“Everybody Has Run For The Hills”
The Sacramento Bee reports from California. “Growing consumer defaults have claimed the first home loan lender in the Sacramento area with the closing of Folsom-based Central Pacific Mortgage. The firm shut its doors last week and dismissed an unknown number of employees, the state Department of Corporations confirmed.”
“‘We know that it’s closed and the next step in the process may be that they voluntarily surrender their license,’ DOC spokesman Andrew Roth said.”
“John Courson, Central Pacific’s 17-year president and CEO, chaired the national trade group for mortgage bankers, the Mortgage Bankers Association, in 2002 and 2003. Currently, he is chairman of the board of the California Housing Finance Agency, the state’s affordable housing bank.”
“Details and impacts of Central Pacific’s demise remain sketchy, and no one from the firm, including Courson, could be reached for comment. ‘I really can’t comment on what happened to those guys. I do know they got involved in (riskier loans),’ said Michael McGee, president of Rancho Cordova-based Winchester McGee Financial.”
“‘I’ll bet that’s not the first one (closure) you’ll see, or the last,’ added Jeff Tarbell, president of Sacramento-based ATM Mortgage Corp. ‘You’re going to see more and more of that.’”
“The Folsom firm’s troubles play out amid a deepening crackdown on home loan lending after years of easy terms that helped fuel the nation’s housing boom. As the housing boom has turned into a slump, several mortgage companies have closed in recent months after secondary market investors forced them to repurchase troubled home loans.”
“Central Pacific, founded in 1977, has gradually grown itself into a national presence. On its Web site, the privately held firm says it originates home loans in 20 states. It remains unclear how those offices and others across California will be affected.”
The San Diego Business Journal. “In recent weeks, a surge in delinquencies and the mandated repurchases of problem loans have forced several lenders to file for bankruptcy. Some of the lenders are reporting heavier than normal losses due to problem credits.”
“‘A number of companies have exited the industry during the fourth quarter, and several more have followed during the first several weeks of 2007. Of those remaining, many are for sale or have recently been acquired,’ said James Konrath, CEO of Accredited Home Lenders Holding Co., on the release of the San Diego-based company’s 2006 financial results.”
“Accredited reported a net loss of $37.8 million in its fourth quarter, compared with a net profit of $43.3 million in the fourth quarter of 2005. It was the largest loss in the company’s 16-year history.”
“While the company attributed half the quarterly loss to higher expenses from its October acquisition of Aames Investment Co., a Los Angeles-based sub-prime lender, it also suffered a big increase in delinquent loans. As of Dec. 31, delinquent loans more than 30 days past due made up 8.26 percent of its $11 billion portfolio, compared with 5.45 percent as of Sept. 30.”
“‘No one, including those of us who follow the company, expected the size of the early payment defaults that they reported,’ said Richard Eckert, a senior research analyst with Irvine-based Roth Capital Partners who covers Accredited Home Lenders.”
“Eckert said he anticipates Accredited will continue posting losses at least through the second quarter and possibly into the third quarter.”
The New York Times. “Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss. For Kal Elsayed, a former executive at New Century Financial, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges.”
“‘You just lost touch with reality after a while because that’s just how people were living,’ said Mr. Elsayed, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. ‘We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.’”
“New Century has emerged as a poster child for the lenders that rode that boom to the top and are now in free fall. The company disclosed on Friday that federal prosecutors and securities regulators were investigating stock sales and accounting errors.”
“The latter could jeopardize billions of dollars in financing for the company, which issued $39.4 billion in subprime loans in the first nine months of last year.”
“The three founders of New Century, for example, together made more than $40.5 million in profits from selling shares in the company from 2004 to 2006, according to an analysis by Thomson Financial. They collected millions of dollars more in dividends, salaries, bonuses and perks.”
“It is not known whether the stock sales by the founders are among the sales being examined by federal investigators. Some of the sales occurred on the same day that the executives entered the plans.”
“The founders’ stock also rose in the social circles of southern California, the epicenter of the boom in subprime. Five of the 10 biggest providers of subprime mortgages last year had their headquarters in the region.”
“New Century’s disclosure of the federal investigations on Friday was the most serious in a string of shocks to have rocked the industry in the last three months. Industry officials say they are seeing an exodus of executives and salespeople as companies fold, cut jobs and push out early leaders.”
“‘Everyone has run for the hills,’ said William D. Dallas, whose company, Ownit Mortgage, filed for bankruptcy protection in December after it lost financing from Merrill Lynch and other banks.”
“Many of the problems that have surfaced thus far are not tied to the resetting of rates. Rather, they stem from a sharp and early spike in the default rates among loans issued last year.”
“For example, about 13.8 percent of the loans in a group of mortgages New Century sold to investors in April were behind in payments or in foreclosure by January.”
“For New Century, the early payment defaults pose significant financial problems. In the first nine months of last year, Wall Street banks and investors that it does business with forced it to buy back $469 million in loans it had sold to them, up from $240 million for the same period in 2005.”
“The company was able to sell back about half of those loans at a discount of 26.5 percent. How it handled the remainder, about $227 million, is now under scrutiny.”
“According to accounting rules the company should have valued the loans on its books for what they were worth today, not their previous face value. But it did not.”
“If it had, the company would have seen its earnings fall by about $60 million before taxes, wiping out most of its profit in the third quarter, according to Zach Gast, an analyst at a forensic accounting firm.”
“This is important, because the company’s financing agreements require that it not lose money for any rolling six-month period. On Friday, New Century said it did not expect to make a profit in the six months that ended in December.”
“‘They had losses sitting on their balance sheets,’ Mr. Gast said.”
“‘They walked into a niche industry at a time when everything was lining up perfectly for what they did,’ said W. Scott Simon, a managing director at Pimco Advisors. ‘In 2001, 2002 and 2003 the subprime business was just phenomenally profitable. Home prices kept appreciating and it seemed that no loans ever went bad.’”
““Even in affluent Orange County, Calif., the growing wealth of executives and brokers in the booming mortgage industry was hard to miss. For Kal Elsayed, a former executive at New Century Financial, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges.”
“‘You just lost touch with reality after a while because that’s just how people were living,’ said Mr. Elsayed, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. ‘We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.’”
M**her F*cker!!!!!!!
And people wonder why we hate the REIC so damn much!
REIC is just a pimple. I hate the FED and the IRS, and the congress that suckles that them. Both are used by congress for de facto social engineering — with the inevitable consequences of all such meddling by morons in things they can’t understand.
Hating the FED is sufficient.
You and me both, bro. I have a seething, scalding hatred of the IRS. They have the damn nerve to expect me to pay my taxes so the gubbmint can go piss it away in Iraq. I pay more interest than I should just because I get a sick satisfaction out of making them work for their money.
I hear ya…we pay taxes that end up in big giveaways to Cheney’s Haliburton…reminds me of the $700 toilet seat fiasco in the 80’s.
More and more our money is used for things that most Americans do not endorse nor approve of….which is why we are the shining example of democracy, freedom, and liberty…and you better become like us or we’ll bomb your sorry @ss into the stone age.
God Bless W!!!!
“Many of the problems that have surfaced thus far are not tied to the resetting of rates. Rather, they stem from a sharp and early spike in the default rates among loans issued last year” Ny times.
This is just the tip of the iceberg. The readjustment of the $1 trillion we have been talking about later in 2007 will be the rest of the iceberg. oh the pain. if I were still having any money in the stock market, i would get out now. the thing is i got out in january. it’s scary how i can sense these. maybe it’s the sixth sense. “I can see dead money. I can see dead money.”
“I can see
deaddebt money.”All this bad bebt will be doing a nice hole in the portfolio of many institutional investors. Has somebody any idea of the amount that could be potentially lost ?
The China meltdown last week and this week erased approximatively 1,3 trillion dollars. What’s frustrating is that most of the damage being done in real estate stays undisclosed, almost hidden and fairly fuzzy to the market in general.
It may be hidden now, but I have a sinking feeling that it will become visible in the near future. Oh, the pain! (I like that line nick the wizard)
I’m going with “I see debt, people”
I like your dead money analogy! But, ultimately all forms of paper money are exposed as dead money. I hope you parked some of that timely exit into some gold and silver.
SellSLO, …and took full advantage today on PM’s pullback. Hedgies ,etc are taking cash out for the crash. May be a last chance before the rocket to the moon. I see this as the Tsunami tide pullback. Look who’s swimming naked…Got Gold? . I don’t want to start a gold/no gold aguement with the uninformed, but time will tell. The same ones who said I was a fool for not buying a house as it will keep rising,.. then ,why buy that ancient relic. I have been right so far ,and time will tell. Anyway ,interesting paper gold (sub-prime gold) sold off today yet the comex holders of physical is hardly moving I heard.
I understand all the people who are claiming gold/long term commodities are the only good long term store of wealth right now, but I have a fundamental question about the idea of the appreciation of a commodity asset as a way to build wealth. The question is this: how can a simple “store of wealth” outperform stocks which are “creators of wealth”? In other words gold is just gold, it sits ther and stores its intrinsic value. A mining company OTOH digs up gold, and puts new wealth into circulation in the overall economy. I can see how a particular company can become overvalued, and even how systemic risk can cause a whole market to become overvalued. But at that point, it seems that you could put your money into a new private company that does somehting like mine gold and hasn’t had the capital “over-infusion” to reduce the ROI, and you will still get a better return than just having your money sit in a commodity like gold or silver. Am I way off base on this?
> Am I way off base on this?
I don’t think so.
Precious metals are a storage of wealth for chaotic times, but they are nowhere in the developed world accepted as money anymore. I doubt that they ever will be again.
