Bits Bucket And Craigslist Finds For March 4, 2007
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The Housing Bubble
Examining the home price boom and its effect on owners, lenders, regulators, realtors and the economy as a whole.
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the case for gold
the “cheap” market spin….relatively speaking….
and a very funny video “from denial to…..” a must see!
http://immobilienblasen.blogspot.com/
I am glad that you took the time to dig up an old post from the Michael Youngblood. It is because of guys like this that all of the Asset backed paper was purchsed so blindly by hedge funds and the like. They are now regretting those purchases. I wonder how much wealth predictions like his are responsible for destroying.
Have you read the BW piece where Youngblood claims to be duped? Here you go:
Undisclosed Change
The change was little-noticed, says Youngblood, because the lenders actively denied it. “To my disappointment as a long-time analyst,” says Youngblood, the major lenders insisted that they had not lowered their credit standards long after they had begun to do so. “I met with all of the public subprime lenders in early June…to a man they swore they had maintained 2005 origination volumes…without sacrificing credit quality. Like a dope, I sat there and didn’t challenge them.”
URL: http://tinyurl.com/2lpjlg
Talk to some borrowers you asshat.
I make calls to various lenders over time, claiming to be a buyer or refinancer. By doing this, I can tell what they are trying to push, and whether or not they have tightened standards or not.
Seems to me any “expert” who was “surprised” by what’s going on with subprime should have been doing the same thing — at the very least.
The subprime “meltdown” should NOT have been a surprise to anyone in the business of lending, ratings or derivatives. What am I missing here?
mmFL: “I met with all of the public subprime lenders in early June…to a man they swore they had maintained 2005 origination volumes…without sacrificing credit quality. Like a dope, I sat there and didn’t challenge them.”
I can confirm that New Century was on the record as saying that they were maintaining credit standards. I bought in the 20’s and sold in the high 40’s. I should have shorted them all the way down. But I believed their spiel.
Strange:
I think signifigant numbers of our population probably had more concern for Y2K, than what’s going to happen, surely within the month?
We’ll soon put a close to the 20th Century…
This was the year everything changed~
If we are lucky, the festivities will take place on Tuesday, March 6th.
Alan Greenspan’s birthday, in honor of the architect of this mess.
Video is a hoot! Have to scroll down a bit.
Thanks jmf.
The big I-banks are due to announce earnings during the upcomming week. There’s speculation that they will disappoint. That ought to be enough to neutralize housing optimism after bonus season.
i think that the numbers will be ok.
but the outlook will be ugly!
Robert Camerota, chairman of the California Mortgage Banking Association is concerned about mortgage fraud? He should start with all the speculators who are buying 3 houses at the same time using “owner occupied” financing. In 1994, the maximum loan an investor could get was 70% LTV. The maximum cash out refinance was 65%. And a borrower could have a total of 4 loans insured by Fannie Mae, or they were cut off. Today, “investors” are getting 100% LTV deals with $100,000 cash back under the table. The whole reason Fannie Mae was created was to facilitate home ownership. Today, the mortgage brokers who encourage lying about occupancy have hijacked that purpose. This has cause the demand and purchase prices to soar. The number one way to create home ownership affordability is to get back to the basic of qualifying for owner occupancy and stopping the speculative frenzy.
You miss a very big point. Very few people will ever own their homes. Right now, only two per cent actually own their homes. If you look at the big picture, the vast majority of people own nothing. Cars, housing, ect…. The idea is for cradle to grave, nothing is owned by the people. If you don’t believe it, look at financial history for the last forty to fifty years.
“….23 million households, or 37 percent of all homeowners, own their homes free and clear, according to SMR Research.”
So many people do own their homes. The problem today is the prices of the well financed speculators has driven the purchase price above where a home owner can reasonably expect to buy and pay off the debt.
Actually, practially speaking, pretty much nobody owns their homes. Remember, as long as you have to pay a tax on the property to somebody, you don’t own it. Government can take it from you for not paying taxes on it. Think about that. That’s the difference between “owning a home” and owning a pair of shoes, a tent, backpack, whatever. You’ve paid a tax on these things, yes, but they won’t take it from you for that reason (unless you owe money elsewhere).
Ownership of these things is where I’m headed, since I may need all this stuff to survive for a few years.
“Very few people will ever own their homes.”
Though you make a point, you are using a nonstandard definition of ownership. Once I sign the dotted line on a mortgage, I am the owner, whether I used the bank’s money or my own to finance the deal. And the most important aspect of my ownership status is owning the asset price risk.
‘Today, “investors” are getting 100% LTV deals with $100,000 cash back under the table.’
Are you saying that Fannie Mae is buying loans to finance this kind of deal? On what evidence do you say this? If this is true, my outlook for how ugly the housing sitiuation will get over the next five years just ratcheted up two notches.
Freddie & Fannie bought some sub prime mortgages. I think the stat I saw was 40% of all those originated over the last few years. However, they are not buying them going forward, per their announcement (see TXChicks entry below “On Tuesday, in response to the subprime carnage, Freddie Mac (FRE - Cramer’s Take - Stockpickr) announced tougher subprime lending standards.”)
