“Headed Halfway Down The Mountain” In California
The North County Times reports from California. “The nation’s troubled housing and mortgage markets will decline even further before they rebound, a prominent mortgage executive told a gathering of real estate agents at Cal State San Marcos on Friday.”
“Robert A. Camerota, Sr., senior VP and manager of GMAC’s Mortgage group in Coast Mesa, sketched a bleak forecast for the housing industry: falling home prices, increased foreclosures, more failed mortgage companies and increased revelations of mortgage fraud.”
“‘We’re all going to be struggling, struggling more than we are today,’ he said. ‘We’re headed halfway down the mountain, and we’ve got a ways to go.’”
“Camerota, who is also chairman of the California Mortgage Bankers Association, said that guidelines proposed Friday by federal regulators to tighten mortgage lending requirements and reduce problems in the ’subprime’ mortgage market were necessary. But, he added, they would dramatically decrease the number of new mortgage loans issued, as well as mortgages refinanced.”
“Revelations of mortgage fraud, the use of bogus income and tax documents by borrowers to obtain large loans, will increase, Camerota predicted. ‘We need to go to the attorneys general and the district attorneys. We don’t need more laws. We need more enforcement,’ he said.”
“Realtors in attendance noted that the booming real estate market of recent years created a ‘perfect storm’ for problems now surfacing: low interest rates, rising property values and lenient lending standards led to buyers taking on larger homes and bigger mortgages than they could afford.”
The Union Tribune. “Mary Maloney of San Elijo Hills Realty said the problem doesn’t lie with lenders and real estate agents but with consumers who demand more than they can financially manage.”
“‘They say, ‘No (to lower expectations) – supersize me,’ Maloney said. ‘They want to keep up with the Joneses. You can counsel all day, but they want it and if I don’t sell it to them, she will,’ nodding to a fellow agent sitting at her table.”
“Robert Brown, an economics professor at the campus who also analyzes real estate data for the realty group, said the distribution of prices among resale homes indicated increased activity at the lowest end of the price spectrum.”
“He wondered whether the trend signals a more general price decline this year. ‘We’ll have to see what that means,’ Brown said.”
“Under mounting pressure from investors and consumer groups, federal banking regulators yesterday strongly urged lenders to tighten their standards for issuing subprime loans to home buyers.”
“Edward Leamer, director of the UCLA Anderson Forecast, called the guidance a response by Wall Street to spiking foreclosure rates.”
“‘I think people were encouraged to buy homes that they could not afford,’ Leamer said. ‘It is unfortunate that the financial community supported those kinds of acquisitions. In a way, it is greed. I would say it was a desperate search for yield in a low-yield environment.’”
“Zoltan Pozsar, an economist for Moody’s Economy.com, said the guidance was expected by those who closely follow the lending industry. ‘Subprime is perceived as increasingly risky,’ he said. ‘The real risk in the near-term outlook is if we see some big investors getting hurt. That could lead to a lot of fear in financial markets about how big the problem is.’”
“‘Trading could freeze up; that is a very real risk. If trading stops, the funds stop flowing. This week was scary,’ he said. ‘The U.S. is the epicenter of the subprime worry.’”
“G.U. Krueger, an Irvine economist who specializes in housing issues, said loose underwriting standards are a key issue. ‘I think this is happening because some of the subprime loans turned into foreclosures or notices of default very quickly, especially during 2006,’ Krueger said. ‘The standards may have been too loose for some consumers.’”
“According to the DataQuick, lenders sent notices of default, the first step in the foreclosure process, to 37,273 California homeowners during the fourth quarter. In San Diego County, there were 1,621 foreclosures on residences during 2006, compared with 212 in 2005, DataQuick reported.”
“Lennar Corp., San Diego County’s top home builder last year, is asking its framers, plumbers and other contractors to reduce their bills by as much as 20 percent for work under way or already completed or face exclusion from bidding on future jobs for the next six months.”
“The action was compared to extortion by Cees Molenaar and Beth Curran, executive directors, respectively, of the San Diego and Orange County-Inland Empire chapters of the California Professional Association of Specialty Contractors.”
“So far, according to Lennar, most of the builder’s contractors are going along with the requested cuts in invoices. ‘This is a business proposition,’ said Lennar’s southwestern U.S. regional vice president Jeff Roos. ‘For an immediate reduction, you will continue to stay on our bid list. If you’re not interested, we’re happy to pay you.’”
“Construction and real estate layoffs helped push San Diego County’s unemployment rate to its highest point since last July. More significant were the cuts in the real estate industry, continuing a five-month decline. January’s job cutbacks included 2,500 construction workers, 700 real estate workers and 1,100 workers at furniture and home-improvement stores.”
“‘The housing sector is really starting to have an impact on our overall year-to-year job numbers,’ said Alan Gin, economist at the University of San Diego.”
“Gin worried that the real estate downturn is affecting the retail market. From January 2005 to January 2006, 2,500 retail workers lost their jobs, mostly in department stores. ‘When you’ve got fewer people working in construction and fewer people buying homes, you’ve got fewer people shopping in the community, and that can translate to fewer retail jobs,’ Gin said.”
“In January, the state took in about $8 billion in income taxes – $1 billion less than previously forecast. Howard Roth, chief economist for the California Department of Finance, said that part of the drop was due to declines in the money earned by real estate brokers and professionals in related industries.”
“‘The slowdown in the California and national housing sectors is not yet over,’ Roth told a meeting of San Diego’s Chartered Financial Analysts on Thursday. ‘And it has turned out to be worse than was expected.’”
The Sacramento Bee. “Roth said troubles in the housing market are being offset by continued strength in commercial and public-works construction. Nevertheless, he said he’s puzzled that the numbers aren’t weaker.”
“‘Why weren’t more construction workers laid off?’ he asked.”
“The answer could be that the layoffs are just beginning. Chris Thornberg, an economic consultant in Los Angeles, said he thinks the economy will really feel the effect of the housing slowdown this year.”
“‘Housing really hasn’t hit the ropes yet,’ said Thornberg. ‘You’re going to start to see the weakness in construction jobs.’”
“The numbers show Sacramento’s job market already is being affected by the housing market’s downturn. The region lost 2,700 construction jobs in January, despite weather that was conducive to home building, the fifth straight monthly decline.”
‘These loans were being touted by lenders as an opportunity that would otherwise be missed by prospective homeowners. Buyers who focused on the attractive monthly payment of the Option Adjustable Rate Mortgage (Option ARM) at the time of purchase are now realizing other less attractive aspects of the loan, including increased payments and potential erosion of their home equity.’
‘To explore the downside of using creative loan products would be incomplete without noting the positive effect these loans have had in providing the opportunity of home ownership to families and individuals that would otherwise not be home owners today.’
‘As an answer to the cry for affordable housing in Napa and across the state, lower interest rates and creative financing have done more than any other program to give all of our citizens the opportunity for home ownership.’
‘While real estate sales in the region have flattened out and some Downtown developers have downscaled more ambitious projects, the area continues to push ahead with thousands of units in the pipeline.’
‘Charles Gerencser spends a lot of time Downtown. He’s not sure he and his wife want to live in this urban hub, especially with a four-year-old daughter. For one thing, there aren’t enough parks, not to mention the lack of basic infrastructure that he believes would make living here viable. Nonetheless, the investment potential is too tempting, and he said he plans to take a closer look this weekend.’
‘I think that in terms of prices developers need to briefly consider the short and medium term reality of a complete lack of quality of life resources,’” he said. ‘Developers should be more encouraged at bringing early adopters and offering price breaks and incentives, as well as aggressive financing.’
‘A lot of potential property buyers are put off by a $400,000 entry point, Gerencser continued. ‘Those are the people who would like this lifestyle but find it unconscionable because of the prices.’
From this opinion piece:
“lower interest rates and creative financing have done more than any other program to give all of our citizens the opportunity for home ownership.
Charles Bogue, a broker with Coldwell Banker Brokers of the Valley”
Wrong. It enabled, if not persuaded unqualified buyers to temporarily rent a house from a lending institution and then have their fragile finances destroyed in an avalanche of debt.
What the nutty loan products DID do is allow guys like this realtor to sell LOTS of houses and make LOTS of commissions. Now there will be LOTS of foreclosures.
“Charles Bogue”
Make that “Charles BogueUS”
More like “BonedUs”
Exactly. These creative financings destroyed affordability.
Looks like affordability is about to make a comeback, though.
Affordability? That is SOOOOOO 1997!
