On The Cutting Edge Of A Self-Perpetuating Spiral
Some housing bubble news from Wall Street and Washington. “H&R Block Inc. said Thursday it swung to a loss in the third quarter as the company’s troubled mortgage lending arm offset a strong beginning of the tax season. H&R Block last year announced it was considering selling Option One, which has been plagued since last summer with falling profits and delinquent loans to ’subprime’ customers.”
“‘It’s headed clearly for a sale,” said Mark Ernst, the company’s CEO, adding that he expected Option One to sell for at least its $1.3 billion book value. The mortgage business lost $69.7 million during the quarter. The company said it was setting aside $111 million to its reserves for expected loan losses.”
From Business Week. “H&R Block Inc. management may be confident it can sell its Option One mortgage unit for $1.3 billion by the end of next month, but while that stance may be ‘encouraging,’ a CIBC World Markets analyst said Friday, ‘it was not entirely convincing.’”
“(The company) didn’t fully address that public perception (regardless of reality) may influence the bids proposed by its sophisticated suitors,’ CIBC analyst Scott Schneeberger said. ‘Moreover, HRB noted that no official bids had yet been made.’”
From Bloomberg. “H&R Block took a $102 million charge for mortgage losses in its first fiscal quarter. At the time, Ernst said it would be a one-time cost that would cover all loans made in the past, and he didn’t expect similar write-offs in the future.”
“‘Until it’s sold, the mortgage unit will weigh down on earnings,’ UBS AG analyst Kelly Flynn said. Rising defaults are plaguing U.S. home lenders, and Flynn said H&R Block may not be able to sell the unit at all.”
From MarketWatch. “Impac Mortgage Holdings Inc. said that it swung to a net loss of $54.2 million, or 71 cents a share. Interest income edged down to $329.1 million, from $340.7 million, while interest expense rose to $334.4 million, from $326.2 million.”
“‘Although we are disappointed by our earnings performance in 2006, our results are to some extent indicative of market conditions, as well as strategies implemented early in the year to reduce originations and our exposure to inferior credit quality mortgages,’ it said.”
“Impac said recent trends in the performance of its long-term investment portfolio have been more favorable, but earnings in 2006 continued to be pressured as the Federal Reserve increased short-term interest rates through the first half of the year.”
“The company also noted that average securitized mortgage collateral declined as Impac tightened underwriting guidelines and adjusted pricing to reduce loan production and limit the company’s exposure to deteriorating credit trends in the mortgage market.”
“The perceived risk of owning low- rated subprime mortgage bonds rose to a record for a fifth day after Moody’s Investors Service said it may cut the loan servicing ratings of five lenders.”
“‘I do not think it is surprising we have trouble in this sector of the market; I think the surprise is the speed at which it has unfolded in the last couple of months,” said Mary Miller, director of fixed-income at T. Rowe Price Group.”
“‘Protection-sellers largely have stepped away until the market settles down,’ Peter DiMartino, asset-backed securities strategist at RBS Greenwich Capital, wrote. ‘Recent mini-rallies were just a few brave souls hoping they could actually catch the falling knife.’”
“New series of ABX indexes are created every six months by securities firms. They indicate prices for default swaps linked to 20 bonds, not prices for swaps on each.”
“The BBB- rated portions of ABX contracts are ‘going to zero,’ said Peter Schiff, president of Euro Pacific Capital. ‘It’s a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults’ by removing demand from the housing market and hurting home prices, he said.”
“ResMae Mortgage Corp. may be on the cutting edge of a trend in the U.S. subprime-loan industry. It’s bankrupt and selling assets for pennies on the dollar.”
“ResMae, which made home loans to people with bad credit, will be auctioned off next week. The opening bid, by Credit Suisse Group, is $19.1 million, less than half the size of an offer received by ResMae before it went bankrupt Feb. 13.”
“More than 100 other lenders will go out of business this year, said Doug Duncan, chief economist of the Mortgage Bankers Association in Washington. Many will be subprime lenders, victims of loans to borderline borrowers last year.”
“‘Loans in 2006 will be the worst we have ever seen in the business,’ said Matthew Howlett, an analyst who covers the subprime market for an investment bank. ‘The underwriting quality was disastrous.’”
“In mid-2005, ResMae received a premium of two to three percentage points on the face value of every loan it sold, according to its bankruptcy filing. By late 2005, the premium narrowed to zero to one percentage point.”
“Because ResMae’s cost to originate a loan was two percent to 2.5 percent of the face value, it began losing money on every transaction, its filing said.”
From CNN Money. “Late payments for residential mortgages shot up by 15.6 percent in the fourth quarter, U.S. regulators said on Thursday. The Federal Deposit Insurance Corporation said the increase in late mortgage payments followed a 5.2 percent increase in the third quarter.”
“Noncurrent mortgage loans, payments that are more than 90 days late, grew by $3.1 billion in the last three months of 2006 after rising by $974 million in the third quarter, the FDIC said.”
“Richard Brown, FDIC’s chief economist, said regulators are seeing emerging signs of distress among subprime loans, especially with hybrid mortgages that subject borrowers to higher monthly payments after introductory interest rates.”
“‘While the degree of credit distress in these portfolios is still well below the peaks that we saw during and after the 2001 recession, it seems likely that their performance will get worse before it gets better,’ Brown said.”
“‘The banking industry continues to perform well, even as … a weakening mortgage market (has) made the operating environment more challenging,’ FDIC Chairman Sheila Bair said. While banks and savings institutions generally are in sound financial condition with adequate capital, she said, ‘bankers and regulators should ensure that risk-management practices are also equal to the challenges.’”
“Writeoffs of home mortgage loans by banks and thrifts totaled $888 million in the October-December period, a three-year high, according to figures in the FDIC’s quarterly banking profile.”
I haven’t been able to find a SEC filing for this from Bloomberg:
‘ H&R Block disclosed in a regulatory filing that it repurchased $408.8 million of loans in the six months ended Oct. 31. The total was more than triple the $118.5 million in the previous year’s first half.’
‘Lowe’s Cos., the nation’s second biggest home improvement store chain, said Friday that its fourth-quarter profit fell 11.5 percent due to a slowing home improvement market amid a continued slump in the housing sector.’
‘Sales continued to be pressured by a slowing housing market, tough comparisons to last year’s hurricane recovery and rebuilding efforts and significant deflation in lumber and plywood prices,’ Robert A. Niblock, Lowe’s CEO said in a statement accompanying the results.’
oct 31st, that’s just the begining
wait for the current period
WOWOWOWOWOWOw
“WOWOWOWOWOWOw”
Curly of the Three Stooges?
“Curly”
No, that’s “woo-woo-woo-woo-woo-woo-woo!”
“of the Three Stooges?”
No, that’s David Lereah, Leslie Appleton-Young, and Gary Watts.
Ahhh….thanks for the clarification.
“H&R Block disclosed in a regulatory filing that it repurchased $408.8 million of loans in the six months ended Oct. 31″
This number appears at the bottom of page 12 of their most recent 10Q filed 12/11/06.
