 and all of 2006 were subprime loans.
and 100% of 05 and 06 buyers are underwater now- kinda increases risk a tad
they noticed a shift in 06 ?
everyone on this blog noticed that in 05
Not 100%. My husband and I bought in early 2005 and are not even remotely “under water”. Nevada County actually saw slight year to year price increases recently, although Grass Valley (one of the largest cities in the county) saw price drops. A lot of areas have not seen price drops. A lot of areas have not seen dramatic price drops, it’s just that slight increases don’t make headlines.
How do you know you’re not underwater? Have you tried to sell your house? I bet you would be surprised at what you can get for your house.
Because Zillow told her so, damnit!
Too funny. The fat lady is getting louder as it is getting closer to Game Over.
My neighbor bought the house next door in Ventura, 2005, and is trying to sell his house for 100,000 less than he paid. No one has even looked at the house for 2 weeks now.
We are not under water: Because we can afford the payments easily (no ARM, affordable house). Because we plan on living in the house for at least 10 years. Because homes in our neighborhood/county have not depreciated (based on actual sales figures, not Zillow). Because I”m not in a poorly made, overpriced McMansion, but in a solid house in a stable, established, beautiful neighborhood. Even if our home does depreciate to below what we paid, so what? Unless we switch from an inflationary economy to a deflationary economy, salaries will gradually rise and home values will stabilize/increase. OVER TIME home values always go up. People here always seem to leave out those two critical words when they mock home buyers. Home depreciation matters to investors, not homeowners. Not all home buyers are greedy flippers who overextend themselves by taking out 80/20 ARM’s they couldn’t afford. I would be perfectly happy to sell my home in 20 years for what I paid for it, and to have had the priviledge of living in a beautiful home that I owned in the meanwhile. Even if I could rent for a fraction of the cost, I wouldn’t. It’s worth the premium to me to know that I can paint the walls whatever color I want and any improvements I make are mine and every check I write to the bank increases my equity. Nobody can cancel my lease, or decide I can’t have dogs, or sell the house out from under me. My home is an emotional investment more than an economic one, and my retirement is not vested in the house. I am not in the least “under water”. I am exactly where I want to be.
“Not all home buyers are greedy flippers who overextend themselves by taking out 80/20 ARM’s they couldn’t afford”
No they’re not. But that doesn’t mean these “real” buyers weren’t negatively impacted by them, to such an extent that over the next 5 years their homes will see price declines. If you bought in 2005, unless you bought at 2001 prices, YOU WILL SEE THE VALUE OF YOUR HOUSE DECLINE AND WILL BE UNDER WATER. COUNT ON IT.
OVER TIME home values always go up
Yes that is true but only for those that paid in the $100 to $125/sq ft range and that’s being generous. Once the exotic loans are a thing of the past and no new buyers are entering the market, then the OVER TIME statement will be only come into play long after you have left God’s green earth!
“OVER TIME home values always go up.”
No, it just seems that way because over time your money always loses value. So, why in 20 years you may sell it for what you paid, the money you get will only buy you half of what it does now.
If you bought in the spring of 05, choose wisely when it comes to paint colors.
Diane, chill, “under water” just means that if you have to sell your house, you would get less for it than it cost you (including fees, etc.)
If you never have to sell, you should be fine. However, the definition “under water” may still apply; all it means is that if you have to sell (job transfer, job loss, etc.), you will have to bring money to the table (or have the bank forgive some of the loan).
“OVER TIME home values always go up. People here always seem to leave out those two critical words when they mock home buyers.”
However, you may want to rephease that to “over a LONG time”. In Los Angeles, some people had to wait 10-15 YEARS for values to return to what they had paid for them.
“It’s worth the premium to me to know that I can paint the walls whatever color I want”
Good for you. Some of us would rather pay half as much, and bank the remaining cash. In my case, it would cost me $1900 A MONTH for the privledge of painting my walls (and that’s assuming the exact same house)…and that’s taking everything in consideration (gardening, tax break, etc.) Each of us have different goals and priorities.
“and every check I write to the bank increases my equity”
Again, good for you. I pay 1/2 as much a month, and bank the rest. That is my my “equity increase”. I choose not to “throw my money away on mortgage interest payments”, especially with housing prices stabalizing or decreasing. Again, we just have different goals.
In the future, I will buy (again)…but it doesn’t make sense for me right now, unless I buy at a VERY steep discount.
Perhaps “under water” doesn’t mean the same thing to me that it does to you. To me, it implies that a person is incapable of meeting their financial obligations and heading for disaster (aka “drowning in debt”). My point is that I went into the purchase with my eyes wide open, aware of the possibility that the house might depreciate after I bought it, as did many other buyers. I am a bit suprised that it hasn’t. But even if it does - we will be able to meet our financial obligations.
Hey Diane, bonus points for to you for hanging in there against this crowd and points to Agrande for pinpointing the semantic misunderstanding.
Yeah Diane, when you say you bought in 05 and your not underwater I hear “my home is still worth the same amount of money”. That’s a tuff sell, but maybe you’re right.
What did you pay per square foot?
You know Diane
If your house drops too much in value, the bank can call your loan. That would be a rude awakening.
waahoo - About $235. But we weren’t just paying for the house. My husband wanted trees, and I wanted a nicer commute. We bought an easier commute from a beautiful forested neighborhood (with 60 foot oaks/pines in our yard, which is large enough to exercise our three dogs). Not a lot of rentals in this area, but I’m guessing that it would rent for $1500-$2,000, based on regional comps. As for us not selling for what we owe - that’s what down payments are for. We might lose money, but we won’t end up bankrupt unless prices drop beyond what even the pessimists expect. That would bother me if I thought of equity as money, but I don’t. I turned equity in one house into equity in another. The first houses equity was “found money”. I was tempted to wait for the bottom of the market, but bottoms are easier to spot in hindsight than in foresight, so my husband and I just decided to jump in and buy a house we could afford and not worry about whether we could get a cheaper one in a year or two or three (or five? ten?). I expect prices to dip soon, and am a bit suprised that they haven’t already, but based on actual sales values, homes in our neighborhood haven’t gone down in value … yet.
I’ll have to let the West Coasters chime in, but $235/sqft with the land doesn’t strike me as unreasonable if I use 2000-2005 standards and some of the sq/ft numbers I’ve seen posted.
I’ll put you in the “may be underwater but can hold breath” category.
Homes on standard size lots (6000-8000 sq ft) will probably drop to $125/sq foot by the summer of 08 in rural northern California. A 2000 sq foot house at $235/sq ft is $470,000 in 2005. In 2008 that house will be worth $250,000. That’s -$220,000 lost because she didn’t wait 3 years.
Maybe she bought a house on a large property?
If you bought 100% LTV you are underwater the day you moved in - transaction costs. Flat market you will stay underwater until appreciation in excess of inflation comes back. Good luck.