The question is this: how can a simple “store of wealth” outperform stocks which are “creators of wealth”?
The logic may be right or wrong, however this the shortest explanation I read anywhere who argue against gold as investment.
Nope. Not in a normal situation. In a situation where massive credit has been created, when it evaporates in the reverse manner that created it, you don’t want your savings to evaporate as part of the carnage. Deflation occurs with a contraction in the money supply, which causes the general price level to decrease (not vice versa..contrary to many on TV). Sure, cash is king. Sure, there is FDIC. In times where it is just a few lenders that go bust, normally it wouldn’t be a problem.
If you are thinking about buying gold for an anticipated increase in the price, you’re speculating (much the same that folks were doing with housing). If you’re buying as insurance, that is what it is. Unfortunately, it depends what the rest of the world is doing. If the majority haven’t poured into gold expecting an increase in price, there isn’t much speculative money there yet (I would argue “sounder fundamentals”). Speculative money vanishes pretty quickly. Insurance money generally doesn’t vanish nearly as quickly.
Bottom line, it depends what you are attempting to do, and how you assess what the price of gold reflects as its fundamentals. 400 trillion in derivatives (for insurance if you will), housing prices extremely overvalued, lenders folding, and gold @ 635 an ounce. Where does that leave the gold price? You’ll have to answer that for yourself. Hope it helps.
10,000$ ? I know it seems crazy but it could happen. Let’s say 3,000$ an ounce seems very realistic. Crazy as the whole credit and monetary system is, anything is possible.
Marc,
For doubters, I say look at a 10 year chart of Rhodium. Conceding the many differences b/t the metals, it’s a recent example of the ridiculous moves that can occur when unexpected events happen.
As for miners…the majority of my retirement accounts are in miners, but I still hold physical. My rationale is that, if the price of all commodities goes up, then extraction will also increase in cost (fuel, transport, etc.). Mining shares are still paper gold, whichever way you slice it, and we are already awash in paper. They may be sitting on large reserves, but if they can’t extract it, then the mining companies can’t capitalize those reserves. I would not be surprised if, mining shares suffer in the coming conflagration, while physical takes off.
Gold or cash, when you are looking down the barrel of a loaded gun, ya have to ask yourself, what’s the difference?
Excellent against gold arguments but all governments have been a one trick pony in regards to currency in the long run. After deflationary episodes they have to devalue the currency by monetary inflation (steal from savers) in order to try to balance out the over supply of goods with money. Will gold be the best way to save your purchasing power at that time? IMO opinion yes, but to paraphrase Mark Twain “It ain’t the things that you do not know that get you. It’s the things you know for sure that ain’t that do.”
Gold is so B.C.
Nick, Do you think that stocks like medical stocks will fall also?
I wouldn’t touch medical stocks, too much universal healthcare talk right now
My one and very hot long position is in the healthcare IT sector. No flies there, they go up every day. This one makes a new 2 year high every day now.
“I see debt people.” — HARM
But we all know the RE market is not like the dot.com stock market. Dont we? Wink! Wink!
I would say the last 6 months the implosion in RE had an uncanny similarities to the dot.com bust. This is just one more example.
Not nearly as many people participated in the tech-bubble as they have in this latest, greatest housing bubble. It seems like everyone has some skin in this game. There is no rock to hide under this time. It’s gonna get really wierd here in the next few months.
ex-nnvmtgbrkr, thanks for all the insight from one that used to be in the field. I see you left the business. What are your future plans for work?
No plans yet. Skimming the interest of some private notes and CD’s is paying the bills for now.
Good luck for the future. Good thing you sold your house at the peak, smart move.
Proverbs 22:3
Good Scripture.
I’m glad your out of the business my friend and I wish you luck . I always thought you were a good guy and was afraid you could get hurt by what other people might be doing .
In the stockmarket it was mostly people gambling away a bit of their pin money - it might not have been fun to lose it, but at the end of the day you shrug your shoulders and move on.
With housing most of the crap borrowers of the past few years are so highly leveraged that they stand to lose more than their life savings ever would have amounted to.
I’ve seen it said here before. “The subprime lenders were the venture capitalists of this madness”. That is exactly right. What happened to the Tech Boom when the VCs were gone? Oh that’s right, they were phucked.
“‘You just lost touch with reality after a while because that’s just how people were living,’ said Mr. Elsayed, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. ‘We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.’”
I don’t hate anybody. But should I choose to do so, this guy would be a good start. This comment says a lot about this sham, or bubble, or whatever you want to call it. Of course, he’s not the only one to blame. The lack of due diligence, or willful negligence, on the part of the industry as a whole, is despicable. Not only did the predatory lending ruin the lives of many unsuspecting, uneducated borrowers, but it had a disastrous effect, albeit short term, on those of us not willing to mortgage our entire future in an artificially inflated market environment. When I think too much about this, I feel ill. I can only hope that individuals like Mr. Elsayed get their comeuppance.
The guy just signed a lease for 17,000 square feet for a business that’s focusing on subprime mortgages… he’s already out of business and doesn’t even know it. At least he’ll have to eat the start-up costs of the business… although hopefully he’ll keep the thing afloat with his own capital as it bleeds him to death. This business is D E A D for the next 3-5 years. He may have gotten out of NEW in time, but this company’s going down… the only issue is how fast.
Anyone who worked at NEW or the other subprime lenders will have a nasty stain on their resume. Good luck finding your next job if it’s outside of fast food
I would just fudge my resume and say I had been serving time in Stillwater State Prison for molesting goats.
How about the tobacco industry they look for people who think outside the box.
The world looks for people like these.
I should have seen this coming when, about two years ago, I received a phone call from the son of my former handyman who can’t even write a sentence in the English language, asking me if I wanted to refinance. Apparently, the kid (age like 19-21) was driving around a Benz and making close to six figures, not bad for the son of an illegal immigrant without much education. Second sign of this, my cousin was briefly engaged to this gold-digging persian girl, she brought her brother-the-mortgage-broker over, OMG, he was like 21-22 years old, looked like a Las Vegas entertainer, was totally full of himself; drove a new BMW and had gold ornamented on damn near every inch of his body, including his eyeglasses. Third anecdote, my estate planning brother did a trust for a 20 something girl working for countrywide, making 650K-750K per year. Final anecdote, the 18 -20 year old son of my neighbor was going around our neighborhood giving out business cards advertising his new mortgage broking business. All of this was in the past two years or so. I wonder if this is going on outside of LA? I can’t say I hate these people, they were making big money with little skill as long as it lasted, but this was really ridiculous. Reminds me of the scene in Willy Wonka and the Chocolate Factory when Charlie and his grandfather drink some kind of magic soda and they are temporarily flying up to the ceiling in zero gravity, until of course they reach the top where there’s a fan spinning around full speed waiting to shred them to pieces…
Hey JWM, here is your boy Cal
http://www.ocregister.com/ocregister/money/yourcounty/article_881804.php
Is that his Camry in the background? Where’d the red Ferrari go?
Reading that article brought chills.
Note the date of the article and who has fallen since then! -
I hate this guy. Really? He just lost touch with reality? Methinks he never had a grip on it in the first place. I wonder if his handful of years rolling around in his ferrari were worth the bars he will be holding onto soon? Let’s see if that dose of reality sinks in quicker.
These mortgage scum with their Ferrari’s best be gettin’ their concealed to carry permits, and learn a fast draw against sudden shadows.
These lowlife, scumbags all belong in a special prison down on the Texas border.
Screw that-send’em to Guantanomo with all the rest of the country’s subversives.
Everybody needs to send this quote to their congressman.
“For Kal Elsayed, a former executive at New Century Financial, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges.”
Ya think?
Making big bucks off those with lower income and poor credit. Ebenezer Scrooge would be impressed. Not a business I would get into. Glad to see these subprimes go out of business one by one. Scumbags.
Scrooge was not ostentatious. I recall him living a miserly, meager existence. Yeah, he made his off those who wanted loans, but both parties won in those transactions. This will always be a part of my bookmark collection:
http://www.mises.org/fullstory.aspx?control=573
Thanks for the link….that is priceless.
That was really good.
The WSJ a while back also went into scrooge and noted that his presence in the import/export business should reasonably returned 100%/year at that time in history. Thus, saving a few shillings in coal would one day multiply a hundred fold.
In a way, it seems that one day Scrooge woke up and decided he had enough money and it was time to PARTY! (Perhaps he foresaw a recession coming and that his time pursuing aquiring “easy wealth” was over and it was his retirement plan to just really enjoy the money for a few years.)
Got popcorn?
Neil
I love to seek an ego boost by contrasting myself against other operators in the mtg so-called industry. My clients (borrowers) look at my 2003 Ford Focus and say, “You could drive a better car.” And I reply, “Yeah, but then I might have to have a real job.”
Funny. I was just discussing this with my wife this weekend. I once read some advice from successful entrepeneurs, and one said he never drove a car that was way above that of his workers or clients. Another said pretty much the same thing, only about watches (no rolex here, he wore one that was VERY expensive but so discreet that no one ever noticed). Their point was that you don’t want people to think you’re ripping them off. It made sense to me, and I’m always amazed at some of the fancy cars realtors and brokers drive. Hey, some do great things for clients, but most just open the front doors or push paper.
Good advice.
My dad used to say “no one breaks their back so that their boss can drive a Cadallac” (back when that meant something). Too much ostentacious display reduces the work ethic of those that you need to work hard.
Time for this house of cards to fall apart.
The next 18 months will be interesting… (Again, I’m sticking with my Fall of 2008 as the earliest possible time for it to be sane to buy.)