‘A lot of potential property buyers are put off by a $400,000 entry point, Gerencser continued. ‘Those are the people who would like this lifestyle but find it unconscionable because of the prices’
High prices simply hasn’t been a problem the past few years. All that changed and abruptly this week. I was talking with a father of a kid on my kid’s soccer team - a mortgage broker. He saud he had 2 loans this week that failed at closing because the company funding had their sources pulled and were going BK.
I predict this will be recognized as the week the RE market finally rolled over - completely. Regulators issuing guidance that shuts out ARM holders at reset is going to create a torrent of REOs. Subprime implosions and credit tightening is now the key topic on CNBC and the WSJ. It’s now pretty obvious AltA is involved, and coming down too. Luckily I was short NEW and FMT. Monday will be a very interesting day to watch. Housing is going to drop a minimum of 15% nationally this year and perhaps more as borrowers walk away…
It’s already dropped 15% in Los Angeles, by my own survey of sales prices on zillow.com. Anyone house which was bought after 2005 and sold in 2007 sold it for a 15% loss.
I haven’t seen that drop in LA. I’ve seen the 500k figure so often that it starts to look like a DEAL when it’s only an entry point. The 800K entry point for good neighborhoods hasn’t gone away IMO. I wish it would…a 400K entry point would be awesome!!!
Why would you buy at those prices ? Even with a 400K entry point and a 6% mortgage the interest alone would be $24K a year. Then you add upkeep, insurance, taxes and the headache factor on top of it.
What happens when interest goes to 8 or 10% ? Is that house still going to be worth $400K ? I think MBS buyers are learning their less and they want more than the Fed Rate + 2%. They are going to want 3 or 4% and house prices are going back to $250K where they belong.
As long as home investors want to be stupid, its not worth buying. I think home investors are about to get a little lesson though and a lot of them may cease to be home investors.
$800K will be $450K, at most and it won’t be long. Leverage and debt levels in CA are 100% linked to unlimited credit. Jerk the credit or even tighten it by requiring 20% down and qualifying income and it’ll happen a lot sooner than anyone anticipates. We have never seen anything close to this kind of financial lunacy. Kiss MBS money goodbye. Now it’ll be burned S&Ls crimping down the underwriting under the watchful eye of regulators. Lending to lose principal in a declining market when reserves are tight won’t be at the top of their to-do list.
You’ll see.
I want you to check out some of the houses on Granville Ave in Los Angeles, 90064. Some of these guys were selling for
less than $200 in the late 1990s. Now they are $800k. There should be a good drop here, too.
Thats what happened in SF Bay Area as well.
Now days we still see 800 sq condos for 400-600K
Not much more than condo conversions built in 1970s
Really bad looking stuff.f
My parents live in the 90064 zip code, on Greenfield Avenue.
If you use zillow.com and look at prices in that area you will you’ll get nauseous at the insanity. Los Angeles is frankly fiscally psychotic. When it goes, it’s going to go big and I think it will take down the entire country.
Here are some examples with zillow references:
This one is an 896 sqft house built in 1940. 2 bed, 1 bath
http://www.zillow.com/HomeDetails.htm?zprop=20461062
Sales History:
01/31/2007: $1,650,000
08/31/2005: $765,000
11/10/1993: $230,000
Even if you paved every square foot with an inch of gold, the gold used would cost less than the house.
Los Angeles is insane and there will be hell to pay for this bullshit.
Un, Hello? McFly? Hello?
http://www.zillow.com/HomeDetails.htm?zprop=20457045
Sales History:
02/09/2007: $1,425,000
05/21/1998: $646,000
No, this isn’t Beverly Hills. It’s ratty LA neighborhoods built in the 1920s.
http://www.zillow.com/HomeDetails.htm?zprop=20500708
Sales History:
01/23/2007: $2,350,000
03/22/2004: $646,000
WTF???
What you are seeing here is an incestuous buying and selling. The only people who could possibly afford this kind of insanity are the ones who just sold a house for an insane profit. However, at some point a lender is holding the bag on almost a million dollars of house on average here. When this sucker blows its going to be billions if not trillions in losses.
Regarding Option ARMs, they are still being done, and many do not understand them. They are being used for the super low payment. People are qualified on the lowest payment and lying about their income to qualify, which makes them even more risky. The last person I refinanced out of an Option ARM had a monthly adjusting rate of 9.26%, a fat prepayment penalty, and negative amortization of $2,600 per month. Most people going for these loans have to because they cannot qualify even with using an interest only loan. They just look at the payment in the short term. Some get concerned when they see the actual accrual rate, but most cannot do anything to get out of the loan. The use of these loans has been a big factor in price increases the last several years.
Cutting back on Option ARMs, 100% financing and stated income for sup-prime people will put a huge stop in home sales and accelerate price drops as foreclosures and inventory of homes for sale grows.
(my bank does not do Option ARMs, 100% financing or subprime, and has a delinquency rate 1/10 of the California average.)
Now I have seen it all.
Realtors are now toeing the HBB line and paying to hear the message.
Geez they could get it for free here for a couple of years now.
No commission checks = perfect fool-aide antidote.
“Lennar Corp., San Diego County’s top home builder last year, is asking its framers, plumbers and other contractors to reduce their bills by as much as 20 percent for work under way or already completed or face exclusion from bidding on future jobs for the next six months.”
LOL! Lennar is using typical Florida hardball contractor tactics. This crap has been going on with contractors in Florida since the late 1990s. They and other contractors have been getting away with it, too, but I never thought I’d see a Florida company try this outside of the state. Doing it on the back end is a new wrinkle, too. I wouldn’t be afraid of losing Lennar’s business. My advice to the subs: if they’re happy to pay you, get paid, get out and be thankful. Let the other schmoes beg for 20% less, do the work and then see if they even get that as this whole mess draws to an agonizing close. This is not a good sign, but Lennar is spinning it as good business. For them, maybe. Not for the subs.
Cisco used the same tactics to get vendors to cut their rate.
I wonder how far these cuts will trickle down the food chain and how much it will hurt the economy.
Great…. now the lines at the 99cent store are gonna get longer……
It has already slowed down the immigration rate from Mexico…
There are people left who can swing a hammer?
I have no problem with people who come here to work. NONE. I have more of a problem with people who are born here and feel that gives them a right not to work their butt off.
Sadly, the bottom of the skill scale is about to discover why you need skills…
Got popcorn?
Neil
I very much resent the implication that Americans don’t work. I worked for years as a subcontrator on institutional (government, commerical) construction projects in South Florida. We installed a fine, American manufactured product and we had good people and paid them well. For many years, the contractors we worked with were men of integrity who did well by doing a good job. All of us took pride in our work.
The situation began to slide in the late 1990s as a result of slimy American contractors who convinced local gov’t that everything could be cheaper and the politically correct term was “value engineering”. These slimeballs didn’t give up a penny of their own profit. They instead put the screws to the subs who were delivering good workmanship. We were all threatened that others could do it cheaper and the others were usually companies that employed illegal and unskilled labor and imported products manufactured in Mexico and Asia. We started losing bids to these subs, naturally, because everything was based on price with no thought for quality. Of course, we were sometimes later on contacted by the end client to correct shoddy and even dangerous work. Sometimes we did it, because we had built relationships with some of the end users over the years and the situation wasn’t their fault, but was created as a result of collusion between contractors and gov’t higher ups. Sometimes we declined, because we were being thrown crumbs after most of the cake went to the slimeballs. Maybe it was ornery on our part, but we just wanted the end users to realize that they wouldn’t have had to call us in for corrective work if they’d used us in the first place, instead of going for cheaper and shoddier foreign work.
Finally, contractors from South America actually came in and began setting up American corporations and then the fun really started. They even undercut the slimeball American contractors (the good guys were long gone) and spread around the kickbacks. Our installers moved on and so did we. We weren’t willing to deliver good American workmanship in exchange for substandard wages and dangerous and demeaning working conditions. We found other things to do, thank God. Others haven’t been as lucky.
Having had quite a bit of experience correcting the work of laborers from south of the border, I can tell you there’s a vast difference between working hard and acting busy. The “guest workers” are usually quite unskilled and in many cases are unsupervised on these jobs. They jump around swinging hammers, but often don’t hit the nail on the head. They carry sheets of plywood and just throw them into place willy nilly. And don’t even go there on drywall, it’s a complete joke. They look busy, busy, busy all day long, but their end product comes apart as easily as a house of cards. At least, in my experience. Acting busy, carrying stuff back and forth doesn’t mean squat if the end results are shoddy and dangerous. That ain’t workin’.