And if you have latest comps, you have no idea what “incentives” were given to the buyer. You had a huge run-up in pricing, and you are going to have an ugly fall. Geez, above 2005 pricing? Haha, your lucky if it stops at 2002 pricing…….
Diane, what in the hell are you smoking. Step away from the bong, my friend. If you bought anywhere in your part of No Cal in early ‘05, you’re in the worst shape of all. Early - mid ‘05 was your absolute top. Sorry.
Well, it is Nevada Co…
“My husband and I bought in early 2005 and are not even remotely “under water”.”
If you bought in 2005 at 100% LTV you are way underwater. Go ahead, try to sell. Sorry, you can’t without bringing cash to the table. Zestimates don’t count. Buyers at the door do. You’re already cooked, you just don’t know it.
I feel badly for Diane
I hope she plans on staying in her home( and can afford to) for many years to come.
“Buyers at the door do”
Correction: Buyers at the door WITH A SIGNED CONTRACT AND LEGITIMATE CONFIRMED FUNDING do.
My husband and I bought in early 2005 and are not even remotely “under water”.
My advice to you. SELL!SELL!SELL! while you still can
You ain’t underwater until you go diving for dollars.
Sorry, way too late to sell. Diane’s only options are to pay her mortgage and hunker down for a long, long time, sell for a huge loss, or doing what most people in her postion are currently contemplating - walk!
On some level diane suspects she’s underwater or she wouldn’t be reading here in the first place.
“The lady doth protest too much, methinks.”
–Hamlet (III, ii, 239)
My thoughts exactly.
Well, she would be protesting too much if she were real. “Diane” is a fictional character created by a desperate realtor, isn’t she?
I sure would like to know what kind of industry exists in Nevada City that would justify these housing prices rising in the future.
Nevada County, I mean
Actually Wahooo… I read this blog because I’m fascinated by the psychology of the people who post here. Everybody mocks the greedy investors, but many seem to be just as greedy, anxiously awaiting the time when they can pick up the pieces of someone’s broken dream for a song. One person actually posted that they’ve been waiting 5 years. 5 years ago, there were many houses available for very low prices, and if that person had bought then, they could have sold at peak for a large profit. I wonder how you all are going to know exactlly when the bottom is hit so you can buy? And how long you’ll have to wait. It seems that fear rules the lives of a lot of people here, and it helps me to see the fears that I allow to rule my life and counter them. We all have fears. But at some point, even the most timid rodent has to stick it’s head out of the hole and take a chance. You can’t live in a hole forever. Home buying is about priorities and planning. I’m prepared to stay for 15-20 years in the house I’m living in, but if something happens and we have to move, I’m prepared for that as well. Hope for the best, prepare for the worst.
There may be a few greedy sounding personalities here, but for the most part I’ve found that posters here are waiting to buy when it makes sense by historical metrics. I’ve not been here long enough but I think the hostility towards bullish posters stems from a few years ago when greedy investors were here claiming that housing prices would never fall.
And I hear you on the “you have to live your life sometime” topic. But for me, because of greedy investors playing with money they didn’t understand, it would cost me at least $5000 a month own where it costs me a $1000 in rent. And I’m prepared to stay here for 15-20 years at that difference.
Diane nothing wrong with waiting. Bet when I do buy, I’ll sleep better at night due to the fact that I didn’t buy at the top as you did. Speaking from experience I bought my first home in 1991, lived there for seven years and finally sold for a grand total profit of $1500. Yes had I waited just a little longer I could have cashed in. I wore the same thinking cap as you “be there 10-15 years” but circumstances forced me to make the decision to sale. I was sweating the break even senario when I sold but luckily made at least something. I could not imagine watching my vaule drop triple digits month after month as I kept making the same payment. I feel for you in a way, but not much as I saw the writing on the wall 4 years ago. What has happened with this market was insane and the fallout will be one for the history books.
“But at some point, even the most timid rodent has to stick it’s head out of the hole and take a chance.”
True, however:
1. Some people are just fine with renting, even long term. I am not in this catagory, but I don’t mock those that want the freedom to be able to just pack up and go (those making good money consulting, for example).
2. I saw plenty of “brave” rodents get carried away by eagles during the height of the last two booms (real state in the late 80’s, stocks in the late 90’s). Is it brave to buy tulip bulbs during a speculative mania, or is it foolish?
“Home buying is about priorities and planning.”
Yes, and some of us have priorities that differ from yours (funding savings and non-real estate investments, for example). As far as planning, I won’t knowingly put myself in a position where a job loss or transfer (both of which have heppened to us in the past 10 years) will cause my to loose my down payment (or worse). You call this fear. I call it smart planning. But to each his own, correct?
Anyways, good luck to you. If you are truely interested in the mindset of many of those on this blog, please look up these events:
1. Tulip mania.
2. The South Seas “bubble”
3. The Railroads Bubble
4. Florida real estate bubble (1920s) - Got Stucco?
5. Beanie Babies
6. Japanese real estate bubble
7. Stock/Internet bubble
References to these and many more:
http://en.wikipedia.org/wiki/Economic_bubble
“But for me, because of greedy investors playing with money they didn’t understand”
It goes beyond this, waahoo…even those that “just wanted a house to live in” played with money they didn’t understand, especially here in California. I can understand people “just wanting a house”, but it makes no sense for me to compete with them for houses…especially with people that qualify for houses in my price range only because they can buy with 0% down and an option-ARM with a teaser rate. Partially because of the ‘exotic’ loans, demand went up (because more people could ‘qualify’, no matter how marginally), causing prices to skyrocket. No thank you, I’d rather rent now, pocket the cash differernce, and watch what happens.
As I have said for the past year and a half, this is the learning experience of a lifetime, so sit back, take notes, and pass the popcorn.
arroyogrande - I actually have looked into a lot of those bubbles. Human nature fascinates me. You left out the gold rush and the Texas oil boom of the 70’s-80’s, both of which resulted in impressive bubbles. As for owning a house with no risk of loss - it won’t happen. Unless you can absolutely guarantee that you won’t lose your job or be transferred, and won’t get sick, you may end up losing. In an non-boom economy, you simply have to hold onto your house for a few years to even hope to break even, unless you can pay cash, and even then you will probably have commissions and moving costs to amortize. You just have to decide how much risk you’re willing to take, as do we all.
“Human nature fascinates me”
Then you will be the first to agree that the next couple of years will be worth watching…an education of a lifetime!
“As for owning a house with no risk of loss - it won’t happen.”
True; however, I’m trying to minimize my risks by not buying near a “peak”…especially knowing what sort of “fundamentals” (lose lending standards, speculative mania, etc.) have lead to the peak.
