“The Next Skeleton To Fall Out Of The Closet”
A report from the New York Times. “Federal prosecutors and securities regulators are investigating stock sales and accounting errors at the New Century Financial Corporation, the biggest mortgage company that specializes in lending to people with weak, or subprime, credit, the company disclosed in a corporate filing yesterday.”
“The company also warned that a delay in filing its financials may put vital financing into jeopardy. New Century wrote $33.9 billion in mortgages last year. New Century now appears to be facing a credit crunch similar to the one it encountered in the late 1990s.”
From MarketWatch. “New Century Financial Corp. said late Friday that it’s facing a federal criminal probe and will likely breach a major lending covenant with its financial backers, bringing into question the survival of the second-largest U.S. subprime-mortgage lender.”
“The mortgage lender said it expects that it won’t report at least $1 of net income for the two quarters ended Dec. 31, as stipulated in covenants with its lenders.”
“‘Subprime lenders without deposits depend on their warehouse lines,” said analyst Zack Gast. ‘If New Century’s lenders do not grant the requested waivers, the company is likely to be forced to sell or shut down.’”
“Indeed, New Century warned that if it can’t get waivers or covenant amendments from enough of its financial backers, the company’s auditor, KPMG, will conclude ‘that substantial doubt exists as to the company’s ability to continue as a going concern.’”
The LA Times. “Federal regulators have leveled civil accusations against the No. 2 independent sub-prime lender, Fremont General Corp. of Santa Monica. Fremont disclosed Friday in an SEC filing that the Federal Deposit Insurance Corp. would sanction its bank subsidiary, Brea-based Fremont Investment & Loan, for failing to control the risks inherent in sub-prime lending and in its second major business, commercial real estate construction loans.”
“The company said it had decided to quit sub-prime lending entirely.”
“The FDIC said Fremont failed to make proper allowances for its ‘large volume of poor quality loans’ and operated with inadequate capital. The regulator said Fremont had increased defaults by selling loans with low ‘teaser’ rates without verifying whether borrowers could afford the eventual full payments.”
“Fremont said it expected to agree to a cease-and-desist order from the FDIC that would severely restrict its control over the sub-prime business. It said it would report a loss because of increased provisions for bad loans, but hadn’t yet determined the size of the deficit.”
From Bloomberg. “Fremont plans to report a net loss from continuing operations in the fourth quarter after setting aside more money to buy back loans that defaulted, the company said in a regulatory filing.”
“‘It just shows there was a lack of principles and standards,’ said analyst David Hendler. ‘There was no real major guardian of conservative standards anymore, and that’s a danger to the safety of the market.’”
“Two other California lenders, Impac Mortgage Holdings Inc. and Accredited Home Lenders Holding Co., said today they won’t be able to file their financial reports on time. Shares of both tumbled.”
“Impac found a ‘material weakness’ in its cash-flow reporting, the Irvine, California-based company said today in documents filed with the SEC. Accredited Home, based in San Diego, delayed its report until March 16 because of ’sizable demands upon the company’s management and staff,’ including a recent merger that may cause a writedown.”
From Reuters. “U.S. homeowners who bought using 100 percent financing, and those who took out ‘home equity’ loans against the value of their properties, even though they have good credit ratings, could be the next to cause problems in the U.S. housing market.”
“Many recent home buyers bought through 100 percent financing programs known as ‘piggyback’ loans, which relied on one mortgage for 80 percent of purchase price and other financing for the remaining 20 percent.”
“‘Piggyback loans could be the next skeleton to fall out of the mortgage industry closet,’ said Howard Glaser, an independent mortgage analyst. ‘These 80-20 loans give the borrower the illusion of being able to afford more house than they really have the funds for.”
“From mid-2005 to mid-2006, 29 percent of new mortgages involved no deposit by the purchaser to create some equity in the property, according to the National Association of Realtors. ‘When we went out to visit our clients on the West Coast, this was a prime area of concern,’ said Frederick Cannon, a mortgage industry analyst.”
“Another type of financing which could cause problems in the housing sector is the ‘home equity’ loan, taken out by a homeowner against the net value of the property to finance home improvements or other consumer spending. Home equity lines of credit, or HELOCs, grew from $151 billion to $559 billion from 2000 to 2005, according to the FDIC.”
“In a regulatory filing Thursday, Countrywide said 2.9 percent of its prime home-equity loans were at least 30 days late at the end of 2006, up from 1.6 percent a year earlier and 0.8 percent at the end of 2004.”
“‘Second lien holders and second lien HELOC lenders to prime borrowers are in as much of an ‘at risk’ position as subprime mortgage lenders,’ said said Josh Rosner, a housing analyst. ‘The recognition of their problems is just ahead of us as they will default more slowly.’”
“Lenders must disclose more information about products such as adjustable-rate mortgages to people with poor credit histories and make sure borrowers are able to repay the loans, according to guidelines issued in Washington today by the Fed, the Federal Deposit Insurance Corp., and other U.S. regulators.”
“The intention is ‘to limit risks to both the borrower and the lending institution,’ Federal Reserve Governor Randall Kroszner said in a statement. Borrowers need ‘clear and balanced information on the risks associated with these loans.’”
“Banking regulators expressed concern that lenders are approving adjustable-rate loans without ‘appropriate documentation’ of the borrower’s income, according to today’s guidelines.”