I am saying that if Fannie and Freddie stopped buying the fraudulent “owner occupied” loans, or started auditing “O.O.’s” within a few months of buying them, and kicking out the true investor loans (one type of lie in the Liar Loan pool), much of this nonesense in the housing bubble would end. Then, the true “O.O.” home buyer would have an opportunity to buy at a reasonable price with out competing against the funny money investors with no money down.
The market is moving that direction, but if the “O.O.” loan standards were enforced over the last 5 years, this pricing bubble would not have happened.
E-mail from New Century to brokers:
“As you are aware, the non-prime market continues to be in a state of flux due to economic conditions, credit concerns and loan performance. As such, the requirements from investors
and regulators are changing rapidly, affecting both the industry and even consumers.
At New Century our commitment to you remains. We will be here for you in this market and
in the future, and will continue to work hard to help you navigate through this tough year of transition.
We are committed to taking a proactive and responsible approach as the industry works
through these changes. On that note, we met with our Wall Street investors, regulators and other agencies that provide liquidity to the market to gain the necessary insight to develop the product set to meet the future demands of the market. These meetings, combined with current market trends, have caused us to adapt our current product menu.
Due to the lack of investor demand for high LTV/CLTV non-prime products, New Century will
no longer offer non-prime niche combo and 100% one loan products.
We appreciate your business and look forward to providing you with excellent service for all of your traditional non-prime and Alt-A product needs. Further, we remain committed to being
here for you and bringing you the products and services you need to compete in this market
and be stronger in 2008.
Look to the following products to help drive your business:
40 and 50 year loan products
LTV up to 95% for full, limited and stated
Jumbo loans up to $2M
In addition, please check out our current pricing specials on http://www.newcentury.com.
Any impacted loans submitted to a New Century production center after March 2, including those registered in Fastqual, will be subject to the new guidelines”
It goes downhill fast from here.
I recently read that sub-prime has been as high as 30% of all loans in the past 2-3 years. Does that now mean 30% more foreclosures than we previously expected?
I think it will be very difficult for New Century to do any business when the corporate officers are in federal prison. Their saga is just beginning with a federal probe…….ooh, that sounds bubblicious to me…..deep into their predatory loan practices. The backdoor man is just getting started!!
“Look to the following products to help drive your business:
40 and 50 year loan products
LTV up to 95% for full, limited and stated
Jumbo loans up to $2M ”
This reminds me of a scene in a movie. The bad guy has 23 bullets in him and he just refuses to die. Up until he takes his last breath he is still trying to shoot and blow up helpless women and children. For god’s sake, somebody kill these beasts and let us be free of their evil.
Well put, NYC!
Since when is a 95% LTV on a stated-income loan NOT extremely risky?
“We appreciate your business and look forward to providing you with excellent service for all of your traditional non-prime and Alt-A product needs.”
“Non-prime”? I’ve been seeing this term often during the past week. Is there a difference between sub-prime and non-prime? Or are the banks changing the nomenclature because the term “sub-prime” now has such a negative connotation?
How about ‘pre-prime’ ?
‘New Century will no longer offer non-prime niche combo and 100% one loan products.”
Whoa. No more 100% financing for subprimes, even with Full-Doc? If so, that’s significant.
Yes, it’s huge. The insane 100% financing gave this bubble two extra years of life it would have never had. It’ll start to unravel fast from here.
maybe he should whip himself as he goes form exurb to exurb like in midevil times
LIErah in the lead , of course
2000 buy stocks
2005 get RE
wonder what he’ll propose next
“2000 buy stocks
2005 get RE”
20007 - Get f-cked!
–
In 2007 people are still setting screwed in Scams, aka stocks, big time. There is “AAA surfer girl,” who has been running a forum to get screwed by bulls when what she really needed was a teddy bear. Soon she will find out.
Yes, we have had 12 years of financial orgy.
Jas
“midevil times”
Those are the times we’re in now, for sure.
Interesting tidbit: “An increasingly popular mortgage concept for immigrant home purchasers would be made illegal under the terms of a new bill introduced on Capitol Hill. The concept is known as “ITIN”-based lending — mortgages that use Individual Tax Identification Numbers issued by the IRS in lieu of Social Security numbers.
The IRS provides ITINs to immigrant workers who are earning income, want to pay federal taxes, but do not yet have a Social Security card. Growing numbers of banks and mortgage companies are using ITINs as part of their programs to assist “emerging market” borrowers who have solid and stable incomes, but non-traditional credit and documentation.
According to mortgage insurance company MGIC Investment Corp., ITIN-based mortgages currently are being issued in 40 states, primarily by community banks and smaller lenders. A few large national lenders participate in programs with community groups to extend ITIN loans to qualified applicants. MGIC participates in many ITIN home purchases by insuring lenders against possible loss in the event borrowers default.”