Yes, the number more than tripled compared to the six months ended October 31, 2005. Went from $118 million in that period to $408 million a year later. The rate of change is breathtaking.
If lumber and plywood are down, don’t they get to “take profits” on the way down? Unless demand is down so much that they still lose, or if they had too much expensive inventory and got undercut. Still, seems odd to me.
I walked into the Lowes in Appley Valley a few days ago in the morning (about 9:30 AM) and the place was dead. There were more employee cars in the parking lot than customer cars, a few years ago here would be lines at the checkouts counters at the local Home Depot before the new Lowes was built. Plus a new Home Depot was built across the street from this Lowes, go after the crumbs boys. BEER ME !!
Here’s a cold beer in a frosty mug, Rich. Speaking of slow times in the home improvement stores, I’ve been in Home Depot twice in the past few weeks. Talk about the dead zone! I’ve been in noisier funeral homes.
I’ve made a handful of trips to Lowes and Home Depot within the last month. Very little activity and no lines.
I finally swore off Home Depot for good last week. I went in to get an air filter for my lawn mower, which I bought at Home Depot (it’s spring here in Phoenix).
They didn’t have any replacement parts even though they are still selling basically the same model of mowers. That was the last straw for me - I hate places that don’t back up what they sell.
I thought about stealing an air filter from one of the floor models on the way out, but instead I looked around town and finally managed to find a little lawn mower repair shop not too far from my house. Buying stuff from them has got to be better karma than stealing it from Home Depot.
Same Here at the Oxnard Home Depot and the Ventura Lowe’s,deader than a door nail.
why is a subprime that’s failing worth anything ?
a few desks,chairs …………0
A few rapidly submerging deck chairs…
because 100% of the loans won’t foreclose. 20% to 30% might, but the rest will probably stay current. I forgot the historic numbers.
if you can figure this out and buy the loan portfolio at a nice discount and get the risk right then the loans that will perform will give you a nice return
H&R Block caught a falling knife, as did HSBC. No one is going to step into this mess unless they get the business at an absolute fire sale price. H&R Block is being taken to the woodshed, if they can even sell this turkey.
same thing happened in the last debt bubble of the late 1990’s with telecom stocks where banks along with Cisco and Lucent gave them close to a trillion $$$ in loans.
for the first few years of 2000 you could get an EMC SAN that cost $250,000 in 2000 for $50,000 on ebay. same thing with all kinds of telecom gear. 90% off pre-bubble prices. It got so bad Cisco changed their licensing where you have to license the IOS and support. If they saw that you bought a router on ebay they would jack up the support prices to make up for the lost sale
More interesting stories about HSBC on the NY times:
“Analysts criticized HSBC’s management for the purchase because of Household’s troubled loan book and a class-action suit brought over its mortgage lending practices. HSBC settled the suit and initially profited from the acquisition as American house prices rose and Household made money by lending to people with below-average credit records.
Business in the United States now accounts for a third of HSBC’s profit — and two-thirds of its bad loans.”
In that news, HSBC just fired two guys who were in charge of their US businesses.
Actually i was thinking along those lines - 100% won’t default, but with the appreciation going flat or in a nose dive the underlying assest just got devalued, so how do you figure that into the equation?
i was taking a simplistic view and saying that if the property values decline by around 30 - 40 %, the loan portfolio should decline by the same amount, add in the 20 - 30% default (or risk premium), and a further 10% charge of foreclosure expense, I would be comfortable at paying about 20% - 30% of current bookvalue for these securities. So when this bozo says :
“‘It’s headed clearly for a sale,” said Mark Ernst, the company’s CEO, adding that he expected Option One to sell for at least its $1.3 billion book value.”
he’s delusional, and lets see if the smart money pays him the $350 million I think (with my back of the envelope analysis) its worth.
This is getting fun fellas… especially since renters don’t have any skin in this charade.. but then economically its gonna get tuff for everyone, accept ofcourse the super rich.
- got cash?
100% won’t default, no. But the losses on the ones that default will easily take out the margin on the ones that do. Say the loss on a defaulting loan is 25%. And the margin on a performing loan is 5%. It doesn’t take many defaults to make the portfolio worthless.
I don’t think investors realize that yet.
they’ve had models for this which is why subprime rates used to be high. back in 2003 i was very close to having to buy with a subprime loan and rates would have been close to 10%.
somewhere along the line lenders lost all sense of reality and gave money away. there are prices where you can buy these loans and still make a ton of cash. you just have to do the analysis and guesswork right as to how many and who will default.
“Say the loss on a defaulting loan is 25%. And the margin on a performing loan is 5%.”
Actually, today, I would say that the losses will come in closer to 50% on many, if not most, of these loans. Using round numbers, here’s an example: First, you start with a 100k loan at 100%, then depreciate the house down to 80k, due to the market. Then, at the same time, figure that the house gets somewhat trashed - now 70k, then include the time that the house spent sitting, without paying mortgage, maybe 65K, and then you have the legal and transaction fees to get rid of the house, and you could easily land at 55% of original principal.
Now go to the next step, with an Option ARM, where you let essentially defer interest payments until the back end. In that case, the bank could easily be down 20k on the loan (i.e., principle up to 120k), but the eventual selling price of, maybe 55k stays unchanged - so, in this case, the bank ended with 55/120 or 46% of (adjusted) original principal.
Anyone who doesn’t see a train wreck, dead-ahead, is NUTS.
Are you sure you don’t have any skin in the game? My mom’s CU just got taken over by the Feds for making too many shaky real estate loans.
Banks have more RE exposure than at any time in history.
Unless you’ve got gold buried in your rented back yard you may have more skin in this game than you thought.
My mom’s CU just got taken over by the Feds for making too many shaky real estate loans.
LMAO!!!
Are we still in OZ, Dorothy?
Like the federal government should be the rescue party.
$14 trillion in the hole, and another $56 trillion obligated to pay out entitlements to the baby boomers.
It’s a huge gamble to pay even $350 million. This portfolio is depreciating rapidly along with home values. There are some outrageously stupid sub-prime loans out there. When I was looking for land in rural Washington, what I was seeing was shocking. Trailers which had sold for less than $50k for many years, were selling for as much as $250k, overvalued by the appraisers because of the parcel of land. There is little to no value period in a 70’s singlewide. And, the land is now dropping in price. Bear in mind that these areas are not where the big builders are working. They are way off the beaten path, and nowhere near population centers, or jobs. The folks buying these overpriced POS’s were by and large, poor. When these loans blow up, there will be no way for lenders to recoup their money.
The portfolio isn’t a collection of houses, it’s a collection of loans. The value of the collateral is only relevant if the borrower defaults on the loan, and not all borrowers default, even in high risk portfolios. And keep in mind that the interest rates for high risk borrowers tend to be a lot higher than the rates for people with good credit. Also, I assume that many of the loans were made well before the market peaked. Even if those borrowers default and their homes fall 30-40% from peak prices, the value of the homes will cover the all of most of the value of money owed. The biggest devaluing factor for their portfolio right now is the uncertainty factor. Investors don’t know how bad things will get, so there is no reasonable way to estimate the actual risk of loss. Whoever buys this portfolio will probably want to pay less than the asked price just to cover their risks. But that won’t be a huge discount, since risk is part of normal financial models. Investors are used to taking risks. That’s how they got rich enough to be investors.