“You just have to decide how much risk you’re willing to take”
Correct, but I would extend that statement to ”
Then you will be the first to agree that the next couple of years will be worth watching…an education of a lifetime!
“As for owning a house with no risk of loss - it won’t happen.”
True; however, I’m trying to minimize my risks by not buying near a “peak”…especially knowing what sort of “fundamentals” (lose lending standards, speculative mania, etc.) have lead to the peak.
“You just have to decide how much risk you’re willing to take”
Agreed, however, I would extend it a bit: “You just have to decide how much risk you’re willing to take vs. the reward you expect to get”.
Do the benefits outweigh the risks? We’ll just have to agree that we have different answers to that fundamental question.
Hey. You have to give Diane credit. She’s standing her ground (or quicksand). This is a tough crowd.
Hey. You have to give Diane credit. She’s standing her ground (or quicksand). This is a tough crowd.
LOL. To come to this Blog and justify a 2005 purchase is like tossing the mouse into the python’s cage then sitting back to watch the inevitable.
“we are not even remotely underwater”- Captain Edward Smith, Titanic, April 14, 1912.
Time out everyone -
Can we define what “underwater” means? This is not a trick question. I really want to know.
AFAIK, underwater means that you are in negative equity territory. e.g. if I purchased a house with 2% down, financed the rest, and comparable home prices decrease by 5%, I am now underwater. If I want to sell immediately, I will most likely have to bring cash to the closing table.
However if I did conventional 20% down 30 yr. fixed financing, and same house depreciates 5%, need to sell immediately, I still have 15% equity and worst case if in a must-sell situation will lose 5% off the sale. Not counting commissions, closing costs, etc.
Help me out here.
OK forget it, just scrolled up.
arroyo answered it.
I see it as upside down loan to value after transactions costs.
I define underwater as owing more than your loan. For example, I have a colleage that moved to NoVA 2 years ago. When he told me he bought a house, I asked him if he was out of his mind. He told me had made a killing in another market, and put 2/3rds down on his house. He was fully aware that prices could go down in NoVa, but wasn’t concerned, as he planned on living in the house for more than a decade.
Yes, there were lost opportunity costs (i.e. investing the money in CDs for a few years while housing prices go down), but for him, it was more important to find a steady place to live where he could raise his kids. Since he was financially stable with low mortgage payments, he wasn’t too worried.
I don’t consider him to be underwater.
On the other hand, my neighbor that bought a town house in 2005, and is currently renting it because he couldn’t sell it, is underwater. Since the rent doesn’t cover the PITI, he loses money everymonth. Considering that identical townhomes are now selling for less than he paid in 2005 (100% financing, I’m sure), there is no way he can sell the place without bringing money to the table.
In the mean time, he’s living in an apartment in the midwest, unable to buy a home in his new city because he can’t sell the townhouse in NoVA.
Yikers you guys! Read Diane’s post! She’s comfortable with the payments, loves the house and neighborhood and *doesn’t care* if she loses money on the house over the next decade or two.
Hello! She sounds fine to me.
I guess I should add, the only thing that seems risky at all about her situation the way she’s described it is *if* the bank calls the loan.
The reason I say that is because it seems that if banks start to do that, they’ll have no choice but to go after people who bought responsibly, which it sounds like she did. I mean you can’t get blood from a turnip right? They cannot go after FB’s so they’ll have to after those with jobs/other assets, etc.
Have we ever had a discussion here about this loan- calling phenomena? When has it happened before and what we’re the circiumstances? How widespread was it?
Until I undersatnd it better, I’m thinking it’s one of the few reasons, maybe the *only* reason, why a person who is responsible with their $$ should not buy now: if loans get called, they’ll have to come after those with actual money, or at least potential actual $$, not FB’s.
Adding on again: Make that last paragraph, “a person who is responsible with their money *and doesn’t mind the fact that their property will be going down in value over the next decade*”…
LOL. I know ,I know, it’s looking worse and worse for Diane even as I try to defend her… But seriously, outside of the sudden financial jolt of a loan being recalled…
This sounds similar to what I did. I made almost 100% profit selling a place in Tucson for ~400k (summer ‘06). We bought that place with 15% down five years ago, which seems positively prehistoric today. We moved to Oklahoma City (which has a bubble of it’s own going - ask me about it sometime) and bought an existing place for similar money. A much bigger, nicer place too. New houses in the area go for something like $125sqft and paid more like 104 for a place that seems to be solidly built. My mortage is $1500/month and I have $240k or so of “equity” in the place (yes I know it means nothing till I sell, yada yada). I sleep soundly at night.
In the big picture when I pay this loan off I will have paid a grand total of about $250k principal from my income for this asset. Any value above that I got from the absurd market appreciation in AZ over the last 5 years. So even if the place falls 25% I’m still 50k ahead. Note that houses DID do that here in the 80s when there was a big oil bust in this town and in fact they’re STILL slowly recovering from it. So it’s a risk, to be sure, but I’m not losing any sleep over it. My kids will go to an excellent school, I live right next to a terrific park, and I don’t have to worry that my landowner signed some stupid loan and the sheriff will show up at my door.
I could have bought a smaller place and invested the money in bonds or something, and perhaps I would have come out ahead financially in the end. I have a lot of security though, in that it would take a real financial catastrophe for me to be in any danger of losing my family’s home. That, to me, is the opposite of “upside down”.
Seattle price drop - I had equity in a previous house plus some savings that I applied toward this one. Even if prices drop considerably, I won’t’ be upside down on this loan. I think the most likely prospect is that if the house drops below 80% loan to value ratio the bank might require me to take out private mortgage insurance, which I can afford. Even if my home value dropped below the mortgage, the bank would be foolish to try to take it. In such a catastrophic market, the loan would be worth more than the house. Appreciate the positive words, though. I’ve posted here a few times, but never really gotten contrary. Today I decided to wade into the muck a bit. Interesting experience. I’m surprised how many people assumed that I must be a 100% financier with an ARM. One person even suggested I’m in real estate.
Ex-Arizonan I think that many of the people on this blog don’t value the security of home ownership very highly. I can relate to that. I don’t value having a nice car very highly, but I see that others love their cars. It takes all types. I ran the numbers for how much I’ve actually paid for my house and how much it’s worth. Even in the unlikely event my house loses half it’s value in the next 5 years, I will be ahead by a large margin. If it then rises at the rate of inflation for the rest of my mortgage time, then I will make some money. If you plan on staying put for a while, and have a stable income, it simply pays to own. If you want to get rich - play the lottery and leave the rest of us in peace.
why do Diane and now Ex-Arizonian pretend that we live in a world with no inflation
if you buy a house for $200,000 in 2005 and sell that house for $200,000 in 2025, you did not break even. You lost approx $161,000 assuming 3% inflation
Why does renterbychoice pretend everyone else is a numbskull?