“The Mortgage Bankers Association, a Washington-based trade group, said the recommendations go too far and lender closings show the market is fixing itself.”
“‘A number of firms, which made weaker loans, have been forced out of business simply because the loans didn’t perform as they proposed,’ Doug Duncan, the group’s chief economist, said in an interview. ‘The guidance has the potential of overreaching and constraining credit availability to people who need it.’”
The Boston Globe. “Recently, CEO Michael Geoghegan explained that massive losses in HSBC’s home mortgage lending business were caused by the mistake of ‘going for volume.’ Investors forget that for every ‘bad’ loan in their portfolio, there is a family facing foreclosure on the other end. Indeed, last month Massachusetts broke an all-time record with lenders notifying 2,207 families of impending foreclosure, nearly double this time last year.”
“No doubt much of the bout of pain in mortgage lending is due to the slowdown in real estate sales. But it is not like the slowdown in the real estate market should have surprised anyone, especially mortgage lenders.”
“It is time to re think national credit policies. Leaders should learn at least three lessons from the latest shakeout in the mortgage lending business. First, consumer protection laws not only protect borrowers, but also the economy. Second, it is time to hold middlemen responsible for transferring ill-advised loans from unsuspecting borrowers to unsuspecting investors.”
“Third, waiting will not make this problem go away.”
“The Federal Reserve’s monetary-policy playbook hasn’t become obsolete because of the growing global nature of the U.S. economy, Ben Bernanke said in an address on Friday night.”
“The Fed chairman didn’t address this week’s market turmoil but he did comment on the concerns about the quality of debt in the subprime-lending market, saying the Fed is ‘obviously going to watch it very closely.’”
“‘Globalization has not materially affected the ability of the Federal Reserve to influence financial conditions in the United States nor has it led to significant changes in the process which determines the U.S. inflation rate,’ the central bank chief said.”
“But globalization has made it more difficult to assess domestic economic conditions, Bernanke said. ‘Effective monetary policy making now requires taking into account a diverse set of global influences, many of which are not fully understood,’ Bernanke said. ‘A clear resolution of the question of how global economic conditions affect domestic inflation may continue to elude us,’ he said.”
‘A number of firms, which made weaker loans, have been forced out of business simply because the loans didn’t perform as they proposed,’ Doug Duncan, the group’s chief economist, said in an interview. ‘The guidance has the potential of overreaching and constraining credit availability to people who need it.’
It wasn’t that long ago that the MBA’s assertion was that no guidelines were needed because the secondary market wouldn’t buy these loans if they weren’t any good. Last I heard, these loans are still being made and sold off, and rates are still low.
“Second, it is time to hold middlemen responsible for transferring ill-advised loans from unsuspecting borrowers to unsuspecting investors.”
How’s that quote for ‘ya Ben? The institutions buying these investments are loaded with MBAs and highly paid “professionals”. Hiring a few inexpensive investigators would have stopped all this. Oh, the poor investors. How can they be expected to do some due diligence when there is money to be made? They are such victims.
‘As calm returned to Wall Street on Wednesday, one important concern — that Wall Street’s bet on home loans to people with weak, or subprime, credit is souring quickly as defaults rise and home prices weaken — remained. ‘The brokerage firms have done something curious: they are not abandoning subprime mortgage origination; they are taking positions,’ Mr. Hintz said.’
‘In December, Merrill Lynch completed a $1.3 billion acquisition of First Franklin, which was among the 10 biggest subprime lenders last year, and Morgan Stanley bought Saxon Capital for $706 million. And Citigroup said that it would provide working capital and a credit line to ACC Capital Holdings, which owns Ameriquest and Argent Mortgage.’
And they continue to pull that bungy cord further and further. When it snaps, look out.
‘The brokerage firms have done something curious: they are not abandoning subprime mortgage origination; they are taking positions,’ Mr. Hintz said.’
That’s the story Ben. What positions are they taking and why? The economist magazine had a similar piece that essentially concluded the big houses are gaining market share as newly acquired competitors fail but there is more to these transactions, IMO.
They’re addicted to the “return” on these investments, whether real or ephemeral. Doubt they will abandoned outright for years to come. Ever wonder if the big shots had something to do with pulling the trap door open on the ones that are bellying up now?
How many of these small companies are actually fronts for the big ones, that already own them behind the scenes? I think publically snapping them up is one way of hiding the fact.
“Ever wonder if the big shots had something to do with pulling the trap door open on the ones that are bellying up now?”
That’s exactly what I’m alluding to but there is more. The insurance side of the story — swaps. They are playing both sides. Can they really manage both sides and come out ahead? With this many credit-events in such a short timeframe things are likely to spin out of control somewhere, IMO.
I think that several issues are in play here:
1) The brokerages houses had extended so much credit to these mortgage lenders that they felt had to buy these lenders in order to protect their positions. This may or may not turn out to be a good idea.
2) I would bet that these purchase agreements have language to the effect that the brokerage houses do not assume any of the liablity for the loans that were originated and or sold by these mortgage lenders prior to the purchase. This would limit or eliminate the ability of borrowers or MBS investors to sue. A smart attorney may argue that there is some racketeering going on here.
3) 1 or more brokerage houses may fail due to their subprime involvement.