Where did you get them rose-colored glasses?
All the talk about this purchase has me confused. Isn’t the buyer of H&R buying the business. For all the loans H&R sells they have borrowed money themselves. They are leverage about 15 to 1 meaning virtually all of their loans are funded by loans as opposed to retained earning or equity. The margin of error at 15:1 leverage is extremely small. If the value of the portfolio goes down 7% the business is worthless from a liquidation standpoint unless thay have other assets that are not at FMV or however lent them the $$$ to make all the subprime loans doesn’t want their money back. I don’t care if their book of loans is worth $1 trillion and you get it for 50% - if the offsetting liabilities pretty dam close to $1 trillion wtf cares that you got the book of loans for 50 cents on the dollar. WHAT AM I MISSING HERE!
Option One is one stinky dog; where is the growth? http://en.wikipedia.org/wiki/Growth-share_matrix
“WHAT AM I MISSING HERE!”
Nothing at all. Note that we keep hearing about “models”. Well, there was a model for tile damage on the Space Shuttle. It was applied for the Columbia hit (basically a bowling ball hitting at 100 mph, energy-wise). The model said no-problem. But the “experts” using the model were not the experts that wrote the model. After the accident, the LA Times dug up the people that wrote the model, and they all said, to paraphrase: “it was NEVER intended for hits of that size”.
When one uses a “model”, one must know its limitations. ALL real estate models are based on a time period, long ago, when loans would only be made to people that could reasonably be expected to repay them - and, if worst came to worst, and they could not repay - at least assure that the property could be sold with, at worst, a relatively minor loss. As we all know, today is TOTALLY different. You get it and most, but not all, of us Bubble Bloggers get it, but a few still do not. But they will, don’t worry.
Now feel better?
“But that won’t be a huge discount, since risk is part of normal financial models. Investors are used to taking risks.”
Yeah? Let’s see what ResMae goes for next week.
Investors are used to taking risks. That’s how they got rich enough to be investors.
LOL. They’ve been ignoring risk, that’s why subprime is imploding.
What is A and AA looking like in spread?
I bet there will be some value there soon on the right portfolio as the herd run away.
A’s are about 92.5 to 96, depending on age (older is lower, perhaps reflecting more negative activty showing up?). AA’s are still up around 99+ — basically the same as AAA.
Perhaps most importantly, in the high-current-low prices , all the current prices are the same as the low prices. Yikes! Still dropping fast, in other words. As in almost vertically fast in the case of lower-rated tranches.
Doesn’t look like great deals to be had there.
also usually by the time the portfolios were bought a lot of the risk already was out of them. Ergo the bad loans matured and the losses eaten by the prior holders.
“H&R Block Inc. management may be confident it can sell its Option One mortgage unit for $1.3 billion by the end of next month, but while that stance may be ‘encouraging,’ a CIBC World Markets analyst said Friday, ‘it was not entirely convincing.’”
Are they planning to sell by reserve price auction or absolute auction? Because with a reserve price auction, they may learn (as many FL and San Diego condo sellers recently learned) that there are not many bidders in the audience willing to pay their wishing price…
No way will they get 1.3 billion. With all the bad press now, no one will pay more than a few pennies on the dollar. They have the same choice as the mortgagees; take a punishing loss now or an indefinite slow bleed.
They have the same choice as the mortgagees; take a punishing loss now or an indefinite slow bleed.
Management will sell at a pusnishing loss. The sooner Mr. Ernst writes off these losses, and the obligatory “restructuring” that writes off future costs, the sooner he can go back to showing increasing quarterly earnings that generate obscene bonuses/stock options for himself.
The Option One auction might end up like one of those Florida RE auctions Ben’s blogged about over the last few weeks.
Their conf call yesterday was hilarious. Analysts were congratulating them repeatedly and IIRC one even said something to the effect of “hope you get the price for Option One you think you’re going to get”. Management mentioned they have NO HEDGE against deterioration against the OO mortgage portfolio, bidding process has not been opened for the sale of OO (translation: zero interest in buying OO mtg), they are valuing OO at 1.3B, with no change in that valuation since last quarter. They think the subprime massacres will not affect them. They think their ratings will not change. I want some of what they’re smoking.
they know individual investors listen to these calls now so they have to be careful and sound cheery
Sheesh, their privates must really be raw from all the circle jerking.
“HRB noted that no official bids had yet been made”
Sounds like a sealed-bid auction.
And no official bids have yet been made.
Hey, we have a lot of management talent and record-keeping talent among our posters here. Shall we collectively submit a bid? I wonder if it’s even possible to tell whether there is a positive book value in this business. Like, do they have a lot of potential liabilities in the form of further obligations to buy back worthless notes?
Trust me - you dont want to go there. I used to be an internal auditor with the bunch (Option One). I left because I concluded that they were going to “throw as much crap up against the wall and see what sticks” as they could. My job was to review loans and track our compliance with TILA, HMDA, etc. I traveled to many of the wholesale offices nationwide and basically re-underwrote loans to look for fraud, etc. Probably 70% to 80% of the loan files I reviewed had either: fraud, bait/switch (at the doc signing table), etc. No one wanted to deal with it, just keep getting as much paper in the door as possible. I would say less than 5% of the middle and upper management had any concept of the trash they were funding, nor any long-term exposure tot he lending business. They were basically clueless and rude asses, who thought they knew more than they did. I knew more about lending than my boss, my bosses boss (SNR V.P. of Risk), but since no MBA or law degree, I got no love/respect. I left because I knew that my name would be on things when sh*t eventually hit the fan, and that was back in 2001 - and then I knew it was going to implode.
I have compassion for most people (buyers) that are going to have a tough time in the next couple of years. But for everybody at Option One, they can f*ck themselves and the horses they rode in on.
But for everybody at Option One, they can f*ck themselves and the horses they rode in on.
(HAHAHA) Chris -
my sentiments exactly to the REIC biatches I used to work for…and in addition, a bent-armed Italian salute!
That’s funny.
“They were basically clueless and rude asses, who thought they knew more than they did. I knew more about lending than my boss, my bosses boss (SNR V.P. of Risk), but since no MBA or law degree, I got no love/respect.”
BWAHAHAHAHA! Right on the nose, Chris. Good you got out, otherwise they would have made you take the fall.
The buyback on potentially faulty loans is a huge liability which cannot easily be valued. If the book of loans where the company potentially has buyback obligations is much larger than the loans actually held by the company (as is the case with many mortgage lenders), it’s entirely possible that the company is, literally, worth less than zero. All of the talk of “it’s worth something, the only question is how much” doesn’t take into account these open-ended liabilities. There’s a very good chance that this company is worth what most of the other sub-prime lenders are turning out to have been worth: $0.