I have no problem with people who cut in line either. Following the laws and doing the right thing is for suckers - you know, the people who apply for a legally greencard and wait. The respectable thing to do is to enter illegally and buy somebody’s stolen ID.
Right on, jerry!
Got pesos?
And corporate profits are at record highs, gee I wonder why?
Palmetto,
I generally agree with your thesis, but a couple of things:
1. Back in the 1970s, I was designing acoustical structures - basically walls with compound curves, to be built using layered 1/8″ drywall over studs. The only drywall people I could find who were capable of doing the work came from Mexico.
2. Have you hired any Gen-Y people? My experience is that you find one person who is willing to work hard out of five hires. The rest, although qualified and capable, refuse to work more than 35 hours per week, and act like I’m nuts if I tell them they need to put in a day on a weekend. This is for engineering jobs paying $70K up to $100K plus options and benefits. Most of my Boomer employees work harder than the Gen Y people, and these are people in their 50s who are supposed to be slowing down.
Of course, having just read what I wrote, it’s clear that the Boomers in my experience have been selected for work ethic, and the GenY people have not yet been weeded out. So its probably an unfair comparison.
I think it is very unfair that illegals come here & take jobs. My husband is from Europe & he came here the legal way…. We payed all the fee’s the govt asked us to pay for a greencard…. he waited in Europe for so many months before he could come here.
Speaking of illegals…. I know a quite a few… one couple I know.. he works laying flooring… carpet mostly. He brings home UNDERtheTable about $6000 a month. His wife claims that they are poor and gets medical coverage through the state. This couple they are not the only ones doing this kind of sh*t.
Guess what… we all pay for their medical & welfare because we work legally & pay taxes. This is so unfair. They need to crack down on this type of FRAUD!!!!
“His wife claims that they are poor and gets medical coverage through the state.”
Turn ‘em in, pussy.
I have no problem with restricting immigration. But… as sm_landlord noted, Gen Y is a tough group to motivate. And… quite frankly many of them do work really hard.
As to Americans working hard… there are tons. I consider myself one. But there are also millions who try not to .
I do agree with Iused2BeinRE that there is a ton of fraud. But its not just the illegals… The welfare system has been broken for a long time.
But I do stick with my comment that those without a definitive skill set are about to find out how hard it hurts to be easily replaceable.
Got popcorn?
Neil
The illegals work as hard as they are made too based on how they are supervised. I’m 100% against illegal immigration, but I had a thought yesterday that perhaps it is our liberal welfare state that creates the need for illegal labor. We have a segment of our society that gets paid by the government to do absolutely nothing. The differential amount that they would make by working isn’t worth it to them, so they sit on their ass and don’t compete for the lower level jobs that illegals fill. The govt should stop cutting checks for numerous social programs and provide only emergency relief…i.e. force folks to work, and then enforce employeers to hire only legal labor. When I was a kid in Washington state, the fields (I particually remember picking berries) where havested by students and house wives looking to pick up a little extra cash. You got paid by the “flat” and didn’t need any skill other than wanting to work and earn a buck. We didn’t need illegals up there back in those days.
HEY Use2BinRE
What the hell man…why don’t you turn them in? I’m paying a SH&Tload of taxes every month while that scumbag is making $6K a month under the table? WTF is wrong with you????????????????
I should have the right mind to ask the moderator to get your IP and turn you in too for withholding evidence like that. Absolutely pathetic.
I’m sorry but people like this are just as responsible for this illegal immigration mess as are the illegals themselves.
It’s very easy to turn in people not reporting income, the IRS has a hotling and you can actually get a huge chunk of their unpaid taxes. DO it now!
It’s very easy to turn in people not reporting income, the IRS has a hotline and you can actually get a chunk of their unpaid taxes. DO it now!
Yeah, you all need to calm down and run the numbers. That’s what we’re here for isn’t it?
Let’s see: An illegal alien installing carpet under the table for $6k/month. Doesn’t pass the smell test.
A month’s worth of work at 40 hours per week is up to 176 hours. $6000.00 / 176 = ~ $34.09/hr.
$34.09 would be the man-hour labor charge for the carpet company. At least a third of that goes to Work Comp if not more (here in Cali). Then there is liability, bonding, gas, advertising, etc.
Your illegal alien is probably making about $10/hour for about 35 hours a week. About $1450/mo or 17k/yr. Here in San Diego, rent eats up about half of that, plus food for the wife and kids.
Quite a bit different than 72k/year?
Either that, or I need to start installing carpet.
Paul
In Cisco’s case they were partly responsible for financing dot com bubble. They were subprime provider to dot coms without a valid business plan.
Wow. Those are great memories. I was long Winstar stock back in the internet-bubble days and Cisco provided a massive credit line for Winstar in 11/2001. By 4/2001, Winstar was bankrupt anyway. Here’s the announcement of the credit line. It’s amazing to read the logic, which sounded good at the time.
http://www.wirelessweek.com/article/CA51312.html?spacedesc=Business+%2F+Finance
I learned a LOT from those days: the psychology of bubbles and the risks of companies operating under high leverage.
The subs are getting TOO much.Prices have to go down all along the chain. Salesmen need their commissions cut ,subs need their pay cut, Title Insurance needs to be reduced, material will go down (already has), land is going down. Can I buy that 3000 sq ft house for $199k? Maybe from a lender this fall and next spring in the recession (already here). Keep your fingers x’d and save your cash.
…which in turn increases the builders margin, allows him to further reduce prices until this portion of the down leg is complete. At that point, the point at which his price reductions and incentives are no longer attracting FB’s to the bait, he again cuts another 20% on the subs and the process repeats until somwhere, waaaaaaay down there, we find the bottom.
But, but what if I bought in his development 2 years ago and need to move?
I think 3000sqft for $199K in California is stretching it & a wish!
I am hoping for 3000sq ft for $350K to $450K in Folsom, depending on the condition. This is my wish.
Right now in the Folsom CA. You can get a Junker 3000sq ft for about $500-$550 in an older neighborhood. Ridiculous huh?
maybe 250K for that 2000 sq would be reasonable.
Frankly 3000 is too much unless you plan on having 2-3 kids or inlaws
staying living with you.
If I didn’t know better, I would say the cost of building a house is deflating. Trades cost 20% less. Lumber is cheaper. Copper is cheaper. Concrete is cheaper. Hmmm…
All this is very indicative of a deflationary environment. Remember what happened in Japan ?
16 years or so. The last few months seem to be on the upward trend according to this PDF:
http://www.mitsuifudosan.co.jp/english/home/pdf/statistical_chart_01_2007.pdf
“Mary Maloney of San Elijo Hills Realty said the problem doesnt lie with lenders and real estate agents but with consumers who demand more than they can financially manage.”
What a giant steaming pile of cr@p. Tell me the last time the average realtor didn’t encourage their clients to stretch, grow into payments, etc. I’d love to talk to some of her former clients….
Right, they’re on the common-sense bandwagon now and are claiming to have always been there!
This brainless consumer behavior they are now tattling about is probably EXACTLY what drew most to become Realtwhores to begin with.
They saw easy, stupid Marks and signed up because someone was going to make the easy money, why not them?
I’ve always been taught that integrity is the ability to do the right thing, even when nobody’s looking. I suppose that will just mean that I will have integrity, but never be on the receiving end of easy money.
Oh well, even buckets of money can’t buy your integrity back once you’ve sold it.
Yeah, I see this all the time. It’s the salesman career mentality. They go where the money is. If that’s all you can do, it’s a reasonable profit-maximizing strategy. Integrity is a luxury for those who cannot produce anything of value by their own labor, be it intellectual or physical or some form of craftsmanship.
This is going to sound pompous, but I’ll say it anyway: If you don’t have anything to contribute, you can still make a great living by exploiting the friction in commerce. In fact, some of the most lucrative jobs are only about exploiting this friction. Think bond salesmen, stock brokers, investment bankers, etc.
“THEE” most lucrative jobs… I agree.
Two very good posts, athena and landlord. I’d like to add the following kanji lesson:
誠 Makoto
Comprising of 言 (to say) and 成 (to become) - implying that what you say is what becomes. Hence, “Sincerity.”
It is the first thing I teach my 10th graders every year. Some things are more important than math - even in a math class.
漢字が大好き。Mebbe I should bone up for the JLPT 2 this year. Keep putting it off.
In their smoky back rooms, I bet the NAR spin-meisters are frantically trying to craft a new, CYA-focused message: “The Bubble wasn’t our fault - we TRIED to warn the FBs, but they demanded that we supersize them into homes and loans they couldn’t afford.”