Do these lenders know something we don’t. Personally, I’d be concerned about lending 100s of thousands of dollars to people who cannot be tracked down, and will likely head for a different country if things get too difficult for them. Not to mention the fact that illegal immigrants **should** be at risk of deportation at any given time. Guess that risk doesn’t exist anymore???
anybody wants to predict what the market does on Monday? If it stays the course, say +/- 50 points, i say, the subprime meltdown is not affacting equities. if it drops then equites are all connected to the credit bubble. if it goes up, the PPT is working out details today to provide liquidity tomorrow.
Another really good piece
http://www.thestreet.com/_tsccom/newsanalysis/investing/10342162.html
‘Probably the most overlooked story from Tuesday was the live interview with Freddie Mac’s chief on CNBC early Tuesday morning. Freddie Mac essentially announced that they would “stop purchasing subprime loans or any securities with high risks of default.”
In 2006, about 15% of new mortgage originations (not refis) were sub prime. Add in the various “liar loans” where there is no income check and no documentation is required, and other flavors of exotic fare such as interest-only loans, and piggyback mortgages that allow 100% loan to value, and you have as many as 30% of new mortgages.
With one fell swoop, Freddie just eliminated between 15% and 25% of home purchasers from the credit pool, and that just set the housing bottom-callers back another year.’
“With one fell swoop”
Correction: it’s “With one swell poop”
In 2006, about 15% of new mortgage originations (not refis) were sub prime. Add in the various “liar loans” where there is no income check and no documentation is required, and other flavors of exotic fare such as interest-only loans, and piggyback mortgages that allow 100% loan to value, and you have as many as 30% of new mortgages.
And that’s 30% of national mortgages - anyone care to estimate what percentage of California mortgages will be spurned by Freddie? I’d guess at least 60-70%.
Wanted to give you all some good stuff to chew on:
http://www.thekirkreport.com/2007/03/the_december_lo.html
Not sure what the point of that one is. The track record of this so-called “December Low Indicator” is barely better than 50% (14/26). Seems random to me.
I read the 14/26 as meaning the indicator of how the first week in January goes….so goes the year. A random indicator.
Hooper’s indicator, that if the 1st qtr stock market breaches December’s low, than the “watch out” indicator is lit, which was right all but once since the 1950’s. Have we breached the Dec low in the 1st qtr? Let’s see, it closed at 12,463….
oops….should read …have we breached the Dec “close” in the 1st qtr. The Demember close was 12,463…so yes we have.
I read it that way, too — at first. But look at the actual chart. It tells a different story, no?
http://www.stocktradersalmanac.com/sta/research_tool_DecemberLow.jsp
The stock market blew off $600 billion in value on Tuesday (4% or so). That would imply the capitalized value is $15 trilion. Is this correct? I ask the question because $1 trillion in sub prime mortgages is going to reset in 2007. Assuming all those loans defaulted and the houses sold off at 30% discounts, the effect is a loss of $300 billion. So the magnitude of that loss is about 1/2 of the Tuesday stock meltdown. This does not seem to be a huge number, relative to the total capitalized market.
Of course, the psychological impact of 4 million FB’s losing their homes might be a significant factor on the health of the economy as retail sales could take a hit and mortgage lending as we know it will change dramatically as the lender’s bagholders get tired of being worked. Will the housing bubble tail really start wagging the dog?
“This does not seem to be a huge number, relative to the total capitalized market.”
Might not be a big deal if there were not so many leveraged bets these days…
Good point. Exacerbates the impact.
Its a HUGE deal. First, most of the equity market is paper based with no debt behind it. Second, the housing market is a $20 Trillion dollar market on a mountain of margin. The mortgage market is a $10 Trillion dollar market. Thus everytime houses go down 10%, that is like the market crashing 2200 points, if you factor the mortgage impact.
And that is simply the direct impact. When a stock price goes down, little is directly affected. When housing values go down, jobs are lost, manufacturing slows, people get foreclosed, ect…..
The foreclosures resulting from those resets will take many markets down 10-20%. Then, there is a whole new crop of underwater people….including people with normal 10-20% down, 30 year fixed. Some of them go to sell in 2008-9, can’t, more foreclosures. More downward pressure. More people underwater. Wash, rinse, repeat till you get to where it is cheaper to buy than to rent.
This sounds about right. Why do our country’s top economic policymakers appear to be so dense about something which is transparently simple?
They are bought and sold, Stucco. They will only tell the truth when the truth adds to their bank accounts. Lying is so much more profitable.
“Why do our country’s top economic policymakers appear to be so dense about something which is transparently simple?”
Oh, I’m sure they are very keen to the reality on the ground. What they are willing to admit to the public always sounds different from what is said by the water cooler.