I wouldn’t put a penny on any sub-prime lender at this point without first taking a long, hard look at their full book of business (all loans originated and/or serviced), not just what they’re keeping on their balance sheet.
The buyback obligations could be enormous ! What if housing dropped 25% in 2007 and 20% of those loans were bad and you had to buy them back. OMG, you could loose a pile of money in a hurry.
Can you submit a negative bid for an asset with negative worth? Or is that considerd fraud-y like cashback mortgages.
“Richard Brown, FDIC’s chief economist, said regulators are seeing emerging signs of distress among subprime loans, especially with hybrid mortgages that subject borrowers to higher monthly payments after introductory interest rates.”
“Emerging signs of distress?” Is this a press release from 1st quarter 2006?
don’t laugh, he’ll get a raise like every fed gov worker
Fed has as much credibility as a subprime lender:
http://www.safehaven.com/article-6975.htm
Good article. And therein lies the problem with so-called “fiat” currency. It’s only worth the faith, trust or confidence that people have in it. That’s all it is, no intrinsic value. Can’t eat it, can’t drink it, can’t drive it, can’t wear it, can’t make it into anything other than piles of paper. Can’t even wipe with it, because you don’t know where it has been.
So what’s a paper dollar worth, really? It’s only worth what it is backed by, absent the gaming of the banksters and fundies. It is backed by faith and trust in the US. Now, examine the trustworthiness record of the US over the past, say, six years. Look at the shenanigans of the current administration, the government, the businesses, the debt-loaded sheeple. Our “value” to other countries seems to have been consuming their crappy stuff and absorbing their desperate people, thereby diluting and devaluing our communities, our familes and ourselves. If “fiat” currency is nothing more than paper backed by trust, I’d say we’re pretty well bankrupt. Morally so. There goes the “fiat” (faith and trust). And maybe that’s why China is beefing up its war machine. After all, it’s going to want its money (value) back one way or another.
Why do you think Iran wants to join the Nuke Club? Most of the world’s resources are well protected and the fight over the scraps could get mushroom-cloud ugly.
AMEN, tangouniform. Even now, Bush makes plans to distribute the oil rights of Iraq to Exxon et al. HELLO EVERYONE! Did you get that? WE PAID for this, with our taxes, debt and armed forces. WE HAVE PAID for the privilege of being at the mercy of the oil companies. In debt to the tune of trillions, so EXXON et al can screw us to the tune of trillions more.
In debt to the tune of trillions, so EXXON et al can screw us to the tune of trillions more.
Harley Davidson and Exxon/Mobil stock…hubba hubba!!!
A scheme to make John Law proud. Maybe AG or BB will die penniless, but I kinda doubt it.
Our dollar will be as worthless as the stock certificates from most the dotcoms of the 1990’s fraud era.
If all these sub primes are losing all these billions of dollars can I or we assume there is some correlation between billions in loses and home price median prices going south big time?
“correlation”
More like cause and effect. Without subprime and other exotic loans, and barring massive government intervention (which I cannot rule out as a possibility a priori), there is no bid support for home prices anywhere near 2005 price levels.
“which I cannot rule out as a possibility a priori”
This is what drives me s**house crazy. But, since we are effectively bankrupted, financially and morally, what would the government intervene with? Selling off the strategic oil reserve? Hell, we’ve even sold off toll roads to foreign interests.
Fort Knox! 60% of the worlds gold reserves.
Government intervention generally takes forever. Especially with this Congress, they can’t even vote on a non-binding resolution. By the time they get around to this, it will be too late to do anything substantial.
(and ps, the current crop of Dems don’t look like they’re in the bleeding heart business, and if they are, it will be for health care not housing.)
Rather than confronting this with regulation, I think the more likely scenario is the gov’t sends a few high profile heads of subprime companies go to jail.
itll be for votes… whichever way the wind blows
(and ps, the current crop of Dems don’t look like they’re in the bleeding heart business, and if they are, it will be for health care not housing.)
Current crop of Dems is just Repub Lite, IMHO.
“Current crop of Dems is just Repub Lite, IMHO.”
LOL! Exactly. The only thing the Democrats will do well is make Bush look bad.
I have a similar question. If builders are writing down land values, subprime paper is going to zero as a result of defaulting home and loan values, and home prices are falling across most markets, how can prime paper and the institutions holding it remain insulated from prevailing market conditions and home valuations? IOW, don’t they have to write down the paper’s value to reflect the underlying asset’s value under prevailing market conditions?
I’m not sure about the answer to this one, but I will say that it sounds suspiciously like the recent history of Japan.
After the Japanese bubble in the late 80s/early 90s, Japanese banks were stuck with enormous amounts of bad loans that would probably never be repaid. But they were allowed to keep these loans on the books for years at their “face value” without having to write them off, at least in part due to the massive write offs this would have required, which might well have shattered confidence in the Japanese banking system. Anyway, this dragged on for years, until Koizumi became Prime Minister in 2001, and he finally managed to push through reforms that forced banks to write off all these bad loans.
I’m probably a little off on the history but it sure seems like it might be possible here.
I wondering wheteher in a similar fashinon, banks will be allowed to keep REO on their books at book value for longer than is usually the case when this downturn becomes UGLY. (say in ‘08)
Accounting standards for holding of loans depends on a lot of factors. They don’t necessarily have to “mark to market” on loan values, especially since it’s the value of the loan (not the home, which is the collateral) that’s on the books. Even if the house loses half its value, as long as the payments keep coming they can insist that the loan is still at full value.
What complicates all of this further is the fact that, while a lot of individual loans are held directly by the lenders, most are packaged into securities with various tranches that represent the risk levels. As long as the failed loans stay within a certain range, it’s the lower-grade paper that fails while the high-grade paper remains unaffected. The open question at this point is how deep into the tranches the failures will burn. Right now the BBB- and BBB tranches are getting hammered, the question is if the A and higher will be affected.
There’s another question for the broader market, however. Granted, the failures have been limited to the sub-prime lenders; but who’s holding all the debt issued by those sub-prime lenders? These weren’t all-cash no-margin businesses, they were heavily leveraged, and for every loan they issued, they borrowed money–who were they borrowing from?
Check out the AAAs on the ABX index. Look like they’re getting a little wobbly — as they should.
Why am I ecstatic? I know this credit implosion will cause a lot of distress, but it just seems so overdue — and I’m thinking we will all be able to slash out way through this and start anew.
I’m looking forward to “getting back to business”. Been too long since we’ve been able to go about being productive, saving some money and having cost inflation move more in line with wage inflation.
‘Recent mini-rallies were just a few brave souls hoping they could actually catch the falling knife.’”
The truth is refreshing, isn’t it?
Yes it is.
“The BBB- rated portions of ABX contracts are ‘going to zero,’ said Peter Schiff, president of Euro Pacific Capital. ‘It’s a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults’ by removing demand from the housing market and hurting home prices, he said.”
Boy, that’s a surprise………………………………………………………………………………………………………………………………………………………………………NOT!