The numbers I was describing were meant to be inflation-adjusted - I meant if I can sell for 3000k [in 2006 dollars] then I’m still ahead 50k [in 2006 dollars]. Sorry if you didn’t get that. I’m all too aware of inflation which is why I’m hedging in non-dollar-denominated assets.
I’m as addicted to this blog as anyone else, but I’ve noticed a tendency to jump on anyone who owns a house for any reason at all. Not everyone who bought a place bought in a bubble area using a 105% interest-only ARM with a hefty prepayment penalty and a 50% loan/income ratio. I get the vibe that a fair number of regular posters are either young & single or empty-nesters, in which case I don’t blame them for not wanting to own. Owning a place in a good school district has some real value to a family with kids that I think some of the regular posters on this board dismiss a little too cavalierly. Moving is a much bigger ordeal with kids, and not having to worry that the landlord is overextended and I might have to move as a result definitely has value for me…
HERB GREENBERG
NovaStar’s high-wire act
Commentary: Investors learn hard lesson about the meaning of risk
By Herb Greenberg, MarketWatch
Last Update: 12:27 AM ET Feb 21, 2007
SAN DIEGO (MarketWatch) — If investors learn nothing else from the debacle now known as NovaStar Financial, it should be that no matter how the financial markets have changed, no matter how smart people may think they are, no matter how much it may feel that this time is really different, one basic rule of investing stands: The higher the reward, the higher the risk.
That hit home in the hardest way Tuesday after NovaStar (NFI :
Last: 10.72-6.84-38.95% 11:41am 02/21/2007), with its 30% dividend yield, reported fourth-quarter results that left investors stunned as the REIT’s shares plunged 33% in aftermarket trading to $11.81. That’s lower than they were when I first started raising red flags over the subprime mortgage lender in December 2002.
http://www.marketwatch.com/news/story/novastar-investors-learn-hard-lesson/story.aspx?guid=%7B0D0B4818%2D9CCB%2D4D24%2D9A7E%2D564439A4D2A9%7D
I have a huge crush on Herb. I think he’s cute plus I love his bearish attitudes.
I made a fair amount of $$$$ shorting a TX stock back in 2002 (I think 2002) after reading some of his investigative reports… EDS. They cratered from $70 to $10 on unbilled revenues… sort of like subprime booking NegAM as earnings even though they will be writing most if not all of it down.
Which brings me to a question - Do you know which lender has the greatest amount of OptionARM. I want to buy puts. You can virtually guarantee they will be writing down and possibly restating earlier reports…
NFI is a BK filing waiting to happen. I tried to short it late yesterday and this morning but my brokerage was not allowing its customers to short it - No shares available to short - and presumably they couldn’t get any either.
That’s only the second time I’ve had this problem… first time was in early 2001 as NASD stocks were going south one after another. SubPrime is looking a lot like the NASD. What’s next?
Buy put options. The NFI puts give big returns today, thanks Ben.
LEND, FED still hanging on.
Made my first donation from the realized NFI puts gains!
Thanks Ben and fellow bloggers!
The LEND puts have yielded well, but waiting for more.
The FED puts were just acquired at its 52 weeks high.
All are LEAP, 2008.
check out this fool’s site…the justifications as he “debunks basher myths” about NFI make for hilarious reading.
http://www.nfi-info.net/myths.htm
Related article in the Economist on subprime meltdown:
http://www.economist.com/finance/displaystory.cfm?story_id=8706627
They have a very impressive (or depressing?) graph showing the going rate for BBB-basket subprime mortgages. Ouch. Plunge! Nearly 20% price dive since November, as the market suddenly sees the risks.
The market for subprime risk is experiencing an “emperor’s new clothes” moment.
Worse today. http://www.markit.com/information/affiliations/abx
Ew, nice find! Thanks!
Some of those charts are dreadful!
Wel, dreadful if you’re a banker…
MWAHAHAHA! Go ahead, tighten your credit standards. Then watch your loan volume drop off a cliff faster than before.
Mortgage companies have been barely staying alive over the last year or so simply by churning the loans. If that stops, hang on.
saw a townhouse sold in my neighborhood after it was on the market for about 3 weeks with new pricing. Previous listing was more than 2 months.
On my way home yesterday, the sold sign was gone and it’s back on the market. I guess it fell through the escrow.
Couldn’t get 100 LTV
I apologize for the following but I am a paid-up member of this blog. When I saw this post this song popped into my head.
Life goin’ nowhere. Somebody help me.
Somebody help me, yeah.
Life goin’ nowhere. Somebody help me.
Somebody help me, yeah. Stayin’ alive.
http://www.youtube.com/watch?v=M5yb7MXpac0
grubster ™
In addition to the subprime sector carnage, I’d also point out that the overall MBA purchase mortgage application index was down again. It has dropped in 5 of the past 7 weeks and is now just a couple points off its late-October cycle low. You could argue that some of the decline stems from the nasty weather. But I think it’s just another indicator that anyone looking for a rally back to the good old days should have his head examined. Homes still remain largely unaffordable and the nascent tightening in qualifying standards is another major hurdle.
Anyway, more details and an MBA index chart are available here:
http://interestrateroundup.blogspot.com
“‘What happened in 2006, in the housing market we had a swift downward shift which caused the guidelines that we had in place to no longer be appropriate,’ Anderson said.”
I am starting to wonder about a couple things:
1. Who absorbs the costs of defaults prior to 2006 and after the 1 year buy back period expires?
2. Who absorbs the costs when a subprimer seeks bankruptcy protection because it cannot buy back defaulted paper?
3. Was 2005 any different from 2006 OR did loan warehousers warn subprimers the preceding year before requesting loan buy backs? In other words, were there any second and third chances before defaults became unbearable?
I would think that:
1. The MBS bond holders take the haircut since the value of their investment is impaired by the write-downs.
2. Probably still the MBS holders. They look for their money back which is not forthcoming, therefore a write-down. Plus these bonds are largely attractive because of the projected cash flow which is impaired as well.
3. Maybe there was still a lot of refi or HELOC activity taking place masking any potential problems?
“‘What happened in 2006, in the housing market we had a swift downward shift which caused the guidelines that we had in place to no longer be appropriate,’ Anderson said.”
What they are saying is that previously the people they were giving out loans too could not afford the mortgages, but since house prices were going up the mortgage company would be able to foreclose and get the house back which would now be worth more so they did not care if they gave out toxic loans, now that house prices are dropping the mortgage company does not want to lose money on getting back a house that is worth less then the mortgage loan they gave out.
EXACTLY!!! I can’t believe that guy tried to explain it his way.
““Chris Flanagan, managing director and head of global research for JP Morgan Securities, said approximately 35 percent of all subprime mortgage borrowers could have a difficult time meeting their loan obligations when their adjustable-rate mortgages hit their first adjustment period.”