I was watching MSNBC the other morning and all of the cheerleaders were trying to play down the sub prime debacle. I am starting to hate all of these so-called “financial experts” on MSNBC especially Kudlow. They are just cheerleaders instead of doing what they are supposed to do which is objectively disecting the financial world so thier audience can make informed decisions, they gave some of the worst advice during the tech bubble as well.
Who buys advertising space on MSNBC during the financial news segments? I bet it isn’t bubble bloggers.
When you look at the symbiotic connections between the media conglomerates and the corporate titans who own them, the fact that the MSM has become shills and co-conspirators for predatory mega-capitalism should surprise no one.
Hahahaha. Ditech and Greenlight Financial are big advertisers on CNBC both pushing No Doc loans. I am not kidding you. Those of you watching CNBC can back me up here.
To Cramer’s credit though, he ROASTED Nutrisystems a couple of weeks ago in a tirade I thought would get him fired because Nutrisystems is another big advertiser on CNBC. I’m sure he got a talking to and Nutrisystems was pissed because their ads disappeared for about a week. However, just the fact that he did that made me trust his sincerity, even if he has been WRONG about housing. Dead wrong.
Come Monday, I guess the longs are going to take it in the shorts.
“what they are supposed to do”
I think Kudlow & company are doing exactly what they are supposed to do, which is to sow confusion in the minds of GFs.
Ditech is still running commercials pushing 125% loans. Amazing.
The more suckers they can lure in and prolong the bubble, the bigger the collapse will be. This will unfold over many years, so those of you thinking you will get a good deal this summer are just going to be greater fools too.
I have a friend who’s a senior guy at Saxon and he said that if Morgan Stanley hadn’t closed the transaction they would have been BK within two months… He also said a few weeks back, after the initial bad news release, that he’ll be surprised if New Century makes it.
Personally I’m not all that impressed with those who have earned MBAs. For the most part they are totally stuck on themselves, operate in a world of GroupThink, and tend to become disconnected from the realm of reality and common sense.
In the spirit of Christian charity (or Jewish, Muslim, Hindu, whatever your diety) I propose an HBB outreach project to show these poor, abused investors that we care. NYCityBoy, maybe you could compile a list of bagholder-”invester” (snicker) addresses. Each night we could leave a bag of groceries on their doorstep, ring the doorbell, and slip away, reveling in our kindness for the less fortunate. What do ya say, my fellow HBB do-gooders?
The easiest first step is to just start with the entire state of Florida.
I thought about that, but wouldn’t the groceries just blow or float away?
If you have a 401K or a pension plan, YOU are more than likely one of those investors who were left holding the bag. If you need to refinance or sell your house in the next few years, YOU are likely to be left holding the bag. So don’t laugh just yet.
I enjoy meaningful quotes:
Will Rogers: ” A banker is a feller who lends you an umbrella when the sun is shining and asks for it back when it begins to rain.”
Author unknown: ” There’s always lots of liquidity around, and then sudden there isn’t. It all seems to just disappear.”
Poor ol’ Mark Twain is rolling over in his grave.
You’re right; Mark Twain it is.
(Sorry Mark, or Samuel, or whoever.)
God Bless Will Rogers…his humor is sorely missed.
Maybe you had this one in mind:
‘I argue with the wife over what little pieces of real estate investments we should try to pay on and hold, and which to let go back. We always said, “Put it in land, and you can always walk on it.” We did, but no buyers would walk on it with us.’
Will Rogers (1932)
Or maybe one of the others on this page; they all seem to hint at a fascinating involvement of Will Rogers with the 1920s-era LA real estate mania…
http://www.willrogerstoday.com/will_rogers_quotes/quotes.cfm?w_ID=7
“Oft expectation fails, and most oft there
Where most it promises; and oft it hits
Where hope is coldest, and despair most fits.”
Shakespeare
Now that I’ve lost my entire life savings due to the shennanigans practiced by the directors of New Century, I hope that the criminal investigation by the U.S. Attorney will find enough misdeeds to send the entire sorry bunch to the greener pastures of a federal prison. This company is another Enron.
You lost your entire life savings? Had it all in NEW stock?? Wow. Dont you know about diversification? Clarify if I have you wrong.
uh-oh
http://catalog.usmint.gov/webapp/wcs/stores/servlet/CategoryDisplay?catalogId=10001&storeId=10001&categoryId=13738&langId=-1&parent_category_rn=10191&top_category=10191
http://www.silverpa.com/gallery/silver-bar-10oz.html
You can buy silver here from the mine.
You can buy silver form me on eBay - seller Id is cbroncos
That was a special low mintage coin with the satin finish and “W” mintmark for the West Point Mint. They have gone up to about $80 each on ebay. You can still get the regular silver eagles from coin dealers at about $17 each.
“No doubt much of the bout of pain in mortgage lending is due to the slowdown in real estate sales. But it is not like the slowdown in the real estate market should have surprised anyone, especially mortgage lenders.”
It’s not the slow down in RE sales you idiots! You can pick up sales in an instance if you lower the price but the ‘pain in the mortgage lending’ will be even more severe.
dominoes are falling, hate that my bro works for NEW, there is a real possibility BK is coming……..
dominoes are falling, hate that my bro has an adjusting 80/20 interest only half-million dollar mortgage, there is a real possibility BK is coming……..
Funny how I don’t hear many stories of impending disaster for the people I know, in our income range, that are currently renting their place of living. I thought they were just throwing money away?
I’d much rather have a sister working as a hooker, than a brother working for NEW. You have my sincere condolences.