This is a super piece for those of you trying to trade this market. I got my start in commodity trading (ag commodities - is there anything more volatile?) almost 30 years ago and what this guy says is spot on. The stock markets are tame and easy to trade in comparison to commodities.
http://www.thestreet.com/newsanalysis/investing/10342091_2.html
Thanks for all your referenced articles
Kass
Finding the Next Shoe to Drop
Originally published on 3/2/2007 12:32 p.m. EST
Late yesterday, Countrywide Financial (CFC - Cramer’s Take - Stockpickr - Rating), the largest originator of home loans in the U.S., reported a sharp rise in delinquencies in its prime mortgage loans.
At year-end 2006, Countrywide’s subprime delinquencies were approaching 20%. That’s nearly twice the rate reported by the subprime industry in November and it suggests that the upward spiral in subprime-industy late payments will rise dramatically in 2007. (New data from First American Loan Performance, a San Francisco-based research firm, confirmed this likely trend, reporting that nearly 14% of packaged subprime loans were delinquent.)
More importantly, these results confirm that credit problems will not be contained to the subprime mortgage market. At Countrywide, prime mortgage-lending delinquencies doubled to nearly 3% year over year, indicating that that sector is experiencing the same contagion that subprime experienced over the last 12 months.
On Tuesday, in response to the subprime carnage, Freddie Mac (FRE - Cramer’s Take - Stockpickr) announced tougher subprime lending standards.
Today, the Federal Reserve and other regulators of banks are expected to release new subprime lending guidance, which will incorporate the impact of mortgage interest rate resets.
As a result of new lending standards and self-imposed reductions in mortgage lending, the availability of mortgages is going to be severely crimped — and with it, personal consumption expenditures will soon take a dive.
It is no wonder that bullish commentators are getting bored with subprime lending problems. Larry Kudlow’s hedgehogs, who, like Dante, Dostoevsky, Nietzsche and Proust, view the world through the lens of a single defining idea (”the greatest story never told”), are about to be outwitted by the foxes who, like Shakespeare, Aristotle, Balzac and Joyce, draw on a variety of experiences in creating their investment mosaic and refuse to believe that the world can be boiled down to a single idea.
The Next Shoe to Drop?
With the contagion that started in subprime mortgage lending now spreading to other mortgage tranches, as reported here, the next shoe to drop might well be in the broader securitization market.
Not only will older, less-protected packaged securitizations and other derivatives decline in price in a readjustment, but the entire credit securitization chain will become less profitable to industrial companies, mortgage lenders, banks and brokerages.
Consider what has occurred and is now occurring in subprime. The prices of mortgages are rising as the originations become less profitable for the financial intermediaries that serve the market. In turn, housing affordability worsens, delinquencies and foreclosures rise, housing inventories build further, and home prices drop in the second leg down for residential real estate.
This is the vicious cycle and contagion in credit markets.
Now I am hearing stories of plunging demand for CDO tranches and sponsors taking large fee-haircuts before deals can be sold. It is in the mixed asset class of CDOs where the contagion of subprime might soon spread as buyers recoil from sharper-than-anticipated losses in the mortgage market.
Credit spreads are flying open and the vicious cycle of credit has begun as the evaluation of risk is reassessed.
Given the sheer size and significance of the unregulated credit derivative markets, this is the kind of stuff that capital market crashes are made of.
It is about time for the stopped-clock bulls to get their clocks cleaned…
‘It is no wonder that bullish commentators are getting bored with subprime lending problems. Larry Kudlow’s hedgehogs, who, like Dante, Dostoevsky, Nietzsche and Proust, view the world through the lens of a single defining idea (”the greatest story never told”), are about to be outwitted by the foxes who, like Shakespeare, Aristotle, Balzac and Joyce, draw on a variety of experiences in creating their investment mosaic and refuse to believe that the world can be boiled down to a single idea.’
Yeah…people can’t sell…either HELOC’d or only 10%-20% down. Market down enough to put them underwater. Stop paying mortgage and prepare to move.
Most of the houses in new (2003+) neighborhoods in bubble areas (and even some non-bubble areas) will go through foreclosure by 2010-11.
–
You are too optimistic. They will be thru before 2009 is out. Recession in 2007 and depression in 2008 will get people’s full attention.
Jas
People’s attention by 2008, yes. But the foreclosures will go on and on…some houses will see foreclosure 2 or 3 times. The bottom is not going to be 2008-09 unless “it is different this time”.
It may well be different this time (from other post-1950 housing busts). It may look more like the 1873-1896 slow deflation burn. For those who don’t think housing can go down for a long time…read up on that period about the value of farms, farm land and tightening money. 1873, if I recall, was when silver was demonetized, and the government was shrinking the money supply that financed the Civil War. We went on a strict gold standard. By 1896, William Jennings Bryan ran on a platform - “You shall not crucify mankind upon a cross of gold!”.
This time, money = credit, which is shrinking starting 1Q2007. 2008 or 2012 campaign - “You shall not crucify mankind upon a cross of need money down and good credit!”.
Now I am hearing stories of plunging demand for CDO tranches and sponsors taking large fee-haircuts before deals can be sold.
That sure will help 2007 bonuses and Manhattan/LI RE prices next spring
They’ve already cannabalized their future bonuses
Good now maybe inflation will go away for awhile. Now I also read the carry trade is unwinding. Less cheap cash for lending.