“‘These are consumers who were getting into 100 percent loans when home prices were softening,’ Flanagan said.”
Hey, I got news for you, buddy. There were plenty of PRIME borrowers taking out 100% financing, as well. In the not too distant future, we’ll all be talking about the carnage in the Alt-A sector.
Maybe those folks have access to other funds though to hold on.
I talked to one of DFW’s better known mortgage brokers yesterday. He’s been around for 25 years or so. He told me that subprime lenders are “losing their asses” but doesn’t think those loans will go away. Instead of requiring a 600 FICO for stated, no doc, voodoo loan for instance, it will take a 630 or 640. Of course that could change if things really go to hell.
In other words, we’ll go back to pre-2001 underwriting standards.
I agree with winjr, though. A lot of this A-paper will go south in a hurry now. Remember, it wasn’t just the subprime sector that riciculously loosened underwriting standards over the last few years. I watched every year the automated underwriting systems for Fannie and Freddie get just out of control. Toward the end, you could run a full doc deal through and get an accept with back-end debt ratios well over 50%. Remember too that the Alt-A sector, not just subprime, flooded the market with it’s 80/20’s, Flex 100’s, high LTV stated/no doc/no asset type deals with unreal underwriting standards attached to these programs, banking on the fact that a 700+ credit score would keep these folks real and honest. Hey, 700+ credit score or not, when you put these folks in homes they cannot afford, there is only one outcome.
nnv-
Does subprime only apply to folks with low FICO scores? It seems to me, that 100% LTV no-doc loans should be considered subprime no matter what the credit score.
Describe “things really go to hell.”
Banks fail, government intervention is necessary (ala RTC in the 80s)
I’m hoping for complete societal and economic collapse. Right now that has a 30% chance, but improves every week.
An outright military defeat might push it above 50%.
Spot price of gold is down from last week, so I’d say the fear index is actually slightly down.
As a deflationist, I think gold goes to below $400.
I dunno, gold up $22 today!
I noticed that too. Probably just reacting to the bias news, not that I mind.
if a mortgage banker loses money two quarters in a row, they could potentially lose their lines.
. “As the subprime carnage continued last week another concern was raised. One non-depository mortgage executive told us that warehouse providers (Merrill, others) have a provision in their contracts, stipulating that a lender must be profitable at least every other quarter.”
From soft landing to “CARNAGE” Put that word in your NAR bag of “spin”…David Leaher and Leslie Appleton-Young
Is not Alt-A one step below prime?
“‘We’re going to see other industries have a hangover long after the housing recession is over,’ said economist Richard Yamarone. ‘Housing has a ripple effect through the whole economy, from the carpet makers to the dishwasher salesmen.’”
I think someone said that 70% of GDP is consumer spending. And much or most consumer spending is housing-related or halo effect from rising propertyvalues.
I remember this from the tech bubble. Some days my portfolio would go up a lot. I would actually do the math as to what I “made” per hour that day on my investments. Truthfully it made me want to go out and upgrade my lifestyle even though it was paper profits.
When the tech bubble burst I stopped blowing money. Simple as that.
What must it feel like when it’s not a question of not blowing money, but you are trying to hold on to the roof over your head. And then you lose your job.
And like the guy says, this will go on long after the actual bottom is reached. And we’re only in what, the third inning maybe?
I guess nobody wil be buying a Wolf stainless steel range, or *wine fridges*.
Why didn’t you just sell the stocks?
Greed
Thank you for your refreshing honesty. You should be commended.
LOL, same thing here. I watched the Nasdaq drop below 4000 in April 2000 and I said “that’s it when it gets back to 4500 I’m selling.” It never made it, it got to 4200 plus or minus and I rode all the way to the bottom. Easy come Easy go.
Hehe, same here… I had an exercise and sell order on my stock options in August 2000. The stock came within .50 of hitting my mark then crashed. At which point greed really took hold and I decided to wait until the stock came back. Bad idea… I think I left about $250,000 of vested options on the table.
Needless to say, I am now a much less greedy, much more fearful 30something. A day doesn’t go by when I think how different things would have been had I just sold…
Because he thought they would go higher. I did the same thing back then. : O
I guess nobody wil be buying a Wolf stainless steel range, or *wine fridges*.
I’ll buy them, pennies on the dollar!
Already went and looked at a 6 month old Thermador 6 burner range plus huge Thermador refrigerator…this was in a house for sale, 1.5 million, they were cannibalizing the appliances, because they were desperate…house on market for months, about to default, etc….I pointed out to them that, um, they could get in trouble, cause appliances were part of their loan and they freaked out, told me to leave, and dang it, I liked that range! Asking $1,000 for $9,000 range.
I got my LaCornue that way years ago. Paid less than half for a floor model from a kitchen remodeling showroom going out of business.
How much has it cost you in storage? I finally got smart and sold my boat. ;o)
Very funny. You sound like my husband.
Another trick is to look for kitchen remodelers in bankruptcy. You can buy things from the estate (trustee)
Good advice! But I got my hands full just with the classifieds! LOL. Pretty soon, they’ll be selling off granite countertops and marble fireplace mantels.
Got my entire kitchen this way. 14 cents on the dollar plus a few bucks to get an out of work installer to install it.
Dallas area ad this morning: they’d come and build you a custom wine closet with a guarantee to take it out and build you a new one if you move. (Wonder if they are just recycling older SFO stocks?
)
Take-away line:
“NovaStar has tightened underwriting guidelines on its mortgages in response to the housing market slowdown, Lance Anderson, chief operating officer, told analysts during a conference call on Tuesday.”
Say there, Lance, if you’d kept your ass-ets clenched a little tighter and did allow just anyone to sample your “wares” from the get go then maybe we wouldn’t have this pesky housing slowdown!
What came first, the bubble or the loose lending?
The Fed opened the spigot, the lenders provided the conduit.
No doubt loose lending gave the bubble an extra 2 years of life.
And those extra years allowed it to spread to every nook and cranny of the US.
I could not believe it as I travelled around the country in “04 to places that have not seen an RE bubble in probably 300 years, if ever, and the bubble had just begun in those areas.
Too disgusting for words. They really let this get way out of hand.
Funny munny has just changed teams, that’s all:
http://www.bloomberg.com/apps/news?pid=20601087&sid=atURsGnAlBx4&refer=home
This is truly terrifying.
is it just me, or is our financial system madness?
at one point, I learned “never invest in something you don’t understand”. I still try my hardest to keep to that rule.
the problem, the financial shenanigans are getting more and more complex, and I can’t imagine that ANYONE understands our financial system any longer.
In moments like these, I start to FREAK OUT, and think, “maybe I should just turn into a gold bug and bury my wealth under the concrete of my garage!”
I just don’t know how long this house of cards can stand.