Got popcorn?
Neil
Word. I’ll race you in my 2003 Honda Element.
Lots of CEO’s have work cars and personal cars.
I work for a company that has a market cap of $1 billion. Our CEO is probably worth $100 million (he’s the founder and it is a public company). You should see what this guy wears to work sometimes. He saves the nice suit for meetings outside of work (for major conventions, where he is one of the speakers). The rest of the time he wears jeans that are years old and regular polo shirts. In fact, I heard he still lives in the same house where he began the company 20 years ago…..beat that.
I know a guy who owns one of the largest private VC firms in the US. Once, when we went to dinner, he offered to pay and pulled out a green amex card.
I know another guy who is an heir to one of the old money fortunes from steel. He and I were talking last year about me moving back to Pittsburgh. I admitted that I had thought about it and he commented, “Think of the money you could save.”
Both of these guys are so wealthy they really do not have to think about money the way I do, but by their actions and statements you see that they are very frugal. They are not dreaming of the Ferrari or plasma or even the Cessna Citation they could have. They are thinking of how to conserve wealth and put it to work. I see this as the difference between old money and new money and I feel that new money is mostly got by fools. And a fool and his money are …. methinks a lot of these ill gotten gains will be finding their way back into the market somehow.
“methinks a lot of these ill gotten gains will be finding their way back into the market somehow”
Absolutely.
“Many of the problems that have surfaced thus far are not tied to the resetting of rates. Rather, they stem from a sharp and early spike in the default rates among loans issued last year.”
Lenders are imploding even before toxic loans are re-setting. Nice. wait until next year…
Once the resets start, we will be in the 2nd inning of this rout!
This game is going to get stopped by the run rule.
This isn’t a game, this is real money. There isn’t going to be any stoppage of play.
It’s a game. It’s just funny money like all the funny money going in the NASDAQ, real estate etc…… It’s a mostly a CON game. Nothing matters. Real money? You must be kidding ? The concept of “real” money does not exist today. When you see 1,3 trillion dollars erased in 7 days in Asia and across the world stock markets, you know that it’s a game. A real stupid one indeed. They will just print some more of the stuff if it goes too bad for their buddies in banking.
Believe me, it isn’t funny money. The money in the NAS, NYSE, etc, is real money. I can take mine out and buy groceries or a car. Nothing game or fake about this.
1.3 Trillion dollars erased is a lot of groceries !
Crispy,
When the billion in arms resets late in 2007 what inning will that be?
*trillions
I would say the bottom of the 2nd - LOL
“Lenders are imploding even before toxic loans are re-setting.”
A simple product of prices being ridiculous and fools who thought they could afford it on a median salary. You’re right, next year will look like a slaughterhouse.
What’s more is that when they go to refi, they may be underwater and the lending environment will have undergone a seachange.
So true. Amazing how many FB’s are still thinking “refi” as their way out.
“many FB’s are still thinking “refi” as their way out.”
So sorry, Charlie. Pony up or pack it up. Either way, You are screwed!
For the subprime borrowers that manage to hang on until rate adjustment it will especially rough.
When your only tool is a hammer, every problem is a nail.
… or something like that
When the only jobs are in real estate, everybody needs a McMansion.
I like “when your only tool is a gun, all problems look like your foot”. Probably more apropos.
“‘Everyone has run for the hills,’ said William D. Dallas, whose company, Ownit Mortgage, filed for bankruptcy protection in December after it lost financing from Merrill Lynch and other banks.”
Subprime lending business model: Take the money and run…
I still get a couple of hits a day from Ownit. I wonder if Mr. Dallas is checking these blogs by himself in his corporate offices.
I am also getting hits from this Central Pacific Mortgage (Ivanhoe Mortgage). I wonder if these companies still have employees there? Maybe when the reported called they let the phone just ring? LMAO
I went by the office in Orlando. DARK!
Yep, ethics that is the other guy’s problem. Make your money, enjoy life, grease some politicians’ palms, and life is easy.
Make money by honest means if possible, but by all means possible make some money.
“Make money by honest means if possible……but by all means possible make some money.”
Yep, if that were a chemical equation, you’d have to have “honest” over there on the right hand side as well as the left.
After witnessing a winter of stubborn denial on the part of sellers, news like this is a solid reminder that their reality check is packaged up and on its way soon.
Nothing I have read anywhere suggests anyone in the business of selling homes has the slightest clue of the implications of this subprime implosion for their ability to sell homes at last year’s prices. I find this rather astonishing. (Not holding my breath for the NAR’s take on the situation, either…)
I totally agree ! People aren’t connecting the dots yet ! We still have prominent economists running around saying the dame will be limited to the sub prime sector and nothing outside of housing will get hurt !
Fools ! This is going to bring down EVERYTHING. It affects credit, jobs, commodities, international investment, etc.
Stock market investors are the most ignorant. They think because company XYZ had record profits in the 4rth quarter that their portfolio is fine. They don’t understand the concept of global liquidity crunch or negative savings rate.
I agree as well although I’m still of the opinion that come April that veil is lifted from the eyes of the sellers. Hence, I’m still saying there will be an April Ass-Pounding!
APRIL is the cruelest month, swelling
listings into the dead land, mixing
sellers’ hopes with fear, keeping
buyers from falling.
Very nice, Peter!
“They don’t understand the concept of global liquidity crunch or negative savings rate.”
They will understand the concept of a steel-toed kick in the nuts pretty soon. It won’t be pleasant.
They may be STARTING to connect the dots. MSNBC was all over subprimes unwinding today…talking about pressure on prices for the housing market, prices falling, AND they showed the implodometer page!!!!
Loved that.
I have a buddy who I convinced to sell his spec house this past winter at just a little better than break even. Amazingly, even after experiencing the holding of an albatross first hand and listening to everything I tell him about credit tightening, he stills tries to find evidence of a chance get back in to RE.
Until they stop showing “Flip This House” and “Property Ladder” the the left side of the IQ Bell Curve will be frothing at the mouth to make all that “easy money”…think of it as evolution.
All the dimwits go broke so they are not able to afford children thereby improving the gene pool.
“Are we not men?”
We are DEVO!
um…I am dvo.
You got that right GetStucco. The dreamers and their wishing prices haven’t a clue what’s on the horizon. They are unable to connect the dots, should they even be aware of the subprime meltdown. Reality will come in the form of little foot traffic, lowball offers (if any), and finally the local news after the smell of the rotting elephant becomes unbearable.
Not to worry - all previous sub primes will be in a new category - Maybe the new category could be a contest?
The Nova Category?
GetStucco: someone who does have a clue:
http://www.financialsense.com/editorials/williams/2007/0227.html
The housing prices that have been reported are a full 90-days old and reflect demand that is long dead.
God bless America!
Just think of all the pin-heads that weren’t willing to budge 10 grand off their asking price, only to watch as they lose that much each and every month now.
The problem with the wishing prices is that this is all these people have to hang onto for one of three reasons:
1. Bought at 750K and are now underwater and don’t have 250K to bring to table for closing.
2. Want to hit housing lottery since they have nothing saved and want to retire at 45 (just kidding, okay, 65).
3. Want some greater fool to pick up the other debts they have incurred, i.e. 25K in CCs, 50K escalade, 75K for junior’s college fund, instant cash paid for smaller home somewhere int he boonies, and finally, the around the world vacation on the QM II for 25K.
The problem is that the only people left are:
1. Us on this blog who know better.
2. People are SOOOOOO subprime that family WOULDN”T even give them a loan for 100 bucks.
3. Subprime borrowers who can no longer find subprime lenders.
Mix all of this together and you get what has been called by many on this blog before me….
THE PERFECT STORM!
All I can say is batten(sp?) down the hatches, Bugs!
Uh, you forgot number 4.
“Heck, my neighbor just sold his 1419 sqft on a 7000 sqft lot for $419,000 so there is no-way-in-hell I’m taking $399,000 for mine. Those buyers can rot-in-hell!!!
I wish I could find something that affordable in south Orange County!!
You just cited the exact reason why I became a bubble sitter. I had to move to SD with my wife from Chicago and I couldn’t fathom mortgaging our future earnings to fund the retirement/extravagant spending of some SoCal douchebag just to say that I’m a home owner. It was that sentiment that caused me to just refuse to play the game.
My neighbor had an offer at $720k last summer after 4 months on the market. Held out for more $ and finally sold 2 months ago for $660k. Good move….
Is there another instance in US financial market history of an entire industry pretty much going up in smoke over the course of one quarter? Just curious…
Remember when we asked back in late 2005 and early 2006, as the yeild curve inverted, how can these guys keep making these loans? Now we know; at a loss!
The amazing thing is the choice to just run all the companies into the ground. They had all done well. Why not just close the window and head for the islands? Just another example of the last bet potentially wiping out the boom time gains.
” Why not just close the window ”
GREED!!!
most of the middle managers and worker bees in these companies had no idea of the troubles these companies faced until two weeks ago (i work with them every day), the big players were busy unloading stock ie: new century while pumping the model. same with the homebuilders, etc. angelo mozilo, bob toll, we were watching them selling like madmen last year.
Luckily someone was looking out for Joe Average stockholder while all this was going on…. NOT ! Investors got screwed again !
Joe Average stockholder is supposed to be looking out for himself. If he can’t (stupid, lazy, ignorance, etc) he has not business ‘investing’ in stocks.
average joe stockholder should have been doing his homework.
this isn’t 1929. companies are required to submit financial statements on a regular basis and there are tons of books out there about how to read them and make sense out of them. this is just idiots buying the trend just like the dot com bubble and everything else. at the end of a bull market the junk stocks always go up last and break down first because greed takes over and people get a case of the stupid
Some of the subprime companies are being investigated for fudging their books (not reducing the “value” of bought back loans) pretending to have made money in 3rd and 4th quarters so that the banks wouldn’t stop lending to them.