Rubbish. We all know who was pushing the “buy now or be priced out forever” mantra from 2003 on. DL and his ilk will soon be squirming like insects on pins as the blame game commences.
Can I wield a pin?
I can’t stand anyone in the RE business, sometimes to much blame is put on the industry….. Look agents & others did not put guns to the head of buyers…..
People were greedy & people were stupid. I don’t understand why someone would want to pay so much for a home. Many people are all about having it now. Instead of saving money & purchasing when you can afford tooo! People want to keep up with the joneses. Look how people are with cars… so many people get rid of perfectly good cars after a couple of years. Why because they want something newer and more hip!
I say screw these people that are whining that they made a mistake in buying a home in the boom time. To bad for them. Let them lose their homes. These folks with their stupidity DROVE UP prices for the sensible people like me & others on this board! If they made vultures rich… that is their stupidity.
People were greedy & people were stupid. I don’t understand why someone would want to pay so much for a home. Many people are all about having it now. Instead of saving money & purchasing when you can afford tooo!
Luckily, very many of these people will soon be in an excellent position to perform a post-mortem analysis on their shattered lives and, hopefully, discover the error they made and perhaps even learn from it.
I’ve seen this sort of thing before. People participating in unethical activity, then coming to their senses and in order to cover up their participation, getting up on their hind legs and wagging their finger. It’s like the guy who tells the girl that he respects her and will love her forever, in order to get laid, and then turns around and calls her a slut if she sleeps with him.
And thus, the FBs get a new name: Bubblesluts.
Essentially, then… I became a Bubblesitter because of all the nefarious activities of Bubblesluts.
We became BubbleVoyeur’s….hahaha
“I’ve seen this sort of thing before. People participating in unethical activity, then coming to their senses and in order to cover up their participation, getting up on their hind legs and wagging their finger.”
Classic, All American prayer meetin’ conversion. Stand up quick and profess your belief….. And beware… people late to repent often end up in the stoning circle.
Oh, man, the hypocrisy will be coming thick and fast. Hillary is leading the charge big time. The first politico to drag out an extra set of hind legs.
The search for the guilty is well underway, wait until it reaches the stage of the persecution of the innocent. Does anyone remember that cartoon with the various stages of a project? If so, can you post the various stages of a screwed up project? All I can remember is “The Search for the Guilty” and “The Persecution of the Innocent”.
The 6 Stages of a Project
Enthusiasm
Depression
Panic
Search for the Guilty
Punishment of the Innocent
Rewards for the Non-Participants
Thanks. There are different variations of this, the one I found had only five stages (depression and panic = unmitigated disaster), but this one’s pretty good.
What I want to know is, who will be the scapegoats? (persecution of the innocent). It won’t be Wall Street, nor the politicos, the lenders, the FED, not the builders, the bankers or the realtor wankers.
As we see in the article above, the realtwhores are already trying to pin it on the FBs. But, I think with an election coming up, the politicos will tread lightly in that area.
So which innocents will be persecuted?
“Hillary is leading the charge big time. The first politico to drag out an extra set of hind legs.”
And a big set of tree trunk size legs they are……
Hey, can we do a straw poll right now as to who will win in 2008?
I’m voting for Pat Paulson.
Let’s have a vote whether it’s too early to be talking about who will win in 2008.
My vote is: “Yes! It’s much too early.”
Vote for Pedro…
Time for real estate agents to check into rehab. 28 days later, they will have a fresh start on ethics.
I think her full legal name is Mary Baloney-Maloney.
‘To explore the downside of using creative loan products would be incomplete without noting the positive effect these loans have had in providing the opportunity of home ownership to families and individuals that would otherwise not be home owners today.’
Change the ‘ have had’ to ‘will have’. Ironic in a way that this giant Ponzi scheme has sped up the building of affordable housing advancing it by light years without the red tape of the government. The most interesting enlightenment or edification will be the epilog clearifying whose pockets were picked to pay for it and how it will change the population demographics!
Sorry if this was discussed yesterday as I am behind on my reading,but
the comment was..
With sub-prime the main worry, what about ‘the prime’ that had an income of 50k ,and a FICO of 750. While looking great as a credit risk, actually are just as prone to default as they will be hit just as hard when their home value declines 30% ,and their ARM adjust up 30%…They are just as likely to ‘walk’. Interesting developments going foward….
Neil, you gonna share that popcorn or what?
Credit scoring only looks backwards in time. I am absolutely certain that I could run out with my credit score and buy a 800K home here in San Diego. I am equally certain that barring the unlikely possibility that my income will double in the next two years that I would default if I did buy such a home. I believe as you have alluded to the problems are do do with too big of loans and too little income. What a high score buys you is a pocket full of 20K plastic so chances are a person with a high FICO will hang in there a bit longer, but ultimately will go down even harder.
This is why I do not believe we are all but tipped over the top of the mountain, and have not even begun the real downward slide.
I would imagine as data flows out of this clusterf*ck, credit scoring models will be revised.
I believe the presumption (statistically) is that somebody with a 750 FICO has it because they have enough self discipline and sense to not do something really stupid like that.
And yes, not biding against plentiful, easy, dumb money is always nice for smart money. Think of how Warren Buffet thinks in a mania. With Easy Dumb Money, the place to be is extracting transaction fees. Sound dot-familiar?
The next cycle will be fleecing the oil sheiks who will be getting filthy rich as Peak Oil screws up oil prices to the moon.
See, Dubai, UAE
I am somewhat of a subscriber to “deep oil”
Peak oil is a scare tactic by the industry to drive oil prices higher. There is 1 trillion barrels of oil in the Alberta oil sands and an estimated 2 trillion barrels of oil in the Rockies. It is the Arabs who have reached peak oil, not the rest of the world.
“Peak oil is a scare tactic by the industry to drive oil prices higher.”
Who knows for sure, but the world sure seems well trained for the new higher price.
There is always “peak” something. Peak whale oil, peak coal, peak asbestos. Just because the production of some resource has “peaked” there is not some cosmic change in economic fundamentals. There are always alternate sources, and the price mechanisms will adjust to them.
“2 trillion barrels in the rockies”
I’m sorry? The US peaked in oil production in 1970, which is common knowledge.
Saudi Arabia is now in decline:
http://www.theoildrum.com/node/2325
Sometimes I wonder (& hope) that there is a secret government long term plan to continue buying foreign oil for as long as possible, at any reasonble price. The strategy would be to deplete the foreign supplies first which would cripple areas like the Mid-East (and return them to camel riding sand nomads). At that point we would be in the world power “drivers seat” because we would still have our untapped resources (Alaska reserves, etc.) that our liberal conservationists haven’t permitted us to use. Also, I still don’t understand why we haven’t gone more nuclear for electical power production. It is idiotic to burn petroleum to produce electricity. I was a nuclear power technicial in the early 80s and firmly believe it is a safe and clean power source when properly administered.
Yup, OutofSanDiego. The correct end game strategy for a finite depleting resource can be summed up as “Burn their oil first.”
rotfl.
Yea… a whole bunch of prime credit is about to become defunct.
Funny how those statistics on the likelihood of default vs. down payment are about to get dusted off again. Where was the knee in the curve? IIRC 25%+ down payment. (Skin in the game.)
And, like others on this board, don’t even get me started on debt to income…
Not to mention the BIG lesson of the great depression was to minimize large changes in downstream payments. That shock to the financial markets helped increase the severity of the downturn.
2007/2008 will just be years of re-learning why old guidelines made sense.
Got popcorn?
Neil
Those who don’t learn from the mistakes of the past are doomed to repeat them; those who do will find new ways to err.
Pass the popcorn.
With sub-prime the main worry, what about ‘the prime’ that had an income of 50k ,and a FICO of 750
Nobody with an income of $50k had any business buying ANY real estate in California in the past five years or so. Not unless they had a $300k downpayment at least.
So we are coming down the mountain? Then how about a new bubble theme song, with lyrics from Janes Addiction?
comin’ down the mountain
one of many children
everybody has
their own opinion
everybody has
their own opinion
holding it back
hurts so bad
jumping out of my flesh
and i said
I think this is a better Jane’s Addicition song for the current fiscal mess.
“Been Caught Stealing”
I’ve been caught stealing;
once when I was 5…
I enjoy stealing.
It’s just as simple as that.
Well, it’s just a simple fact.
When I want something,
I don’t want to pay for it.
I walk right through the door.
Walk right through the door.
Hey all right! If I get by, it’s mine.
Mine all mine!
My girl, she’s one too.
She’ll go and get her a shirt.
Stick it under her skirt.
She grabbed a razor for me.
And she did it just like that.