“at one point, I learned “never invest in something you don’t understand”. I still try my hardest to keep to that rule.”
This is the best attitude you can have for being a good investor. There is another side to this, however. I understood the internet and DIDN’T buy any dotcoms because of that understanding. I was invested in some stocks, and yes I did loose some money. I was in no way wiped out. I came back stronger than ever because I “didn’t” invest in things I understood. I understand houses and crashes (oil in 1986, stocks in 2001, houses in 2007). I usually look for things that make money and that I know about. Houses don’t.
Roidy
Same here on the internet stocks… I was too young then but if it happens again I think there’s a shorting opportunity. The problem is correctly gauging the stupidity of others. The tech bubble went on far longer and far higher than I could ever have imagined.
timing is SUPER difficult.
Look at all the folk here who shorted the HomeBuilders last summer. They’re still hurting.
“The market can stay irrational far longer than you can stay solvent”.
Actually it worked pretty well during the summer. Hasn’t been working since September.
HIC,
I’m not an end of the worlder but I appreciate gold’s longevity. that said I do remember a line from a book written by a Hungarian during the Russian take over of that country. He was living in povery amid hyperinlation and commentted that “just a few gold coins buried in a field would have made all the difference.”
Yeah, I’m not a guns and kuggerands end of the worlder, but it’s largely true that they set gold prices and I predict that there’s going to be alot more of them around over the next decade.
All these LBOs. Its like 1987 again !
““The worst of loans are written in the best of times and that could well apply to the current lending boom,” said Louise Purtle, an analyst at CreditSights. “Loan sizes are increasing, borrowers are becoming more levered, and the number and stringency of covenants is being reduced.”
This quote is about commercial loans but it obviously applies to RE and personnel loans as well
“Lenders see little risk in giving borrowers what they want. An expanding economy is making it easier than ever for companies to meet their debt payments.”
Got Deja Vu?
When all is said and done, I expect lots of Wall Street darling homebuilders’ stock charts will look much like NFI’s does today…
http://www.marketwatch.com/tools/quotes/intchart.asp?symb=NFI&time=20&freq=1&comp=&compidx=aaaaa%7E0&compind=&uf=0&ma=&maval=&lf=1&lf2=&lf3=&type=2&size=1&txtstyle=&style=&submitted=true&intflavor=basic&origurl=%2Ftools%2Fquotes%2Fintchart.asp
“When all is said and done”
Yeah, but when will that be?
OT, from WaPo:
A Condo Tower Grows in Brooklyn
“Anthropologist Neil Smith of City University’s Center for Place, Culture and Politics has tracked gentrification with an obsession worthy of Ahab…. This isn’t the old block-by-block stuff, the grinding rehab of old rowhouses by scruffy young gentry. He’s convinced he’s found a new beast.
“We are witnessing the corporate and geographical restructuring of cities — the wealthy are suburbanizing the center and pushing the poor to the fringes, and it’s turbocharged,” Smith says…. “”And no one bloody knows where the working class will go.”
Washpost a few months late on this — What we really are witnessing is the bubble economy. It’s popping now, and things are snapping back now. Already in billyburg there are lux condos going back to rental because there aren’t enough hipsters willing to buy.
And PS give me an old brick 2 fam any day over the shoddy crap they’re slapping up as fast as they can now. It’s going to be a wasteland of bad construction, and underwater buyers, in a few years.
“Gentrifiers Against Gentrification”.
Just when you think you’ve heard it all.
As for “suburbanizing” the center of any east coast city, I call BS. The very nature of the ‘burbs is that you have to get in your car every bleeping time you need to run an errand. In the city you can easily walk, ride bike, mass transit, or taxi wherever you need to go. Try getting a cab in the burbs.
I read most of the article, and the gist of it is that Williamsburg has morphed from blue-collar to yuppie and that lower income longtime residents are being priced out. OK. But that doesn’t mean that W’burg is now “suburbanized”. No ChemLawn trucks, ‘no burbs.
I disagree. I watched the Lower East Side and SoHo turn from interesting, diverse neighborhoods into outdoor malls filled with nothing but rich kids and chain stores. Sure, they don’t have lawns, but it’s far more of a suburban life than it was.
very good point…
and so sad…
k -
I can appreciate your dismay at witnessing an established neighborhood lose its flavor and character. I lived in a city neighborhood as it was gentrifying and recall the periodic clashes between the longtimers and the new arrivals. They were usually instigated by the yuppies who had brought their suburban values with them. Meaning, they couldn’t comprehend that once you’re in the city, one might get home from work and not have a parking spot waiting for you in front of your condo; or when the weather warms up and people start opening their windows, one may hear the old lady down the street yelling at her husband, or the kid next door’s stereo. City living doesn’t lend itself to a “bubble” existence.
Did they get rid of all the sidewalks on the LES and in SoHo? Not too many of those in the ‘burbs. Do those neighborhoods now have soccer mommies tooling around in Escalades and H3s and God help you if you’re anywhere on their radar? Football and lacrosse dads? The Suburban Experience is dedicated to and designed for family life. A bunch of rich kids in a city neighborhood that has been chain-i-fied just sounds like a bunch of rich kids living the good life.
We must have different ideas of what makes up the ‘burbs.
Oh, and city women have much better fashion sense. They generally know how to push the envelope beyond Burberry scarves and Coach bags. Although I’ve seen a fair sampling of tanning salonned bleached implanted mamas lately. I know folks are escaping FLA but can’t imagine they’d want to come as far north as PA…?
http://www.voiceofsandiego.org/articles/2007/02/21/news/02loans022107.txt
“But some industry analysts say the reports of subprime lenders’ actions are being blown out of proportion. Mortgage analysts don’t have enough evidence that the risk associated with these loans warrants such dramatic responses, said Jay Brinkmann, vice president of research and economics at the Mortgage Bankers Association. He said the subprime lenders’ moves are anticipatory, responding to concerns from their investors, who fear that defaults will increase dramatically.”
Seems to me that guy has got the wrong last name, not much brinkmanship there. Jay Jellyfish would fit him better…..
From the same Voice of San Diego article (David Maiolo, mortgage broker with Ocean Mortgage): “I don’t necessarily think there’s any bad loans out there,” Maiolo said. “Just too many lenders who aren’t responsible.”
Mortgage brokers have a choice! Do they want to do the loan or not? Please don’t play the good guy role they are not responsible for what they submit for a nice commissions and extra “large” fees for toxie loans. They know what their “rewards” are up front before they write it up and send to the lenders underwriters for crossing their fingers in hoping everything gets approval. They have bills to pay.
Rant rave (continued). How about this one:
“There are a lot of folks who’ve sought homeownership as the ultimate tool in accumulating wealth, who were sold products that were inappropriate and unsuitable,”
Accumulating wealth? 0-down and neg-AM…. More like “accumulating debt” and hoping for 20% appriciation every year.