Here’s what “Going to Zero” looks like.
I can’t help but laugh at the idiots who bought in on those dead-cat bounces.
“said Peter Schiff, president of Euro Pacific Capital.”
I dig Peter. Bit of a goldbug, but I like his style. He’s been calling it like it is for some time now.
You say goldbug like it’s a bad thing. I see it as a compliment. $700 is coming.
Peter is a regular on these blogs as well.
Give them hell Peter!!!
Peter Schiff is a regular on these blogs ? Really ?
‘It’s a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults’ by removing demand from the housing market and hurting home prices, he said.”
This about sums it up. This is what I have been expecting for over 3 years. I saw it last cycle in the early 90s on the “subprime” loans of that time, 100% financing FHA and VA loans.
“It’s a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults’ by removing demand from the housing market and hurting home prices, he said.”
I’ve been saying this all along !
Look at it this way. The loosening of credit and ballooning liquidity made the housing market boom. Now tightening of credit and decreasing liquidity will make it bust. Its pretty simple logic !
We haven’t seen the housing bubble bust yet. That is still to come. Bubbles don’t burst until the liquidity dries up and that is just starting to happen. Just starting.
There are now 1850 houses in foreclosure in both San Diego and Sacramento. (www.foreclosure.com) What I would like to know is how the industry expects to sell those houses given all the other houses for sale and now tightening mortgage lending practices and fewer loans.
Are the banks going to finance the families that just went broke ? I doubt it. Are 1800 new buyers going to flock to these cities ? So how, pray tell, are they going to move the foreclosed houses without further driving down the comps ?
It isn’t just that the mortgage companies are going to tighten credit and that would affect the number of buyers. Its also that they are going to foreclose on thousands and maybe millions of homes and put them back on the market. They have to foreclose on them to protect the bondholders interests !
I don’t think the industry has any idea whats coming.
These current EPD foreclosure cases are the lucky ones for the lenders. They are going to sell, to knife catchers, before liquidity really dries up. Think about what the foreclosures late in the year and beyond are likely to fetch…
From MarketWatch. “Impac Mortgage Holdings Inc. said that it swung to a net loss of $54.2 million, or 71 cents a share. Interest income edged down to $329.1 million, from $340.7 million, while interest expense rose to $334.4 million, from $326.2 million.”
This struck me as interesting - losing money on the Net Interest Margin. No, you can’t make it up on volume. NIM doesn’t include operating expenses or bad debt write-offs.
Negative NIM and bad loans - History repeats itself - Same reason the S & L’s failed.
Sad.
But but but…
Does this mean I don’t get a free Hummer with my 0 down option ARM?
I’m just wondering how many high end properties were bought with the suicide loans. I guess we’ll find out shortly.
Got popcorn?
Neil
No more hummers.
Niel, You’re not married yet so you can still get “free” hummers. Wedding cake is the cure you’re waiting for that problem. After you eat that cake you’ll have to pay for them.
“You’re not married yet so you can still get “free” hummers.”
Laughing so hard the tears are streaming out my eyes. Thanks for the comic relief, AZ!
I’m just wondering how many high end properties were bought with the suicide loans.
Neil, just yesterday I spoke with a Realtor (TM) on the phone about the situation in Bowling Green, KY. He said the starter homes and first time home buyers very typically have been done with over 100% LTV’s, and the higher end homes have very typically been sold to business people with IO loans. And the home builders in BG are still going at it like gangbusters.
I actually called him about an advertising for a rental house. He has two vanacies available. Turns out he built them himself, sold them to investors, and he is managing them as rental properties.
But pretty soon, there will be no more Bosnians (recent immigrants to BG) left to sell homes to. All the Bosnians who want a home will have one. Either that, or there wont be anymore 108% LTV loans.
He said the starter homes and first time home buyers very typically have been done with over 100% LTV’s, and the higher end homes have very typically been sold to business people with IO loans.
Dang, a declining market and acquiring no equity…
Not a good thing for those who need to move to pursue opportunities…
Got popcorn?
Neil
Could somebody pls explain in like 50 words or less, how to cash in on this? Sell short some index? Buy puts on somebody? Any suggestions would be interesting. I get the impression there are some pretty experienced investors hanging around on here.
Sit on the sidelines in cash and wait for everything to correct. 6 months after it bottoms out, move in. DON’T MOVE IN TOO FAST.
“…how to cash in on this?”
Don’t buy yet.
My belief: Strong recession. This is deflationary. Banks will be writing off debts. Bonds will do well in this environment. Gold may deflate too. But it would be wise to hold some gold as security. Perhaps 30% gold and the rest in treasuries.
GS is right. Rent and squirrel away in liquid assets what you can, and be ready to lowball for what you want in late 2008-2009.
I think it’s going to fall faster this time due to all the subprime shenanigans and fraud . . . faster than the typical down-stroke of the cycle.
I think catspit actually wants to profit from this . . . instead of just watching from the sidelines and pouncing on a good RE bargain. I’m with him/her. If we already have cash and are not looking to RE as an investment . . .
If you want to gamble, I suggest looking into shorts (or puts) on WM and FED, as they don’t look like they have fully priced in the subprime problem. By contrast, LEND and NEW look more like last year’s short play at this point.
CFC?
There’s post about this on bits bucket today.
Txchick is usually right.
Try to make friends with a bunch of renters so you can speak freely without offending people. Addiction to this blog will detract from your quality of life if the real people you see are all on The Other Side. As to money, the 5% on short-term Treasuries will be fine if you agree with GetStucco that the Fed will support the US dollar adequately. If you think they will let the USD go down the tubes, diversify into some non-dollar-denominated bonds. Full service broker will have a wide inventory of same. As for shorting indices and stuff like that, keep in mind that we are now entirely a nation of gamblers, so the competition from other speculators and the participation of big-money operators can create long-lived distortions that you may not be able to withstand. And, as GS said, don’t buy a house.
“As for shorting indices and stuff like that, keep in mind that we are now entirely a nation of gamblers, so the competition from other speculators and the participation of big-money operators can create long-lived distortions that you may not be able to withstand. And, as GS said, don’t buy a house.”
Well said, az_lender.
just my $.02; this is not cash in time, but survival time. How do you rate the US T-debt bonds? With real inflation they are depreciating. At the end of the debt death sequence the fiats die as well. Hard assets are a reasonable choice. Pick you favorite.
Bonds are the only thing worse than holding cash at this point. Tie up your money for years, and get less than 5% on it? Madness. Call me when bond yields hit 20% and I will think about it.
Might I suggest an investment in Berkshire Hathaway, Warren Buffett’s company. Buffett is best when the market is a mess. He’s sitting on a lot of cash and you can bet he’s licking his chops just about now.
Oddly, he’s has held a position in H&R Block, but he’s been reducing that position lately.
Today I added to my “SRS” position in my 401k. This is a new ETF that is “ultrashort Real estate”. Basically x2 inverse of Dow Real Estate index. Not much volume yet as it is a new ETF vehicle.
http://finance.google.com/finance?q=SRS
I prefer ETFs are they do not expire like options and I don’t have to individually short stocks.