When she wants something,
She don’t want to pay for it.
She walk right through the door.
Walk right through the door.
Hey all right! If I get by, it’s mine.
Mine all mine!
We sat around the pile.
We sat and laughed.
We sat and laughed and
Waved it into the air!
And we did it just like that.
When we want something,
We don’t want to pay for it.
We walk right through the door.
Walk right through the door.
Hey, all right! If I get by, it’s mine,
Mine, mine, mine, mine, mine, mine…
As many times as I’ve heard that song, there were some verses I had misinterpreted and Mondegreen’d - I’ll suppose now I’ll be hearing it diffrently, having read that… The lead singer IS very nasal and hard to follow…
Halfway down the mountain made me think of the old west song “She’ll be comin’ ’round the mountain”.
Well, we’re halfway down the mountain with the crash
and all those stupid flippers lost their ass
well, we’re half way down the mountain
well, we’re half way down the mountain
Well, we’re half way down the mountain with the crash
I think the official FB anthem would have to be a slightly altered version of “The World’s Biggest Fool” by The Tractors:
Never thought I’d ever be
Best in the world at anything
Like Babe Ruth with a bat
Or Muhammad Ali in the ring
But that was before the Bubble came my way
And made me all I am today
The bigger they come, harder they fall
And me–I’m the biggest fool of all
Next stop… just up ahead
A treat for all the family
The world’s largest busted loan
On display for all to see
Get the Guinness Book folks on the phone
It’s a new world’s record for getting the bone
(and you know what they say…)
The bigger they come, harder they fall
And me–I’m the biggest fool of all
I’m the world’s biggest fool
Everybody knows my name
Folks all come from miles around
Just to see me hit the ground
Just to watch me take a fall
I’m the world’s biggest fool
That my claim to fame
From Tennessee to Tokyo
I’ve hit a new record low
I’m the biggest fool of all
From Tennessee to Tokyo
I’ve hit a new record low
I’m the biggest fool of all
May I suggest a couple of appropriate verses from Woody Guthrie’s “Pretty Boy Floyd”?
Yes, as through this world I’ve wandered
I’ve seen lots of funny men;
Some will rob you with a six-gun,
And some with a fountain pen.
And as through your life you travel,
Yes, as through your life you roam,
You won’t never see an outlaw
Drive a family from their home.
“Revelations of mortgage fraud, the use of bogus income and tax documents by borrowers to obtain large loans, will increase, Camerota predicted. ‘We need to go to the attorneys general and the district attorneys. We don’t need more laws. We need more enforcement,’ he said.”
*******
What a joker.
I thought these guys (lenders, not to mention realtors) claimed some level of professionalism?
“We need more enforcement.”
Translation: “Don’t look at us - it’s not our fault. It’s somebody else’s.”
Exactly, sf. Look for many more to succumb to the “hind legs” syndrome, by which I mean people who participated and profited now getting up on their hind legs and preaching and wagging their fingers, expressing horror at what “others” have done. Get out your shovels, folks. It’s gonna get real deep, real fast.
Lereah has begun his CYA campaign just this week in his Fortune interview.
“I was shocked that…”
“I knew then…”
Etc.
Five Stages of the Fad/Failure cycle:
1) unwarranted enthusiasm,
2) unmitigated disaster,
3) search for the guilty,
4) persecution of the innocent,
5) promotion of the uninvolved
These stages are paraphrased in different ways, but the idea is essentially the same. I’d say we have now reached stages 2 and 3.
I wish David would get drafted to Iraq to become a cruise missle test pilot….
I had the best laugh in years.
Sf Jack:
It’s called “due dilegence”………the people with the money are responsible to lend responsibly and trust the borrowers records, BUT “verify”, by getting copies of bank statements, paycheck stubbs, tax records for more than one year etc………….Please
both sides are at fault, but no one put a gun to the lenders heads.
The debt bubble is collapsing and the derivative hedge players have begun to understand that the risk never left their accounts.
Because the other counter party (Grandma or the “fool”) just filed..BK!
Nevertheless, he said he’s puzzled that the numbers aren’t weaker.”
“‘Why weren’t more construction workers laid off?’ he asked.”
For every guy “on the books” that gets axed, there are 20 guys (his crew) that are under the table and unemployed.
Hey, It’s MARCH!!! The start of the much anticipated spring bounce is upon us across much of the country! There are probably a lot of happy smiling realtors rolling out red carpets to welcome that mushrooming crowd of willing and able buyers!! Let’s hope they all aget pre-approved based on that new guidance!!!!!!!
2007 is going from ugly to uglier. WHere are we on the emotion scale? Past PANIC to despair yet?
No panic yet, the implications of the subprime meltdown haven’t filtered to the resale market.
It’s a-comin, though.
I don’t think you have asked any of the 40,000 dolts that have received NoD in CA in Q4 what emotion they’re feeling now. Or for that matter the realtors or the mortgage grunts. CR is still saying 1% decline in ‘07. I agree, only I am convinced it’ll be just a little more than that, per month. In some areas we’ll see 25% off in ‘07 when the REOs sit and sit, competing with the regular sales that also sit and sit, and sit… until the foreclosure sale… and then they sit in the REO line… Gonna be enough despair to share with everyone…
In a way, it is greed. I would say it was a desperate search for yield in a low-yield environment.’”
That’s what I said earlier on another thread. They’re addicted to these high “returns” even though they may never actually realize them, they book them in advance ala Enron.
Mark to Market accounting at its finest!!
Isn’t this what’s wrong with all of corporate America? Every management regime comes in and does what ever to make the quarter. 4 quarters equals bonuses and options… don’t make the quarter and they’re out.
Book “profits” now and collect your bonus NOW. You’ll probably be gone (with your cash stash) by the time those “profits” turn into “deficits”.
Essentially, EVERYONE, from the heights of corporate management to the lowly loan brokers and RE agents were ALL on commission. And they ALL GOT THEIRS.
Now all of the stockholders, loan holders, and security holders will suffer…. And the sick part is, for the most part, it was ALL a LEGAL RIP OFF.
“Isn’t this what’s wrong with all of corporate America? Every management regime comes in and does what ever to make the quarter. 4 quarters equals bonuses and options… don’t make the quarter and they’re out.”
——————————————–
Not Berkshire Hathaway. Earnings are actually understated, and there are no stock options. 2006 was a blowout year.
Shareholders get what they deserve if they allow their company to be mismanaged in the way you describe. New laws aren’t the answer, but better oversight of one’s investments is surely part of a solution.
If the shareholder-corporate relationship was a closed system that would seem a perfect wheel of justice there garcap, because no one else would get hurt when short-sighted shareholders overlook questionable biz activity by short-sighted corporations because everyone just wants to get theirs.
Except that here, on planet Earth, when corporations misbehave the ramifications can be staggeringly bad for all of us (as we may be about to find out–again). The trouble is we don’t have any laws –none with teeth anyway — good enough to require the transparency in the system (so that shareholders can actually do oversight), and harsh enough to discourage fraud.
But that’s the problem with shareholder ownership. When everyone owns something then no one owns it and control defaults to management who raids the corporation for their own benefit.
this is joy to my renters heart.
The Fed’s over-exuberant interest rate cuts (and the aggressive global interest rate cuts circa 2001-2003) had many observable impacts, such as the housing boom/bubble. But the more subtle impact was the setting off of a global need for yield. All kinds of investors, from retirees to mega-insurance giants, suddenly could only earn 1% or 2% on virtually risk-free investments like insured CDs or short-term paper. But they still needed to generate income and/or meet long-term return goals. So the global yield hunt commenced. No higher-yielding asset, from junk bonds to high-risk mortgage debt, to CDOs, to commercial real estate, was off limits. Investors needed to generate yield because they couldn’t earn 4% or 5% on risk-free paper anymore. That has caused the intense, global wave of asset price inflation/yield compression of the past few years. The events of the past week have caused a sudden, dramatic re-assessment of the risk of this strategy (what I like to think of as: “Damn the risk torpedoes, full speed ahead!”) The question going forward is whether this is just a short-term correction or a major trend change. The credit hiccups/yield spread widening caused by the Japanese liquidity drain last April-June didn’t last. Will this one? We’ll see…
http://interestrateroundup.blogspot.com
Excellent observation. My own mortgage lending began in 1993 when the long Treasury yield sank below 6% for the first time in over a decade. I had sold a bunch of long Treasury zeroes and was feeling very bad about having to take “nothing” as a savings account yield. Learned I could lend at 10% on single lots in condo-ized trailer parks, because the banks did not want this business at all. Never had to go below 9%, because the banks still don’t want this business: the main problem being, the notes apparently cannot be easily repackaged. That doesn’t stop every Tom-Dick-Harry self-appointed mortgage broker from sending me postcards offering me Cash Now in return for my notes. Of course, they want to buy the notes on some basis that will yield them 14% instead of the contracted 9% or 10%. Ha ha, I’m not selling. I thought my one-trick pony show would obsolesce, and perhaps now it has. Have turned down 7 of the 10 most recent loan requests, usually because the ratio of the loan to my (mental, 3 or 4 -year-old) value was too high. Patience, patience. Five % on most of my assets will do for now, because I was able to save a lot of the proceeds of the 9-10% mortgages over the past 14 years.