Even when they knew they weren’t making money they insisted on continuing…
Some of the dumbest people I have ever met have worked with me at Option One, Wells Fargo, etc. and have been middle management. Generally, they have no clue about how lending really works, they are either closers with no scruples or admin cogs with no independent thought.
Whoa, Chris, I’m doubly glad I left banking ten years ago. Even then, the smart, ethical people who felt compelled to be truthful were being pushed out. Which is more disturbing–the cyncisim or the stupidity?
SF,
the stupidity is the most annoying IMHO.
The execs needed more time to sell more stock from their stock options and collect bonuses.
I think Ben that premeditated belly up is so much simpler an exit strategy. If they kept the companies solvent they’d have been sued into bancruptcy anyway.
If you’re right, there may be jail time coming for some.
I think Goldenwest took exactly this route, by selling their family-owned business to a major bank. Seemed to me at the time that they were taking the money and running, and it seemed like a good time to do it. Others just kept pressing their bets, thinking they could squeeze a little more out. Now, it’s too late for them.
I remember reading about Goldenwest years before “subprime” became a household word. I made a mental note (like when the Rockefellers sold NYC property to the Japanese); when the most successful people in a market sell (Sam Zell anyone?) best you consider the jig being up in that market.
When that couple sold I should have researched exactly the nature of their banking business……ah, lessons learned….
Remember kids, you heard it here first to short WB, two or three months ago.
at its height, the s&l crisis was taking down a lot of players in a short period of time, but this crisis has alot more zeros attached to it and the risks are amplified by the exponential leverage of derivatives. can’t believe that merrill paid 1.3 billion for first franklin, you’re gonna be able to buy new century’s origination ops for a twelve pack and a bucket of chicken next week.
Nice call on NEW!! You nailed it!
“… can’t believe that merrill paid 1.3 billion for first franklin…”
********
And the insiders whine when I say management at Merrill is a bunch of clowns?
The Golden West deal was a “shoeshine boy” moment for anyone who was paying the least amount of attention.
Because some were “living it” (subprime loans), I’d say many Brazil Americans may have understood this situation before the Riskloves and the Pig Men.
[credit Russ Winter on those terms]
Yep, when Golden West was sold, I knew that was the top for the mortgage industry.
“you’re gonna be able to buy new century’s origination ops for a twelve pack and a bucket of chicken next week.”
that’s pretty funny.
Well lets see…I think the dot bomb was not far behind. At Cisco
we thought the service provider(telecom) industry was going to provide 2B in revenue for 2000 and it completely went away.
In 1999, I thought that I was being smart in avoiding the dot bombs, and going into a company that provided products and services to the telecom industry, specifically to MCI and Verizon. In 2002 MCI imploded, and Verizon stopped buying equipment. In fact every telco out there stopped dead in his tracks, and from what I hear, the Telecom industy is still dead. Company I was at, just had more layoffs…
Yup, a lot of folk don’t remember there was a telecom bubble.
A lot of cooked books in that telecom bubble. Worldcomm/mci had their payroll as a long term expense.
Part of the deal was the technology got so good that the prices went to zero. The cost per bit just became so small.
I was at a small tech copany in the late 90s.. retreated to Aerospace before the disintigration.
Bernie is spending the rest of his life in prison. A pathetic ending.
[quote]Yup, a lot of folk don’t remember there was a telecom bubble.[/quote]
People in Denver remember. Our housing boom was from ~1998 - 2002. The median price went from $150k to $225k. I believe that it is around $222k exiting the year 2006. Anyway, when the dotcom bubble burst it took all of our telcos with it. Lucent and Qwest being to big examples. They still exist but most of the jobs don’t.
The reason I comment on this is because the housing bubble that is currently in progress largely skipped Denver due to the dotcom bust. Yet, we have still (until recently) led the nation in foreclosures without the huge price appreciation seen throughout almost the entire country. That tells me that the price of housing in Denver wasn’t the main issue, but rather the quality of the people able to get the house was the main issue. I believe that affordability is a big problem right now. I just think that who is being allowed to purchase homes is an even bigger problem. (we all know that tap is being turned off, though)
So, if Denver has been seeing big foreclosure pain without the insane price appreciation of Arizona, Florida, California, and Nevada, can you even imagine what the foreclosure pictures will look like there in 2 years?
‘Our housing boom was from ~1998 - 2002. The median price went from $150k to $225k. I believe that it is around $222k exiting the year 2006.’
Thanks for pointing that out. It’s a critical factor when looking at the so-called non-bubble markets. Dallas, Austin and Denver all had a telecom boom yet they didn’t give it up.
Bernie’s appeal just got nixed today. He’s done. LOL
That is correct. A lot of the guys that left the telecom equip. company I was with launched from their dumped telecom jobs into the mortgage industry. They just postponed the loss. Many of them were making double and triple their tech salaries and said they couldn’t see themselves going back to the tech industry. Haven’t heard yet what is happening now with them yet.
I guess the dot bombs disappeared pretty quickly during the tech stock collapse, come to think of it…
Though not fast enough here in San Francisco.
And while much smaller in number presently, a global excess of liquidity provides the fuel for another round of “dumb idea” internet companies.
When men where men during the Depression, the margin buyers committed hari-kari and jumped out the windows.
Today’s huckster’s run and hide in the Cayman’s to smoke, drink, and laugh at the suckers left behind.
Yep, dot.com bust happened pretty quickly when it did finally happen.
I surprised actually, that the market is still hanging on so far. I thought DOW would break below 12,000 on Friday, then I was certain it would happen today . . . I know it’s coming, I’m just surprised how orderly the selloff remains.
Lots of people are in denial, buying the dips. The stock volume has been there, just the offers are still too high. They’ll wise up after we drop another 5%.
Denial will persist for a while longer.
Let’s see it last until June (it won’t). Until then…
Got popcorn?
Neil
Going to last a while… still funny money floating out there. People will start looking for bailouts.
I was doing my taxes and the guy mentioned that 10K saved in a Roth for use as part of a downpayment would only cover escrow at toadys prices. I said they are comming down.
He told me everyone wants to live here in LA….
Still a long way off.
sounds like you need a new tax preparer…
Neil, When do you think denial will end?
We’re almost at the end of denial and into Fear.
I really haven’t seen a shift from this timeline:
http://recomments.blogspot.com/2007/02/record-home-price-slump.html
That puts the end of denial… in a few months. Desperation isn’t until late summer.
Be patient. Very patient. Denial is a persistant emotion. Just don’t get in the way of the dam when it lets go.
Got popcorn?
Neil
Seems a little too organized if you catch my drift.
I look at the inability to hold on to early gains today as a rather ominous sign…
http://www.marketwatch.com/tools/marketsummary/
It got a lot of suckers into the market and the Hedgers got out of a lot of crap.
Orderly declines always preceed panic…..
Yep - most people don’t realize that in 1929 the Dow had already declined over 30% in the month before Black Tuesday. It was a panic that took some time to gather steam; not just a 1-day affair. (and also took 3 years to hit bottom, incidentally)
Of course it is. The pigmen have inventory they need to offload. If they dumped it would signal a route.
Agreed.
I would also say that the DJIA is a bit like a headline, a bit of window-dressing that is designed to show a number as much as possible for the six o’clock news.
When you look at losers vs. advancers, the number of sub-indexes that drop vs. gain, the fact that every mini-rally is met with sellling, and the picture looks more like we expect it to.
What does owning a share of the Dow buy you today, versus what it bought you in April 1998, when the avg. company was making its highs? A lot less. Please everyone, just get a chart of the Dow versus Gold for the past 5 years to see what is really going on.
B: What does owning a share of the Dow buy you today, versus what it bought you in April 1998, when the avg. company was making its highs? A lot less. Please everyone, just get a chart of the Dow versus Gold for the past 5 years to see what is really going on.
It depends on how far back you want to extend that chart. Gold hit a high of $850 in 1980. At that time, the Dow was around $900. Even if the Dow went down 75% to $3000, gold would have to go to $2800 to match the Dow’s performance since 1980.
Wow. Today was the day! JPMorgan guy on Bloomberg just spoke of all undiversified subprime lenders going bankrupt. Every single interviewee talks of subprime and gasp! housing prices. The iceberg (tip) is now fully in view, lies straight ahead and it is too late for course correction or braking.
Actually, I believe the ship has already struck the iceberg and we are currently in the process of determining who gets on board the liferafts…
Just a difference in interpretation, I suppose.
I’ll do you one better: the dance band just realized their feet are wet.
No…The kids are still diddling in the model a:-)
Pretty soon the band wil be playing “Nearer My God To Thee.”
Iceberg Dead AHEAD! But again, too late to turn the Titanic.
New ride at Magic Mountain - CA ..Its called MONSTER MORTGAGE COLLAPSE ……………LOL !!
“And you didn’t have to do anything. You just had to show up.”
Funny, that sounds a lot like an arraignment!
Kudlow on CNBC is talking subprime right now-he just interview an FDIC regulator and after the break there is more, check it out!
Subprime has been the topic of every single network today. It went from not news to hot topic.
Does that mean the contrarian investor is now going to buy HB stocks like IndyMac and countrywide?
I signed up for CNBCs million dollar stock contest today and ONLY bought subprime mortgage companies in my portfolio. Think I have a chance !!!
LOL
I saw a glimpe of the “Imlode-o-Meter” on CNBC today
From the header……….