Keep in mind that any finnancial option where you give them money now and they give you money back later is only as good as the solvency of the person on the other side of the equation. When the hedgies start looking shakey next year, everyone will be looking up “counterparty default” in their series 7 prep course material.
Catspit,
A wise dear friend once remarked, “Boy, sounds to me like you are trying to get rich quick.” “The best way to get rich quick is to not try to get rich quick.”
Catspit look around you. All the FB’s got into the positions they are in today by wanting to get rich quick or make money from doing no real work.
Conservative investing in assets and not placing your money in depreciating liabilities (catching falling knives) is the right way.
It’s not fun or exciting but anything worth having takes time and patience. Sounds to me boy like you want it all and you want it now.
gee, Gramps, I, I guess you’re right. Where’s Lassie… c’mere, girl.
LOL!
Catspit:
The most recent Economist has the description of the a anthropology study that sort of explains what you just talked about. Here is the first paragraph and the reference to the study.
Economics and anthropology
Patient capital
Feb 8th 2007
From The Economist print edition
Your parents were right. Patience is a virtue
IN MODERN economies, inequality is a fact of life. But disparities of income are a relatively recent phenomenon. For most of the species’s existence, humans lived in small foraging bands that had little material surplus and therefore enjoyed a relatively egalitarian existence. The invention of agriculture, which generates a surplus that can be stored and also gives value to land, permitted this to change. But permission is not prescription. Exactly why some people were able to accumulate more than others has been something of an anthropological mystery. The archaeological record is little help, but the main hypotheses have been luck, intelligence and aggression. These all, of course, play their part, but now a fourth phenomenon has been added to the list: patience.
Writing in Evolution and Human Behaviour Victoria Reyes-Garcia, of the Autonomous University of Barcelona, and her colleagues describe a study they carried out on the Tsimane’, a group of Amerindians who live in Bolivia’s slice of the Amazonian rainforest. ……
Hate to tell you, but the answer is no, nobody can tell you in 50 words or less how to cash in on anything. The more experienced the investor, the less likely they would even try to explain it in 50 words or less.
Being short things is probably good. I am short right now, but I was also short last fall. I have less money now than I did then.
Short the homebuilders they will follow subprime lenders to the floor.
KBH has other issues like backdating options.
“The BBB- rated portions of ABX contracts are ‘going to zero,’ said Peter Schiff, president of Euro Pacific Capital. ‘It’s a self- perpetuating spiral, where as subprime companies tighten lending standards they create even more defaults’ by removing demand from the housing market and hurting home prices, he said.”
Lets take that thought process one step further.
Mortgage companies tighten lending standards. They flood the markets with foreclosed house. These actions drive down comps and decrease the number of buyers. Homebuilding retracts more and home related industries lay off workers.
How long can all that go on before it hits the PRIME rated homeowners ? Its not like they didn’t buy $500K houses and HELOC the hell out of them !
Right now everyone is operating in denial, that this is just a sub prime issue. But I bet in the next few months it hits the prime mortgages too.
And the other thing we have to remember is most of the homeowners out there are planning on taking 20, 25 and 30 years to pay off their house. We litterally have decades of this sort of thing to look forward to. Just wait until we get in a recession ! It might take 10 years to clean this whole mess up, with house prices waterfalling down and down as it unwinds.
Its kind of like watching the toliet water go down the drain. Except this is a big green swoosh of money being sucked out of the idiots who bought into this massive ponzi scheme.
Refreshing to watch, as long as it’s not your money swirling inexorably towards the sewer.
Naah, it’s like they ran out of cows to hook the milking machine to. Now they’ve hooked it up to a bull and chaos is ensuing. I’m not in stall with him, but unless I move to Bora Bora I am stuck in the same building and it’s going to start getting loud real soon.
and very stinky!
Great editorial on the subject:
http://financialsense.com/editorials/benson/2007/0222.html
“So, how does a lending market go from one with a credit standard where “A Rolling Loan Gathers No Loss” – making a bad loan bigger to pay existing interest, postponing the inevitable – back to a sane lending market? (This would be a market that would require a solid down payment, an appraisal based on an honest valuation, and an applicant with verifiable income who can prove they can really afford the monthly payment for a number of years.) The answer is, “it doesn’t”. ”
No indeed, there is no solution for this one.
The “static analysis” trap claims another victim!
Oh it does, but not by shifting gears, and somebody ends up going through the windshield.
Anyone remember the genius who said real estate was going to go up forever? He said that in 2005 as I recall, just before the top.
“Self-perpetuating spiral” makes it sound like the decline is forever. If that’s the thinking right now, then we must be getting near the bottom.
We are nowhere near the bottom. You can’t even see the bottom yet.
Hence, the swirl…
Maybe he means that the swirling is making him dizzy and therefore HE is on the ground (bottom) to keep from puking.
You have to wait for a taxi driver or Time magazine to tell you that there’s no end to the declines, before you decide to be a contrarian. Betting on a turn-around now may by right, in a few years, but you may suffer a liquidity crisis of your own before it actually does turn. Just like betting on a downturn a couple of years ago may have been right, but a loser short term bet.
You have to wait for a taxi driver or Time magazine to tell you that there’s no end to the declines…
ROFLMAF
Unfortunately, Robert Kiyosaki’s grocery store* won’t be around to dispense RE advice by the time this all plays out.
(* Where he discovered the Housing Bubble when the checkout lady gave him her RE broker card.)
We are. Bottom of the first inning.
” If that’s the thinking right now, then we must be getting near the bottom.”
You’re joking, right?
No bottom until CNBC capitulates.
Kiplinger’s Personal Finance
Home prices are falling slowly, but there’s no sign of a dangerous pop.
really ? tell my old man in FL, he’s off 25%
Tell that to everyone in NNV, they’re off 10% - 20%. If the stock market fell 20% in a year, the word “crash” would be employed.
I guess one would have to interpret the meaning of “dangerous pop”.
Might be off 10-20% but seems to me everyone is still in a state of denial around here. It’s a small city, you hear things and can only deduce one conclusion. It’s like there is something hiding under the surface that nobody wants to acknoledge it’s there. Despite popular belief around here, Spring is not going to save things.
I agree with your observations. Most still in denial. What’s interesting is that a lot of folks have been calling me lately for my predictions on 07 (suddenly my opinion has become valued since everything I called out about our local market has come to pass) All of them call hoping/expecting me to say 07 is the turn around. When I feed them the truth almost all are shocked, and then scared because I haven’t been wrong yet.
Since Spring is not going to save things, this is when we’ll see the foundations of the walls of denial shaken and crumbled. Reality sets in hard in a few months, no question.
NNV - do you mind if I ask what backgrounds those callers were ? Were they RE professionals or general public?
For what it’s worth, I can report that Mexicans are happily flipping away and/or buying up houses to live in here in LA in the downtown/south central area. I’ve asked a few if they see any sign of a downturn, they look at me like I’m crazy, there’s no way prices could ever go down. If the lenders do choke up on subprime lending, though, these guys are history because no one in that part of town has anything resembling a downpayment.