I personally wouldn’t be too surprised if your “one-trick-pony” turned into the little engine that could over the next couple of years. Gonna be a lot of retired and retiring folks in the Western states suddenly needing to really downsize to stay afloat.
Out of idle curiosity, do you leverage at all, or is it entirely your own savings and retained earnings that you lend out? What do you do when you have more good, personally researched, lending propositions than money?
The problem was the simultaneous dynamic duo of extremely low Japanese interest rates and extremely low US interest rates.
In Japan there is good reason to understand why inflation long term will be low (demographics/culture/existing high prices) but in the US?
Japan was bad enough. But Japan & Fed together, plus China’s anti-capitalist mercantilism and central bank, the Carry Trade Of The Century.
I think the markets of the 90’s-00’s made these people think that everything should return 15+% every year or it was virtually worthless. Greedy, greedy, greedy.
“Greedy, greedy, greedy.”
Well, in their defense, younger types without a lot of hard assets were seeing the prices of everything shoot through the roof, so 15% doesn’t seem that greedy.
I DON’T think it was greed. I think the traditional MBS investors were a pretty conservative lot. They thought they were buying a sound, stable long term investment. After all, who ever heard of mass foreclosures in the US ? Who even fathomed that this stuff could occur except those of us here ?
The hedgies investing yen carry trade dollars in MBSes, that was total greed.
This is why I don’t get the argument that there will be a bailout.
If the real estate behavior of the last 4-6 years was based on the willingness of investors to buy these mortgages why should the rest of us pay for it?
Aren’t these simply investments gone bad a la the stock market in 2000?
5 small words for ya, “Too big to let fail.”
That’s why there’ll be a bailout.
But it will most likely be a bailout of the banks, not the FB’s.
This is the most creative $#it I seen…
“In March 2005, Saloman orchestrated a fake mortgage loan transaction on her own residence located in the West End of Richmond. Saloman used two sets of aliases, social security numbers and dates of birth, to act as both the buyer and the seller on the transaction. Saloman unlawfully used social security numbers on both ends of the transaction that belonged to other people. The unauthorized use of these numbers was the basis for her plea to aggravated identity theft. As a result of the scheme, Ivanhoe Financial wired $299,640.76 to Saloman as proceeds of the sale, believing her to be a legitimate seller of the property.
Once the transaction was detected by Ivanhoe Financial, Saloman attempted to fake her own death in an effort to escape liability. Employees at Ivanhoe received a call falsely indicating that Saloman had been involved in a serious car accident. In a subsequent call, the employees were falsely informed that Saloman had died from her injuries.”
http://originatortimes.com/content/templates/standard.aspx?articleid=1839&zoneid=1
almost james bond style creativity.
A kind of personal “mortgage fraud/witness protection” program!
‘They want to keep up with the Joneses. You can counsel all day, but they want it and if I don’t sell it to them, she will,’ nodding to a fellow agent sitting at her table.”
Ah, for the good old days when I bought my 1st house a Realtor would only show you houses they knew you could truly afford on your income knowing full well when it came to apply for the loan you’d be required to prove you could pay for it, have cash for a downpayment and have a safety cushion to boot. How far our standards have fallen in 20 years.
“How far our standards have fallen in 20 years.”
Indeed, in many facets!
i cant stand when i tell a realtor that i can’t afford anything higher than $400k and all they show me are places right over $400k. did someone forget that i probably make a lot of money to even afford $400k to not be wasting my weekend looking at crap i can’t afford? which would then make me so upset that i would just give up and be extremely rude to the realtor. not sure how many different people i have gone through with this, but i just wish they would all go away.
my mom agrees with my idea of getting my license so i dont have to deal with these morons.
‘They want to keep up with the Joneses. You can counsel all day, but they want it and if I don’t sell it to them, she will,’ nodding to a fellow agent sitting at her table.”
Assume she’s talking about illegal drugs to see just how pathetic this argument is.
“‘We’re headed halfway down the mountain, and we’ve got a ways to go.’”
It’s the new ride they just opened at Magic Mountain:
Turd Mountain: The Housing Collapse…
Slight oversight by the engineers…. no brakes.
What’s funnier is Magic Mountain considered selling the property due to the housing bubble.
They were just a little too late to that party and it never went anywhere.
But on the upside, the pass you bought is good for 30 years, and you get to ride it every day…… whether you want to or not.
“the pass you bought is good for 30 years, and you get to ride it every day…… whether you want to or not.”
this sounds like the marriage contract…..
…and like marriage the ride will shut down with “technical difficulties” and you’ll be left looking longingly at the newer, faster, rides.
I would at least give some plausibility to the proposal that we are halfway to the bottom. That is, if the price declines are worse than officially reported numbers, and we drop by ‘X’ amount again over the next year, and prices go nowhere for a decade as inflation slowly brings buyers back to that level.
But my gut says it’s not that easy. This is the greatest specuilative RE bubble since 1926, and this one is national.
I like your “if”. But the most recent Case-Shiller numbers I saw seem to say that the real declines are still mostly in the single-digit percentages. If that is correct, we are still much nearer the top than the bottom. Just this a.m. I looked at an MLS listing for $400K which noted that the property could be rented out for $800 a month. (?!?!? - They think this is a selling point ?!?!?!?)
Hey Ben, here’s an OT and impatient question: Has Punxsutawney Paul (Volcker) come out of his lair to respond to any of the bloggers’ questions?
I still need to compose the letter. Will be a few weeks to hear back.
I bet Volcker has at least had a few good interviews that he’s agreed to allow to be published posthumously.
Hahah. Gerald Ford style.
read my note to volker BM!
Yeah, I’ve got to really parse through that thread carefully. There were some nonsensical and inappropriate things, but also some good questions. Ben, any chance you could email me the thread in some sort of text file before it gets too far back in the past?
You couold use the print finction at the bottom and ‘print to file’ on your hard drive.
‘We’re headed halfway down the mountain, and we’ve got a ways to go.’”
——————————————-
when you are building momentum down, it is hard to come to a stop at the bottom
That’s why there’s a nice impulsive force waiting at the bottom.
Well you do go a little past the bottom, it is called a crater.
“Robert A. Camerota, Sr., senior VP and manager of GMAC’s Mortgage group in Coast Mesa, sketched a bleak forecast for the housing industry: falling home prices, increased foreclosures, more failed mortgage companies and increased revelations of mortgage fraud.”
As a result of lurking on this blog, I knew all of this information last year therefore, I am changing up my resume and applying for Senior VP positions at every mortgage house left intact. Both of them!
Edward Leamer should keep his mouth shut before he turns himself into a second rate David Lereah. He already pimped UCLA’s reputation with the ludicrous Anderson Forecast. Now he sounds like he’s trying to set up some CYA revisionism because he’s smart enough to know that we’re going off the cliff right now.
Leamer has to do that. And there will be many, many others trying desperately to position themselves as having been uninvolved. Because when we reach the fifth and final stage of this debacle (promotion of the uninvolved) the honor and glory will go to those perceived as having had the most distance.
Leamer has been warning about the disconnect between housing and rent for years now.
http://www.anderson.ucla.edu/documents/areas/ctr/forecast/Bubble.pdf
“‘The slowdown in the California and national housing sectors is not yet over,’ Roth told a meeting of San Diego’s Chartered Financial Analysts on Thursday. ‘And it has turned out to be worse than was expected.’”
…Ummmm, no…I expected it! I think we all expected it.
and we rejoiced!
LATE BREAKING NEWS.
Bloomberg has an article up that starts like this:
“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.”
Niiiiice.
http://tinyurl.com/29jgtt
US gov=taxpayers=we da people. What’re we going to bail them out with, our good looks? LMAO! Watch out, or the more attractive among the sheeple will be bonded over into sex slavery in Dubai and Shanghai.
Apologies for this repost:
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
Is that the sound of a helicopter revving up?
Anyone here remember how Continental Illinois got resolved in the end?