“‘No one, including those of us who follow the company, expected the size of the early payment defaults that they reported,’ said Richard Eckert, a senior research analyst with Irvine-based Roth Capital Partners who covers Accredited Home Lenders.”
My Question………
who needs an analyst?
I was wondering the same thing this morning, and then it hit me: they are all big effing liars!! Anyone with half a brain and some objectivity could have predicted this day would come. Really makes me start to think the old saying might be the way to go next time around: if you can’t beat em, join em.
lol…i say that too so that is why i got a state job. I started with franchise tax and i used to say that saying around there all the time.
Lo, I just wonder about all the public pensions and how they can deliver on their promises, especially with all the boomers that will be retiring in the coming decade. Do you guys ever discuss the possibility that CalPERS could fail (not be able to perform as promised)?
Ironically, with all the private sector outsourcing, the number of public employees has shrunk wrt the tax paying population.
Do the math on CALPERS. It has about a 10 to 15 year shelf life (depending on how fast the boomers retire) before the Headlines will start to read “Pension plan in trouble - tax increases on the Horizon”. 10 years after that the Plan will be insolvent. The problem is the effective tax rate in CA is greater than 50% right now so I don’t know how willing the people are going to be to part with more of there income to provide a retirement that they themselves do not get. I fully expect that the right to own firearms in the state of CA will be outlawed about the same time - 2nd amendment be damned.
The effective tax rate in CA is >50% right now? How do you figure that? Even including Fed tax I’m not paying anywhere near that much.
The arithmetic is brutal if you’re self employed. My marginal rate looks thus for the bulk of my income:
Federal income tax: 28%
California income tax: 9%
Self-employment tax: 15%
Add them up, voila: 52%
And that doesn’t even include down-in-the-noise junk like Medicare.
The problem is the effective tax rate in CA is greater than 50% right now so I don’t know how willing the people are going to be to part with more of there income to provide a retirement that they themselves do not get.
————————–
I see this sentiment a lot and have to ask why those without pension plans (and other benefits) choose to whine and wallow in envy (if I can’t have it, they shouldn’t either!) instead of doing something smart like demanding those same wages & benefits for themselves.
If you have to actually work for a living, the unions (and public employees) are on YOUR side. They are the only things holding up the middle class right now.
If we eliminate the unions, watch how fast your **private employee** paycheck drops, not to mention the end of employer-paid insurance and retirement plans.
Like in the RE market, people haven’t a clue, and just keep buying into the brainwashing that comes down from above. As buyers control housing prices, so do employees control the level of wages and benefits — but they have to be united in their actions.
**Think, think, think** about who is trying to convince you about the good or bad effects of unions (and decent wages & benefits) — unions, who represent the productive workers (people who actually build things or provide necessary services), or corporate executives and Larry Kudlow-ites (parasites), who want nothing more than to see you starve so they can own yachts, expensive homes, jewelry, etc?
Just think about it…
Hmmmm . . . via Reuters:
Credit Suisse (CSGN.VX: Quote, Profile , Research), Merrill Lynch (MER.N: Quote, Profile , Research), Goldman Sachs (GS.N: Quote, Profile , Research) and Bank of America (BAC.N: Quote, Profile , Research) have been granted three-year licenses to trade U.S. commercial property derivatives, a potential breakthrough move in the development of the embryonic market.
In a statement on Monday, the National Council of Real Estate Fiduciaries (NCREIF) confirmed a Reuters report on Feb. 14 that four Wall Street banks would soon start trading over-the-counter instruments in New York based on its benchmark property indexes.
” “In recent weeks, a surge in delinquencies and the mandated repurchases of problem loans have forced several lenders to file for bankruptcy. Some of the lenders are reporting heavier than normal losses due to problem credits.”
Is it true, all the delinquencies we are now seeing are NOT the result of resetting of ARM loan rates.
That has yet to happen in 2007.
Is this correct ?
Subprime loans start at or above (roughly 8 pct) the reset rate we are expecting for prime.
So we are ripping off the English HSB for 11B.
Too bad GMAC is holding 57B subprime loans. Should have dumped them to the foreigners.
NO! They deserve the losses. Have a look at this article:
URL: http://tinyurl.com/2aq37o
Deserve?
Yes.
But the economy cannot take GM folding. If they go under, a bail out will happen. Count on it. We would rather they sold the losses to those outside the borders of the USA.
Got popcorn?
Neil
““Details and impacts of Central Pacific’s demise remain sketchy, and no one from the firm, including Courson, could be reached for comment.”
So what happens now to the loan? Who gets the mortgage check each month? Will or was the loan sold off to investors?
I would REALLY like to know the answer to this, because I just closed on a house on 2/20, and the mortgage was funded by Century Pacific. [NOT sub-prime, and we had personal reasons for buying now, and I'm fine with the house we bought and the price we paid even if the market does crash here (Portland, OR).] Anyway, I don’t know if they would have had time to sell off our mortgage yet! Our first payment is due 4/1, so what the heck should I do? [Well, I'll contact our mortgage broker, of course, but who knows what he'll know at this point either.]
Generally, what will happen is that everyone will be let go except the servicing dept (assuming that the lender has the servicing rights). Then when those rights are sold, the computer files are transferred to the new servicer, and then the rest of the employees (I.T. and servicing are let go). So a borrower should still send the payment wherever the bill states until otherwise notified.
In the case of Resmae, once the outfit is sold to Credit Suisse or whomever, then the borrowers will get a new statement with a new payee and address. Then the servicing dept will be let go, whereas right now, all of the other employees have already been laid off, except servicing and a few I.T. staff. My sister-in-law is a VP of servicing at Resmae, so her days are probably numbered.
Eh, Central Pacific, that would be.
“The company disclosed on Friday that federal prosecutors and securities regulators were investigating stock sales and accounting errors”
Accounting errors?!! So this is what these scumb call their cheating and lying: errors! These criminals are as bad if not worse than your drug king pins. They are profitting from other’s misery.
I bet that somehow, all the errors were coincidentally in the positive direction. What incredible luck - it’s like flipping a coin a thousand times and it always lands heads up!
just on kudlow!!! he says that the answer to all the mortgage problems is simple. “everybody with a bad loan just refi into a fixed rate 30 year loan and that will fix all the bad loan problems” he doesn’t have a clue.
Of course! Anyone who cannot afford a lower-rate option ARM with no principal amortization can simply solve their finance problems with a 30-year fixed!
I’ve got an even better solution: 15 year fixed! It’s a no-brainer!
Shorter Kudlow:
“This mortgage goes to 11.”
i almost pissed my pants at work…too funny
biggest no-brainer in the history of mankind?
Yeah, I did a spit take too. I even went on his blog and gave him hell. Un-freakin-believable. Who carries Bloomberg?
Real men don’t need loans at all, they just pay cash.
In other countries Kudlow would be the idiot behind the scene, and the news would be delivered by a good looking person.
I saw he had the whole thing about how China financing US debt was damn good. Maybe they can finance all subprime into 30 yr fixer uppers.
az:
I think he does have a clue. He’s being dishonest and trying to stop the market from going into an all-out panic. Sick and pathetic.
Cramer is on now saying that “the working man will be cut out of the housing market” and “the working man’s loan will be gone.”
He doesn’t give a shit about the working man. If he did he would be calling the subprimes and mortgage brokerages for what they are: hucksters.
Shame on them both.
I was arguing with my boss that subprime is more than 10% of the market today. Is he right? I thought I remember some stats showing otherwise. I guess it depends on how you define ‘the market’ but if anyone out there could point me to consice stats that would be great.
Cramer has been embarrassed again. He was shooting his mouth off big time in Dec and January about how residential RE had bottomed and he and the Trading Goddess were all in the game again with their own money after allegedly selling out last year. He has impeccable timing, I’ll give you that. He can mark tops and bottoms like nobody I’ve ever seen.
Here you go:
http://www.rgemonitor.com/blog/roubini/180573
SNIP:
Let me elaborate:
Sub-prime are now 13% of the stock of mortgages, not 6%.
Sub-prime mortgages were at least 20% of mortgage originations in 2005 and 2006.
The same “monster” lending practices used for subprime mortgages were also used for most “near-prime” and “prime” mortgages.
Many pseudo “near-prime” mortgages (such as Alt-A) are undistinguishable from sub-prime ones and have now sharply rising default rates
What is defined as sub-prime is subject to highly cosmetic accounting by banks: the rule that FICO scores of 660 or below are sub-prime is often diluted down to 630 or even 620 to exclude many mortgages from a sub-prime classification.
Counting all of the categories above, subprime-like mortgages accounted for almost 50% of all originations in 2005 and 2006 not the 6% figure spinned by the industry lobbies.
The working man used fixed-rate loans with 20% downpayments for many years until recently, and will soon do so again.
I think they will have to refi into a fixed 100-yr to afford the payments. Some, like the lettuce picker who bought a $700,000 house, will have to go for the more creative 200-yr fixed. His great great grandchildren will pay off the note. Damn, this is starting to sound like serfdom
“serfdom”…maybe
more like indentured servitude..
But we all know that doesn’t work, either. Run the amortization, and you find that extending the term of a loan has diminishing returns (in relation to lower the monthly payment).
Below are the payments for $700K @ 6.5% fixed for different loans of 30, 50, 100, and 200 years:
30 yrs: $4,424.48/month
50 yrs: $3,946.02/month
100 yrs: $3,797.48/month
200 yrs: $3,791.68/month
Nope, extending a loan to a longer amortization just doesn’t help much. They are f*ucked.