What makes the Mexicans different from the Americans and Canadians? Why single them out? And, by the way, are you sure they aren’t Guatemalans?
Mexicans flipping homes in LA, yep I can beleive that. They don’t know the parties over yet.
I forsee a war zone in South Central, Inglewood, Compton…
“I forsee a war zone in South Central, Inglewood, Compton… ”
Already there, Mike, there was an article in the LA Times just recently about how the Hispanic gangs were “ethnic cleansing” neighborhoods of African Americans. Similar thing going on in New Orleans, although in that case they are doing it by undercutting wages on reconstruction and filling the hospital wards with mothers delivering anchor babies.
What makes the Mexicans different from the Americans and Canadians?
You might want to get checked for color blindness and a leaky heart valve.
“What makes the Mexicans different from the Americans and Canadians?”
Uh, oh, here we go. Another plug for the NAU.
Seeing is believing.
It’s like the mad grandmother in the basement!
Oct ‘87 was 23% give or take
Kiplinger is a worthless rag, unless of course you’re short on toilet paper
they had a “editor” that couldn’t get his car financed cause he paid too much at carmax= girlieman
Your old man can’t sell, 25% might be a rosy prediction.
Here in Bend, OR we are down about 15% and YOY inventory up 240%. I predict fear will set in sometime during the summer as our spring inventory adds to the misery.
Neil…Can you bring some popcorn to the Pacific NW?
Who’s going to buy this H&R Block piece of junk? That would be like buying a 2006 Lexus that’s been driven into an oak tree at 100MPH.
H&R Block, Merrill Lynch, etc… All these big time businesses own dog crap securities, mortgage companies and the like. How are they going to dump all this worthless trash?
“good morning, H&R Block investors, do you want fries with that crapburger?”.
Great comment, clearview. This covers a whole broader topic. It looks like these companies are desperate for something to invest in. But it’s just paper chasing paper. They COULD invest in some decent businesses, like effective drugs without side effects, purification systems to clean up cesspools like
Tampa Bay (I live in a supposed “seaside” town where people are too afraid to swim in the water. If that isn’t sickness, I don’t know what is.), renewable non-polluting energy resources, etc. But, oh, NO! YouTube and sub-prime is where it’s at.
Question for someone out there. If things get bad enough can banks withdraw an existing equity lines of credit. I mean credit that is available to a good credit risk type of borrower? If they can, that will further push the spiral downward in the general economy in that spending will tank.
Absolutely, a line of credit can be altered for any reason (or none). This has happened to two businesses I have been a part of-the business believed it had a line of credit of X, and when they went to draw on it, the bank did a little analysis on their revenues, etc, and decided it was no longer available. Often, companies go to hit these when things are not going well, and banks know this.
Same with credit cards, banks will check your FICO regularly, and if you start nosediving due to non payment on other cards or mortgage, they will yank your available credit quick. So, when someone starts falling behind on any debt, they quickly run out of ways to transfer it around.
Yes, this is called “universal default” among other names. Basically, most credit card agreements have this now in the fine print. So if you are late with some other credit reported debt/revolving line, then the credit card can reduce your credit (or) raise the interest rate - which most people dont realize, but will soon enough.
By the way, the credit card companies change terms all of the time, so when you get your statement it is very important that you read it, because the FTC claims that if you continue to use the credit line after the credit card company notifies you of a change in terms, then you have in effect agreed to the new terms. Which under common law makes sense, but since the font size of the print is so small, I have to say that I think it is a bit deceptive in nature.
Yep, credit cards are “revolving credit” not installment loans. Every month is a new loan, and you have the option of agreeing to the new terms or paying off the balance.
On credit lines, the terms are usually different, but even if it isn’t a credit line, many bank security agreements give them the right to declare a default and accelerate if they “reasonably believe the security is or may be impaired.” Courts don’t like them, but tell that to the bank employee that shows up with the padlocks.
Thanks for the responses. Let me give more detail. Let’s say the home has around 600 value today with 140 mortgage. The line is for 250 with no balance. With no credit card debt and no car payments could bank just pull the available line for general economic conditions (ie run on banks etc).
Could but probably won’t. But with a run on banks all bets are off.
Could happen. I wouldn’t count on it as a source of reserve funds. The banks will be looking to reduce their exposure, and assuming that there is a first in place, a second is not really much security. If you defaulted on the first, the second would be forced to discharge the first to have any rights in the security. That is the last thing they will want to do in a declining market
So a couple months ago I’m driving down the Vista Village Drive and see the wierdest thing - H&R Block has a booth set up with big “Home Loan” signs and two little hottie girls working the corner outside of a Mexican food store. There were a couple things that I found funny with the picture. H&R Block doing home loans (don’t they do taxes for the lazy?)… two pretty white girls working the corner in illegal alien infested, crime filled Vista (sigh), and the choice of location - which one of the illegal aliens did they think qualified for a home loan?
Me and the wife discussed how out of place it looked for a good while, eventually concluding that H&R Block must be in pretty bad shape to try marketing loans to that crowd.
H&R Block has an in-house mortgage and then they also own Option One (which is a wholesale operation). So it was probably the in-house (direct-lend) operation that had the booth. About a decade ago, H&R Block had the wild idea that they would become one of the largest lenders in the U.S. Which is why they brough Mark Ernst on board. He was originally from AMEX I believe and he has formal education out of either MIT of Univ of Chicago. So his background is consumer lending.
sorry, should read “…either MIT or Univ of Chicago.”
“own Option One”
For the moment…
Have been owned by Option One
They thought that they were geniuses because they made so much money doing tax-refund loans*. It’s as if McDonalds figured out that since their highest profit margin was on the cheese in cheeseburgers they should be selling grilled cheese sandwiches.
I forgot the footnote.
*the payday loans of the middle class.
It’s not like their customers were going to be dropping off cash down payments. Also, gangs diversify into mortgage fraud just like civilians.
Water is being drained from the canal lock and the boats are going down, down, down until the water finds it level. As it is in the lock, so it will be in the housing market. The man of property and illusionary wealth has had a great time, and now its Lazarus turn.
thank you, yes, i wish to Profit from this debacle. Somebody posted on here maybe two years ago, a quote from some famous investor/robber baron who said there’s more money to be made in a falling market than a rising one. As for buying RE, this whole deal may have made me a confirmed renter from now on. I looked at SRS, they want $500 per transaction and lots of other fees. Anything similar out there, anybody?
Oh, I couldn’t agree more. Markets fall 3-5x as fast as they go up. It’s the ultimate thrill to be short in a bad market. I’m waiting, waiting waiting . . .
what is this TX, dance of 7 veils? what are we waiting FOR? spill a little knowledge… jus’ a taste man…
I’m just tired of shorting and having them run it back on me. I have puts. Want to see some real follow thru before jumping in. There will be plenty of downside when it finally goes.