Teacher: “So, Johnny, what does your father do for a living?”
Johnny: “He is a drug dealer.”
The shocked mother pulls Johnny aside. “Why did you tell her that your father is a drug dealer?”
Johnny: “I didn’t want her to know that dad works for a subprime lender. I already told her you are a hooker.”
Mother: “Why on earth did you do that?”
Johnny: “I couldn’t face the teacher if she knew my mom was a real estate agent. “
LMAO!
‘Second lien holders and second lien HELOC lenders to prime borrowers are in as much of an ‘at risk’ position as subprime mortgage lenders,’ said said Josh Rosner’
Realization that the next shoe is hitting the floor!
As we are now discovering the Alt-A is just as bad as the BBB-.
The difference seems to be the same as 1-ply is to 2-ply.
“The difference seems to be the same as 1-ply is to 2-ply. “
Yep! The only difference is the size of the loans, sub-primes got $500,000 loans they could not afford, Alt-A got $1,000,000 loans they could not afford
As soon as the next shoe drops, the perma bulls at CNBC will be in there shining it.
Shoe is the wrong word. Replace with turd.
Maybe that paper has a use after all.
“U.S. homeowners who bought using 100 percent financing, and those who took out ‘home equity’ loans against the value of their properties, even though they have good credit ratings, could be the next to cause problems in the U.S. housing market.”
WOW, someone is finally getting it!
Repeat after me. “Give a prime borrower too much money and you will create a subprime borrower.”
“Give a man $50, and he’ll spend for a day. Teach a man to HELOC his house, and he’ll buy a fishing boat way beyond his needs”.
(I think this is from the Book of LEND)
‘Every single short sale we have done has been with someone with a bad ARM,’ Hays said”
All I could think of is a bad ARM is the new tennis elbow.
“The FDIC said Fremont failed to make proper allowances for its ‘large volume of poor quality loans’ and operated with inadequate capital….”
A majority of lenders are structured this way — undereserved. The FDIC will probably be sending more letters like the one Freemont received.
Is FED an FDIC subprime shop?
Check their website.
If so than FDIC will take over Fed soon!
“Two other California lenders, Impac Mortgage Holdings Inc. and Accredited Home Lenders Holding Co., said today they won’t be able to file their financial reports on time. Shares of both tumbled.”
Take a wild guess what’s happening behind the scenes? More bad news coming down the pike.
Right, just sneak in the bad news with the river and no one will notice.
Almost missed LEND’s news last night - until I read your post. They were trying to fly below the radar.
Just like in the political arena, always release bad news on the weekend and hope it mitigates events of Monday morning.
“just sneak in the bad news with the river and no one will notice.”
And hope another two-bit celebrety crokes or is involved in a sex scandal. Anything to keep the sheeple focused on something else besides the US enconomy going to hell in a hand basket!
“Take a wild guess what’s happening behind the scenes? More bad news coming down the pike.”
They’re about to get hit in the face with a Walleye Pike.
To the best of my knowledge, there is no such thing as a walleye pike. Pike and walleye are different species of fish; again, to the best of my knowledge.
Perhaps more accurate, would be smacked in the face with a walleye, and have a large pike shoved where the sun don’t shine.
Actually, Michael, there IS such a thing as a Walleye Pike. A few Summers ago, after fishing most of the morning on Lake Carlos, MN, and catching only Sunfish, I paid a more lucky angler (a kid about 16 years old) $5 to pose with a nice stringer of fat Walleyes he’d caught, so my CA relatives would see what a fabulous vacation I was having.
There are Northern Pike and Walleye. Only mortgage lenders and realtors that never bet out of the house call them Walleye Pike.
http://www.inslide.com/facts.htm
Au contarire, good sir. “Walleye Pike” is a common and acceptable name for them.
TxChick has a 20# trout you could use…
“Recently, CEO Michael Geoghegan explained that massive losses in HSBC’s home mortgage lending business were caused by the mistake of ‘going for volume.’
LOL — they were trying to make it up with volume.
Sounds like the dot.com fiasco all over.
“yeah we are losing billions, but we are gaining market share”
CEO Michael Geoghegan explained that massive losses in HSBC’s home mortgage lending business were caused by the mistake of ‘going for volume.’
Um, yeah. Anna Nicole Smith stuck mainly with legal prescription drugs, but made the mistake of ‘going for volume.’ Sounds like she did the same thing with her ‘lovers’ for that matter.
Quantity, not Quality.
The thread is on a roll…LMAO
I laugh, otherwise I would cry. Joined a very smart and ethical bank in the late ’70s; we wanted to be the most efficient, not the biggest. Then the sales mavens infiltrated us, and by the ’90s “growth” had become our mission. I left 10 years ago…now this bank is known for its subprime originations.
I don’t know what bothers me more; the cynicism or the stupidity.
“The Mortgage Bankers Association, a Washington-based trade group, said the recommendations go too far and lender closings show the market is fixing itself.”
“‘A number of firms, which made weaker loans, have been forced out of business simply because the loans didn’t perform as they proposed,’ Doug Duncan, the group’s chief economist, said in an interview. ‘The guidance has the potential of overreaching and constraining credit availability to people who need it.’”