Absolutely amazing. The timing is incredible. They are telegraphing that a big crunch is coming, maybe even this coming week. Never mind the upgrade, but to talk about how the government will bail them out, too big to fail etc. is an important signal.
We might get rocked this week.
The government is broke. The only way they can bail out the banks is inflation. Inflation is a double-edged sword, because it will kill the consumer, which makes up 80% of the GDP. Wages can never keep up when inflation is out of control.
My guess it that this is just wishful thinking in an attempt to prop up the market ahead of Monday’s mayhem.
I thought mayhem was reservd for “Tuesdays and Thursdays?”
“‘Why weren’t more construction workers laid off?’ he asked.”
“The answer could be that the layoffs are just beginning.”
——————————————–
Or it could be because many of the construction workers were illegal immigrants. I have long suspected that many of the construction jobs are filled with illegal immigrants. With widespread use of “independent contractors,” that translates to “undocumented” workers, both legal and illegal. This means when they lose their construction jobs, they will not show up in the Government unemployment statistics. How convenient.
In my cheesy personal blog I posted my idea of how we might get an indication of illegal immigrant unemployment rates. We can track the earnings, or transaction volume, of Western Union, the most popular method of sending money back home to Mexico. If they show large declines in earnings, then it most likely means illegal workers are NOT sending as much money home to Mexico, and that they are NOT working as much anymore.
Currently, the stock price of Western Union (WU)shows a steady 6.5% decrease in their stock price over the last year. I don’t have numbers for their earnings yet.
“Camerota, who is also chairman of the California Mortgage Bankers Association, said that guidelines proposed Friday by federal regulators to tighten mortgage lending requirements and reduce problems in the ’subprime’ mortgage market were necessary. But, he added, they would dramatically decrease the number of new mortgage loans issued, as well as mortgages refinanced.”
Music to the ears of high-FICO, high-down-payment, debt-free bubble sitters. A swelling glut of homes will be frantically chasing after a sharply reduced pool of creditworthy buyers.
Come this Fall, as I stir myself in my lair to do preliminary bargain-hunting, I just might have to change my handle in here to “The Saminator.”
Sammy,
Do you have a juicy stat to share about the CO Springs market? I’ve been “dueling” with a CS realtor on another board. He’s got everyone convinced there’s no problem in CS…..move along….nothing to see….no bubble there.
Thanks
I’d be interested in that other board you mention please. I am moving to C Springs in a month, and want to start tracking houses.
I’d be interested to go read that other blog, can you name it here? I am moving to the Springs in a month and would like to start tracking some housing. Any information I can gather is ammunition for a good buy. Thanks in advance!
Dan,
http://put.elpasoco.com/
You can check out the El Paso county foreclosure statistics on this site. As you can see, the monthly and YOY numbers are rising sharply, and the lenders, I’ve noticed, are eating a bigger and bigger percentage of the bad loans.
http://www.ppar.com/public/stats_public.asp
The site above is the Pikes Peak Association of Realtors, a.k.a. Kool-Aid Central. Note that “sales” doesn’t inconvenient qualifiers like canceled contracts or foreclosures. For February 2007 we had 669 sales and 263 foreclosures, I believe. Roughly 1% of the population of Colorado Springs hold a realtors license, and most are True Believers in the “It’s different here” mantra. We’ll see about that.
I’m coining myself, “The Scavenger”. I’ll be coming to your town offering you pennies on the dollar for your McMansion, and you’ll take it gladly.
i’ll be proud with my new name….”fussy renter”
“‘The standards may have been too loose for some consumers.’”
No. I would argue the standards have been too loose for all consumers. If you can’t really afford a house, you can’t afford it, whether your FICO is 800 or 540.
The minute downpayments, cash reserves in the bank, no credit card debt, no purchase beyond 3x gross income, etc. went out the window, lending was too loose. For everyone.
LOL! Going to get worse. That’s for sure. It’s barely even started.
Given that the bottom won’t be reached for 4-6 years, I’d say the roller coaster is just nosing over facing The Plunge.
Ya, and someone stole the down hill tracks for scrap metal that they sold to China… Looks like we’ll be making this little plunge “freestyle”….. (aka Wilily Coyote style)
Folks, load up on 1) municipal bonds (or municipal bond funds), 2) Series I savings bonds, and 3) T-bills, in that order of priority. I have also been saying the bottom in RE won’t be reached until 2012 or 2013. You need to get tax deferral. I do that anyway because I know there are going to be trillions of dollars in more unconstitutional spending programs between now and the end of 2012. The $560 prescription medical benefit will be like buying bubble gum, compared to the big pork barrel unconstitutional stuff the traditional spending party (which ran Congress from 1953 to 1992) will handily vote in.
Happy to hear that CA is going down fast and quickly down Mt. Whitney and heading to Bad Water (highest to lowest point). Happily watching from a new area. So much nicer to have clean air, much less crowded roads (and everything else), still have the nice amenities (zoo, amusement park, museums, outdoor activities). And more affordable housing - what a difference affordability factor makes. Neil, I need some of your popcorn too. Watching the CA show will be so much fun.
Need 2 leave ca,
It is going to be quite a show. The next act is probably an acceleration of technical talent out of the state. (The good salaries that just aren’t good enough to buy in state anymore.)
The amenities of a large city are a must for me. It would be really nice to live in one where the transportation system allows you to get to them.
Ok, just kidding… I really love LA (am I sick and twisted?). Warts and all…
But economics clearly show its in for a “correction”. So I’m going to watch the show with a front row seat.
Got popcorn?
Neil
These are part of the FDIC C&D order to FMT Bank.
My take on this is that it is directed at ALL FDIC banks. Come monday morning no FDIC insured bank can make subprime loans from FDIC insured money unless they are in full compliance with the C&D order.
o Marketing and extending adjustable-rate mortgage (”ARM”) products to subprime borrowers in an unsafe and unsound manner that greatly increases the risk that borrowers will default on the loans or otherwise cause losses to FIL, including (1) ARM products that qualify borrowers for loans with low initial payments based on an introductory rate that will expire after an initial period, without adequate analysis of the borrower’s ability to repay at the fully indexed rate, (2) ARM products containing features likely to require frequent refinancing to maintain affordable monthly payment or to avoid foreclosure, and (3) loans or loan arrangements with loan-to-value ratios approaching or exceeding 100 percent of the value of the collateral;
o Making mortgage loans without adequately considering the borrower’s ability to repay the mortgage according to its terms;
Would this apply to WaMu?
Just bought (Monday) Jan ‘08 leaps 40 puts on WM. Already up. Expect to double by fall. Crash and burn baby. Crash and burn.
Absolutely applies to any lender that claims FDIC insurance of deposits. Monday is going to be interesting.
What’s up with Countrywide. It’s hard to believe that only 4% of the float is short? Huh?
o Making mortgage loans without adequately considering the borrower’s ability to repay the mortgage according to its terms
Isn’t it sad and pathetic that these maxims have to be spelled out for some of the nation’s largest banks, when they are perfectly obvious to a reasonably bright five-year-old?
“The Union Tribune. “Mary Maloney of San Elijo Hills Realty said the problem doesn’t lie with lenders and real estate agents but with consumers who demand more than they can financially manage.”
I’m getting really, rrrreeeaaalllly tired of this bulls**t! Mary that’s exactly where the problem lies. For my first house only 25% of my income counted and none (got that) of my wife’s counted, nor did overtime and I had to put down a minimum of %10 but then I’d have to pay PMI. For my second house years later I could get a loan up to %35 of my income, plus my wife’s income and overtime, etc was counted. Still in each instance I had to bring in three months of pay stubs, bank statements, etc and then another at closing. How many foreclosures and families were losing their houses then Mary.
Mary! Your friend Suzanne should have reasearched it! (the buyer and their ability to what they could reasonably afford.)
“‘They say, ‘No (to lower expectations) – supersize me,’ Maloney said. ‘They want to keep up with the Joneses. You can counsel all day, but they want it and if I don’t sell it to them, she will,’ nodding to a fellow agent sitting at her table.”
Poor Mary. Forced to collect large commission checks on property sales that no one could really afford, just because the other realtor down the street would get the money if she didn’t. The heartrending image of all those brokers also being similarly bullied into writing loans with large bonu$es just makes me want to puke. Apparently there’s only victims in this avalanche of bad and fraudulent business practices.
Those mean old buyers.