And how many of those folks with “bad loans” that Kudlow thinks can be solved with new 30 year fixed loans have rates that are below (and will stay below after adjusting) the current 30 year fixed rate loans? My guess, is none - otherwise they wouldn’t have gone with the ARM in the first place.
In other words, the limit of the monthly payment as the term approaches infinity is the interest only.
But wait…let’s say the baghold..oops, I mean principal holder, has to take a 40 to 50 percent haircut. Then the payments might be affordable to the FB. If they’re not, then foreclose, because stupidity of that magnitude is irredeemable.
If the MBS, CDO, etc. holders all point the finger at each other, divide the haircut among them equally.
What’s neat is that once you stretch the repayment period much beyond 30 years, the payments barely change, because the interest dominates.
$500k at 6% for 30 years: $2998 per month
$500k at 6% for 40 years: $2751 per month
$500k at 6% for 50 years: $2632 per month
$500k at 6% for 100 years: $2506 per month
Going from 30 years to 100 years decreases your payments by only about 16%. I bet even that’s not enough to make an unaffordable situation affordable for many FB’s.
Oops, I didn’t scroll down far enough. WaitingInOC was already on the case!
“For Kal Elsayed, a former executive at New Century Financial, driving a red convertible Ferrari to work at a company that provided home loans to people with low incomes and weak credit might have appeared ostentatious, he now acknowledges.”
I wonder if we’ll be seeing any disgorgements.
“‘You just lost touch with reality after a while because that’s just how people were living,’ said Mr. Elsayed, who spent nine years at New Century before leaving to start his own mortgage firm in 2005. ‘We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.’”
Just wondering: with all this happening, why is the Dollar inching up?
Supposedly because the Yen carry trade is unwinding and it’s affecting other currencies more than the US - for now. The US$ in yen is declining but US versus other currencies is going up. But as I said, that will all end soon once the Fed begins to fret over the economy tanking and so they will try to cut rates. Then watch the dollar slide into the abyss.
if the yen carry trade goes away, there is always the dollar carry trade
gotta buy dollars to sell at higher prices to the suckers
no, the dollar carry trade is, “carry a wheelbarrow full of dollars into the grocery store and trade it for a loaf of bread.”
“And you didn’t have to do anything. You just had to show up.’”
Then I guess these guys are UNDERqualified to flip burgers! You have to actually do SOMETHING!@!!@!@!@
Ruth’s Chris to replace New Century in S&P SmallCap 600
Last Update: 3/5/2007 05:42:26 PM
Ruth’s Chris Steak House Inc. , a New Orleans upscale steak house operator, will replace New Century Financial Corp. in the S&P SmallCap 600 index March 7. On Monday, the market capitalization of Irvine, Calif., mortgage real estate investment trust New Century fell to about $253 million, below the minimum of $300 million, S&P said.
I wonder what will happen with Ruth’s Chris now that MEW is starting to vanish. I think alot of restaurants will be hurting by end of year.
from my limited restaurant stock market experience, it seems that many, many restaurants go belly-up a few years after going public….(not to mention the regularly high failure rate)
All of the restaurants are reporting a drop in high end alchohol and desert sales… That’s enough to tell you where the market is going.
Got popcorn?
Neil
They’re selling the Mojave? -
rotfl.
Ok… Neil will check spelling.
But if you want any Mojave… I’ll find you an agent.
Got popcorn?
Neil
I can’t believe the surprised look on the “experts” faces about how things are going….
anyway, here is a question…
assuming the financing/foreclosure issues are truly only in the subprime/alt-A realm, could there be a contagion effect?
For example, if an A paper person has a choice between buying a foreclosed home in a just ok location for 50 cents on the dollar vs. buying one in the next better locastion for 80 cents on the dollar, might he choose the 50 cent location? it’s less desirable but much more affordable…maybe all the buyers that are left are more selective finance-wise than location-wise…they might not buy in the ‘hood, but they alos might not require a premium or super-premium locale…
I wonder if demand might get pulled around a bit..
Hmm..I can pay cash for A or mortgage B..interesting times ahead…
My take is the A paper people are probably educated, have good jobs, maybe want to raise a family and at the least want to enjoy where they live. I’m guessing they don’t go for the ‘OK’ location, on the whole if they can afford the premium place (on a conventional loan basis). You have to remember the real estate axiom that will still exist - Location, location, loaction. The bad areas will break down faster and harder than anything desirable.
I was thinking more along the lines that they might buy somewhere in the upper-middle rather than lower-top end.
Could be - hard to say as that’s kind of a gray area saying where one begins and one ends. I would guess they’ll stick with higher ‘quality’ but given the growing backlash against McMansions and all things RE related, maybe people will learn to be happy with less. Especially if the economy becomes so shaky that people fear for their jobs.
The implosion of the subprime will probably result in severe price drops in the low end of the market, and have a de-telesopting effect on the midrange.
Obviously the low end will see demand drops as fewer potential buyers can get loans, and an increase in inventory as more owners are forced to sell or are foreclosed upon as their payments go up. Buyers the next tier up will be faced with the choice of buying something nearly as good for significantly less money, or their original choice. That will put price pressure on that tier, at the margin.
Subprime, prime, alt-A, none of it matters. All will be affected. Was just talking to a patron where I work. She mentioned that a friend of hers just took out a ton of equity to pay off everything else and buy a new car. Here’s the rub…this person only owed 22K on the mortgage. Oh, to be that close! Sadly, they didn’t pay cash for the car, so they still have a monthly and all the CC debt is back. So, to think this is a subprime or better problem is folly. This bubble has its tentacles into everything.
Oh the stupidity……
will the car last 20-30 years ?
No, but the payments will! She just took out a 30-year car loan.
Only $22k to go?! Wow! I think I’d pay as much extra towards the principal with every payment to be done with that puppy quickly. Put some bandages on the car, or pay cash (as you mentioned) on a nice used one.
Cc debt is back? Numb nutz. No self- control.
BayQT~
” think I’d pay as much extra towards the principal with every payment to be done with that puppy quickly”…
..and I’d get a part time job flipping burgers to make a few extra dollars to get rid of it that much more quickly, maybe sell a pint of blood or two as well…
Absolutely! Flip burgers, sell coffee, walk dogs. LOL!! As a matter of fact, I’ve been making extra cash as a bartender to help me put THAT plan in motion.
A woman’s gotta do what a woman’s gotta do. 
BayQT~
All will indeed be affected. Everyone gets hit when values decline. And I think SO many buyers stretched over the last few years. Or tapped equity. Or both.
Once this blows up, credit score won’t matter. Unless you’re silly enough to be buying right now -);
Agreed. I spoke with my realtor yesterday and he said he’d bop me over the head if I even thought about buying within the next 6 months! He’s a good egg.
Even he admits that we’ll have a better sense of where this is headed in early fall.I think I’ll renew my rental for one more year! I’ve just got my downpayment burning a hole ….but, at least I’m getting 5+%.
wow. that realtor’s a keeper. bottle of bubbly for him for xmas.
re: burning a hole — I feel you.
My ‘big’ down payment still not big enough
but
…the same benefit the wife and I got from the extreme panicky flurry of activity that was the sale of the last house — so too will we gain that much and more benefit now from extreme prudence, patience, and even procrastination in our search for the next house.
And getting 5 percent for cash in savings doesn’t hurt too bad.
*scoots up camp chair, grabs some of Neil’s popcorn*
Subprimes are just the Anthem/Flyby/Coin Toss!
Let RECarnageBowl 2007 Begin!
Forecast calls for Denial with increasing chance of Desperation. They may Slog this one out in the Muck of excess global liquidity. I see a looonng, sloooow ground game…
The lawsuits are flying all over the place. Chevey Chase bank in DC is in a class action because of its consumers complain of deceptive advertising, CC blames the mortgage brokers. We might never know who is really at fault, but the consumer in most cases loses. The upper East Coast is in a state of rapid foreclosure due to loans that promote using your equity from your property to help “pay the bills” . These low interest, no interest loans are coming due or are getting adjusted and the consumer can not afford the new payments.
Bad news for the consumer, good opportunity for the investor.
one of the earliest posts on my blog was printing
The HomeDebtor’s Prayer
While discussing the reality of the bubble or unbubble at another delightful blog Patrick.net I asked a question about whether anyone else could smell class action lawsuits coming from those about to crash and burn with their I/O loans…
The poetic Harm had these words of wisdom for us all:
“athena,
Why would all those “CHUMPS” (Cunning Hard-eyed Ultra-savvy Market ProfessionalS) WANT to sue their lenders?? Your lender is your FRIEND. He brings you great wealth and prosperity through the magic of debt leveraging! Why would anyone want to take them to court?
The Realtor™ is my Shepherd; I shall not want.
He maketh me to lie down in green pastures
He leadeth me beside the still waters.
He restoreth my soul
He leadeth me in the paths of appreciation for Gain’s sake.
Yea, though I walk through the Valley of the shadow of Bitter Renters,
I will fear no Bubble: For thou art with me;
Thy Lexus and thy staff, they comfort me.
Thou preparest a table before me in the presence of mine bidders;
Thou annointest my head with liquidity;
My cup runneth over.
Surely bounty and wealth shall follow me all the days of my life,
and I will dwell in the House of Everlasting Appreciation forever.”
Go ahead… say it with us now.
Rinse and Repeat
Link
Subprime woes: How far, how wide?
Problems loans to home buyers with less than top credit has become a big threat to the markets - and the economy.
By Chris Isidore, CNNMoney.com senior writer
March 5 2007: 4:44 PM EST
NEW YORK (CNNMoney.com) — Lending to homeowners and buyers without good credit has suddenly become a very bad business - and possibly a very big problem for the U.S. economy as a whole.