Question now is what will the FED try and do? Drop money out of helicopters?
Wow, could this mean the contagion spreads to “prime” MBS too?
http://online.wsj.com/public/article/SB117280031466324286-B_ULKM1CkkMdFKWEG45r4WzceOA_20080301.html?mod=tff_main_tff_top
wow, you know it already has and will more
Jboats will be selling cheap soon enough
“Others tried pulling money out of their hedge funds, but many funds have lock-ups, which prevent investors from immediately divesting. One New York wealth-management firm, Solaris Group, anticipated a decline and last week put some of its clients into a complex trade that protected their stock holdings in case the market fell between 2% and 12%. “We called it our ‘corridor of safety,’ ”
So, the people controlling the clients money are “indemnified” while the clients who contributed the cash/collateral are held by the throat…must be a sweet phone conversation when things go…wrong
Phone rings: “Hello, this is Screw You Hedge Funds, Mr. Head Trader speaking.”
Investor: “I want to cash in my $1 million dollar investment and exit the market.”
HT: “I am so sorry, you can not do that. First, we put your money into highly leveraged, BBB-, residential mortgage back securities. Your share in the pool is $10 million. Well actually, your share in the pool is now worth $6.2 million, because the value is trading at $.62 on the dollar. Could you possibly pony up another $2.8 million, so we can pay off the $9 million loan against your collateral?”
Inv: “WTF are you talking about you little hedge hog?”
HT: “Yeah, I thougth that might be a problem. I guess we will have to sell your interest in the pool and take the loss. And by the way, your funds, if there were any, are not scheduled to be redeemed for 8 more months. So don’t call me anymore. I am going to take the $310,000 commission for selling your share and go to Europe for the duration. I’ll call you when it is time to settle up!”
But don’t worry, the Hamptons, Long Island and Manhattan won’t be hurt by any of this. They are exempt. Just ask that Boner troll that posts every so often on this blog. The rich are too smart to get hurt by this.
Let me tell you something. I see a lot of “rich” people around me in this city. Most are just sheep in expensive suits. They are some of the dumbest people I’ve ever seen. They are not immune.
Very true. Lots of “rich” folk in NYC took lost it ALL in 2000 when the internet bubble popped. Many will be wiped out soon, too.
That said, many will survive. Not all rich NYer’s are greedy “all in” types. Some actually save a good chunk of their wealth as cash.
“In turn, housing affordability worsens, delinquencies and foreclosures rise, housing inventories build further, and home prices drop in the second leg down for residential real estate.”
And why, pray tell, under this scenario won’t commercial RE go the way of residential RE?
Ron,
There is a lag of 4-6 quarters between peak in residential versus commercial construction. I think that commercial would peak in 2007Q1 if it has not already peaked in 2006Q4.
Jas
http://biz.yahoo.com/hmoney/070221/022007_homes_buy_orwait_moneymag.html?.v=1&.pf=real-estate
Time to buy?
From the article;
“While there’s no lack of experts making predictions about where home prices are headed in the next year, no one knows for sure.”
Oh, but I know for sure!! Pick me! Ask me! I know the answer to this one!!
lol
People forget that you can always refinance your rate later on if rates go down. You can’t change the price once you’ve bought the POS.
What price shows on the tax assessor roles if someone refinances and the appraisers value for the house is 10% less than the buyer paid?
“What price shows on the tax assessor roles if someone refinances and the appraisers value for the house is 10% less than the buyer paid?”
In Washington state, many homes are over-taxed according to the tax assessor’s valuations versus the actual sale price. Several co-workers pay extra due to this issue. This can be challenged, but it’ll cost you.
Can someone please remind me what Fannie Mae does to help achieve their stated mission of providing affordable housing? Because something about the current pricing suggests their business model may need some rethinking…
————————————————————————————————–
Fannie Mae dissolves foundation
By James Tyson
BLOOMBERG NEWS
March 4, 2007
Fannie Mae, the largest U.S. mortgage finance company, said it will dissolve its nonprofit foundation that has been the subject of legal scrutiny and create an internal office to continue the charity’s mission of expanding affordable housing.
The company will close the foundation by April 30 and fund philanthropy this year with remaining assets and contributions by the company, Fannie Mae said in a statement. The foundation made $47.4 million in donations in 2004 to almost 600 nonprofit groups nationwide, according to the foundation’s Web site.
The foundation, begun in 1979, characterizes itself as the largest in the country devoted to affordable housing. The Senate Finance Committee last year reviewed whether the charities of Fannie Mae and smaller rival Freddie Mac were illegally making contributions to political groups in an effort to influence lawmakers. The Department of Housing and Urban Development in 2006 staged a similar probe of the Fannie Mae Foundation.
http://www.signonsandiego.com/uniontrib/20070304/news_1h04fannie.html
The “charities” were run by people giving the downpayments to the needy so they could “afford” housing. The problem was, the purchase price included huge profits back to the “charity” based on the above market purchase price, fostered by funny money lending. Freddie and Fannie would do better by contolling the funny money lending, which caused the run up in pricing which further removed affordable housing from the reach of the poor.