Right, it’s all about the firms going out of business, not the people whose lives were ruined by your crooked, overpriced loans. You weasels are getting more slippery by the day…
Who else had a hard time sleeping this week? The news is coming in so fast that there is just so much to take in. I don’t want to miss any of it. This week reminded me of the week after 9/11 and the week after the start of the Iraq War. You just know that you are watching something historic and you are afraid that if you close your eyes you might miss it.
This is just the begining. The insolvencies will get bigger and broader. We will all be shocked and awed by the failures. The regulators are in containment mode when they should have been in prevention mode all along. It’s too late. This will end badly.
There is a ton of news and most MSM outlets still aren’t connecting the dots like OC Register and their mortgage blog with no news on NEW and Fremot (Brea, OC based).
Stupid f-ing journalists.
I posted on the mortgage blog @ OC register - delteted! That guy is a clown and a shill for the local mtg business.
OC is toast - we had so many conversations on their subprime dependence and now it is happening and the local newspaper does NOTHING.
Oh well according to my family in OC - prices only go up!
I suspect the real problem which will take a good bit longer to manifest in OC is not the subprime loan market, but the Prime loan market. I say longer because these individuals have a pocket full of $20K plastic to draw on and weakness here will not show up until into 2008 or beyond.
I realize Anaheim is old-school (okay, just plain old), but prices sure aren’t going up here. My zip code is down 6% and dropping.
When shopping for homes here my husband and I kept asking ourselves “how on earth are so many people affording $600K (or more) houses?” And then we learned about I/O and ARMs and the whole mess.
I said “so, what will they do when the rate adjusts?” Knowing the answer, we stayed put, kept renting our beautiful townhome and we are happily watching the show.
I have to mention that every time I’m walking through Downtown Disney or the park itself and I see the popcorn carts I think of this blog.
I haven’t had a better week of sleep in years.
I agree, I emailed the ocregister with the news Fri nite and nothing reportd about NEW shutting down. Laying off 300 emplyees is nothing compared to this! Who’s payroll are they on? Let’s get this news out there.
There is a ton of news and most MSM outlets still aren’t connecting the dots like OC Register and their mortgage blog with no news on NEW and Fremont (Brea, OC based).
Stupid f-ing journalists.
I know the feeling but my mortgage lender put options are letting me sleep like a baby.
However, when Monday arrives and The Great Depression II begins, I too will be glued to the tube.
I slept very well, but I made it up early to get to work before the market opened.
Permabears are now having a few days, or weeks, or months in the sun while permabulls are trying to convince people that there are bargains out there.
With so much carnage in the subprime sector, who will buy Freemont’s unit?
I would guess it will be some deep-pocketed Wall Street firm who fully buys into the soft landing rhetoric.
When did Kudlow become CEO of a WS firm??
I FEAR “GOLDILOCKS HAS S**T THE BED” AND LARRY WILL BE LEFT TO CLEAN UP THE MESS.
any idea about the percentage of subprime loans in the so-called super rich sf bay area? specifically peninsula and silicon valley?
I think a prime/subprime distinction is being made that just does not exist any more.
Let’s say I make $150k a year. I have a wife and two kids. My FICO is at 798. I have no debt and some miscellaneous investments and savings. Total net worth is about $100,000. Somebody just gave me a $900,000 loan to buy a home in Marin County at 100% financing. My housing nut, after a loan reset, will be about $7,500 per month.
Test Question: Am I still a prime borrower or has the excessive amount of my loan turned me into a subprime borrower?
You were prime, and then you jumped the shark, and it bit your b*lls off, and now you’re sub-prime and transgendered to boot!
This is why the carnage will not be confined to subprime. A lot of people are in over their heads. And when you look at the zoom in foreclosures in CO, TX and MA, it’s not just $900,000 coastal markets.
I think 100% financing is going to trap far more Alt-A and A debt than many (non-bloggers) realize. It doesn’t matter what your credit score is, or what your interest rate is, when the value of the collateral dops and you need to move.
Absolutely correct. Prime borrowers who had max leverage have only their income to count on. Forget about lay-offs, any slowdown in salary raises - bound to happen due to the upcoming economic nightmare - will kick them into the streets.
You can get 100% financing with a 30 year fixed rate of about 6.5% with no PMI and closing costs of around $3500.
So in answer to your question the buyer will remain a prime borrower because there will be no reset.
Only if they took out a fixed rate loan. Nearly 80% of new mortgages made in 2005 in the Bay Area were ARMs, and a large chunk of those were IO. So sticking with NYCityBoy’s Marinite family, if they bought recently, chances are the loan ain’t fixed.
Yep, and why did they take ARMs? Because they can’t afford the payments on a fixed rate loan! So there’s no hope of refinancing into one in most cases.
Map of Misery
I don’t know that I’ve seen the stats on % of subprime loans. But this map from Business Week gives a pretty clear picture of the % of new and refinanced mortgages into loans with payment options.
http://www.businessweek.com/common_ssi/map_of_misery.htm
Wow, Collyfoorneah really IS toast. Well, they always said there would one day be an earthquake and it would break off from the US and fall into the ocean. Here comes Da Big One!
LMAO! And Ahhnold wants to hand out $500.00 to every newborn child in the state. After settling with Enron for pennies on the dollar. Not to mention rolling out the red carpet for gangbangers everywhere. Whew! Why haven’t you guys in Cali locked him up in a rubber room? I guess there’s a reason they call him the Terminator.