“A credit union is typically placed into conservatorship when its loan or investment portfolios are judged by regulators as too risky, putting the institution’s viability in danger, said David Adams, chief executive officer of a trade association that represents credit unions, including Huron River.”
“‘Most often regulators are identifying problems well in advance of it being a crisis and I suspect that’s what’s happened here,’ said Adams.”
When, oh, when has this EVER been true of government regulators? Name one case of “proactive” on-the-ball regulators averting a financial crisis in our history? Good luck with that. Most of the time, we’re lucky if they don’t CAUSE the damned bubbles to begin with (think GSEs, Fed’s 1%, Congress’s cap. gain exemptions for flippers, etc.).
Once the horses have bolted and the barn has already burned to the ground, our heroic Regulators will charge to the crime scene… and then stick ordinary taxpayers with the bill.
this is as close as it can get, as far as i know.
http://www.goupstate.com/apps/pbcs.dll/article?AID=/20070209/ZNYT01/702090335/1051/NEWS01
here’s one, close enough to what you are asking.
http://www.goupstate.com/apps/pbcs.dll/article?AID=/20070209/ZNYT01/702090335/1051/NEWS01
I salute Mr. Geithner on heroically (Quixotically?) trying to understand and manage counter-party risk in the massive Derivatives/HFs markets. Can’t say I’m optimistic about his odds, though, based on the government’s own track record. But, hey, at least he’s trying.
Anyone look at the lake Huron Credit Union’s website?
http://www.hracu.org/newsite/
I do believe that’s the biggest “Your Money Is Safe” advertisement I’ve ever seen.
LOL
HRACU was my credit union for part of the time I was in Ann Arbor. They had absolutely wonderful member service. But, be that as it may, I haven’t had an account with them for many years. Things must have taken a turn for the worse…
And Ann Arbor has been traditionally viewed in Michigan as having a stable economic environment. 2.3% unemployment, always 4-6% less than the rest of the state, much of the employment is governmental if you include the university, and while real estate has gone up in the area like the rest of the country, it didn’t bubble the same way some other areas did. Of course, it is different in Ann Arbor…. No bloodbath, but not much is selling. The largest private employer in the city (Pfizer) decided that they were closing their research facility that they had not even finished constructing. Neil. I need some popcorn…
“A federal agency announced Monday it has assumed control of operations at Ann Arbor-based Huron River Area Credit Union. Regulators from the National Credit Union Administration, the independent federal agency that charters and supervises federal credit unions has taken over the credit union’s management, placing it in conservatorship.”
Uh-Oh!
That was quick. Here today gone tommorw. Hope no one has more than $100k there!
This is my mom’s credit union. I’m pretty sure she doesn’t have over 100k. The thing that is scary is that they were rated 4 stars by bauer financial not too long ago, now they’re 2 stars. I guess you need to watch your bank like a hawk nowdays.
I had advised mom to find another bank or two a while back, but she was too busy. She’s a lot more serious about it now.
Too late now. Still it is at the early edge of the meltdown. She probably won’t have to wait 4-5 years if NCUA has to pay out like I did at a couple of S&L’s back in the 80’s in Houston.
“‘What happened in 2006, in the housing market we had a swift downward shift which caused the guidelines that we had in place to no longer be appropriate,’ Anderson said.”
SWIFT SHIFT…GUIDLINES INAPPROPRIATE…another bubble quote to go down in history…I’m going to start a log if these…very priceless.
As if there were some moral compass steering this noble company of virtuous “guidelines” … hey, jack, how bout’ the only guiding force was blind greed, and living for the moment, with zero master plan for growth, and now, no exit strategy.
Freaking Dumbass
Insight from Robert Kiyosaki today, in case no one posted it yet:
http://finance.yahoo.com/expert/article/richricher/24515
Insight from Robert Kiyosaki today, in case no one posted it yet:
http://finance.yahoo.com/expert/article/richricher/24515
The comments that follow Kiyosaki’s article are priceless! And, if you’re really in the mood for some RK-bashing, see:
http://www.johntreed.com/Kiyosaki.html
What comments that follow the article? Where?
Scroll down to the bottom of his article on Yahoo! Finance. Comments start below the text that says “Rate This story”.
OMG, there are 265 comments
What an idiot, how often do banks call a loan these days just because you’re under water, when you are making all the payments?
What conceivable reason would they have to call a performing loan that was underwater?
The point is to understand what they could do. Poster “Diane” earlier who “isn’t underwater” might be like me and wasn’t aware of this little wrinkle.
Can the bank sell the loan to an investor with the desire to manage the foreclosure, who could then call the loan? (I lost a job to a vulture who bought up my company’s debt once.) In a declining market, the bank might sell at a deal, and the investor might then make a profit off of exactly this kind of household.
Nice work if you can call the bottom correctly, and have a strong stomach.
I am usually excited to bash RK but that was a decent article (as much as it pains me to say it). He did bring up some solid points that “the herd” here in the US could benefit from greatly.
I dunno,
this article from Kiyosaki could have come directly from this blog itself. very surprising
Look at what he’s saying:
1) people are overleveraged
2) decreased housing prices are likely in the future
3) debt is bad in a deflationary environment
4) the gov’t is overspending
5) don’t trust the ‘goldilocks” eoconomists
6) only buy/keep positive cash flow properties
7) owe as little as possible on your primary home.
the only thing i don’t agree with is that the bank would actually call in a loan when people are paying on it. (they COULD do it, but no bank would)
I hate Kiyosaki more than anyone, but he has BIG CLOUT amongst the “Re never goes down” crowd and the newly minted “RE investors” out there. and he’s talking OUR language.
very interesting… talk about change in psychology.
HIC
“7) owe as little as possible on your primary home.”
Best accomplished by renting, in which case you owe $0, and avoid holding on to falling knifes as they plummet to earth.
“Eagerness among mortgage lenders to increase their fee income pushes them to sell as many loans as possible, even ones they know borrowers can’t afford, outgoing Federal Reserve Governor Susan Bies said….”
“‘There’s a real transaction-based mentality in the industry today that you didn’t have 20 years ago,’ Bies said.”
Now she tells us. Thanks a lot.
“‘There’s a real transaction-based mentality in the industry today that you didn’t have 20 years ago,’ Bies said.”
Nonsense. Bubbles like this have never been driven by anything else. Collect your commission and pass the dynamite stick to some other poor slob. Old as the hills.
“The amount of money at stake could be $200 billion, with as many as 500,000 to 1 million consumers in potential jeopardy.”
That’s one of the few times I can remember seeing someone actually step up and offer a hard dollar figure for the amount of money that’s going to go “poof”. So, bravo to Chris Flanagan at JP Morgan. Even though I think his %ages are a little low (and probably based on historical models which are going to prove faulty in assessing this down cycle), at least he’s throwing a WAG out there.