“the purchase price included huge profits back to the “charity” based on the above market purchase price”
Also known as victimizing the victims…how charitable…and so it goes…
Any successful predator targets the weak members of the herd.
I guess that makes me a successful predator, as I target housing bulls.
Nothing like a little bit of “charity” in the form of 100% downpayment assistance to debtaholics. Imagine the public outcry if the Salvation Army handed out free liquor to alcoholics?
The working poor always pay more for everything.
NEWS AND NOTES ABOUT REAL ESTATE AND OUR BUILT ENVIRONMENT
The Front Porch
The San Diego Union Tribune
March 4, 2007
Lenders asked to give up their ARMs as foreclosures mount
Alarmed by a recent spike in residential mortgage foreclosures nationwide, consumer advocates are pressing federal regulators to tighten subprime loan underwriting standards.
A variety of groups, including the Center for Responsible Lending, AARP, the Leadership Conference on Civil Rights and the Consumer Federation of America, have issued a letter urging regulators to curb adjustable-rate mortgages aimed at “credit-strapped families of modest means in the high-cost subprime market.”
“If regulators act now to provide explicit protections for these dangerous ARMs, we can slow down the flood of foreclosures on subprime loans,” said Martin Eakes, chief executive officer of the Center for Responsible Lending.
Rick Sharga, vice president of marketing for Irvine-based RealtyTrac, recently predicted that residential foreclosure filings nationwide will rise by 20 percent to 25 percent this year. He said 130,511 filings in January marked a 25 percent increase over January 2006.
The letter to federal regulators said racial minorities are being disproportionately harmed by risky subprime loans. The situation has been made worse by the recent softening of housing prices.
In December 2005, five institutions, including the Federal Reserve Board and the Office of the Comptroller of the Currency, issued a suggestion to lenders. Citing “a significant risk of payment shock and negative amortization,” they urged lenders to exercise more caution. Critics say the message didn’t go far enough.
The lending center said loans not affected by the guidance include “exploding” ARMs that begin with a low fixed-interest rate, but switch to an adjustable rate that can increase mortgage payments by hundreds of dollars a month.
– EMMET PIERCE –
and these people were behind the community banking bill- big time
mo free sht was cool yo
then , whoops da price be goin down
“A variety of groups, including the Center for Responsible Lending, AARP, the Leadership Conference on Civil Rights and the Consumer Federation of America, have issued a letter urging regulators to curb adjustable-rate mortgages aimed at “credit-strapped families of modest means in the high-cost subprime market.”
I love it! The rancor over this will really take off once ‘08 forward looking politicos sink their teeth into the skyrocketing foreclosure scene. Whether or not anything comes of it, bank stocks will take a beating.
Who sneezed on the house of cards?
http://www.denverpost.com/keefe/ci_5316404
Did you notice the irony that Mike’s cartoon is dated 2/28?
At first, thought that was the title of the sketch, since it is the 2/28 ARM resets that is creating the cold that causes the sneeze that is bringing down the house of cards.
Stucco, that wasn’t a sneeze. That was the world’s biggest fart. It was one of those silent but violent types.
The Sunday (Mar 4) Washington Post Business section has two interesting articles. One, titled “Sudden Overload” (page F1) details the plight of underwater home buyers. The second, titled, “Raise your retirement literacy” talks, in part, about the the public’s inability to accurately perform relatively simple financial arithmetic. More specifically it states that 50% of those surveyed couldn’t accurately divide two-million by five and that only 18% could accurately solve a very straightforward compound interest problem.
With this in mind, back to the first article, wherein the author suggests that ARM-holding home buyers can figure out, in advance, what their mortgage rates will reset to, by looking:
“for the name of the published index to which your rate adjusts. (There are about a dozen of them, such as the Cost of Funds Index.) Then identify the margin, which should also be listed in your loan documents. Add the most current value of the index to the margin to get a ballpark estimate of the future rate”.
If J6P can’t perform the relatively simply arithmetic operations reported in the first article, does anyone really expect he’ll be able to perform the procedure suggested in the second? For better or worse, it ain’t gonna happen.
There are lots of people with graduate degrees who don’t understand ARMs. How many know how COFI differs from LIBOR?
Fortune Magazine has an interview with Robert Shiller. He has been reading media from previous housing boom/bust periods. He notes that the bursting of bubbles coincides with the appearance of stories about buyer stupidity. So far, all I’ve read is articles about buyers having bad luck.
I’ve seen lots of stories about buyer stupidity. For starters, any buyer who took an interest-only or option ARM mortgage. Also, any buyer who borrowed more than 3-4x gross income with zero or negligible downpayment. These behaviors have been present in almost every news article discussing specific buyers.