Arnie also wants 500 Billion to fix Cal’s infrastructure, That is only $13K per head including illegals or 50 k per working citizens.
Keep in mind too that that’s a pretty old map- about a year? those percentages have probably gone up a bit, since prices have not fallen *that* much, not enough to make a material difference anyway.
“The Fed chairman didn’t address this week’s market turmoil but he did comment on the concerns about the quality of debt in the subprime-lending market, saying the Fed is ‘obviously going to watch it very closely.’”
We will watch it closley until it stinks and everyone knows it, then we will figure out how to socialize the losses!
Why does anyone even listen to these guys!. Anyone can “watch” that is why they build and call them stadiums!
Yes, but it also gives them an opportunity to capitalize on the spectacle. Sell trinkets and popcorn.
Neil, are you listening?
More from the chairman:
“But globalization has made it more difficult to assess domestic economic conditions, Bernanke said. ‘Effective monetary policy making now requires taking into account a diverse set of global influences, many of which are not fully understood,’ Bernanke said. ‘A clear resolution of the question of how global economic conditions affect domestic inflation may continue to elude us,’ he said.”
Translation of the last sentence:
“Therefore, despite what you may be led to believe, or what any data may show on inflation, we may soon get the helicopters airborne by easing rates with alacrity.”
‘Effective monetary policy making now requires taking into account a diverse set of global influences, many of which are not fully understood,’ Bernanke said. ‘A clear resolution of the question of how global economic conditions affect domestic inflation may continue to elude us,’ he said.”
In other words, I dunno squat. He allows the US to participate in a global economy without knowing how it’s going to affect the domestic? Isn’t that like leaving your kids with a babysitter who doesn’t know how to dial 911?
This guy is telling us he doesn’t have a clue and nobody in Congress is calling to fire his ass? Please, LISTEN to him. Unlike Rumsfeld and others who kept on fakin’ it, this guy is saying OUTRIGHT that he dunno what he’s doing. Please, take him at his word and act accordingly.
Presently, I can’t agree with that sentiment.
He’s too smart for that - what he is saying that the data is increasingly becoming unclear on this matter. And that will give him rationale or standing to act as the “anti-Volcker”, especially if global equity markets become volatile to the downside.
Or stated simply: he will choose to inflate versus the alternative of crushing growth (and perhaps getting the financial house in order).
That is if he’s not chosen already by having kept rates where they are now.
I’m certainly not the most financial savvy person on this blog (not by a long shot). Yes, I am a saver. It’s the investing I’m naive about.
Anyway…even though I’m no financial genius, I knew enough to stay away from piggybank loans when I was house-hunting in 2001. Back then, I could have afforded to buy (unfortunately, I was outbid on every property I made an offer on - this happened over and over and over again until I gave up). Yet even though I had the downpayment, my realtor at the time was trying to convince me to do 80/20 so I could afford more expensive homes (which were completely unneccessary as it was just little ole me looking to buy a place for myself). I pretty much just asked him what dope he was smoking because I thought having two mortgage payments was assinine for the average buyer.
Point being - you don’t have to be some super money genius to know when to say no. Thus, why mustering up FB sympathy is and will continue to be very hard for me.
When I sold my CA house in 2002, the offer was $4500 above asking and I was told that the buyers had been “outbid” on 5 other houses and just “had enough” and wanted to be first in line for a change.
So I knew even way back then, the market had become a dot-com mania. And yet it continued for another 3 (maybe 4) years. We have sooooo much correction ahead of us, just to return to a nromal balance between buyers and sellers.
You did not buy in 2001??? Well you said it “Anyway…even though I’m no financial genius”.
Yeah, well, the rest of the story is I got laid off before I was able to win one of the bidding wars. And once I started working again, the prices had run away far too much for me.
人間万事さいおうが馬
Roughly: “All human affairs are like that of Saiou’s horse.”
“Ningen banji saiou ga uma” is one of the Japanese proverbs. The literal translation is “All human affairs are like Saiou’s horse”. It means, “One can never know what will prove to be lucky or unlucky”. The meaning came from a Chinese folk tale about an old man called Sai. ( “~ ou”, also read as okina, means “old man”.) Here is the story.
Once upon a time, an old man, Sai, lived near the Chinese Northern Fort. One day his horse ran away. His neighbors commiserated with him over his misfortune, but Sai said “How do you know this is not really good luck?”. A few days later the horse returned, bringing another horse with it. However when his neighbors congratulated him on his good luck, the old man said “How do you know this is really good luck?” Sure enough, some while later Sai’s son fell while riding the horse, and broke his leg. However this turned out to be good fortune when all the young men of the village were ordered to join the Emperor’s army. Sai’s son didn’t have to go since he had a broken leg.
-For you, getting laid off may have proven to be GOOD LUCK in the long run.
Oh my Gosh…a sliver of taoist light has been reflected into the HBB keyhole…where is “turnoutthelights”
The end is near…the Tao Jones Industrials
And now you know…
the rest of the story.
“The company also warned that a delay in filing its financials may put vital financing into jeopardy. New Century wrote $33.9 billion in mortgages last year.”
What a shame: Vital financing to help people buy homes they can’t afford — leading to future foreclosure and a destroyed credit rating — has been put into jeapordy.
Can anyone comment on what $33.9b looks like as a percentage of all US orginations last year? Or what was NEW’s share of CA originations?