The sector is known as subprime mortgages, which pumped $640 billion into the economy through facilitating home purchases and refinancings in 2006, according to trade publication Inside B&C Lending. That’s nearly twice the level of this kind of lending seen as recently as 2003.
(CNNMoney’s quarterly look at what a million dollars will get you in housing markets around the country.)
But now, with delinquencies and defaults by borrowers rising, experts in the field see more lenders filing for bankruptcy and a sharp pullback in subprime lending. In addition, banking regulators are proposing tougher lending standards and regulations in the sector. All that sent shares of some major financial firms sharply lower Monday.
“Everyone in the subprime sector this year is going to lose money,” said Bose George, analyst with Keefe, Bruyette & Woods, a Wall Street firm specializing in banking and finance. “They’re getting squeezed on all sides. Going into the year, we were looking for a decline of 15 percent [in subprime lending], but clearly now that is far too low. It’s now looking like a 25 to 30 [percent] decline.”
On Wall Street, the biggest loser Monday was New Century Financial (Charts), the No. 2 subprime lender according to Inside B&C Lending. Its shares plunged nearly 70 percent in midafternoon trading Monday after the company said in a filing late Friday that it was facing a criminal probe of its practices by the Justice Department and that its outside auditor, KPMG, said it now believed there was substantial doubt about New Century’s ability to function as a going concern.
http://money.cnn.com/2007/03/05/news/economy/subprime/index.htm?postversion=2007030516
“Lending to homeowners and buyers without good credit has suddenly become a very bad business - and possibly a very big problem for the U.S. economy as a whole.”
y’know..we could be temporarily at a point in time when even lending to folks with good credit with zero down could be risky..think about, do you really want to lend money to someone to buy something that is or might be worth less tomorrow?
People had better start writing into their Purchase and Sales Agreement, claused that protect their deposit, in the event the property drops substatntially in value, to the point where they can’t secure financing or can’t get the equity ratio in line…
Just wanted to add a link to a new website which is tracking the mortgage market implosion. For all those interested, you should check out:
http://www.ml-implode.com/
Are you new?
“Are you new?”
Is that a pick-up line?
Ameritrust - GONE!
http://bakersfieldbubble.blogspot.com
Is this pretty much the last of the BIG name sub-prime lenders or are still other biggies to fall?
This is some mid sized outfit, I think you are thinking of Ameriquest/Argent.
got it..that’s right Ameriquest is too big to fail…
lol
Plus the owner of Ameriquest is the US ambassador to the Netherlands.
At first I though I read Ameriquest. That gave me a shock (I have a friend trying to get out of there, fast!).
Now, when does this come back to bite their wholesale provider Washington Mutual? (In above link.)
We’re going to see a big AA rated bank fail. Which one? Only after one fails will we know we’re approaching the bottom.
Got popcorn?
Neil
If you had to list the banks who would most likely fail, who would you include?
WM, WFC
WFC will not fail. They are too big and too diversified. they will take a big hit like HSBC are keep rolling. Look out for MER. They might require a bailout
Agree with dude. WM and WFC have the largest exposure to subprime, no? Especially in CA, I believe.
WFC has originated a lot of subprime, but has sold off most of it immediately. They’ve actually reduced the level of consumer mortgages on their own balance sheet during the past year. I doubt that they will fail; I’m keeping most of my money there.
There are others which may survive but will be just a shadow of their former selves. Accredited Home Lenders comes to mind. Their new business model is based on a product line which essentially is well covered by many other lending institutions offering Alt-A product lines. It’s hard to see how they will ever recover their origination volume, hence the 30% selloff today from already depressed share price.
Awesome! Another one bites the dust! I went to their website and checked their loan products. The world has lost its mind. hd74 will love this one:
• No Appraisal or Drive By Required
• Quicker Closings
• 600 Credit Score + LTV’s Up To 100%
The umbilicals are getting pulled left and right. There is no market for subprime paper at the moment. Are the under-takers going to eat the unpackaged but closed loans? IOW, what happens to the loans that were closed but not securitized and cannot be sent back to originator?
“”‘We made so much money you couldn’t believe it. And you didn’t have to do anything. You just had to show up.’””
What an honest statement from such a CROOKED motherf**er.
I just wanna know:
where are VA Investor, LV Landlord, Homeowner MA and the property king or whatever that clown called himself. Did someone round the bunch of them back up and herd them back into Dumbass Ranch?
LMFAO!!
where are VA Investor, LV Landlord, Homeowner MA and the property king or whatever that clown called himself. Did someone round the bunch of them back up and herd them back into Dumbass Ranch?
As well as that crew…….has anybody seen “Goldilocks”?
“..has anybody seen “Goldilocks””…
In reality, Goldilocks would have been eaten by the three bears.
“In reality, Goldilocks would have been eaten by the three bears.”
Currently, the bear is doing *something* to Goldilocks, but I don’t think food is involved…
Nah, Goldilocks is doing it to herself.
I think they were spotted at another kind of ranch…
“LV Landlord”
I miss LV Landlord. It gets a little boring without some true RE bulls. Even the SDCIA message board is leaning bullish.
At least I have the population at large (and especially around here on the Cali central coast) to remind me that we are at a bottom, and that RE will start to go up (soon…)
A blast from the past….Enjoy:
******************************************
Comment by scdave
2006-04-14 15:17:33
foreclosures in Clark County, NV increased by 36 percent
LV Landlord;….What-say-you….??
Reply to this comment
Comment by LVLandlord
2006-04-14 16:23:40
Really? You want me to comment? Okay here goes. Foreclosures numbers here were miniscule to begin with. It has been nearly impossible to find a foreclosed property for the past few years. If the number goes up 36%, it’s still a really small number.
Think about why houses get foreclosed. There are plenty of transients in Las Vegas. Lots of gamblers, low-lifes, divorces, and and all kinds of hard-luck stories. Lots of ways to lose a house. But usually it doesn’t get to the point of foreclosure, because some speculator will offer a deal and pay off the debts and walk away with the property. It only gets to foreclosure when the owner doesn’t make a deal. Usually, that means the owner is gone. Some people just walk away. Those people tend to be low-life losers.
The foreclosures I’ve looked at have been in really poor shape. Big chunks of floors and walls missing. Former crack houses, sold at auction, and in the end costing more than the comps in the neighborhood. That’s the irony of foreclosures. No matter how crappy they are, they get bid up by hopeful investors who don’t know the market and don’t really know what they’re doing.
What you are looking for is middle class citizens over-extended on I/O loans and unable to meet their obligations on well-loved and well-tended homes, that you can acquire without compition for under market price. I’m not seeing that happening. Not around here, anyway.
*************************************************
Comment by SB BubbleBeliever
2006-04-14 18:39:17
Crispy,
LV Landlord is just a SPIN DOCTOR. Usually SPin Doctors have an agenda, and I believe that LV is probably up to his eyeballs in over zealous “investments” that are now slowly beginning to look like liabilities.
Hey, but if he can spin… and get anyone to believe the BS he slings- it makes him feel better at night. “I think I can, I think I can, I think I can…” probably just one of his mantras he chants every morning when he has to get out of bed and face the day.
Hey LV, did I stir your mud yet???
(Comments wont nest below this level)
Comment by LVLandlord
2006-04-14 20:02:06
SBBubbleBeliever — You are not wrong, I have an agenda, but it’s not quite the way you described it. Las Vegas is the fastest growing city in the world. As long as it keeps growing, I keep making money. The more people come, the more demand for real estate. And since by now I am holding a substantial quantity, it is in my best interest to be a booster for the city.
A lot of what is said about Las Vegas in this blog and other places is simply untrue. So I try to tell the other side of it. It goes like this: The economy here is thriving. The tax situation is sweet. Many parts of the city are quite beautiful. And there is a marvelous energy here, a feeling of confidence and optimism that I haven’t found in other places I have lived.
The bubble here is not currently popping, although the market has changed. Low-end properties are still going up. High-end properties spend more days on the market, but eventually sell. There is very little affordable housing left.
There are still a lot of ways to make money in Las Vegas. It’s one of the greatest places in the world for that. Las Vegas is a relocation destination for approximately 8,000 people per month, and has been for years.
As for being a spin doctor - hey, I’m good at it. Somebody should pay me for doing this.
***************************************************
BayQT~
Market Scan
Mortgage Woes Seep Beyond Subprime Lenders
Joshua Lipton, 03.05.07, 2:21 PM ET
The meltdown in the subprime mortgage market could have some serious potential spillover into the rest of the mortgage industry.
So far, defaults among borrowers with low credit ratings have not had much of an impact on lenders who provide mortgages to more creditworthy homebuyers, but that could change.
“The rapid high-profile demise of the pure-play subprime lending industry has caused major, real dislocations in the market that should negatively impact the prime-oriented lenders earnings over the course of 2007 at the very least,” wrote Bruce Harting, an analyst at Lehman Brothers.
Harting noted that the subprime lenders had drastically relaxed standards in recent years, making loans of “questionable quality.” As some of those borrowers begin to default, more creditworthy mortgages made during the housing boom at the start of this decade are entering the “peak delinquency” period of three to five years after the home purchase.
The rise in delinquencies is likely to lead to increased foreclosures Harting said. Although he did not explicitly state it, when foreclosures rise, potential homebuyers are unlikely to feel pressure to pay top dollar for properties, if they can get loans, leading to reduced demand and putting renewed pressure on home prices.
http://www.forbes.com/markets/2007/03/05/hsbc-subprime-update-markets-equity-cx_jl_0305markets20.html
Nouriel Roubini’s comments may interest you:
See: http//www.rgemonitor.com/blog/roubini/180573
http//www.rgemonitor.com/blog/roubini/180573
Third try.
http://www.rgemonitor.com/blog/roubini/180573
Nouriel makes a point — subprime was probably a bigger share of the market than any official statistics currently indicate.