/sarcasm off
I also was required to present three months of our pay stubs and three years’ worth of tax statements when buying a house last year, even though we had refinanced four years earlier to get a lower rate. I must have chosen a reputable lender, though I wasn’t educated as I am now after a year of reading this blog.
mulitply this “Mary Maloney of San Elijo Hills Realty ” times hundreds. they are all over north county coastal san diego.
“The problem doesn’t lie with lenders and real estate agents but with consumers who demand more than they can financially manage.”
Excuse me? Doesn’t the lender have to qualify the consumer??
Blame game will be in full swing as 2007 unravels. And I love all these “experts” now saying we knew the gains were unsustainable, exotic financing can be very dangerous, people shouldn’t stretch beyond what they can afford, blah, blah. If they had been saying this over the last few years, do you think anyone would have bought a house?? No, the “experts” were out there saying this time was different.
This is NASDAQ 2000 all over again….we knew it didn’t make sense Travelocity’s stock was worth more than the 3 major airlines combined… we knew this wouldn’t go on forever….when markets disconnect from fundamentals….
“Blame game will be in full swing as 2007 unravels”
It’s the search for the guilty. But we’re getting ahead of ourselves. First, we have to get through the “unmitigagted disaster” stage.
“This is NASDAQ 2000 all over again….we knew it didn’t make sense Travelocity’s stock was worth more than the 3 major airlines combined… we knew this wouldn’t go on forever….when markets disconnect from fundamentals….”
*laughs
People just don’t understand that markets are controlled by fundamentals. You just can’t tell someone that in the middle of a bubble because they always think that this time is different or that someone has invented a new technology that will change things forever.
The problem with pointing out fundamentals during a bubble is that ignorant people can easily point to “facts” that prove your “fundamentals” are “wrong”.
And, as we all know, bubbles go on FAR longer than anyone with an understanding of fundamentals can fathom. Consequently, as the bubble extends, the fundamentalist looks relatively “dumb” and the bubblist looks relatively “smart” (if not a freakin genuis).
Its a paradox of bubbles that, as they grow, those who don’t understand fundamentals have INCREASING confidence it their continued success. Fundamentalists become increasingly frustrated and confused. Does the phrase: “How much longer can this go on?” sound familiar?
There will always be bubbles (when liquidity is available) simply because of the fact that bubbles are relatively rare events that few people ever much study. Once they get underway they take on a life of their own so captivating (the notion of effortless riches) that it is simply contrary to human nature to suggest that individuals will ever be “smart” enough or “educated” enough to avoid being sucked into such an emotional vaccum.
The only answer to avoiding bubbles is to have regulators of money pull the plug on liquidity as they appear. Pull the “punch bowl” from the party, as they say, and force people to sober up a bit…for a while.
I wonder if the reductions in contractor fees for work done will show up in the current income column under GAAP for the Homebuilders. The liabilities are reduced, so I think that gives a bump to the bottom line that they can use to make their financials look less dramatic on the way down.
Should say “for work already done”
‘The standards may have been too loose for some consumers.’
Somebody should erect a giant stone monument to the great housing bubble of 2003-2006 and chisel these words at the base. Amazing. All of the Great Economists and media talking heads are suddenly waking up and smelling the coffee — two years after Ben Jones and a bunch of insomniac bubble bloggers started shouting it from the rooftops.
Next act: Congress and bank regulators whip out the barn-door locks and tort lawyers and prosecutors whip out the knife sharpeners.
And so it goes… (Kurt Vonnegut, Slaughterhouse Five)
‘Why weren’t more construction workers laid off?’
The experts are unbelievably clueless on this. They actually think construction workers in SD county are working within the system?
I am still astonished by the head in the sand idiocy that surrounds us daily. I only hope and pray I’ll be able to protect and provide for my family during the next few hard years.
As the weekend goes on I’m getting more and more concerned, I stand to make 5 figures in a few minutes Monday morning but what about all the kids who will be thrust below the poverty line not just due to the financial naivete of their parents but also due to predatory lending and selling by hucksters and glad handers.
Don’t be satisfied with your financial prep until you’ve got 3 months cash on hand and a year’s supply of food. At this point I might even recommend putting these two points above paying down debt. If this gets out of hand, whether to the deflationary or the inflationary sides, then cash will be either scarce or worthless and no one will be able to buy anything. Hedge your bets for physical survival first. Water, food, clothing, and shelter; in that order, can not be done without.
Sorry for waxing all apocalyptic, I’m not normally this doomerish. Good luck to all.
I agree….. food is better than precious metals…..
Tightening the lending standards will affect high priced area most. With median price of more than 700k in the Bay Area, how many qualified FBs are still there? Transactions should dry up from here. It will be very interesting in the next 3 months.
Here’s one for all You Brainiacs who keep trying to Say Real Estate is Local. See if You can Dis-spell this Theory.
Real estate is not local, not any more than the economy is local. While there is a Local economy, is is just a part of a National or World economy, etc. I even have my Personal economy. It is Different from Yours and may be affected Differently on many factors and forces on many different levels there is no way I can argue that the economy as a whole has No effect on my economy.
Real estate is No different, Nor the Weather or anything else for that matter.
Real Estate is not Local. Your Brain would probably explode if I tried to explain it completely to You. I don’t want to explain the workings of the Universe to You so I’ll break it down to a couple of steps.
A lot of different things and forces Go into
Changing the Price of Real Estate. Not just Supply and Demand. Not Just interest Rates or 1000 other things. They all play a role.
If interest rates go up or down Nationally, it will effect House Prices Nationally, if Lumber Prices go Up Nationally same thing, it will have a National Effect on Real Estate. Each Local Market will not have the same exact result due to the fact that different forces at different times at variying degees are at work. When so many things that Go into and Pressure Real Estate to Just say Real Estate is Local is Just Plain Simple Minded.
To say Your Market Cannot Go down because it is Special is Stupid. If enough World Forces are Providing Downward Pressure, Prices will Fall.
I Live in Florida, That would be like saying if a Cold Front is Moving South from Tennessee it can’t Make it Colder Here because this is Florida and it’s Different Here. All Weather is Local.
My parents live in the 90064 zip code and I grew up there. I know the area very well.
If you use zillow.com and look at prices in that area you will you’ll get nauseous at the insanity. Los Angeles is frankly fiscally psychotic. When it goes, it’s going to go big and I think it will take down the entire country.
Here are some examples with zillow references:
This one is an 896 sqft house built in 1940. 2 bed, 1 bath
http://www.zillow.com/HomeDetails.htm?zprop=20461062
Sales History:
01/31/2007: $1,650,000
08/31/2005: $765,000
11/10/1993: $230,000
Even if you paved every square foot with an inch of gold, the gold used would cost less than the house.
Los Angeles is insane and there will be hell to pay for this bullshit.
Un, Hello? McFly? Hello?
http://www.zillow.com/HomeDetails.htm?zprop=20457045
Sales History:
02/09/2007: $1,425,000
05/21/1998: $646,000
No, this isn’t Beverly Hills. It’s ratty LA neighborhoods built in the 1920s.
http://www.zillow.com/HomeDetails.htm?zprop=20500708
Sales History:
01/23/2007: $2,350,000
03/22/2004: $646,000
WTF???
What you are seeing here is an incestuous buying and selling. The only people who could possibly afford this kind of insanity are the ones who just sold a house for an insane profit. However, at some point a lender is holding the bag on almost a million dollars of house on average here. When this sucker blows its going to be billions if not trillions in losses.
“‘They say, ‘No (to lower expectations) – supersize me,’ Maloney said. ‘They want to keep up with the Joneses. You can counsel all day, but they want it and if I don’t sell it to them, she will,’ nodding to a fellow agent sitting at her table.”
Mary would’ve made a good Nazi:
“If I hadn’t taken the gold out of their mouths, Hans would have.”
Yo! We’ve been talking here about the effects of the housing bubble burst on the economy for what? Two years? San Diego is a small experiment in this. San Diego has a great climate, relatively clean air (compared to LA), beaches, high tech jobs, and great universities. The economist at UCSD was basically saying the San Diego economy is starting to tailspin. If it can happen in San Diego, it certainly will happen in Toledo or Tulsa.
Where’s Neil? I too, want popcorn!
Southern California is just beginning to see the housing market crash. All I can say, it’s about it! Houses are overpriced and sellers remain greedy. Buyers are wised up to wait and wait, because their time is coming. A housing correction of at least 50% is needed to move the market and nothing less. We’re starting to see more and more foreclosures every month this year and it will be really heavy come this spring/summer. Subprime loans have allowed buyers that had no business buying a home and now they’re stuck with high mortgages for homes that are worth less. The flippers have come and gone and made their fortunes. The market is looking pretty ugly.