DEAN CALBREATH
California exodus has far-ranging implications
March 4, 2007
In the early 1990s, as Southern California suffered its worst recession in half a century, freeways were crowded with moving vans headed to Nevada, Arizona, Utah and points east, filled with people hoping to find a better life elsewhere.
These days, there’s no recession. California’s economy is growing at roughly the same pace as the nation’s. The statewide unemployment rate is at historic lows. There is no major wave of factories being shut down.
But once again, more Californians are moving out than are coming in from other states. This time they’re not looking for jobs. They just want a cheaper place to live.
“As places like San Diego are getting less affordable, people are going outside our borders to access cheaper housing,” said Marney Cox, economist for the San Diego Association of Governments.
Hans Johnson, a demographer with the Public Policy Institute of California in San Francisco, says the exodus runs counter to long-standing trends.
“Historically, we’ve tended to attract more people than leave,” Johnson said. “This is the first time I know of when there’s an outflow when the economy has not been in recession.”
http://www.signonsandiego.com/uniontrib/20070304/news_lz1b4calbreat.html
….not to worry. It will be in a recession soon enough.
according to shadow statistics we’ve been in basically a rolling recession for years.
Paste the Billboard: We speak Venezuelan! …Sponsored by: FAR
“In 2005, 10,645 Venezuelans received their green cards allowing them to live in the United States, almost doubling the 6,222 who received them in 2004, according to the latest Department of
Homeland Security statistics. And another 400,000 Venezuelans came to the United States in 2005 on business and tourism visas. It is unclear how many stayed”
http://news.yahoo.com/s/ap/20070303/ap_on_bi_ge/venezuelan_flight
A new Statue of Liberty in Miami?
What an interesting week! Last Fall, I found myself in a position to start looking for a place to own (in the DC area). After finding blogs like this my natural “MUST BUY NOW” mindset quickly changed. When I sat down started to look at the numbers and the runup (that I really hadn’t paid any attention to) I quickly came to the mindset that it’s absolutely time to wait. I got a nice little rental house almost 3 years ago as the housing runup was in full force. My rental for an inside the beltway house with a great yard for the dog and a good neighborhood is still under $1500 ($100 increase total in the time ive lived here). I sleep really well at night waiting for a good time to come back in to looking for houses.
I’m not an economist, stock trader or particularly bright but all the pieces of what has been predicted here are just starting to get momentum (negative appreciation momentum that is).
Prices got absurd way too fast, creative mortgages put people in places they shouldn’t have been able to afford, “investors” lied their way into multiple properties and the governments (local and national) sat on their hands.
Now it’s all starting to come due. ARMs reset and the once “affordable” house isn’t, property taxes are stunning people who impulsively bought, foreclosure’s, etc.
What does a dum dum like me see for the year? Well, the foreclosure wave will continue. Some folks will scratch and claw their way as far as they can to survive. I imagine there are many homeowners who are going to, if not already, begin tapping whatever credit lines they have left just to make payments in a hope that the tide will turn. Local governments are going to have to wade through record number of property value challenges and try to keep their taxes coming in as long as they can.
Now I am just finally starting to see some more realistic prices in houses that are just getting listed, but they are still way off in what i’m thinking they should be. But, for every “more reasonable” asking price, i still see the “investors” expecting 100k payoff for 1-2 year of “ownership”.
It’s fun to watch and is only going to get more entertaining over the next year.
I know that collectively, we have no savings… (-1% overall, I read somewhere that for 18-25’s, it’s -16%)
But for those that do, a run on the banks, with their meagre cash holdings, could start a stampede.
A lack of faith based movement?
It’s normal for 18-25’s to be dis-saving; they’re just starting out. But most 40 year-olds have no excuse for spending more than they’re earning.
Re the banks’ meagre cash holdings, if you mean currency, they’re supposed to be minimal. I’m not worried about a bank run, because I believe our esteemed Fed Chair, Helicopter Ben, when he says he’ll print money and air-drop as much as needed. If you’re worried about the value of all that paper, you might want to look at precious metals.
Ben doesn’t need to fire up the helicopter, he just needs to allow people to think that he might.
The irony about runs at banks is that depositers only want to get their money out if they think they can’t get their money out. If they are assured - rightly or wrongly - that Ben will make sure their deposits are safe then their won’t be any bank runs.
Dylan Ratigan is on the McLaughlin Group this morning. I had never heard him speak before now. I think he might be a bigger scumbag than Cramer. You can’t spell Ratigan without “Rat”. This permabull bull$hit is really pi$$ing me off. F-cking robots!
–
You must not watch the Faux News’ business block on Saturday mornings. Believe it or not the only guy who made sense yesterday was Joe Battapaglia.
Jas
He must be of his med’s. He’s usually a perma bull.
I saw that. I think Cavuto nearly had a fit, if I remember correctly. Joe B was talking sense and I thought Cavuto was going to cry. I used to watch those shows religiously. Now I can stomach only 15 minutes at a time.
A cooling trend in real estate flipping
http://tinyurl.com/2a6xz4
“The property business is where it’s at because you can’t make no more earth.”