New was #2 and FMT #5
I used to live in Newport Beach where all of these mortgage banks are. Maybe I can go get a good deal on a used Mercedes or boat or something soon from the out of work mortgage guys.
Kind of OT but I was out of town last this week (live in Vegas now) and when I got back thursday night one of the stories on my home page news was “Vegas home sale plunge”. It looks like it is all happening, it looks like 07 will be the year this thing will bust. Patience paid off people.
Hey whatever happened to Peggy?
I posted this on the other thread but thought you might find it interesting. I’m over on Boulder Hwy by the Boulder Station Casino. The RV park I’m at is closing it’s doors on the 30th of April (I just got the letter) in order for construction to start on a large Condo tower (or so I’m told).
“From Reuters. “U.S. homeowners who bought using 100 percent financing, and those who took out ‘home equity’ loans against the value of their properties, even though they have good credit ratings, could be the next to cause problems in the U.S. housing market.”
Gee, ya think?? I live in CA, and just about everyone I know (regardless of credit score) is carrying a bigger mortgage than they would have qualified for under traditional lending standards.
This is why home prices are completely disconnected from income. But I wonder how many homeowners will just try to stay “mum”? Who likes to admit they’ve made a $700,000 mistake that they will never recover from?
One thing that I have never understood in the last 4-5 years was the mentality of these people taking out these home equity loans to buy “stuff”. They seem to think this stuff if free because thier house went up in value(maybe temporarily), hey folks, you still have to pay the money back.
Flip this House is still on HGTV showing all those smiling faces. LOL
Now we have this chorus of talking heads telling us everything will be fine, and the problems will just be confined to a few companies in subprime.
It’s kind of like the Thai currency crisis news in 1997… All the “experts” at first said it was just a problem to one market. Then it spread to Korea, and Brazil, and Russia, winding up with the LTCM fiasco a year later.
Does this end with subprime? Not a chance. It may take time to play out fully, though.
It may take time to play out fully, though.
No doubt it will, but I for one am absolutely amazed at how fast things are falling apart already. The majority of ARMs haven’t even reset yet, and already foreclosures are sky high and major lenders are melting down.
It’s already really ugly, and I can’t envision a scenario where it doesn’t become far, far uglier.
Well, if Trader Joes up the two-buck-chuck to $3.00… it’ll be an poor man’s lagging indicator.
$3 in Az, last time I was there…
My best $2 chuck story:
I was backpacking in Sequoia with my friend Sheila a few years back and her knee started hurting, bad. We hobbled into Little 5 Lakes and there’s a ranger there in the summer months and I didn’t know him, but we had a lot of mutual friends and Sheila and I set up camp and he and his girlfriend showed up with a couple of bottles and for that night at least, it was the perfect “local anesthetic”, especially so for Sheila. ha
“From mid-2005 to mid-2006, 29 percent of new mortgages involved no deposit by the purchaser to create some equity in the property, according to the National Association of Realtors.
The NAR tried valiantly, but in vain, to warn purchasers of the dangers of using creative financing to buy houses they couldn’t afford, out of a sense of legal and ethical obligation to their clients and the communities they operated in…NOT!!!!
For the sake of the all-important spring season, I hope there is a ready supply of prime borrowers with great credit, money to put down, nothing they have to sell and disbelief suspended. Otherwise, shut this pig down now. I guess my bud with the 725 credit score who’s barely able to pay his bills might work as a GF. Oops, no, he has a place to sell in bubble central (S FLA)
“For the sake of the all-important spring season, I hope there is a ready supply of prime borrowers with great credit, money to put down, nothing they have to sell and disbelief suspended.”
TX, you described me to a T. Except for that “disbelief suspended”. Oops! I am not a potential buyer after all. Smoke ‘em if you got ‘em.
Do you ever get the sense that those of us in here are the little green men under the floorboards of reality?
Yes, the scary thing is that we’re about 6 months ahead of what becomes reality. If all our chat becomes fact, we’re headed for massive inflation to cover paper losses. Either way the economy / country looses. Buy more ammo.
I think FED (the stock) is sort of being the kid in the back of the classroom that is trying to be invisible when the teacher is calling on students.
Dude! Nice find! Looks they’ve been hiding from the panic and no one has noticed. Woo Hoo! Their puts will be cheap.
Why institutional holding of FED is more than 100% ? What does it mean?
I was that kid….
Come Monday, it won’t be all right.
Come Monday, money will get tight.
I spent 500 thou
Shorting the DOW
In the week that the stock market died.
Test
Once wonders if it isn’t time to bring back the Guillotine.
New York State Teachers Retirement Board among others are emerging as bagholders:
http://moneycentral.msn.com/ownership?Symbol=NEW
What bothers me is seeing Vanguard. I have wondered where it is safe to put 401K cash. Money Market funds could also be hit during a fall.
Vanguard also has 2.4% of Fremont. Ouch.
I’m worried about money markets as well, I have my cash in NY tax-free money market. It would be safer to park cash into FDIC insured accounts for now. But for how long? I’m scared of possible inflation and dollar devaluation.
Maybe I should stop waiting for the prices to fall. I keep reading about RE plunging elsewhere, but I’m still not seeing it in Manhattan… My rent is cheap, but I’m tied of living in Queens. I got $200K that I can either put back into the market (if, or rather when, it falls further), or I could use it to buy a small place in the city now. I’m starting to convince myself I should take a plunge and buy this year…
Aha, no wonder Hillary is getting ahead of the curve and making noises about the economy. Her hubby won on “It’s the economy, stupid”. Now she’s pulling out the tried and true playbook. Plus, she’s playing for blood and wants to distance herself from the coming debacle. Placing herself above the fray.