If I read correctly, he’s saying 3.5%-5.25% of all mortgages originated in 2005-06 are “in jeopardy”. That’s 35% of 10%-15% of the mortgage market in these two years. That equates to $200 billion on paper. Anyone care to dispute his math? Or offer alternate numbers?
I’ve seen elsewhere estimates that subprimes were more like 25% of the market in 05-06. All else being equal, that would put something like $500 billion “in jeopardy”, just from the last two years of origination. Does that rate the term “crash”? Or are things not considered catastrophic until we get into the trillions?
Anyone want to offer their own guesses, along with their reasoning?
how bout hsbc losing 10 billion?
GDP is about 13 trillion. 3% is about $400 billion (about the amount the economy should grow each year, roughly).
Lets assume $200 billion is correct. But this is only the loss Flanigan associates with subprime.
There’s some $10 trillion in mortgages out there, all together. If housing prices fall just 10% nationally, how much of that $10 trillion will be underwater or near it?
5%? $500 billion?
How hard is it to concieve a situation where a year’s GDP growth ($400 billion) evaporates between $100 billion in subprime, another $50 billion in “prime” mortgages and another $50 billion in Heloc debt going south and the spending of the thousands of people involved directly and indirectly being dramatically reduced, what? $100-200 billion?
Now consider, again, that $400 billion is about the annual margin of growth in GDP.
Is it that tough to see how the RE debacle will impact economic growth? How is a recession avoidable? What economic, politcal, monetary, financial or technological development can stem (much less reverse) the downward spiral that seems to be in place?
I’d love to be wrong. But I don’t see how its possible to avoid a recession with the size, breadth and VERY PERSONAL aspect of this situation. Won’t people be emotionally affected about the inevitable stories of eviction? Even people not directly at risk?
A significant decline in housing, the most personal, major “investment” most people ever undertake, isn’t going to sober a lot of people up and reduce their marginal consumption?
I’m not an expert in human behavior, just a student. However, I can’t see how people are going to take the utter financial destruction of people around them in stride. Not without them taking steps to protect themselves from what they see going on about them.
I mean, isn’t the reason we get into messes with bubbles because people mimic what they see as “successful” behaviors? Doesn’t this dynamic work the same when people see a destructive outcome about them?
Thanks for responding about the numbers there, jag. Personally, after a year of looking at these numbers and trying to get my mind around the scope of the problem looming out there, I don’t see how it cannot be in the many hundreds of billions. If this is a bad bust (and why wouldn’t it be, after the largest bubble in history?), then I think that’s the ballpark we’re looking at. Even if 20% of the loans recasting this year can’t make payments (a conservative number, I believe), you’re talking about $300 billion in mortgages entering the distressed category just this year.
I think you also raise an interesting point about how people will take losses of housing value very hard. I see it in my own circle of family, friends, and co-workers. Many of them put a lot of stock in their (hypothetical) property value, emotionally and financially. When those values are down, say, 20% and dropping more, the mood of these people, and their willingness to spend money is going to be dampened significantly. I think that’s going to be a major deflationary factor.
I’m not sure how you’re figuring the %ages, but do recall that these bad loans are a 50-60% loss, not a 100% loss. That might account for the discrepency in the % of subprime.
i agree…i hope more step up and give estimates…this thing is going to cost alot more than anyone can imagine
In SF Bay Area almost all furniture stores are displaying banners “Liquidation sale”. Many are already shuttered, and the rest have sales to compete.
Sorry, that’s a common tactic for the furniture stores in the area; I bought my first set of furniture after moving to the bay area at one of these, and a few months later they were back in regular business. Don’t underestimate the sales-margin these guys have.
Some years ago, in the L.A. area, a furniture store was sued by a consumer group for deceptively declaring “going out of business” sales but staying in business for years thereafter, all the while replenishing their inventory of furniture.
I hate Kiyosaki more than anyone, but he has BIG CLOUT amongst the “Re never goes down” crowd and the newly minted “RE investors” out there. and he’s talking OUR language.
——————————————————————————-
I have nothing but contempt for the Kiyosakiu’s of the world. These A$$hats preached the “RE investment can never go down” mantra to gullible investors over the years (to line their own pockets) and are now coming out with all these sage pronouncements of the dangers. Can’t stand hipocrites!
Believe it or not, he said back in 2005 that this was a mania and to stay the hell out of it. But then I think he takes every side of every issue.
The other thing I’ll say for him is that his books say to buy real estate for cash flow, NOT appreciation. If people had listened, we wouldn’t have had this goatf–k.
“Most often regulators are identifying problems well in advance of it’s being a crisis, and I suspect that’s what’s happened here.” (David Adams, chief exec. officer of a trade assoc. representing credit unions, re. the Fed gov. assuming control of an Ann Arbor Credit Union).
Oh yes, the people in charge have really been ahead of the curve on all aspects of this .
Anybody who’s been reading this blog for the past year or so knows how utterly ridiculous this statement is.
We’ve read a lot of nonsense quotes for a long time now, but this one’s got to be one of the worst.
I have NEVER seen a government regulator being proactive and I spend a good part of my career shepherding people though the pasture of government hor$e$hit. They are ALWAYS reactive, usually only when something gets a high enough profile so that some Congressman thinks that they’ll get votes out of kicking someone’s a$$. Then, when they DO react, it is usually OVERreaction. If that’s the case, lending standards might actually get tough enough to make the bust worse, until they see that they overreacted. By then, it’ll be too late. A couple of years after the ‘29 crash, they closed the banks and only allowed them to reopen them slowly after “a full review.” This only made people nervous and hence the “money in the mattress.” Sounds like old times. Guns and gold…
Of the 105 homes listed as “Houses Added This Week” on CNYhomes dot com 25 of them had photos showing green grass.
As our recent weather (outside Syracuse, NY) has made national headlines for its record snow, I guess we know these are relistings.
One clever homeowner in my town did have photos updated with snow. I wonder how many others from other towns I could have included in my “gotcha” number if I had only recognized them.
12.5% (287) of what’s listed on that site now is new construction. I’m going to track this number going forward. My ex-realtor shared new construction is mostly what’s selling around here although I did see 2 sold signs on “used” homes yesterday.
I thought one was way overpriced. It was only on the market about 6-8 weeks. I’m gonna have to see if the buyers are from out of state or down state (and mesmerized w/seemingly lower prices w/o checking market values)
Something else I noticed: We seem to be experiencing a large number of homes that were purchased less than 12-18 mos ago going back up for sale again. Realtor insisted there aren’t too many flippers around here. Perhaps ARM resets or I/Os rearing their ugly heads?
In a press box at a recent sports event, I overheard a relieved attendee explaining his flipper home had just gone into escrow. He said he barely broke even and never planned to try that again.