LEAPS then? yeah i been waiting too, sounds like now it is actually breaking tho. i am not about to jump in with everything i own, but…
No, I sense the fast money is going to try to break the Nasdaq out and run up the tech stocks. Makes me sick but it “feels” like that’s on deck right now.
“fast money is going to try to break the Nasdaq out”
Krugman was premature with his announcements that we had run out of bubbles, because he forgot about the possibility of recycling asset classes…
Well I guess buying tech companies and taking them private change name and then IPO is what is causing this. Plus the easy money to borrow in the first place. Again too much money floating around out there.
“I sense the fast money is going to try to break the Nasdaq out and run up the tech stocks.”
I agree but sense the mood in the market is shifting too quickly for any real run. I’ve doubled a short position on QQQQ’s and have re-entered shorts on various HB’s and lenders with minimal damage thus far. The longer I can hold out the more confident I feel. Long PM’s, USO and short financials and HB’s has been a profitable combination the last few weeks and months.
I want to short semiconductors. Man, that’s been a money play for 7 years now.
“I want to short semiconductors. Man, that’s been a money play for 7 years now.”
And it will continue to be. Probably the best short in tech land. They’re all so bloated with inventory right now.
Do you read Fred Hickey?
You’re asking about how to be a good speculator, in 50 words or less. The smart comments correctly told you it’s not possible. It’s a little like gold panning back in the day. If a city slicker shows up at the creek without any knowledge of how to physically pan for gold, they could easily burn through some very rich ore and not find a thing.
Generally you want to look at banks, builders, and other related businesses that have signs of financial underperformance. The simplest thing I can tell you is dig up a copy of “The analysis and use of Financial Statements” and then go to town on some SEC filings, till you find a few that make sense.
Be ready to be slapped upside the head by Mr. Market, who almost always ends up at the logical location but can take a very long and winding road getting there.
Start small, and work into more of your capital as you improve your skills.
Yea I can’t predict this thing
(drum roll)
First Capitol Mortgage (myfirstcap.com)
just closed their incoming acceptance pipeline.
(ding)
Another one bites the dust !
http://www.myfirstcap.com/
Our Website is currently under construction.
Please come back soon
Shouldn’t that be “destruction”…
MAJOR NEWS:
Many Major Alt-A lenders are pulling back all 80/20 loans that are not Full doc.
ALS, RFC, EMC etc etc…..
They are notifying their correspondence partners as we speak!
The market for the second liens has dried up.
You will see more in the news later today.
Gulp!
Gulp, gulp!
“The market for the second liens has dried up.”
I assume this refers to the ‘20′ in 80/20? Does that knock roughly 20% off the typical prospective buyer’s home purchase budget constraint, or am I oversimplifying the situation?
No, they will allow up to 90% - and some lenders even aa high as 95% single liens.
The key to this news is that they are raising the FICO score requirements and lower the allowed LTV/CLTV at the same time.
They were being impacted by the subprime fallout.
So if you had to guess about the implied drop in market values based on the news since mid-Dec 2006 (considering the combined effects of higher FICO score requirements, reduced LTV/CLTV, subprime lenders going out of business, subprime tranches of MBS suddenly rediscovering risk premiums, regulatory juggernaut to crack down on high risk loans, etc.), would your best guess be 5%, 10%, 15%, 20% or more?
No reply? Maybe I am being too conservative — 25% would take into account the pile-on effect of MSM warnings about housing bubbles and subprime lending on a collective case of cold feet among prospective buyers…
it all depends on the area. San Dego will drop 40% from the high. Dallas will only drop 10% - but remember that 40% of $700,000 is a $280,000 while 10% of $200,000 is only a $20,000 loss.
“San Diego will drop 40% from the high.”
That’s been my guess since I started watching the situation closely. And I also guessed six years from top to bottom (2005 to 2011; no rocket science here — just guessing this time will be no different than last…).
Agree with SD - San Diego will probably go down around 40%; however, only about 1/2 of that will be nominal, while the other half will be from inflation during the next 5-7 years declining/flat RE prices while the price of everyday life keeps rising as fast as the fed can grow M3 & credit at 11%.
Got diversified assets?
But…but…but I thought it was contained…
Got Crunched?
Does this mean no more 100% liar loans?
only on Ficos below 660 O/O and they will have to have verified assets.
Remember that GMAC is mired in this mess too. At some point they will be making an announcement.
“Goldman said the financial sector is under pressure due to Wednesday’s consumer price index data, which he said came in “above the Fed’s comfort zone.” Adding to negative sentiment was concerns that troubles in the subprime lending market may affect prime lenders as well as more bearish commentary on the housing market.”
http://www.cnbc.com/id/17284481
GMAC ownes RFC
whomever had the idea of selling GMAC in Gm at the time was very bright they sold at the most optimal point at highest possible valuation.
GM is smarter at selling subprime than making cars…
$888 million in loan write-offs in 4q 2006? Does anyone - ANYONE - think that there has only been $1 billion in loan fraud anymore? We’re only $112 million shy of that mark and the ice dam has just started to pop.
Sub Prime Scare
The likelihood that sub-prime mortgage problems signal a growing credit crunch, with Tucker Hart Adams, The Adams Group president; Diane Swonk, Mesirow Financial chief economist & senior managing director and CNBC’s Liz Claman
video link: http://www.cnbc.com/id/15840232?video=187516985
“Page not found”
The link works for me. I think their server might be busy. Try it again.
It’s isolated but we should have never loaned those stinky subprime borrowers money in the first place. This is going to have a ‘minimal’ impact on future housing demand.
Sarcasm Off
Haven’t we been saying that the so-called “A” loans ain’t so swift either?
Not only is Tim Hardaway the country’s most hated gay-bashing bigot, but now TMZ has learned that he’s being sued for more than $750,000 for skipping out on his mortgage, as well as rent payments on a car wash that used to bear his name.
In the first suit, Washington Mutual Bank is alleging that Hardaway hasn’t paid his mortgage since last September — with a balance of $715,000 — and is trying to foreclose on his house in Miami-Dade County, FL. (Hardaway used to play for the Miami Heat.)
Meanwhile, Hardaway is also being sued for not paying more than $45,000 in back rent for his Miami-area car wash. The suit, filed in Circuit Court, charges that the business — for which Hardaway is a guarantor on the lease — hasn’t paid rent in several months, dating back to last fall.
Curiously, the car wash’s sign used to read, “Tim Hardaway Presents US 1 Finest Hand Car Wash.” Following Hardaway’s gay-hating radio tirade last week, the sign was changed to “Grand Luxe Auto Bathe.”
None of the lawyers involved returned calls for comment.
Karma works sometimes.
This morning David Favre on CNBC had some charts about subprime rates does anyone have link to those?
That goof. Figures that he’d “educate” the world on this “breaking” story when everybody here knew what was going on months and months ago.
I can usually tell that my day won’t go well when I spend the morning shooting the finger at the T.V. And then in the shower, instead of singing, I’m yelling “Ef you, Faber, AND your cameraman”.
LOL. I had a similar reaction.