Love her or hate her, ya gotta admit, she’s one slick chick.
> Love her or hate her, ya gotta admit, she’s one slick chick.
Is that slick as in slimy, or slick as in greasy?
These holdings are at noise level %s of their portfolios, except for a lucky few.
Teachers’ Unions? This is great news that those socialists might lose their retirement money.
It’s not exactly the Plunge Protection Team, but it sounds as unethical. Why should taxpayers have to bail out these giants?
“March 3 (Bloomberg) — JPMorgan Chase & Co., Bank of New York Co. and State Street Bank & Trust Co. gained higher credit ratings from Moody’s Investors Service Inc., which said the U.S. government would back the banks if they faced default. ”
http://tinyurl.com/29jgtt
Why indeed? Oh no, no, no, no, boyz. They don’t bail me out when I get in a jam, why should I bail them out? Eff ‘em. They eff up the economy with OUR money and then want to use OUR money to bail them out? That’s grounds for pay-per-view public hangings.
I read that and realized the Federal Reserve had asked the same questions in 2000.
Top of the Ninth
Thoughts on Designing Credible Policies After Financial Modernization
Addressing too-big-to-fail and moral hazard
“…Implied coverage exists for the nominally uninsured bank creditors of too-big-to-fail banking institutions as well the creditors of nonbanking firms. Simply put, despite the fact that these creditors are not entitled to protection from loss when their financial institution fails, they believe and act as if they have such protection. This belief is based both on the historical coverage of such creditors as well as the incentives of policymakers, discussed in more detail below, that could lead them to conduct future bailouts….This belief leads to the mispricing of risk by these creditors, thereby encouraging excessive risk taking by bank affiliates.”
We’re doomed!
http://tinyurl.com/2b5pef
Minneapolis Federal Reserve
Sept 2000
“…incentives of policymakers,…”
As in, “Blanket too-big-to-fail risk protection provided at the taxpayers’ expense sure does lead to higher campaign contributions…”
Too Big to Fail equals carte blanche.
1) Regulators better get busy. I saw this little beauty advertised today in the paper with a suggested 20% down payment, a one-year 1.25% APR, then adjusted up to 7%. http://206.173.89.38/V4/PropDetail.asp?c=2&t=6&pid=192743
Criminal charges should be filed, not only against the lenders, but the realtors that lure people in with these kinds of offers. It used to be that only people who could afford to buy homes bought homes. Now everyone, it seems, has a little slice of the “American Dream”.
Hah! It’s got a “jacuzzy”
““The Fed chairman didn’t address this week’s market turmoil but he did comment on the concerns about the quality of debt in the subprime-lending market, saying the Fed is ‘obviously going to watch it very closely.’”“
IOW, the Fed is going to spend more time watching MSNBC.
Bailing out of failed banks should be done with the Guillotine.
In regards to home equity loans and the insanity of the past decade
During all those Congressional hearings it’s still seems odd that Alan Greenspan usually expressed admiration for the wonders of all those “extractions” by these homeowners
Looked like a trainwreck then and certainly looks like a trainwreck now
(Upon walking out of an elevator)
Chance the Gardener: “That was a very small room.”
Sub Prime loans were never originally designed nor envisioned to be “high loan to value” products. Nor were they expected to garnish 20% of the real estate market. Once the go ahead was given to structure these products with maximum financing and placed in the hands of poorly trained, sometimes dishonest brokers this opened the door to create what will be the largest financial debacle our generation has seen. Let’s write our senators and get the FHA moderization act (passed last year by the House) on their agenda instead of “non binding resolutions”.
The Federal Reserve, yet another institution created by the gov’t to trample on our rights. The gov’t (and their agencies) routinely violate our rights.
They violate the 1st Amendment by opening mail, caging demonstrators and banning books like “America Deceived” from Wiki.
They violate the 2nd Amendment by confiscating guns during Katrina.
They violate the 4th Amendment by conducting warrant-less wiretaps.
They violate the 5th and 6th Amendment by suspending habeas corpus.
They violate the 8th Amendment by torturing.
They violate the entire Constitution by starting 2 illegal wars based on lies and on behalf of a foriegn gov’t.
Support Dr. Ron Paul and get rid of the Federal Reserve.
Last link (unless Google Books caves to the gov’t and drops the title):
America Deceived (Book)
Will any investment be safe when the shit hits the fan and Dubya imposes martial law nationally? He has the power to do so with the signings to HR 5122 last October 17 …
Wait for the Chinese ‘economic bomb” this year and see what’s left.
All pyramid scams will fail.
The first regulation that any government should place if any on realestate, only residents get loans for homes. No more of this market speculations investors buying up homes, pushing up prices, just to rent them out to pay off the loan and hopefully bring some extra cash each month. Scam after scam after scam, this one regulation will fix.
On another note, any residential property tax is unconstitutional, nobody can be secure in their home if they are required to pay a repetative tax to hold onto the property. The previous 100 years plus has seen a steady growth of organized criminal intent to subvert a free peoples liberties. Messing with someones home is the ultimate in a collective criminal intent.