But there is a bigger looming question, IMO, which is by what percentage did subprime lending inflate the purchase bid. I don’t have any hard evidence on this, but my guess for markets like California where subprime was a huge share of originations last year is “quite a lot.” The answer is on the way within the foreseeable future, now that the subprime sector is going up in flames.
GS …IMO sub-prime lending kept the market going from 2002 onward . Without sub-prime lending the market would of leveled out in 2002 or maybe even corrected somewhat . So all that appreciation for at least 4 years were false gains not supported by real ability for the borrowers to pay long term . By the time 2005 and 2006 rolled around the crooks were out in massive numbers and the builders selling to investors became a big share of the market from late 2003 onward IMO. So I’m calling the gains from 2002 onward in bubble areas false ,unstable ,houses built on sand ,whatever you want to call it .
Wizard — Thanks for your voice of support. I tried to explain to my wife yesterday how far I believe prices will fall w/o subprime, and her response was “No way.” It is not really that she doubts me, so much as she has no intuition to inform her about how much of a premium subprime added to the bid.
I find the easiest approach is a simple illustration.
Pick a house, bring it up on Zillow, and select the 10-year price chart. Most will show steady but unremarkable appreciation up until somewhere between ‘02 & ‘04, then go ballistic. Simply point out the anomaly, then grab a ruler and extend out the pre-bubble appreciation to get (what should have been) a “normal” market value. For my rented condo, that’s 60% off current.
Reality will be much worse, IMO.
In addition, a lot of housing related lending institutions are going to increase their loss reserves leaving them less cash for loans. On the other end, packaged paper is going to become increasingly difficult to market. Add to these observations falling home prices (collateral) and some institutions may not want to OR be able to lend as much as before.
Yep, and the FBs and laid-off REIC workers will curtail their spending, thus causing layoffs in retail, etc., etc. So one would think that demand for money will decrease as well, since there will be no reason to invest in productive capacity (capital goods) which is already excessive. That’s why I think deflation is more likely than inflation. It will be interesting to see if Helicopter Ben (our esteemed Fed Chair) actually does shower currency on every man, woman, and child in the US in an attempt to stave off a rerun of the 1930’s. He said he would…
I took advantage of Citigroup’s internet bank style “esavings” rates the last several months. They have dropped them recently 0.25%. perhaps that will go back up if they need more reserves again.
of course, if they REALLY need more reserves, I may end up having to beg the FDIC for my money.
and speaking of the obnoxious departed: this is from the SDCIA board in a thread called, “Anyone Here Vaporized in the Stock Market Decline?”
Gekko
Senior Member
Registered: 6/27/06
Posts: 334 3/02/07 at 09:32 AM
——————————————————————————–
I lost $31,000 on paper on Tuesday.
My annual starting salary right out of college in August of 1991 was $22,500.
No sweat since I’ve been investing hard since 1995 and have seen a lot of ups and downs and am way ahead of my cost basis and have many years more to accumulate even more shares.
https://flagship.vanguard.com/VGApp/hnw/VanguardViewsArticlePublic?ArticleJSP=/freshness/News_and_Views/news_ALL_volatility_02272007_ALL.jsp
He is the biggest blowhard around. I loved the way he left.
Don’t let the door hit you in the a$$ Gekko!
LMAO! Now if we could just hear of a certain analyst’s hedge fund blowing up…
Here’s another one. Taco Bell Jeff wants more credit cards. Uh oh. This can’t lead to anything good:
http://www.websitetoolbox.com/tool/post/sdcia/vpost?id=1744550
Here is some sage advice from a SD real estate invester to Taco Bell Jeff: LIE TO B OF A ABOUT YOUR RESIDENCY TENURE.
—————————————————————————-
Lori B. hit it on the head - pull your tri merge cred report and you’ll probably see that your score is mostly being affected by the number of revolving accounts you have open, etc. Opening lines for the short term isn’t a good idea if you care about preserving a high FICO.
To answer your question though - I’ve always used my gross taxable income….after expenses.
If your credit dries up you can run down to B of A, tell them you are new in this country….deposit a few bucks into a checking account…and wait a few months for them to start offering you credit.
txchicK57 rocks — I have been thinking the same thing. Where have they all gone? Didn’t think to look over at dumbass ranch…oops.
I think we need wanted and missing posters, wanted for David L. missing Goldilocks.. heck an amber alert for Goldi… so much material. so few indictments.
The spinmaster group you speak of was making a mad dash to sell their real estate all the while that they were hyping that real estate was still a good investment . I never believed that they really believed their BS ,but they wanted the people to believe it .
In fact I find it hard to believe that any of the front line realtors and mortgage brokers didn’t know it was a speculation party that the idea was just to get the people to believe it while they made their one in a lifetime gravy train . The bubble bust just turned quicker than they thought and alot of them were caught holding the bag .
What is going on with the Hang-Seng? A minute CNN business was showing that it was down 4 percent but now it is up almost 2%.
Markets get stretched. It’s like a rubber band bouncing back the other way. How do you know what a short squeeze is? Just get real short and then wait.
Isn’t a prominent member of the PPT over there visiting this week?
Paulson: U.S. housing credit risks contained
http://www.canada.com/nationalpost/financialpost/story.html?id=4e167936-1c7b-4855-bba0-3b06659c4367&k=19539
“”The global economy is more than sound,” Paulson said. “It’s as strong in the last couple of years as I’ve seen in a lifetime.”"
Considering he wasn’t alive in 1929, I guess he’s got a point.
IMHO, Paulson might mess things up as badly as Greenspan. Isn’t he also in charge of the PPT or is that BB? Either way, his connection with GS (who, I believe, stand to lose a tidy sum if we see a systemic event) and mutterings about the “robust” economy make me nervous. Can’t stand the guy.
Freemont website - Before and After:
http://bakersfieldbubble.blogspot.com
How can they be broke if they have “11 Billion In Assets”
Simple. 11 billion and 1 dollar in debts!
They probably get to count the bullshit unpayable mortgages they have issued the past few years as “assets.”
Yes, they do. Loans in general make up the bulk of most banks’ assets. The reserve for loan losses (a contra-asset) is supposed to reflect the uncollectables.
‘Panic’ takes hold as subprime lenders slump
By Alistair Barr, MarketWatch
Last Update: 4:46 PM ET Mar 5, 2007
SAN FRANCISCO (MarketWatch) — Shares of subprime lenders including NovaStar Financial, Accredited Home Lenders and Fremont General dropped more than 25% on Monday as investors dumped holdings in an industry rocked by tighter regulation and bad debts.
NovaStar slumped 41% to $4.28, Fremont lost 32% to $5.89 and Accredited declined 26% to $16.06.
“There’s a lot of panic selling today,” Rich Eckert, senior research analyst at Roth Capital Partners, said. “People are deciding they don’t want to be exposed to this sector at all.”
Subprime mortgages are offered to homebuyers who don’t meet the strictest lending standards. Companies that specialize in these loans have suffered as housing prices stopped rising and interest rates climbed from record lows.
In the most acute example on Monday, shares of New Century lost more than two-thirds of their value to close at $4.56. The second-largest subprime lender in the U.S. said late Friday that it’s facing a federal criminal probe and has breached a covenant with some major lenders that provide important financial backing.
Fremont said that it’s getting out of the business after the Federal Deposit Insurance Corp., which helps regulate lenders, ordered it to stop selling some subprime mortgages.
As interest rates rose in 2005 and 2006, subprime lenders relaxed their underwriting standards to keep sales volumes up. Now more borrowers are beginning to fall behind on payments. More than 12% of subprime mortgage loans were delinquent during the third quarter of 2006, according to Morgan Stanley research. That’s up from less than 8% at the end of 2003.
“These stocks tend to trade as a group. When bad news is affecting one or two there seems to be collateral damage,” Eckert said.
Accredited Home Lenders has been among the most conservative subprime lenders and will likely survive the crisis, but investors are ignoring that right now, the analyst added.
“Accredited and others face some of the same issues that are negatively impacting New Century, but they’re not in jeopardy of having their warehouse lines pulled, that I know of,” Eckert said.
He said Accredited Home Lenders’s shares are worth $30, but are trading well below that and probably won’t recover for a long time.
“It might be better for investors to get out now and then get back in later, when the industry is exhibiting some signs of recovery,” Eckert concluded.
http://www.marketwatch.com/news/story/subprime-panic-takes-hold-investors/story.aspx?guid=%7B75E1EE31%2D0F63%2D422D%2D8715%2D2CB945DFF410%7D
Is the distruction of wealth deflationary? If it is , when these home prices come down along with everthing else in this country a lot of wealth will be destroyed along with family savings and an inability to repay debt . Future consumption will greatly be reduced to basic needs. OUCH …no more big plasma TV’s or STUFF…….
Dennis, not sure how spending would all balance out. If you think about it, if house prices came down (prices down means someone is actually buying them), then the new crop of buyers have more money to spend on stuff than they would have if prices stayed high. For each seller selling at a “loss”, then the new buyer makes out. I am on the sidelines now waiting for prices to come down. When they do, I plan to use some of my excess cash on stuff, i.e. big screen tv, home gym equipment, etc. My discretionary spending is all tied to home much I have to pay for my next home. So I am an example of someone in a reverse spending pattern than that you described above. Does that make sense?