Shaquille O’Neal, in his weekend interview with the Financial Times. Shaq can’t build any more land, but he is building 1100 condos in Miami…
http://www.ft.com/cms/s/c2768690-c6fc-11db-8078-000b5df10621.html
Reverse mortgages move into high gear
http://tinyurl.com/yvzjnc
I’m a mechanic at a small Ford dealership in Alaska. My wife and I have worked like slaves for the last ten years to put ourselves in the best financial position we could manage (for working class simpletons). Here’s where we stand: the house and vehicles are payed off, and we own an abandoned indian village (beachfront). I figured that the old indians were good at choosing productive sites, so it would be a good place to live off the land if we had to. But enough about me. The owner of the dealership has been losing his a$$ for the past three years because of poor car sales. Yesterday he told me he sold the dealership and was going into “business” flipping houses with the sales manager! And no, it’s not different here.
Here’s where we stand: the house and vehicles are payed off
You’re no simpleton. Congrats.
Awesome-
http://www.denverpost.com/business/ci_5347170
http://business.timesonline.co.uk/tol/business/industry_sectors/banking_and_finance/article1469933.ece
From the London Times: US mortgage weakness mestastisizing beyond subprime sector.
Monitoring the financial sector is going to be very interesting over the next couple of months. Already we’ve seen a plethora of subprime failures, HSBC’s 11 billion dollar charge, new regulations, postmonements/restatements and so on. Now, there is the possibility of failure at one of the too big to fail houses:
As well as lending mortgage providers’ money to issue new home loans, investment banks such as Goldman Sachs, Credit Suisse and Bear Stearns often buy existing mortgages and package them as bonds backed by their interest payments.
The banks could potentially make huge losses on the loans they have made as well as the mortgage-backed bonds they have underwritten as the number of defaults jumps.
postponements
Bloody spellcheck!
Scrutiny grows on US subprime lenders
By Richard Beales in New York and Sarah Spikes in London
Published: March 4 2007 19:44 | Last updated: March 4 2007 21:48
Recent aggressive lending to American home buyers with weak credit histories is attracting mounting official scrutiny with at least two US lenders now facing federal probes or restrictions on their operations.
A group of US financial regulators is also proposing new guidelines that would clamp down on subprime mortgage lending practices amid concerns that stretched borrowers have not fully understood the risks involved.
Many lenders have already tightened their criteria following a sharp rise in payment problems with subprime and slightly less risky “alt-A” mortgages that has triggered a sell-off that some worry could spread more widely in the $8,000bn mortgage market and beyond.
HSBC, owner of US-based subprime lender Household, last month issued its first profit warning on the back of US bad debts being $1.76bn higher than expected.
The world’s third-biggest bank is on Monday expected to report bad debt provisions of more than $10.6bn for 2006 – up more than 35 per cent from 2005.
http://www.ft.com/cms/s/b2af29c0-ca7f-11db-820b-000b5df10621.html
They [regulators] said borrowers might not understand these loans and added they could pose “an elevated credit risk to financial institutions”.
http://www.bloomberg.com/apps/news?pid=20601087&refer=home&sid=afL_wgvwdKjY
Losses in the dollar may be limited by speculation U.S. Treasury Secretary Henry Paulson will today say that recent declines in global equities are unwarranted and that he favors a strong currency. Paulson, scheduled to meet Japanese Finance Minister Koji Omi this evening in Tokyo, said yesterday the U.S. economy is “healthy” and downplayed last week’s stock slump.
OK, thats great but I don’t buy it, sorry.
ASIA MARKETS
Asian stocks plunge; yen hits 3-month high
By Chris Oliver, MarketWatch
Last Update: 1:28 AM ET Mar 5, 2007
HONG KONG (MarketWatch) — Stocks across the Asia-Pacific basin dropped sharply Monday, with leading share indexes in Malaysia, Hong Kong, and Singapore retreating more than 4% in afternoon trading as investors trimmed exposure to the region following a weaker finish for U.S. stocks Friday.
Japan’s Nikkei average posted its fifth losing session in a row as Toyota Motor Corp. and other export-related shares declined after the yen rose to a three-month high against the U.S. dollar.
The Nikkei (JP:1804610: news, chart, profile) ended down 3.3% at 16,642.25. The more-inclusive Topix index fell 3.4% to 1,662.25.
Shares of Toyota (SNE : Last: 49.43 -2.44 -4.70% 12:02am 03/05/2007) fell 3.2% on concerns the yen’s rise to the 115 level to the dollar could begin to impact profits.
“The unwinding of carry trades is prompting selling in global equity markets,” said Louis Wong, director of research at Phillip Securities in Hong Kong. “There is fear we could see more selling pressure in U.S. markets tonight.”
A strong yen is considered detrimental to exporters because it makes their goods more expensive overseas.
http://www.marketwatch.com/news/story/japan-stocks-decline-fifth-straight/story.aspx?guid=%7B2BED0676%2D9E3E%2D49CF%2D8ABF%2DCC3EC6F3F72A%7D